There is zero probability the Federal Energy RegulatoryCommission can design a pipeline capacity auction that wouldefficiently operate in the marketplace, according to an eminenteconomist who suggested the best strategy would be to get rid ofFERC.

Citing the example of the Civil Aeronautics Board that wasdisbanded at the start of airline deregulation, Paul W. MacAvoy,formerly dean of Yale University School of Management, toldWashington energy attorneys regulatory agencies should be “closeddown before the market becomes competitive, not after….You haveto cut them off now or they will never go away.”

MacAvoy advised members of the Federal Energy Bar Assoc.yesterday that what he called the “Moler phenomenon” of “managedcompetition,” named after the former FERC chairperson who was amongthe speakers on the platform beside him, would not work. Thatdoctrine promotes “managing competition until there is enough,” andprompts the prayer “oh Lord, oh Lord, will there ever be enough?” Natural gas prices would be fifty cents lower if FERC were notstill “managing the competition,” MacAvoy said,

As for auctions, there are thousands of possible variations inthe way they can be structured and there is virtually no way FERCcould choose the “right auction” that would work and function toefficiently allocate resources.

Commissioner Curt Hebert responded in a luncheon address, sayingthat although industry has been sniping at FERC’s proposal of anauction, “they have offered no alternatives….and the issue ofmarket power must be addressed.” For emphasis, Hebert repeated”market power must be addressed.”

Meanwhile, the industry was seeking a consensus at a Denvermeeting of the Natural Gas Council Friday on requesting anotherextension beyond the current Jan. 22 deadline for comments on theCommission’s NOI and NOPR regarding proposed auctions and otherindustry changes. While some industry segments were suggesting asix-month extension, others were in favor of a shorter period. (Areport on their decision was not available at press time Friday.)Sources said, however, that while an extension granted earlier hadbeen requested in order to give industry time to figure out how tomake an auction work, this one may be devoted to coming up withother alternatives.

MacAvoy’s arguments against regulation also were rebutted inpart by Richard Meyer, senior regulatory counsel for the NationalRural Electric Cooperative Assoc., who questioned whether we can”trust the marketplace to do the right thing” without someregulatory oversight. He pointed to the consolidation amongindustry players that tends to short-circuit competition. Also, hesaid, most major marketers are staying out of the retail marketbecause it is a low-margin business, which means residentialcustomers will not reap the benefits of competition unlessmarketers are forced to serve them. And he noted theunpredictability of markets without caps as evidenced by lastsummer’s Midwest price spike.

Ellen Beswick

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