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Auctions Are a Non-Issue at Gas Industry Powwows

February 1, 1999
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Auctions Are a Non-Issue at Gas Industry Powwows

FERC's proposed auction procedures for short-term capacity have been a virtual non-issue at the two bi-weekly sessions the gas industry has held so far to discuss major FERC initiatives, industry sources say.

Trying to raise the auction issue for discussion is like "throwing a stone off a cliff," said a gas industry representative who attended one of the sessions. "It's like the room goes silent...everybody looks at their shoes for about ten minutes, and then somebody gets the ball rolling in another direction." The gas industry is meeting every other week in an attempt to reach a consensus on key initiatives in the mega-notice of proposed rulemaking (NOPR) and notice of inquiry (NOI) by April 22nd, when comments are due at the Commission. The next session is Wednesday in Houston.

The focus of the sessions so far, he noted, has been on the pipelines' seasonal ratemaking proposal, which would enable pipes to maintain their annual revenues by recovering more fixed costs during peak winter periods than in off-peak periods. The proposal is intended to address a major concern of pipelines: that the NOPR's bias in favor of the short-term market over the long-term market would result in the underrecovery of costs for them. The gas representative believes the industry ultimately may end up endorsing some form of seasonal ratemaking as an alternative to the Commission's controversial auction initiative.

"I don't think anything's going to come out of it with respect to auctions. In fact, I don't think we're going to spend a lot of time there [on auctions] because that isn't what the pipelines" or LDCs want, he said. "The question is what will come out of it with respect to seasonal rates...," the gas insider, who requested anonymity, told NGI.

He said the industry segment he represents might even endorse seasonal ratemaking, that is if it can extract concessions from pipelines on other issues in return - such as an agreement to build interconnects on demand for non-LDC shippers. The Natural Gas Act requires pipes to build interconnects for LDCs only, he noted.

At the Jan. 20th session, the pipelines indicated "they would be amenable under a seasonal rate program to have annual true-ups so that they don't recover over their annualized cost-of-revenue requirements." The pipes offered the true-up proposal as an "olive branch" to the rest of the industy. but the gas representative had questions about whether the true-up would encompass pipeline discounts. "If true-up to them means that the short-term customers pay more because they [the pipelines] are underrecovering on [discounts to] long-term customers, I can tell you there's going to be a lot of howls..."

Another major issue at the industry-sponsored sessions has been negotiated terms and conditions. "I'm not sure we're going to have the time to necessarily get into all the details. If anything does come out, it's more likely to be a generic agreement" on the negotiated issue, similar to the one proposed by the American Gas Association (AGA) and Interstate Natural Gas Association of America (INGAA), he noted. The AGA-INGAA proposal "said a lot of things like 'no degradation of recourse service' without really specifying what the Commission should do, if anything, to ensure that the recourse service isn't degraded."

At this point in the meetings, "we're still flying at the 30,000-foot level" on both negotiated terms and conditions and seasonal ratemaking, meaning that the gas industry is focused on "general principles rather than trying to work out an agreement on specific details," he noted. He expects the latter to take shape within the next few meetings.

Susan Parker

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