FERC’s proposed auction procedures for short-term capacity havebeen a virtual non-issue at the two bi-weekly sessions the gasindustry 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 representativewho attended one of the sessions. “It’s like the room goessilent…everybody looks at their shoes for about ten minutes, andthen somebody gets the ball rolling in another direction.” The gasindustry is meeting every other week in an attempt to reach aconsensus on key initiatives in the mega-notice of proposedrulemaking (NOPR) and notice of inquiry (NOI) by April 22nd, whencomments are due at the Commission. The next session is Wednesdayin Houston.

The focus of the sessions so far, he noted, has been on thepipelines’ seasonal ratemaking proposal, which would enable pipesto maintain their annual revenues by recovering more fixed costsduring peak winter periods than in off-peak periods. The proposalis intended to address a major concern of pipelines: that theNOPR’s bias in favor of the short-term market over the long-termmarket would result in the underrecovery of costs for them. The gasrepresentative believes the industry ultimately may end upendorsing some form of seasonal ratemaking as an alternative to theCommission’s controversial auction initiative.

“I don’t think anything’s going to come out of it with respectto auctions. In fact, I don’t think we’re going to spend a lot oftime there [on auctions] because that isn’t what the pipelines” orLDCs want, he said. “The question is what will come out of it withrespect to seasonal rates…,” the gas insider, who requestedanonymity, told NGI.

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

At the Jan. 20th session, the pipelines indicated “they would beamenable under a seasonal rate program to have annual true-ups sothat they don’t recover over their annualized cost-of-revenuerequirements.” The pipes offered the true-up proposal as an “olivebranch” to the rest of the industy. but the gas representative hadquestions about whether the true-up would encompass pipelinediscounts. “If true-up to them means that the short-term customerspay more because they [the pipelines] are underrecovering on[discounts to] long-term customers, I can tell you there’s going tobe a lot of howls…”

Another major issue at the industry-sponsored sessions has beennegotiated terms and conditions. “I’m not sure we’re going to havethe time to necessarily get into all the details. If anything doescome out, it’s more likely to be a generic agreement” on thenegotiated issue, similar to the one proposed by the American GasAssociation (AGA) and Interstate Natural Gas Association of America(INGAA), he noted. The AGA-INGAA proposal “said a lot of thingslike ‘no degradation of recourse service’ without really specifyingwhat the Commission should do, if anything, to ensure that therecourse service isn’t degraded.”

At this point in the meetings, “we’re still flying at the30,000-foot level” on both negotiated terms and conditions andseasonal ratemaking, meaning that the gas industry is focused on”general principles rather than trying to work out an agreement onspecific details,” he noted. He expects the latter to take shapewithin the next few meetings.

Susan Parker

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