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Wisconsin LDCs See Mandatory Auction as Last Resort

Wisconsin LDCs See Mandatory Auction as Last Resort

A group of Wisconsin distributors say FERC should resort to a mandatory auction of short-term capacity only as a last measure - after it has implemented and weighed the effects of its other proposed initiatives, such as increased pipeline reporting requirements, and finds they failed to achieve a similar competitive end.

"...[B]efore imposing any auction requirement, the Commission [first] should try to meet its competitive objectives through its proposals for mandatory disclosure of capacity and transaction-related information. Full information disclosure will help create the transparency required for the market to work more efficiently without mandating the manner in which capacity is sold," the Wisconsin Distributor Group (WDG) said last week in its initial comments on the mega-notice of proposed rulemaking (NOPR) and notice of inquiry [RM98-12, RM98-10].

Like most gas distributors, the Wisconsin group believes FERC's proposal to increase pipeline reporting and posting requirements for sales of short-term capacity would be the best defense against pipeline market power, and in the process would cancel out the need for the controversial auction. At the very least, it said the Commission should give the market a chance to function on an experimental basis in a "new, more transparent environment with full and equal access to information" before imposing an auction that could prove "unnecessary, complex and cumbersome to implement properly or promptly."

WDG and other LDCs are big fans of the NOPR initiative requiring pipelines to report a wider range of information on available capacity, including total design capacity of each point or segment; the amount scheduled at each point on each segment on a daily basis; and planned and actual maintenance or system outages that would reduce the amount of capacity available. Also, pipes would have to include in their Index of Customers the receipt and delivery points held under contracts; the zones or segments in which capacity is held; a shipper's contract number; the affiliate relationship between pipeline and shipper/shippers; and identify asset holders that control 20% or more of capacity in a rate zone. Additionally, pipelines would be required to report more contract-related information. Distributors believe the availability of this type of information would go a long way towards increasing the transparency of the gas market, and in turn would minimize the need for a mandatory auction.

The auction, as spelled out by FERC, has too many "practical obstacles," the Wisconsin LDCs said. For one, the Commission has yet to address how bids and capacity awards would be coordinated in situations involving multi-pipeline transactions, they noted.

On a related proposal, the Wisconsin distributors recommended that the Commission remove the price cap on all short-term capacity at some "predetermined date certain" after the market has had time to "become accustomed to the newly available information and other changes." It proposed that FERC remove the price cap on an "experimental one-year basis," with a review of its policy at some later point.

With respect to negotiated terms and conditions, the Wisconsin distributors proposed an interesting approach. They suggested that, in addition to the "guiding principles" for negotiated rates and services already proposed, the Commission condition a pipeline's authority to negotiate rates and services on it agreeing not to block competitors from entering its markets and on it providing rate options to recourse shippers.

Moreover, the distributor group agreed the tying of negotiated transportation services to "unwanted" sales services or other services shouldn't be permitted by pipelines or their affiliates.

Additionally, the Wisconsin LDCs said they supported FERC's proposal to make certain terms non-negotiable. For instance, a pipeline shouldn't be permitted to negotiate scheduling, curtailment priority, or capacity release and flexible receipt and delivery point rights.

To eliminate the bias against long-term contracts, the distributors proposed term-differentiated rate options for recourse customers.

Surprisingly, the distributors asked FERC to postpone an industry-wide review of the straight-fixed variable (SFV) rate design until other long-term ratemaking issues are resolved.

Susan Parker

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ISSN © 2577-9877 | ISSN © 1532-1266
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