NGI The Weekly Gas Market Report / NGI All News Access

NGPL Auction 'Unreasonable,' But FERC Refuses to Cancel Results

NGPL Auction 'Unreasonable,' But FERC Refuses to Cancel Results

A recent capacity auction conducted by the Natural Gas Pipeline Co. of America (NGPL) was "unreasonable and unduly preferential," FERC said last week, but it refused to overturn the auction's results, as was requested by producers and marketers. It gave the pipeline the benefit of the doubt on this score, saying that NGPL had "followed an arguable interpretation of its tariff," which had been approved by the Commission.

Responding to a Section 5 complaint filed last month, FERC said that while it found "Natural's interpretation of its tariff [led] to unreasonable results" in the auction, which ended on Oct. 8, it would not "disrupt the awarded capacity at this juncture." The Commission, however, directed the Lombard, IL-based pipeline to make prospective changes to its tariff to prevent a similar outcome in future auctions.

Amoco Production Co., Amoco Energy Trading Corp. and Burlington Resources Oil & Gas (Indicated Shippers) had complained that during the auction Natural: 1) created an undue preference for negotiated-rate bids by prohibiting shippers from bidding a discounted rate in the recourse-rate form; 2) unduly discriminated against recourse-rate bidders by including GSR and Account No. 858 charges in the bids of negotiated-rate shippers; and 3) required shippers to bid on non-contiguous capacity as part of the same capacity auction.

The Commission found merit to the first charge, and appeared to be siding with Indicated Shippers on the second one, but said it needed more information. FERC noted Natural was within its tariff on the third issue, but suggested it should be "further discussed" during the annual review of the pipeline's auction procedures.

In an effort to discourage recourse-rate bids in the disputed auction, Natural required recourse-rate shippers to submit bids with a net present value (NPV) equal to $11.38 million, while the NPV for negotiated-rate bids was listed at zero. The winning negotiated-rate bidder, MidAmerica Energy Co., paid a little more than $2 million for the auctioned capacity.

"To require that those placing more value on the capacity than the prearranged bidder to exceed the prearranged shipper's [negotiated] bid by five-fold, as Natural required here, simply prevents those who would pay incrementally more than the prearranged shipper from participating in the auction on a meaningful basis," the FERC order said [RP00-18].

"This is not the type of economically rational result the Commission envisioned when it accepted Natural's tariff provisions. In the Commission's view, it is unjust and unreasonable to shut out all recourse-rate form bidders that would pay more than $2 million for the capacity, but are unwilling to pay the full recourse rate" of approximately $11 million, it noted. FERC further said Natural's action was "inappropriate" because it required a "large guaranteed revenue stream" from recourse-rate bidders, but not from negotiated-rate bidders. "Such a requirement discriminates against recourse-rate form bidders." It ordered Natural to change its tariff to allow for discounted recourse-rate bids in future auctions.

On the issue of surcharges, the order said that to allow surcharges to be included in negotiated-bids "defeats the Commission's purpose that the bids be transparent, and results in confusion over the method by which Natural compared the bids and whether it preferred certain bidders." However, it noted that it would need "further explanation and information" from the pipeline to determine whether it correctly calculated the winning bid.

"Accordingly, Natural is required to post on its EBB its analysis of the winning bid with surcharges clearly indicated and the manner in which the [NPV] was calculated clearly defined and submit the same to the Commission for review. In future postings, the Commission expects that Natural will include the base rate bid and a listing of the applicable surcharges stated separately in order to ensure that the bidding process maintains its transparency."

Indicated Shippers complained about being required to bid on non-contiguous capacity in Natural's South Texas, Mid-continental and Permian zones. This forced bidders to bid on capacity they didn't need to get the capacity they wanted, they said. But the FERC order said this was not inconsistent with Natural's tariff.

Susan Parker

©Copyright 1999 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

Copyright ©2018 Natural Gas Intelligence - All Rights Reserved.
ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus