Shippers are reacting cautiously to the pipelines’auction-related proposals that would cap the reserve price – theminimum bid that pipes would accept – at the maximum lawful ratefor short-term capacity, and initiate seasonal ratemaking.
“I saw no attempt by the pipelines other than to push all of therisk on to the shippers,” said Jeffrey A. Holligan of AmocoProduction, referring to the proposals, which were unveiled at thesecond FERC staff conference on auctions on Tuesday.
Capping the reserve price at the cost-of-service rate isintended “to protect the buyer and the market from extraordinaryand damaging price swings,” particularly during peak periods, saidLorraine Cross, senior vice president of regulatory affairs for theInterstate Natural Gas Association of America (INGAA). The grouphopes this will calm concerns that FERC might have about lettingpipelines and other sellers of short-term capacity set reserveprices in auctions.
Kathy Edwards, a Washington attorney who represents Amoco andother major producers, questioned what would happen to anyadditional revenues that would accrue if shippers are allowed, asthe pipeline proposal seems to suggest, to bid above a pipeline’sjust and reasonable rates for short-term capacity. Would pipelineskeep the excess revenues as profit or flow them back to shippers?she asked.
“I don’t know,” responded Cross. “Why don’t we talk about thatover the next three months.” Cross was referring to a request nowpending before the Commission for a three-month extension of thedeadline on industry comments on the notice of proposed rulemaking(NOPR) and notice of inquiry (NOI) that were issued in July. Thetime would be used by the gas industry to “truly engage” in adiscussion of the issues, and to possibly propose an alternative toFERC’s auction initiative.
From the pipelines’ viewpoint, the Commission’s attempt to denythem their right to sell capacity at maximum tariff rates isnothing short of “illegal,” says Richard Baish, president of ElPaso Energy. The NOPR “presupposes that the Commission has thepower under the [Natural] Gas Act to order a pipeline to chargesomething less than the rate that is on file [in] its tariff.Absent a finding under Section 5 that the rate is no longer [justand reasonable], I don’t believe the Commission has that power.”
Tom Brill of Sempra Energy, as well as Edwards, cited concernsabout permitting pipelines to switch voluntarily to seasonal rates.Under this rate design, tariff rates would be set so that pipelineswould recover more fixed costs in the per-unit charge during peakperiods than in the per-unit charge in off-peak periods. Sinceseasonal rates wouldn’t be mandatory, “one of the things that I’dwant to look to is whether the price signals of the generationmarket and other aspects of the energy market would be distorted asa result of having seasonality in one pipeline,” but not inanother, said Brill. For Edwards, “the devil’s in the details” ofany seasonal-rate proposal.
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