Chairman James Hoecker said this week FERC plans to hold onestaff workshop (possibly more) with the gas industry in mid-Octoberto flesh out the details involved in the auctioning of short-termcapacity. The workshop will occur prior to the deadline forindustry comments on the notice of proposed rulemaking (NOPR) thataddresses regulation of short-term capacity, specifically theauctioning of that capacity. The comments are due in earlyNovember.

The Commission in its July NOPR proposed the concept of capacityauctioning in return for lifting the price caps on short-termcapacity, but the proposal was bereft of any specifics about howthe auctioning process would be carried out. This lack of detailshas drawn criticism from nearly all quarters of the gas industry.

“The question that’s relevant in the current discussions outsidethe agency is how’s it going to work precisely, and rather thanawait comments that simply tell us that we haven’t said enough, wethink we need to have a discussion on that issue,” Hoecker said atthe FERC open meeting last Wednesday. “So the Commission staff willprovide some background information, and this process hopefullywill facilitate comments on the gas NOPR,” with a special focus on auctioning.

A workshop is “very important to improving our understanding andthe understanding of industry as to how this might work,” he noted.”It’s a very new issue. And it’s broader than simply the biddingand allocation processes for capacity that exist now.”

In Dynegy Corp.’s view, the proposed daily auctioning ofshort-term capacity could lead to a logistical nightmare formarketers and other buyers of pipeline capacity. “Just thelogistics of a day-ahead market will be incredibly (andunnecessarily) complicated. We’ll have a day-ahead capacity bid,two prior-to-gas-day nominations and four bumping opportunities,”it noted in comments that still are in the drafting stage.

Auctioning will unnecessarily demand shorter lead times forpurchasing transportation and supply, ultimately playing havoc withthe market, Dynegy believes. “We’re talking about introducing intothe gas market one of the primary reasons [why] the electric markethas become so volatile. In the electric market, short lead times(and concomitant price volatility) are inevitable because of thelack of storage. [But] gas has storage and line pack so daily andhourly trading is much less of a necessity,” the company draftsaid.

Also, since daily auctioning will force gas suppliers to line upsupply, transportation and markets simultaneously, they will alwayseither be long or short, Dynegy noted. “Suppliers need to be ableto match the supply deal with capacity deal. This can beaccomplished today via pre-arranged deals. But, if under the FERC’sproposal, one has to bid for transportation before supply iswrapped up or has to buy gas before transportation, then we’vecreated a situation where suppliers are perpetually long or short.This is a huge market dislocation. There will be fewer and fewerwilling to play in this distorted market.”

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