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Natural’s Auction Fixes Under Attack
Producers and marketers have asked FERC to send Natural GasPipeline Co. of America (NGPL) back to the drawing board to makethe changes to its auction tariff procedures that were ordered bythe Commission.
The tariff changes FERC directed Natural to make in a Nov. 4decision and the revisions submitted by the pipeline on Nov. 12 aretwo completely different things, contend Amoco Production, AmocoEnergy Trading, Burlington Resources Oil & Gas and TexacoNatural Gas [RP00-18].
For starters, Indicated Shippers said they objected to Natural’sproposal of two separate and distinct reserve prices fornegotiated-rate bids and recourse-rate bids. Natural seeks to”undercut the very concept of using an objective auction procedureby proposing to apply different criteria to different rate forms,”they noted.
Secondly, Natural’s tariff change promotes discriminationbetween negotiated-rate and recourse-rate bids because it allowsreserve prices to vary for bids for the same capacity, IndicatedShippers told FERC. They also contend the pipeline’s proposed fixesrun counter to the Commission’s policy calling for auctionprocedures and standards to be objective.
“In lieu of a straight forward application of [net presentvalue] to all auction bids, NGPL proposes to adjust the reserveprices for recourse-rate bids to account for ‘market conditions andthe risk sharing inherent in the negotiated-rate bid form,”Indicated Shippers said.
“NGPL, in effect, deems itself the Chief Judge and Arbitrator asto the value of negotiated-rate bids. Thus, instead of objectivelydetermining the NPV of a prearranged negotiated-rate bid andposting this as the reserve price for all bids, NGPL proposes tosubjectively determine and evaluate market conditions orrisk-sharing factors in an attempt to increase the reserve pricesfor any recourse-rate bidders. This approach would allow NGPL toslant the outcome of all auctions and eliminate the use of recourserates.”
For these reasons, Indicated Shippers called on FERC to rejectNatural’s Nov. 12 tariff filing, and to order the pipeline tosubmitt revisions to its auction procedures that would comply withthe Nov. 4 decision.
In a related case, Indicated Shippers asked the Commission toreject Natural’s explanation for a contract provision that wouldallow it to impose a surcharge on Aquila Energy Marketing Corp. forsegmenting and releasing capacity. In late October, FERC approvedAquila Energy’s mega-agreement for 485 MMcf/d of firm capacity onNatural on the condition that the pipeline could adequately explainthis restriction on capacity releasing [RP99-176-010].
“Although NGPL’s incremental [surcharge] to Aquila is 1 cent/Dthunder the present contract, it could just as easily have been 10cents or 50 cents. Prohibition of this discriminatorypractice…should be enforced as a matter of policy, not simplybecause the incremental rate is high or low,” the producers andmarketers said. “It is not the level of the rate which is the mostobjectionable aspect, it is the fact that there is an additionalcharge for exercising capacity-release rights.”
Indicated Shippers agreed with Commissioner William Massey’sconcurring opinion in which he said he was concerned thecapacity-release restriction amounted to a negotiated term andcondition of service, which is barred by current FERC policy.
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