A revised auction process for firm capacity, described as moremarket responsive, on Kinder Morgan’s Natural Gas Pipeline Companyof America won approval from the Federal Energy RegulatoryCommission last week (RP97-431-009).
FERC rejected most of the requests for revisions in thecontested settlement plan, which replaces an auction processinstalled in 1998.
Under the terms of the settlement, newly available firm capacitywill be posted 15 months before the date it is scheduled to becomeavailable. Postings will be updated daily. An Initial Open Season(IOS) will be held each month for capacity posted during theprevious month. In this initial auction, all bids must be inNatural’s current SFV format. NGPL also must establish a reserveprice or reserve price matrix for each IOS, defining minimumacceptable bids which must be equal to or less than maximum rates.
If capacity is not awarded in the IOS, Natural may sell thecapacity in prearranged transactions under request procedures orconduct an Alternate Open Season (AOS). In the AOS, negotiated ratebids will be evaluated based on net present value. Customers alsomay initiate a shipper-initiated open season (SOS) for capacitystill available, using SFV-based rates.
Regarding objections from some customers to negotiated ratedeals, FERC agreed with NGPL that since it has disposed of itsmarketing affiliate its incentive is to maximize revenue byaccepting the best deal, whether it is in the form of a maximumrecourse rate or a negotiated rate. Since the first auction — theIOS — provides for SFV rate bidders only, “the proposedproceedures provide a reasonable opportunity for recourse ratebidders to obtain capacity without competition from negotiated ratebids.” The Commission noted that separating the bid methods intoseparate auctions eliminates the “inherent difficulty of directlycomparing negotiated rate bids and SFV recourse rate bids.”
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