Caught in the midst of heated criticism of FERC’s proposedauction mechanism, Mississippi River Transmission (MRT) isdefending its proposed new auction procedures from attack bymarketers and producers.

Although the St. Louis, MO-based pipeline subsidiary of ReliantEnergy has made “numerous concessions” in its proposed tariffrevisions that would result in a “more functional auction”mechanism, Dynegy Marketing and Trade said it still had a number ofconcerns with MRT’s initiative.

It called on the Commission to require MRT to 1) adopt an open,interactive auction process, or, at a minimum, to adopt a singleauction process; 2) designate in its tariff what “other factors”MRT would consider in awarding available firm capacity; 3) removethe provision allowing MRT to aggregate bids when awardingcapacity; 4) exclude prearranged deals from auctions if they arefor a term of one year or less; 5) post any applicable reserveprice; and 6) clarify that bids can be withdrawn prior to the endof an open season [RP98-404-003].

Additionally, Dynegy asked FERC to state unequivocally thatMRT’s auction process would not serve as a “precedent” forresolving the issues that have been raised in the mega-notice ofproposed rulemaking (NOPR) on short-term transportation services[RM98-10]. The pipeline’s auction proposal would permit it to awardcapacity based on the net present value (NPV) of a bid rather thanbased on its current first-come, first-served approach. FERCalready has accepted and suspended the filing to be effective March17, but Dynegy and others have taken issue with certain tariffrevisions sought by MRT.

Dynegy contends that an open, interactive auction process onMRT’s system – as opposed to a sealed bidding system – would helpto provide the transparency needed in the marketplace. Also, itwould ensure that MRT’s bidding procedures “are above-board, andthat the capacity actually is going to the bidder that values itthe most.” In the alternative, Dynegy asked that MRT be limited toone type of auction procedure for all auctions. The pipeline, onthe other hand, wants the discretion to use either open or closedbidding.

“…[I]f every pipeline across the country decides to join MRTin implementing two very different auction procedures, it will bedifficult, it not impossible, for nationwide marketers like Dynegyto learn all of the procedures to be able to compete effectively inthe auction process,” the Houston-based marketer said.

MRT’s claim that it would consider “other objective andnon-discriminatory factors” when awarding available firm capacityalso sent up a red flag with Dynegy. “Dynegy is concerned thatMRT’s ‘other factors’ are not defined in the tariff, and they wouldgive MRT discretion to favor certain shippers.” This would becontrary to the mega-NOPR, the marketer said, in which FERC favoredprior disclosure of auction procedures in pipeline tariffs.

Furthermore, it urged the Commission to reject a proposal thatwould permit MRT to aggregate two or more bids and award theavailable capacity to the combination of requests that results inthe highest incremental revenues to the pipeline. “This provisioneither will result in aggregated shippers who may not place thehighest value on the capacity nevertheless receiving the capacity,or a single shipper having to pay extra to take more capacity, orto take capacity for a longer term in order to receive thecapacity,” Dynegy said.

Amoco Production and Amoco Energy Trading criticized MRT’sproposed tariff changes in its auction procedures as being “overlybroad and vague,” saying they would give the pipeline “too muchdiscretion in the way that auctions are conducted.”

The Missouri Public Service Commission focused its protest onthe tariff provisions for pre-arranged deals. These would requirethe pipeline to post the terms of all pre-arranged deals so thatother shippers could bid, but would give the pre-arranged customerthe chance to match any higher bids that are received.

“This arrangement all but guarantees the pre-arranged customerwill obtain the capacity,” the state commission said. “Rather thanfostering real competition, this provision is…likely to have adampening effect on the number of parties willing to bid for theavailable capacity against the pre-arranged customer.” Moreover, itopens up an opportunity for abuse by the pipeline, the Missouri PSC said. “For example, if MRT were to negotiate with an affiliatecompany for capacity, the affiliate, in having the right to match ahigh bid, would be virtually assured of winning the capacity.”

Susan Parker

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