Producers and marketers this week offered their conditionalsupport for a comprehensive settlement package that calls forNatural Gas Pipeline Company of America (NGPL) to implement a moretransparent auction process on its system. Several said theirsupport hinged on the outcome of five contested issues that havebeen reserved for FERC comment and resolution.

Moreover, the shippers made clear that their backing for theauction procedures proposed in the Natural settlement should notprevent them from being able to consider differentcapacity-allocation procedures that may arise later in theCommission’s notice of proposed rulemaking (NOPR) dealing withshort-term transportation services, which was issued in late July[RM98-10].

“Amoco reserves this right, and conditions its support forNatural’s proposal, …in recognition of the possibility that theCommission, as a result of the outcome of RM98-10, may determinethat a different capacity-allocation procedure is appropriate forNatural’s system,” Amoco Production and Amoco Energy Trading toldFERC Monday [RP97-431-005].

Indicated Shippers, which represents producers and marketers,said it disagreed that the proposed Natural auction proceduresshould be used to test the auction concept raised by FERC in itsrulemaking. The settlement was never envisioned as “somecookie-cutter formula” to be applied to all pipelines, the groupnoted.

In the NOPR, the Commission proposed that interstate pipelinessell their short-term capacity through auctions in return forremoving the price caps on the capacity. The FERC plan, however,provided no details on how to carry out the auctions. Some industryexperts have suggested that the Commission use Natural’s proposedauction procedures as a model.

Amoco said that while it conditionally backed the proposedauction procedures, it questioned whether they still would arm thepipeline with too much power to manipulate the process. TheCommission ordered Natural to make its auction procedures moretransparent after Amoco complained that the Midwest pipeline wasfavoring its marketing affiliate, MidCon Gas Services, overnon-affiliated shippers when awarding firm capacity on its system.FERC earlier this year fined Natural more than $8 million after itconfirmed Amoco’s allegations.

Specifically, Amoco said it objected to Natural’s decision torefuse to identify the winning bidder in an auction, except incases where the winning bidder is an affiliate or the bidderrequests that its identity be disclosed. Amoco and IndicatedShippers also urged FERC to reject Natural’s proposed reserve pricematrix under which the pipeline would set reserve prices (thediscount rate at which it is willing to award capacity) in up to 15different markets and 12 different time periods in each auction.

“This means that Natural’s reserve price matrix could consist,for example, of seven receipt markets and eight delivery markets(or vice versa) or ten receipt markets and five delivery markets.Since Natural is also proposing…12 specific time periods for eachauction, the number of variables to be evaluated by shippers inmaking their bids [would be] quite high,” Amoco noted. This wouldallow Natural to “manipulate the auction and exercise too muchdiscretion.”

The proposal would give the pipeline the opportunity to setdifferent reserve prices for adjacent receipt or delivery points,the producer said. “For example, a receipt point serving Amocomight have a reserve price of 36 cents, while a nearby receiptpoint serving a competitor might have a reserve price of only 34cents. This not only puts Amoco at an immediate competitivedisadvantage in obtaining capacity to transport its gas to market,but it potentially does not award the capacity to the party willingto pay the most for the capacity.” It urged FERC to keep Natural’sexisting 8X6 zone matrix because it would maintain one reserveprice throughout each zone and would limit the pipeline’sdiscretion in shaping an auction.

Dynegy Marketing and Trade said it supported the proposedauction procedures, noting that the “most important element” wasthe preservation of the ability to enter into prearranged deals.”The prearranged deal and the auction procedure…strikes acompromise between the way the market has indicated it wants topurchase capacity and the way the Commission appears to want themarket to purchase capacity,” it noted.

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