Make gas pipeline rights more fungible, but draw the line at contingent bidding.
Last July the Federal Energy Regulatory Commission proposed mandatory auctions to allocate all capacity rights shorter than one year's duration on interstate natural gas pipelines. (See RM98-10-000, Regulation of Short-term Natural Gas Transportation Services, FERC, July 29, 1998.) At a technical conference held Oct. 20, staff members of the commission's Office of Pipeline Regulation and its Office of Economic Policy suggested at least two auctions-a daily auction to clear one-day rights and a second process for rights longer than one day but shorter than 12 months.
In theory, a capacity auction process can create a fully functioning market in pipeline capacity. Other processes may work as well.
In any case, before auctions can make capacity trading more efficient, at least a handful of problems stand in the way:
1. Should there be pre-arranged deals, and if so, what's
the cutoff?
2. Should shippers bid separately on point and
segment rights?
3. How do shippers compare firm transportation prices when products are so different, and some rights might be contingent?
4. For daily rights, how much flexibility do pipelines and shippers enjoy to change offers and bids on auction day or the day before?
5. Must traders learn different rules for each auction?
Problem 1: Should there be Prearranged Deals?
Answer: Pre-arranged deals should remain available, even with auctions of firm transportation rights.