Subject: Memo from Shelley Corman: FERC Staff Conference Today
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Date: Tue, 19 Sep 2000 11:12:00 -0700 (PDT)

Today, FERC Staff held its conference to discuss what regulatory changes are 
necessary to promote further market liquidity.  The conference was fairly 
well attended by FERC staff, including Dan Larcamp and  Shelton Cannon.  

Some common themes:
Gas markets are generally well functioning and major changes are not 
necessary.
Commodity markets are very liquid.
FERC policies, GISB and Order 637 have helped to make capacity markets more 
liquid.
Shippers are unhappy with tighter tolerances and new balancing services in 
Order No. 637 compliance filings.
Standardization is necessary to promote liquidity (with pipelines making the 
distinction that standardization of transactional protocols is a good idea, 
standardization of product offerings is not).
There is very little consensus on further areas for change.  In nearly every 
case, a change advocated by one shipper group is opposed by another.  
In any event, most said that now is not the time for sweeping changes.

Areas without consensus:
Shipper-must-have-title rule.  LDCs argue it should be removed; while Process 
Gas and producers think that removal will undermine the capacity release 
market.
Production area rate design.  LDCs argued that they need the ability to buy 
service downstrream of a market pool.  Reliant and Koch also argued that 
pipelines should have to have separately stated production and market rates.  
The producers opposed any attempt to shift costs to the production area.
SFV.  East Coast LDCs, Michcon, and APGA argued for moving off of SFV.  The 
producers and industrials oppose.  Illinois Power/Dynegy also argued for 
moving off SFV.  

LDC Positions
The LDCs main themes were removing the shipper-must-have-title and enabling 
LDCs to hold space downstream of market centers.  However, they also argued 
that  pipelines should not be permitted to offer new services to the electric 
generation market that reduce the flexibilities LDCs have historically 
enjoyed since the system was built for LDCs .   This is the point that AGA 
raised in the blanket intervention to all Order 637 compliance filings.    
Carl Levander of Columbia did a nice job of refuting the notion that LDCs are 
entitled to unwritten flexibility that they have enjoyed in the past on a 
best efforts basis, perhaps in part due to the fact that the pipeline may not 
have been fully subscribed.  LDCs, generally stating that 637 compliance 
filings did a poor job of allowing capacity segmentation, continued to stress 
the need for segmentation, including "geographical segmentation of ROFR 
capacity."  

Some Specific Proposals
NGSA called for more targeted information to be included in Form 2 filings.  
A number of customer groups noted the need for more and better information, 
though specific needs were not well defined.
Several parties ask FERC to reconsider national standardized penalties 
(especially given expected high prices this winter and the possibility for 
arbitrage).
Alliance of Energy Suppliers (marketing arm of EEI) called for a dialogue 
between power generators and INGAA to develop a new firm tariff with hourly 
variability.  They also called for a change in GISB nomination deadlines to 
match the power grid (Dan Larcamp asked whether EEI is open to efforts to 
standardize scheduling times across the power grid as well).
The GISB End-User group (represented by Salt River Project)  complained about 
the need to standardize the confirmation process and called for gas 
transactions to be "tagged" like electric transactions.  

E-Commerce and Capacity Trading
Dave Neubaurer did a great job of driving home the themes that capacity 
trading can occur if FERC and industry are willing to allow more speedy 
transactions, remove posting periods and long contract execution periods.  He 
made an effective case that no major regulatory changes are necessary.  
Robert Levin of the NY Mercantile Exchange echoed this theme, admonishing the 
FERC not to micro-manage the types of trading platforms or to try to insist 
on a single platform.  He said that liquidity cannot be legislated.  From his 
perspective, natural gas markets are the best functioning commodity markets 
in the world.  FERC should worry about transferring the "good stuff" from 
natural gas to electric markets, not the reverse.