Perspective

Fortnightly Magazine - January 15 1999
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Want auctions for gas capacity? Don't think pipeline. Think online.

In July 1998, the Federal Energy Regulatory Commission signaled its intent to try one more time to make greater use of electronic auctions in the pricing and allocation of regulated gas pipeline transmission capacity. The proposed rule, issued in Docket No. RM98-10, marks the third major effort by the commission in this area. Several workshops have already been held. Formal comments are due Jan. 22.

Since the commission began in 1992 to encourage electronic markets for pipeline capacity, several private ventures have sought to create trading products. None has succeeded, however. The publicly reported losses of those who tried are measured in the tens of millions of dollars.

Nevertheless, while private auctions for regulated transmission capacity have failed, auctions in closely related, but freely tradable unregulated commodities have succeeded quite nicely. Today, AltraTM Streamline and QuickTrade's Power Trading System, which provide electronic auctions for natural gas at a variety of delivery points, are known and accepted industry institutions.

Moreover, since the commission last examined the use of auctions, electronic merchants and auctioneers on the World Wide Web have begun to redefine the roles of buyers and sellers. They are radically changing conceptions of how business is conducted, including such fundamental questions as what "inventory" is and who provides it. The question of "where" a business even exists becomes problematic. Over time, these new virtual merchants will change the very physical landscape in which we live and work.

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