FERC ventured into unknown territory last week to help Georgia’slargest gas utility implement retail unbundling behind its citygateand avoid costs stranded by retail competition. In a four-to-onevote, the Commission granted Atlanta Gas Light (AGL) a limitedone-year waiver of certain federal regulations governing capacityrelease and ownership of interstate storage capacity and relatedtransportation.

AGL’s Ed Overcast, vice president for strategic planning andrates, said the Commission’s decision comes just in time. Georgiaretail competition is scheduled to begin Nov. 1 with 26 marketersalready waiting at the door to participate. “Obviously we’reexcited about it and glad the Commission is working to cooperatewith the states to make unbundling work,” he said.

The draft order allows AGL to make short-term allocations ofcapacity to retail marketers at less than the maximum pipeline ratewithout following the notification and bidding requirements in theCommission’s capacity release regulations. In addition, the draftorder grants a one-year waiver of the Commission’s”shipper-must-have-title” policy for certain storage andstorage-related transportation held by AGL so the utility cancombine these services for its shippers under a proposedIncremental Bundled Storage Service (IBSS). AGL must file with FERCwithin 30 days tariff sheets setting the IBSS rates, which theutility said will replicate the existing reservation, withdrawal,injection and transportation charges it pays pipelines. It alsoplans to set penalty charges.

In the draft order, the Commission said it “intends to encouragean environment which will allow state commissions and localdistribution companies to implement retail unbundling.” And to dothat, Commissioner Vicky Bailey said the Commission is “willing toconsider departures from existing practices.”

However, Commissioner William Massey, who dissented, siding witha number of protesters who wanted FERC to schedule a technicalconference on the case, said the decision was “directly contrary tothe precepts” of FERC Order 636. “There, the commission terminatedcapacity brokerage certificates as inconsistent with itsprocompetitive objectives. Today’s order permits Atlanta to carveout portions of interstate capacity and allocate it to individualmarketers. The fact that the interstate capacity is targeted tothese particular marketers and not made available generically toany shipper on the interstate grid is discriminatory,” he said.”Concerns about this type of discrimination prompted the Commissionto terminate capacity brokering at the time of Order 636.

“In our efforts to accommodate state efforts to move forwardwith retail unbundling, we must not move backward and balkanize theinterstate grid,” Massey said. “As state policy becomes moreprocompetitive, FERC policy must not become more anticompetitive.”

Massey advised the Commission to begin a generic proceeding todiscuss the issue of capacity allocation, as opposed to release,and its impact on the secondary market and state unbundling.

FERC Chairman James Hoecker agreed the waiver is risky, but saidFERC is undertaking this departure from existing regulation only asa “learning experience.”

“I think anything that compromises 636 is unacceptable in thelong run, and I share the apprehensions of Commissioner Masseyabout the potential balkanization of the interstate grid whencapacity or services are dedicated to specific states or specificcustomer groups even if it’s by state statute. Here we don’t knowwhat the impact of our waivers are going to be [or the impact ofthe] Georgia program. So I will support the limited-term waivers asa learning experience and emphasize that we do it in the spirit ofwanting more competition, wanting an integrated marketplace,wanting liquid markets to make LDCs less fearful about being ableto assume the role of supplier of last resort without having torely on long-term upstream capacity commitments.”

“Frankly I don’t see any reasons [for Commissioner Massey’sconcerns],” said AGL’s Ed Overcast. “These services are things thatyou couldn’t [do] with normal pipeline capacity release. Marketersneed [bundled service]. I think, to the contrary, competition isgoing to be enhanced by this because you are going to getinterstate capacity rights in the hands of more people not less.”

Overcast said all the rates to be charged for the new serviceswill be rates set by FERC and passed through. “There will be aprorated share of discounts going to everybody. So if you have 5%of the market in an area where those discounted services areavailable, you get 5% of the discounted capacity.”

AGL can request an extension of the waiver no later than July31, 1999. At that time, it must explain the effects of the programon the interstate pipeline grid with data, including the volumesand prices its affiliates received under the program.

Rocco Canonica

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