CPUC's Bilas: Capacity 'Hoarding' Takes Toll on Retail Competition
Retail gas unbundling in California is "currently being
undermined" by Dynegy Marketing and Trade's withholding of a
significant portion of firm transportation capacity on El Paso
Natural Gas from the market, the head of the California Public
Utilities Commission (CPUC) said last week. As a remedy, CPUC
President Richard A. Bilas called on FERC to implement regulations
prohibiting the "hoarding" of pipeline capacity and to investigate
allegations of anticompetitive conduct, which he contends was
evident in the Dynegy-El Paso arrangement.
He flatly accused Dynegy of "hoarding" the 1.3 Bcf/d of
turned-back capacity that it acquired from El Paso more than a year
ago, saying that the Houston-based marketer's action was directly
responsible for the 17-cent increase in the basis differential
between San Juan Basin prices and California border prices during
"I don't use the word 'hoarding' lightly. [But] Dynegy has
controlled this 1.3 Bcf/d for more than 13 months, and even though
there have been significant periods of time when Dynegy did not use
a substantial amount of this capacity, [it] has never yet released
any portion of its capacity to another marketer or shipper," he
told a Federal Energy Regulatory Commission conference last
Thursday set up to explore the relationship between federal and
state regulation of the gas industry.
(At one point Dynegy [NGC Corp.] did offer to release various
amounts of the capacity over different time periods, but received
no bids on it. Some marketers said the prices set were too high.
[See NGI, April 13, 1998])
The Dynegy-El Paso contract, Bilas said, has taken its toll on
retail competition in the state because it has put transportation
capacity that was formerly held by LDCs into the hands of a single
marketer. "How in the world is competition enhanced if the LDCs'
role in the procurement of natural gas...is being replaced in large
part by one marketer?" he asked. "There's no benefit to ratepayers
in switching from regulated monopolies (LDCs) to unregulated
monopolies (marketers) as the suppliers of natural gas."
Bilas believes that the Dynegy-El Paso contract is a good
argument against the removal of the price cap on released capacity,
which FERC has proposed in its mega-notice of proposed rulemaking
(NOPR). "Unless and until the FERC can effectively prevent the
withholding of capacity like Dynegy has done, [it] should not
consider removal of any rate cap."
Separately, Bilas asked the Commission to require bypassing
pipelines to collect a surcharge for public-purpose programs -
which offer assistance to low-income ratepayers and promote energy
efficiency - from customers in the states where costs for these
programs would be otherwise stranded. While LDCs in California are
required to recover costs for such programs in their rates, the
state can't force a jurisdictional bypassing pipeline to do the
same, he noted.
Requiring such a surcharge "would level the playing field
between LDCs and bypassing pipelines, prevent uneconomic bypass
which might otherwise occur and help fund worthy programs," Bilas
He noted that his request was not without precedent. In Order
888, "FERC generally left the [the issue of] recovery of such
stranded costs and benefits resulting from retail wheeling to the
state commissions," but in limited circumstances where state
commissions don't have the authority to collect stranded costs,
"you stated...that you would permit a customer-specific surcharge
to be added to the interstate transmission rate but only for the
customers in the state where the stranded cost occurred." This is
"precisely what we ask the FERC to require in the context of
Commissioner Ruth K. Kretschmer of the Illinois Commerce
Commission said that while she welcomed pipelines to her state -
"in fact, the more pipelines that come to Illinois the better..." -
she had problems with FERC's policy on rate treatment (rolled in
vs. incremental) for new pipe projects. "I know this issue was
supposedly resolved" in 1994, but "I never agreed with that policy.
I don't like the 5% threshold that permits rolling in new pipeline
costs." For one thing, she said the threshold is too high. Plus,
she noted, pipelines have found a way to circumvent the standard -
they are segmenting their large projects into smaller ones in
order to qualify for the rolled-in rate treatment.
Commissioner John M. Quain of the Pennsylvania Public Utility
Commission addressed the issue of LDC waivers of certain federal
regulations - such as capacity release and shipper-must-have-title
rules - to facilitate retail unbundling efforts at the state level.
He believes the Commission should respond to such waiver requests
on a case-by-case basis. Although this would put more "stress" on
FERC, it would be preferable to a generic approach, Quain told FERC
commissioners. He further suggested that FERC establish a state
advisory board to the Commission to better coordinate federal-state
regulatory efforts in the gas industry.