Expansion of the FERC definition of interstate pipelineaffiliate to include other subsidiaries beside marketingaffiliates, and rigorous market monitoring by the Commission,appeared to be the most popular of the solutions offered last weekby pipeline customers to level the playing field in the face of theincreasing convergence of pipeline and power companies.

The suggestions came from marketers, producers, state regulatorsand consumers at a first-of-its-kind roundtable discussion beforekey staff members of the Federal Energy Regulatory Commission.

Dynegy Inc. favors preventive, rather than reactive measures, EdRoss, representing the marketer, said. “The best solution isstructural change.” This means expanding the definition ofaffiliates subject to the Order 497 affiliate rules to include morethan just marketing affiliates. He also advocated more rigorousmarket monitoring by FERC, a levelized bidding process and physicalseparation of pipeline and affiliate offices. Ross joined with MikeGoldenberg of FERC’s General Counsel’s Office, in leading adiscussion of pipeline “funny money,” or intracorporate transfers.”We can’t compete on any deal that a pipeline affiliate doesn’twant us to get,” Ross said.

New York Public Service Commission representative Phillip Teumimblasted merchant generating affiliates, saying convergence hasbrought “wonderful new opportunities for new types of affiliateabuses.” It is just too easy for “subtle” information about sitingof prospective power plants to pass between a pipeline and itsmerchant generating affiliate, Teumim said.

The current system of relying on the market to police itself andsend complaints to FERC doesn’t work, pipeline customers charged.It is too difficult and costly to monitor all the necessarypipeline transactions, to aggregate data from the varied displayson pipeline bulletin boards and to pursue legal actions that oftentake years. Dynegy’s Ross complained that posting an Adobe Acrobatdata file does not allow for manipulating the data to makecomparisons. Small producers and representatives of large consumingcompanies said they did not have the budget for a full time staffto monitor pipeline transactions, saying it should be FERC’s job asthe watchdog over monopoly pipelines to ensure fair play.

BP’s Jeff Holligan and representatives of independent producerssaid that much of the problem was at the producer end and involveddenying access to gathering lines, or affiliates bidding up theprice of the capacity to make producers pay more or keep them outof the market.. BP Amoco “has never won capacity unless we bid morethan it’s worth,” Holligan said.

Pipeline defenders argued that the rules are working. JoanDreskin, representing the Interstate Natural Gas Association ofAmerica, presented a table showing that all pipeline affiliatesheld a slightly smaller share (14.4%) of transportation capacity ontheir own pipeline affiliates in 2000 than they did in 1996(14.7%). Also, in the three cases of affiliate abuse prosecutedbefore FERC, the Commission made no finding that competitors hadbeen harmed. Beyond those cases, Dreskin said there is onlyanecdotal evidence of abuses, and pointed out that complaints aredeclining.

Ross disputed the INGAA figures, saying they did not includepipeline capacity managed by affiliates. And, he suggested, FERCdidn’t find any competitors harmed because it couldn’t find anyleft. “How many marketers are left? How many have been acquired bypipeline affiliates?” Adhering to the guidelines that no pendingcases be discussed, no mention was made of the heated controversysurrounding El Paso Merchant Energy’s contract for a large block ofcapacity on El Paso Natural Gas, which many credit with sparkingthe current affiliate debate.

Bill Scherman, representing an ad hoc group of marketers, andLeslie Lawner, Enron North America’s counsel, defended the rules asthey stand. Scherman, a former FERC general counsel, pointed outthe Commission had no record to base an expansion of the rules.Lawner said “the rules are generally good. I don’t think any gamesare played in most cases.”

Ellen Beswick

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