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Exxon Asks FERC to Reopen Dynegy/El Paso Case

Exxon Asks FERC to Reopen Dynegy/El Paso Case

FERC is not doing its job if it hides behind the letter of the law and refuses to recognize abuses of market power merely because the abusers are staying within the bounds of maximum lawful rates. That was the decision on April 9 of the D.C. Court of Appeals, which found an order by the Federal Energy Regulatory Commission in a case involving rates charged by Southern California Gas "arbitrary and capricious." (Southern California Edison v. FERC, No. 97-1699). Now Exxon Co. U.S.A. has asked FERC to reopen a case involving Dynegy's long-term leasing of unsubscribed capacity on El Paso Natural Gas (RP97-287-010), saying the two cases are directly related.

Exxon pointed out that FERC based its decision in the Dynegy case on its own reasoning in the SoCalEd/SoCalGas case, which the court threw out. In the earlier case SoCal Edison said SoCal Gas withheld 393 MMcf/d from the secondary market by establishing an unreasonably high bid price. It could do that because a state-approved Interstate Transportation Cost Surcharge (ITCS) permitted SoCal Gas to recover from customers the difference between the demand charge paid to interstate pipelines and revenues received from capacity releases. The distributor therefore remained whole even if it received no revenue from the secondary market. Withholding the secondary capacity maintained a SoCal Gas lock on the market for lower cost San Juan Basin gas, Edison maintained.

In that case, FERC had reasoned "so long as the transactions take place at or beneath the price cap, the Commission does not inquire into the potential for the releasing shippers (or the pipeline) to exercise market power." Further, Order 636 doesn't require shippers to release capacity at market rates, the Commission added.

But, that's just not good enough, the Court said. "Section 5 of the Natural Gas Act gives FERC jurisdiction not only over 'unjust' and 'unreasonable' rates, but also over unjust and unreasonable 'practices', as well as 'unduly discriminatory' or 'preferential' rates or practices."

Exxon said the decision applies to the Dynegy/El Paso case because "in El Paso the Commission explicitly found the existence of an agreement intended to restrain competition, and further found that the restraint had its intended effect of raising prices." A special reservation reduction mechanism (RRM) that was part of the Dynegy/El Paso deal discouraged the pipeline from marketing IT in competition with Dynegy's releasable FT capacity. Exxon characterized this as "an agreement not to compete in the secondary market."

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