FERC is not doing its job if it hides behind the letter of thelaw and refuses to recognize abuses of market power merely becausethe 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 ina 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 caseinvolving Dynegy’s long-term leasing of unsubscribed capacity on ElPaso Natural Gas (RP97-287-010), saying the two cases are directlyrelated.

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

In that case, FERC had reasoned “so long as the transactionstake place at or beneath the price cap, the Commission does notinquire into the potential for the releasing shippers (or thepipeline) to exercise market power.” Further, Order 636 doesn’trequire shippers to release capacity at market rates, theCommission added.

But, that’s just not good enough, the Court said. “Section 5 ofthe 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 casebecause “in El Paso the Commission explicitly found the existenceof an agreement intended to restrain competition, and further foundthat the restraint had its intended effect of raising prices.” Aspecial reservation reduction mechanism (RRM) that was part of theDynegy/El Paso deal discouraged the pipeline from marketing IT incompetition with Dynegy’s releasable FT capacity. Exxoncharacterized this as “an agreement not to compete in the secondarymarket.”

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