FERC Targets Transwestern for Market-Power Hearing

FERC last week called for a hearing to determine whether Transwestern Pipeline exercised market power in awarding negotiated-rate contracts that led to shippers being charged up to $27/MMBtu in February, when the effective maximum rate allowed under its tariff for firm transportation service to the California border was only 38 cents/MMBtu.

That was "70 times the recourse rate," said Commissioner Linda Breathitt, who called the matter up for discussion at the Commission's regular meeting last Wednesday. "Thirty-eight cents versus $27, that's a big difference in prices and we ought to be looking at that," responded Commissioner William Massey.

The order noted that "closer scrutiny of transactions that provide the opportunity to impose rates many multiples in excess of maximum approved tariff rates is necessary, especially in light of our serious concern regarding the high prices for natural gas in California relative to prices in the rest of the country and their consequential effect on wholesale electricity prices in California" [RP97-288-009].

The Federal Energy Regulatory Commission's (FERC) action was in response to a show-cause order it issued in March, directing Transwestern to explain how it had firm capacity available on its pipeline to move gas under the negotiated-rate transactions, and why its actions in entering into the negotiated-rate agreements didn't violate Commission regulations and policy regarding firm transportation service and negotiated-rate agreements.

The matter "seemed quirky enough to the entire Commission...to ask these questions," Breathitt told NGI. But, she added, "it may be that Transwestern will be able to fully explain" why it charged negotiated-rate customers 70 times the recourse rate.

FERC's order requires Transwestern to make certain changes to the posting of daily capacity. "I'm satisfied that this should take care of the issue prospectively," Breathitt said. But with respect to the negotiated agreements, the order "establishes a hearing of limited scope on a fast-track basis to determine whether Transwestern exercised market power in awarding these...contracts."

It directs an administrative law judge to convene a pre-hearing conference within 10 days, and issue an initial decision on the matter within 60 days. The hearing will focus on three issues: 1) whether Transwestern capacity was advertised and awarded in a fair manner; 2) whether the rates negotiated were the result of the exercise of market power; and 3) why the capacity awarded was available without interruption while recourse service was not available. "In addition, I have a question [as to] why shippers agreed to such rates when much lower recourse rates should have been available under our negotiated rate program," Breathitt said.

The shippers that entered into the negotiated-rate transactions with Transwestern include Richardson Products Co., Sempra Energy Trading Corp., BP Energy Co., Astra Power LLC and Reliant Energy Services.

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