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FERC Grants AGL Waiver of Capacity Release Rules to Aid Unbundling

FERC Grants AGL Waiver of Capacity Release Rules to Aid Unbundling

FERC ventured into unknown territory last week to help Georgia's largest gas utility implement retail unbundling behind its citygate and avoid costs stranded by retail competition. In a four-to-one vote, the Commission granted Atlanta Gas Light (AGL) a limited one-year waiver of certain federal regulations governing capacity release and ownership of interstate storage capacity and related transportation.

AGL's Ed Overcast, vice president for strategic planning and rates, said the Commission's decision comes just in time. Georgia retail competition is scheduled to begin Nov. 1 with 26 marketers already waiting at the door to participate. "Obviously we're excited about it and glad the Commission is working to cooperate with the states to make unbundling work," he said.

The draft order allows AGL to make short-term allocations of capacity to retail marketers at less than the maximum pipeline rate without following the notification and bidding requirements in the Commission's capacity release regulations. In addition, the draft order grants a one-year waiver of the Commission's "shipper-must-have-title" policy for certain storage and storage-related transportation held by AGL so the utility can combine these services for its shippers under a proposed Incremental Bundled Storage Service (IBSS). AGL must file with FERC within 30 days tariff sheets setting the IBSS rates, which the utility said will replicate the existing reservation, withdrawal, injection and transportation charges it pays pipelines. It also plans to set penalty charges.

In the draft order, the Commission said it "intends to encourage an environment which will allow state commissions and local distribution companies to implement retail unbundling." And to do that, Commissioner Vicky Bailey said the Commission is "willing to consider departures from existing practices."

However, Commissioner William Massey, who dissented, siding with a number of protesters who wanted FERC to schedule a technical conference on the case, said the decision was "directly contrary to the precepts" of FERC Order 636. "There, the commission terminated capacity brokerage certificates as inconsistent with its procompetitive objectives. Today's order permits Atlanta to carve out portions of interstate capacity and allocate it to individual marketers. The fact that the interstate capacity is targeted to these particular marketers and not made available generically to any shipper on the interstate grid is discriminatory," he said. "Concerns about this type of discrimination prompted the Commission to terminate capacity brokering at the time of Order 636.

"In our efforts to accommodate state efforts to move forward with retail unbundling, we must not move backward and balkanize the interstate grid," Massey said. "As state policy becomes more procompetitive, FERC policy must not become more anticompetitive."

Massey advised the Commission to begin a generic proceeding to discuss the issue of capacity allocation, as opposed to release, and its impact on the secondary market and state unbundling.

FERC Chairman James Hoecker agreed the waiver is risky, but said FERC is undertaking this departure from existing regulation only as a "learning experience."

"I think anything that compromises 636 is unacceptable in the long run, and I share the apprehensions of Commissioner Massey about the potential balkanization of the interstate grid when capacity or services are dedicated to specific states or specific customer groups even if it's by state statute. Here we don't know what the impact of our waivers are going to be [or the impact of the] Georgia program. So I will support the limited-term waivers as a learning experience and emphasize that we do it in the spirit of wanting more competition, wanting an integrated marketplace, wanting liquid markets to make LDCs less fearful about being able to assume the role of supplier of last resort without having to rely on long-term upstream capacity commitments."

"Frankly I don't see any reasons [for Commissioner Massey's concerns]," said AGL's Ed Overcast. "These services are things that you couldn't [do] with normal pipeline capacity release. Marketers need [bundled service]. I think, to the contrary, competition is going to be enhanced by this because you are going to get interstate capacity rights in the hands of more people not less."

Overcast said all the rates to be charged for the new services will be rates set by FERC and passed through. "There will be a prorated share of discounts going to everybody. So if you have 5% of the market in an area where those discounted services are available, you get 5% of the discounted capacity."

AGL can request an extension of the waiver no later than July 31, 1999. At that time, it must explain the effects of the program on the interstate pipeline grid with data, including the volumes and prices its affiliates received under the program.

Rocco Canonica

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