Customers Call for Expansion of Pipeline Affiliate Rules

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

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

Dynegy Inc. favors preventive, rather than reactive measures, Ed Ross, representing the marketer, said. "The best solution is structural change." This means expanding the definition of affiliates subject to the Order 497 affiliate rules to include more than just marketing affiliates. He also advocated more rigorous market monitoring by FERC, a levelized bidding process and physical separation of pipeline and affiliate offices. Ross joined with Mike Goldenberg of FERC's General Counsel's Office, in leading a discussion of pipeline "funny money," or intracorporate transfers. "We can't compete on any deal that a pipeline affiliate doesn't want us to get," Ross said.

New York Public Service Commission representative Phillip Teumim blasted merchant generating affiliates, saying convergence has brought "wonderful new opportunities for new types of affiliate abuses." It is just too easy for "subtle" information about siting of prospective power plants to pass between a pipeline and its merchant generating affiliate, Teumim said.

The current system of relying on the market to police itself and send complaints to FERC doesn't work, pipeline customers charged. It is too difficult and costly to monitor all the necessary pipeline transactions, to aggregate data from the varied displays on pipeline bulletin boards and to pursue legal actions that often take years. Dynegy's Ross complained that posting an Adobe Acrobat data file does not allow for manipulating the data to make comparisons. Small producers and representatives of large consuming companies said they did not have the budget for a full time staff to monitor pipeline transactions, saying it should be FERC's job as the watchdog over monopoly pipelines to ensure fair play.

BP's Jeff Holligan and representatives of independent producers said that much of the problem was at the producer end and involved denying access to gathering lines, or affiliates bidding up the price of the capacity to make producers pay more or keep them out of the market.. BP Amoco "has never won capacity unless we bid more than it's worth," Holligan said.

Pipeline defenders argued that the rules are working. Joan Dreskin, representing the Interstate Natural Gas Association of America, presented a table showing that all pipeline affiliates held a slightly smaller share (14.4%) of transportation capacity on their own pipeline affiliates in 2000 than they did in 1996 (14.7%). Also, in the three cases of affiliate abuse prosecuted before FERC, the Commission made no finding that competitors had been harmed. Beyond those cases, Dreskin said there is only anecdotal evidence of abuses, and pointed out that complaints are declining.

Ross disputed the INGAA figures, saying they did not include pipeline capacity managed by affiliates. And, he suggested, FERC didn't find any competitors harmed because it couldn't find any left. "How many marketers are left? How many have been acquired by pipeline affiliates?" Adhering to the guidelines that no pending cases be discussed, no mention was made of the heated controversy surrounding El Paso Merchant Energy's contract for a large block of capacity on El Paso Natural Gas, which many credit with sparking the current affiliate debate.

Bill Scherman, representing an ad hoc group of marketers, and Leslie Lawner, Enron North America's counsel, defended the rules as they stand. Scherman, a former FERC general counsel, pointed out the Commission had no record to base an expansion of the rules. Lawner said "the rules are generally good. I don't think any games are played in most cases."

Ellen Beswick

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