The states’ practice of mandating the assignment of LDC-heldupstream capacity to marketers as an “express condition” toallowing them or their customers access to an unbundled natural gasmarketplace flies in the face of antitrust laws and FERC’s gasrestructuring rule, contends Enron Corp.’s marketing arm.

“Mandatory capacity-release programs tie access for firmdistribution service behind the city-gate to the purchase ofupstream interstate pipeline capacity from the LDC. Tying adesirable service to one that is not desirable…is inconsistentwith Order 636-A and federal antitrust laws,” said Enron EnergyServices Inc. (EESI) in response to issues raised at FERC’stechnical conference last month on state and federal regulation ofthe gas industry [PL99-1].

EESI contends the mandatory capacity-release arrangement meetsthe court’s test for unlawful tying. First, two products areinvolved-upstream interstate pipeline capacity and firmtransportation behind the LDC city-gate. Second, the LDC sellerrequires the consumer or its supplier to buy upstream capacity (thetied product) in return for access to service on the LDC’s system,EESI noted. Third, the LDC, the seller, has all of the market powerin the alleged tying arrangement And lastly, the arrangementprevents the customer or its supplier from buying capacity in theopen market from other capacity sellers, it said. This”artificially maximizes” the value of the tying LDC’s capacity,while it reduces the value of capacity held by others, includingpipelines. The net result, EESI warned, is the LDC could become theprimary seller of capacity into each of its markets.

“These programs are interfering with the development of thecompetitive marketplace behind the city-gate. More importantly forthis Commission, they are adversely affecting the competitivecapacity market” that was envisioned under gas restructuring, EESIsaid.

LDCs and even state regulators argue that mandatory assignmenthelps to minimize the costs associated with stranded,distributor-owned pipeline capacity in an unbundled gas market. ButEESI noted that several gas distributors-Columbia of Ohio,Baltimore Gas & Electric, Washington Gas Light, Brooklyn UnionGas and other LDCs-have implemented “successful voluntary programs”to deal with service reliability and stranded-cost issues. “Thestates thus have the ability to establish retail-access programswithout resorting to elements that are inconsistent with federalpolicies. Some have simply chosen not to do so,” however.

Atlanta Gas Light (AGL) and other distributors couldn’t disagreemore with EESI. “The notion that the direct assignment provisionsare anticompetitive or unduly discriminatory simply does not squarewith the facts,” AGL countered.

Capacity assignment “ensures that all retail customers, andparticularly captive customers who have little bargaining strengthand who are least able to withstand an interruptible of gasdeliveries, have access to upstream interstate capacity andintrastate capacity” to receive a reliable supply of gas, even iftheir marketer leaves Georgia, AGL said. “It disperses the benefitsof competition not just to the densely populated areas, but toconsumers in small towns and rural areas upstream and downstream ofmajor market areas within the state.” Additionally, capacityassignment helps to avoid the creation of stranded costs andprotects customers against the abuse of market power, the Atlantadistributor noted.

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