Notice on affiliate Staff Conference, January 31, 2001

Late Wednesday, FERC issued a notice scheduling the Staff Conference focusing
on pipeline affiliate issues. The roundtable conference will take place on
Wednesday, January 31 at 1:00 p.m. (note that FERC does not intend for this
to be an all-day conference). Preliminary comments and requests to
participate are due by January 5, 2001. [There is an INGAA Regulatory Policy
Committee meeting this Thursday, November 30, in Washington, DC, in which the
pipelines' approach to this conference will be discussed and organized.
Shelley Corman is Chair of that committee.}

The purpose of the conference, as stated in Order No. 637, is to discuss how
changes in the natural gas market may impact the Commission's regulation of
pipelines and their affiliates and non-affiliates, as well as capacity
holders and their affiliates, capacity managers and agents. The conference
is structured as a roundtable debate with no opening remarks from
participants, though Staff requests parties to "provide input on how to
structure the discussion." Over the past month or so, Staff has spoken with
industry representatives on the structure of this conference, aware that the
subject matter lends itself to the possibility of an unproductive grudge
match among industry sectors. Staff is requesting comments before the
roundtable to inform the structure and substance of the roundtable as led by
Staff.

The notice asks that parties submit written comments by January 5th to
identify issues and examples to foster a meaningful dialog and to suggest
questions the Staff moderator may wish to pose to the panel. Comments should
include a one-page single spaced position summary and whether the commentor
is interested in participating in the roundtable. Like-minded entities are
encouraged to select one spokesperson (ie, pipelines, LDCs, producers).

The broad question in the notice is whether the current standards of conduct
need to be eliminated, expanded or modified based on the changing nature of
the industry, and whether there should be uniform standards for all holders
of pipeline capacity, or do distinctions need to be made in the treatment of
affiliate relationships (and ownership rules) between the gas and electric
industries.

The notice also delineates some specific areas of concern for comment.
Boiling them down to the main questions, these are:

(1) Current Regulatory Approach: Are current standards effective; discuss
successful or unsuccessful experiences; do current reporting mechanisms allow
for effective affiliate market activity monitoring?

(2) Potential Concerns: Whether and when do affiliate transactions pose the
potential for anticompetitive or discriminatory effects, or explain why such
effects are not likely? PROVIDE EXAMPLES OR SCENARIOS. Do different types
of affiliates (LDC, gas/power marketer, power gen, asset manager) pose
different risks? What are the effects of the changing market conditions, and
is there potential for market or consumer benefits from affiliate
transactions?

(3) Potential Approaches: Are there better methods to regulate affiliate
transactions beyond the standards of conduct and reporting requirements?
What are costs and potential adverse impacts of the following possible
alternatives: open and fair bidding procedures; prohibitions on affiliates
holding capacity on affiliated pipelines; limits on affiliate capacity market
share; changes to open-season bidding to break-up large capacity packages;
divestiture of affiliates. "Similar approaches could be considered for
affiliates of non-pipeline capacity holders." Comment on the following
possible adverse impacts of such alternatives: risk of unsubscribed capacity;
potential cost shifts; lack of affiliate contracts to underpin new
construction projects.

The full FERC notice (PL00-1-000, November 22, 2000) is attached here.