Advocate Summary

Issue:  Affiliate Relationships
Advocate:  Natural Gas Supply Association - Patricia Wilson Jagtiani
Date of Interview: 8/15/02

Basic Background
Let me tell you first a bit about our organization and who we represent, we represent major producers, such as BP, Exxon, Chevron-Texaco, the major ones and at FERC, our interests, obviously the pipelines are regulated and overall we are trying ensure that the regulation is effective, they need to get their product moved from place to place, they want rates that aren’t really as low as possible but just reasonable rates, adequate infrastructure is very important, fair access to pipeline capacity is very important so those are the types of issues that we deal with at FERC, in terms of the big picture, broad scope every day. So when you look at affiliate relationships, where that comes into play, pipelines today are affiliated, they are in huge corporations, so you have marketing affiliates, both gas and power, some type of relationship within the corporation with the pipeline and our guys worry that they may coordinate absent effective rules, where they may coordinate where capacity may unnecessarily be locked up, or preference may be given to the affiliate for certain capacity if it is not posted correctly or if everyone is not told the capacity is available. Also pipelines have capped costs of service rates, so what they charge is capped, but the secondary market for capacity like if you have a pipeline and you buy 50 units of something and you are paying a dollar for it and you said you don’t need say ten units of that 50 you can resell it and as long as you resell it in a year or less you can sell it at any price. So a resell is not capped, and so if an affiliate were to hold that capacity, the corporation could stand to make more money overall with the affiliate selling it rather than the regulated entity. So there have been a number of examples of affiliate abuses in the last few years, and it is something that has become a major concern for our members. So it is something that we started raising in comments, before this was an issue we were raising it as an issue, producers have filed complaints when strategy meetings were held within corporations between groups that probably shouldn’t be strategizing together. 

We aren’t regulated, that’s the big difference. Pipelines have been regulated and have traditionally been regulated, it doesn’t make a whole lot of sense to build projects that cost millions sometimes close to a billion dollars that goes from A to B. Producers, there are 8000 producers in the country, there are producers everywhere, people have choice so we are not regulated, and the pipeline is a monopoly, if you have choice, if you have competition our guys are very much in favor of competition and having less or no regulation in areas where there is competition but for the most part they feel that since there is no pipe leading from their well to the market, that they are held captive. So it needs to be regulated and it is it just depends on to what extent it is.  

Prior Activity on the Issue 
Back in ’97 I worked for the Chairman of FERC from ’97 till almost 2000 and I remember one of the first things I worked on was a complaint that had been filed at the time against one of the pipelines. It was strategy meetings, shared employees between the pipeline and the gas marketing affiliate, so that was one of the first times I had seen it raised by the producers at such a high level. It was a very high profile case, FERC went out and did a big investigation, filed a huge report and it went through that process. When I came to work here around 2000, order 637 had been issued which was kind of a clean up of the industry in terms of a lot of different issues, the price caps for re-sales was one of the big issues in that proceeding. Our comments in response to that, we really, really, pushed the affiliate issue, especially how lifting the price cap on secondary market transactions was really going to give the pipelines more of an incentive to give their affiliates preferences. So I would say the bulk of our comments focused on loopholes that currently exist in the system for affiliates to be provided preference. 

Advocacy Activities Undertaken
Each of our courtesy visits, when we go in to meet with FERC that was always one of our issues, and really just trying to raise the profile of that issue. Another thing that I didn’t mention is that the rules that are in place today – prohibiting the sharing of information and sharing employees -  are only between the pipeline and their gas marketing affiliates, so any other affiliate of the pipeline, there are no rules in place to prohibit strategy, sharing information, coordination, so even if it looks like it shouldn’t be done there’s nothing to say that it can’t be so we have advocated expanding those rules to apply to all pipeline affiliates. For example if a pipeline is affiliated with a local distribution company some of the same preferences or abuses could exist but there are no rules to stop that, so even if it is happening there really is nothing FERC can do about it. And so that’s what they’re looking at doing; expanding those rules. I actually feel like we’ve been fairly successful. 
 
Future Advocacy Activities Planned
No specific activities mentioned.

Key Congressional Contact(s)/Champions
Not applicable.

Targets of Direct Lobbying
FERC

Targets of Grassroots Lobbying
None mentioned.

Coalition Partners: Names/Participants
We’ve worked a lot with other groups, we have what I’d call a loose coalition of pipeline customers that try to get together and at least talk about the different positions and share ideas, I’d like to say on a regular basis but to be honest with you we haven’t met for about six months and we need to do more of it but it think everyone has just been too busy. But prior to conferences we’ll meet, and before we file comments, and I’m trying to think if we’ve filed anything jointly on this issue, but I don’t think so, though we did that on rate setting issues. We work a lot with PGC, the Process Gas Consumers, the industrial users, I have a good contact there, she actually president now – Dena Wiggins. And actually just maintaining good working relationships is key, trying to schedule lunch, lunches are important in Washington for that reason, just trying to make sure that you’re just keeping up with what people are doing. Email for that kind of thing, we’ve done a lot of, just trying to keep people in the loop, this is where we’re going with this and that sort of thing. 

Other Participants in the Issue Debate
The pipeline, we do try to find middle ground if possible and try to stay in close communication with them. More often than not, we are so opposed that it doesn’t go very far. We are kind of in there to make sure they’re regulated and they’re there to make sure there is less regulation so it’s just kind of hard. INGA, the Interstate Natural Gas Association represents the pipelines, Joan Dreskin is my counter part there, she worked at FERC when I did too so, it’s almost like everybody has come out of the same camp, and we’re all friends separate and apart from who we are representing today, so just maintaining that. And then the LDC, the American Gas Association, the person to talk to there is Jane Lewis, I don’t know why it’s all women, for some reason this is a mostly male dominated industry, all the people on my regulatory affairs committee are men, there are no women whatsoever, on my board we have one woman so it is very male dominated but in terms of association reps we’re on a role. 

Ubiquitous Argument(s) and Evidence
The problem, the loophole that is glaring is that it only applies to gas marketing affiliates, if there is a power marketer, and that power marketer needs capacity -electricity, much of it is generated from gas, gas fired generation, so they do need gas, and they need the pipeline to get that gas there, so that generation or a power marketer who’s trying to sell to a generator and again an LDC, any pipeline affiliate that actually is fighting for capacity on that pipeline there is a potential for an advantage. Pipelines in some ways, their reasoning has been “we won’t do that” but if there is no rule in place and it is going to help them as a corporation that has an interest in making money “just trust us” isn’t good enough. So we would really like to see the rules expanded so that those loopholes are closed. 

Secondary Argument(s) and Evidence
And better information for monitoring and detecting whether there are any abuses or preferences provided is something that we’ve really been advocating as well. Pipelines do post data on their websites it’s not downloadable, it seems intentionally hard to use and we don’t see why that couldn’t be standardized and downloadable, that seems something that FERC could easily require, it seems to be an exceedingly tough effort to get any action, having information more user friendly. 

Targeted Arguments, Targets, and Evidence
None mentioned. 

Nature of the Opposition
Our biggest problem is that the regulated entities that this is impacting, obviously do not like this, you know “more regulation is bad” and they have a very big voice at FERC, for example even though we have 15 of the major producers, we filed as one party, and you have the pipelines filing individually and the LDCs filing individually and the utilities filling individually and so you look at the pile at FERC you will see probably 200 comments in opposition and you’ll see a handful in support. But now our biggest problem is getting FERC not to be afraid to do the right thing, because it is so opposed. 

Ubiquitous Argument(s) and Evidence Articulated by the Opposition 
The pipelines’ main push has been the burden, the unnecessary burden. They feel that there have not been enough abuses, solid concrete evidence for FERC to justify making, what they consider, dramatic changes, they think it will be costly and burdensome for their companies. They actually feel that affiliates will then be disadvantaged. If you look at this issue from the beginning when affiliate rules were first put into place, before 636 was released in 1992, the industry was very easy to figure out, you had the producers producing, getting it from the well, the interstate pipeline was buying that gas and transporting the gas through the pipe to the local distribution companies that would then send it to the end user. Well, 636 unbundled the gas and the transportation which means now that the pipelines only transport the gas and the end user or the LDC purchases directly from any producer they wanted, so they were given more choice and it added competition, producers have been deregulated, so now you have the pipeline just being the transporter, they’re out of the merchant function FERC. But so now pipelines feel that these rules if they are burdensome if they are too strict are actually going to disadvantage the affiliate and non-affiliates will actually have an advantage. That’s not what we’re looking for, we’re looking for balance we don’t want them to have an advantage we don’t want them to have a disadvantage; whether we can come up with the right balance between those two – it’s tough. It’s not something that the right answer is staring you in the face. It makes FERC’s job tough.

Secondary Argument(s) and Evidence Articulated by the Opposition
The LDCs position, I think they understand that there are loopholes and that there are some things that could be tightened up but they are very fearful of how these new regulations will impact local distribution companies. Especially, and we agree with them on this part to a certain extent, we’ve kind of come up with a new phrase through this whole affiliate comment period and conference of “infrastructure operators” those that kind of have to run the train, the ones that the board is trying to make sure there is a balance between the pipeline and the gas flowing to the local distribution company. If the pipeline and that LDC are affiliated and these rules are put into place it could impact the sharing of information and that if carried on, just a hard cut and no sharing they are worried about how to operate the system. And obviously no one wants to have a problem with operating the system, there needs to be some type of exemption to keep running. And that’s not the type of information that we’re trying preclude, we’re trying to eliminate strategy meetings and sharing information that is not available to others. So I think we should be able to find a good compromise on that. 

Targeted Argument(s) and Evidence Articulated by the Opposition (and Targets)
None mentioned.

Described as a Partisan Issue
No.

Venue(s) of Activity
FERC

Action Pending or Taken by Relevant Decision Makers
[FERC will likely decide next year, she mentioned after the interview that because of the strength of the opposition it looks like things are going to be on a “slower track then they originally expected.”]

Policy Objective(s) and Support for/Opposition to the Status Quo
Opposed to the status quo; working for stricter regulations of affiliate relationships by FERC

Advocate’s Experience: Tenure in Current Job/Previous Experience
I graduated from UNC Chapel Hill, international studies/ polisci major and knew I wanted to be in Washington and got a job at FERC, and I figured I’d get in my international world later and just never did, I primarily did litigation and rate cases, I was an expert witness for the commission for seven years, very technical types of anaylsis, and then I went to work for a commissioner and then a few months later became chairman, so I ended up working for the chairman so that was a great experience, I think it really gives you a good perspective of what really goes on at FERC, so I worked for him for three years and then I started here. 

Reliance on Research: In-House/External (Code for Organizational Advocates Only)
We do a little of everything. So supporting our positions specifically on affiliate issues we did, early on, maybe two years ago, hired a consultant to do a pretty major study on what some of the loop holes may be. We had a lot of concerns but I felt they were a little too abstract and that we needed to look at these things so we had a study done actually we had a RFP, where we did get a number of proposals and the board made the decision on who would do that for us. I more often then not, we use outside attorneys for writing comments to submit to FERC. The way I try to handle that process is I write an outline of what we want to say and then use the counsel’s advice on the legal issues. In terms of position development I have a regulatory affairs committee, one person from each company and that is kind of our first step in position development, and with the companies we have regular meetings, conference calls and I take care of that committee, through that committee we’ll draft comments but the big policy position, we have two groups it would go to. One is a sub-set of the board, I call it kind of the active substantive decision making subset, and anyone can have a member on that if they choose, and we will have meetings where we discuss major issues and policy decisions and then of course the biggest decisions are left to our board for consensus. That’s a lot of what we do is consensus building internally. 

Number of Individuals Involved in Advocacy (Code for Organizational Advocates Only)
Three

Units in Organization Involved in Public Affairs/Policy (Code for Organizational Advocates Only)
We are a very small organization, I am the only regulatory person, and we have three other directors or vice presidents, we have one legislative director and we have a person that does environmental supply and demand issues and then a PR director, and then there is the president, and in terms of professional staff we have one analyst. And she could pull her hair out half the time because we all use her for so much so we literally every week have to prioritize what she is doing. 

Advocate’s Outstanding Skills/Assets (Code for Organizational Advocates Only)
None mentioned.

Type of Membership: None, Institutions, Individuals, Both (Code for Organizational Advocates Only)
Institutions – Major Producer Companies

Membership Size (Code for Organizational Advocates Only)
15

Organizational Age (Code for Organizational Advocates Only)

Miscellaneous