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BEFORE THE
PUBLIC SERVICE COMMISSION
OF MARYLAND
______________________
CASE NO. 8709
______________________
IN THE MATTER OF THE INQUIRY INTO
THE NATURAL GAS BROKERING
OPERATIONS OF BNG, INC., A
SUBSIDIARY OF BALTIMORE GAS
AND ELECTRIC COMPANY
_______________________________________________
REPLY COMMENTS
OF
BALTIMORE GAS AND ELECTRIC COMPANY
_______________________________________________
November 22, 1995
BEFORE THE
PUBLIC SERVICE COMMISSION
OF MARYLAND
IN THE MATTER OF THE INQUIRY *
INTO THE NATURAL GAS BROKERING
OPERATIONS OF BNG, INC., A *
SUBSIDIARY OF BALTIMORE GAS AND
ELECTRIC COMPANY
*
CASE NO. 8709
*
*
* * * * * * * * * * *
REPLY COMMENTS OF
BALTIMORE GAS AND ELECTRIC COMPANY
In accordance with the procedural schedule in the Commission’s notice
establishing this proceeding, Baltimore Gas and Electric Company (BGE or the
Company) respectfully submits its reply comments. These comments reply to the initial
comments filed on or about November 7, 1995 by the following parties: Office of
People’s Counsel (OPC), Enron Capital & Trade Resources Corp. (Enron), Tenneco
Gas Marketing Company (Tenneco), UtiliCorp United, Inc. d/b/a Broad Street Oil and
Gas Co. and UtiliCorp Energy Solutions, Inc. (UtiliCorp), NORSTAR Energy Limited
Partnership (NORSTAR), Eastern Energy Marketing, Inc. (Eastern), Bethlehem Steel
Corporation (Beth Steel), and Columbia Gas of Maryland, Inc. (Columbia). In addition,
these comments respond to the Motion to Stay Interim Gas Brokering Program filed by
NORSTAR on November 15, 1995. (NORSTAR Stay Motion)1
I.
REPLY COMMENTS
A.
NONE OF THE COMMENTERS ALLEGE MONOPOLY ABUSE, ANTICOMPETITIVE
BEHAVIOR, OR UNDUE DISCRIMINATION WARRANTING THE IMPOSITION OF
STAFF’S PROPOSED SEPARATION REQUIREMENTS
What is noteworthy about the initial comments filed by certain competing gas
marketers is what is absent, namely any allegation of monopoly abuse, anticompetitive
behavior, or undue discrimination by BGE or BNG that warrants the extreme fix
recommended by Staff -- the proposed separation requirements. Certain comments are
loaded with speculation, conjecture, or references to activities allegedly occurring
outside of Maryland. E.g., Eastern at p. 3; Tenneco (“a common allegation in other
states . . . ”) at p. 2.2
On the other hand, comments by Enron (“Enron agrees with the Staff that there
does not appear to be any evidence of discriminatory action by BGE favoring BNG or
adversely affecting a competing marketer,” p. 2) and Beth Steel (“[t]hese comments are
not intended to imply that BGE and BNG have engaged in practices which disadvantage
customers or competitors,” p. 4 ) tell a very different story. BGE submits that comments
such as these are far more representative of the manner in which BGE conducted its
1
Counsel for BGE did not receive NORSTAR’s Stay Motion until November 17, 1995.
Much of the Stay Motion responds to matters raised in initial comments filed in this case
by BGE and Eastern on or about November 7, 1995. However, rather than reply
separately to the Stay Motion, and therefore have two opportunities to address in writing
the matters raised by NORSTAR, BGE responds through these Reply Comments.
2
NORSTAR resorts to dredging up an unsubstantiated allegation presented at the
November 9, 1994 Administrative Meeting by Gaslantic concerning metering equipment.
NORSTAR at 9 (all references are to the public version of NORSTAR’s Comments).
Despite that allegation, the Commission approved the Interim Brokering Service.
Gaslantic is not a party to this proceeding and has not been involved in BGE’s Roundtable
discussions.
2
brokering activity and opened up its gas distribution system to further competition. Also
see Appendix B to BGE’s Initial Comments.
A record based on speculation, conjecture, and unsupported accusation by
certain competing marketers is not the type of record upon which the Commission could
lawfully impose Staff’s proposed separation requirements. The customer would be the
loser, because those separation requirements merely would aid BGE’s competitors and
yield only inefficiencies. See BGE’s Initial Comments at pp. 33-36. The Commission
should look above the inflammatory rhetoric by certain of BGE’s competitors and instead
focus on the myriad of reasons why the Commission should not impose those proposed
separation requirements or other standards of conduct or reporting requirements
identified by certain competing marketers.
B.
THE COMMISSION DOES NOT HAVE JURISDICTION OVER THE
BROKERING SERVICE
NORSTAR repeatedly asserts that the brokering service is just a regulated utility
function and that as a result, the PSC should force it to comply with a panoply of
requirements in Article 78 (PSC Law). NORSTAR at pp. 2-3, 10-12. As support,
NORSTAR cites the transcript from the Commission’s Administrative Meetings in
October and November 1994 in which Staff asserted that the Commission had broad
jurisdiction over the brokering service. NORSTAR states that it is “undisputed” that the
brokering function is of a utility nature. NORSTAR at p. 2.
Further, in its Stay Motion, NORSTAR attempts to portray BGE as vacillating and
inconsistent on the issue of the Commission’s jurisdiction over the brokering service.
Stay Motion at pp. 3-4.
Wrong.
3
A year ago, BGE commented before the Commission on the jurisdictional issue
as follows:
The last point I’d like to make is what kind of activity is this.
O&R, in particular, says that the brokering activity is
something that is fully within the jurisdiction of this
Commission to regulate, that there should be tariffs and all
sorts of strictures that should apply to the brokering
activity.
If it is, then what this Commission should do today is order
regulation not just of BGE on the brokering activity, but of
every marketer in this room, because this type of brokering
activity and marketing activity has been going on for 10
years in this area.
There’s been a lot of competition, and I think that it’s
difficult to concede that the Commission at this point in
time would be particularly interested in expanding its
jurisdiction to focus on not just BGE’s brokering activity but
the brokering activities or marketing activities of all other
marketers. And there are at least 20 in this area. Who
knows how many more there will be?
The short answer to a lot of the comments that O&R has
raised in this area is that brokering is not an activity that is
regulated, we believe, by this Commission, with all due
respect. Therefore, the strictures in Article 78 with respect
to tariffs and all of the other Section 26 and undue
preference and discrimination don’t by its terms apply to
the brokering activity.
Having said that, we have agreed in this revised proposal,
and we have been agreeing all along, that we will not be
discriminating with respect to peak shaving access[,] with
respect to our delivery service, with respect to curtailment,
interruption policies . . . [b]ut as to the brokering activity
and whether it should be under tariff and whether Section
26 by its terms applies to it, we believe the short answer is
no, which is why, when we made the original filing at the
end of September we took the position and continue to
take the position that we don’t believe that any
Commission authority -- Commission approval is needed
for the brokering activity.
But given the gross margin sharing, given other attributes
of this service, we’re making an accommodation here.
And that is what this is all about at this point in time. The
PSC does have the authority and jurisdiction to deal with
4
how the regulated rates are going to be affected as a
result of this brokering activity. No question about that.
November 9, 1994 Tr. at pp. 35-36 (emphasis supplied); also see Tr. at pp. 49-50.
Contrary to NORSTAR’s assertion regarding jurisdiction, UtiliCorp urges the
Commission to be cognizant that “there exist significant questions concerning implied
Commission jurisdiction over the affiliates of LDCs, jurisdiction that may not exist or, at a
minimum, an implication that invites legal challenge. The Commission should focus its
attention on the activities of the regulated LDC rather than the arguably unregulated
corporate activities of the LDC’s affiliate.” UtiliCorp at pp. 2-3.
As demonstrated in its Initial Comments, BGE continues to dispute that the
Commission has jurisdiction over the brokering service. BGE Initial Comments at pp.1115. If the brokering service should be regulated by the Commission, then the marketing
activities of NORSTAR and other competing marketers also should be regulated.
NORSTAR’s numerous citations to the PSC Law in connection with the brokering
service are irrelevant and its argument should be rejected.
5
C.
IT IS UNNECESSARY FOR THE COMMISSION TO IMPOSE STAFF’S
PROPOSED SEPARATION REQUIREMENTS
As BGE demonstrated in its Initial Comments, and the chart attached thereto as
Appendix A, the standards of conduct and other safeguards already in place with
respect to BNG, together with the modifications offered by BGE in its Initial Comments,
already include, in all material respects, all of the restrictions that FERC imposed on
interstate pipeline gas marketing affiliates in Order Nos. 497 and 566 et seq.3 In terms
of separation, what those rules required was (a) independent functioning of (b) certain
operating employees (c) to the maximum extent practicable. BGE submits that this level
of separation is already reflected in the standards in place, plus the modifications
proposed in BGE’s Initial Comments.
Significantly, some of the commenters in this docket ask only that BNG be
subjected to FERC- or Order No. 497-type standards of conduct and separation. See,
e.g., Tenneco at p. 3 (“urges the Commission to adopt marketing standards similar to
FERC’s Order No. 497”). Others commend the FERC standards without appearing to
recognize that they are not synonymous with Staff’s proposal. See, e.g., Eastern at p.
13 (its proposed standards are “modeled after the standards imposed by FERC in Order
Nos. 497 and 566”); NORSTAR at pp. 7-8 (citing with approval Tenneco Gas v.
F.E.R.C., in which the D.C. Circuit largely upheld the FERC standards of conduct)4. As
BGE made clear in its Initial Comments, BNG is already subject to standards
3
FERC’s rules do not apply, as a matter of law, to BNG. However, FERC’s experience
with its rules is instructive. See BGE Initial Comments at 15-16.
4
In addition, NORSTAR relies on Illinois Bell Telephone Co. v. F.C.C., 740 F.2d 465, 47172 (7th Cir. 1984) to support its contention that Staff’s proposed separation requirements
should be adopted. NORSTAR at 7-8; November 9, 1994 Tr. at 65. However, the FCC
decided to abandon such separation and adopt accounting regulations. Southwestern
Bell Corp. v. F.C.C., 896 F.2d 1378, 1380 (D.C. Cir. 1990). The FCC gave up mandated
structural separation in favor of nonstructural accounting regulations designed to allocate
joint costs among the two lines of business. Id.
6
substantially equivalent to FERC’s Order No. 497. The Staff’s proposals, in contrast, go
far beyond FERC’s standards.
Some commenters, on the other hand, purport to advocate adherence to FERC
Order No. 497-type standards of conduct and complete separation. See, e.g., Eastern
at p. 13. This is a non sequitur and logically inconsistent. The FERC standards, which
were developed over several years based on an extensive record, practical experience,
and judicial review of their economic soundness, include a separation requirement. But
it is not the invasive, total separation required under Staff’s proposal.
Rather, FERC’s is a balanced separation “to the maximum extent practicable”
that is flexible enough to respond to individual companies’ circumstances and limited to
certain operating employees only, not shared or support services. See BGE Initial
Comments at pp. 19, 23-24. The FERC rules constitute a complete package of the
various controls that FERC concluded, with the court’s approval, were the right mix to
preserve and protect competition, on the one hand, while not impairing efficiencies or
discriminating against an affiliated gas marketer on the other.
It would be illogical to graft onto this reasonable package a complete separation
requirement. If such a requirement were in place, it is likely that some of the other
restrictions on access to information and reporting requirements would be unnecessary.
Yet that is what Eastern apparently attempts to do with its Attachment C (standards of
conduct) and its Attachment D (reporting requirements), both of which it would have the
Commission impose in addition to complete separation. BGE submits that there is no
support in this record for following that course.
Further scrutiny of Eastern’s Attachment C reveals that almost all of Eastern’s
proposed standards of conduct are already in place with regard to BNG or would be if
7
BGE’s proposed modifications of the current standards are adopted. This is made clear
in Appendix A to these Reply Comments in which BGE has revised the chart attached to
its Initial Comments to display Eastern’s Attachment C and D proposed standards and
reporting requirements in juxtaposition to the currently applicable ones.
Eastern also relies on comments filed by the United States Department of
Justice (DOJ) and the Staff of the Bureau of Economics of the Federal Trade
Commission (FTC) in the FERC proceeding known as the Electric Mega-NOPR5 on the
subject of how much separation to require between electric utilities’ various services in a
future unbundled environment. Eastern at pp. 10-12. Those comments relate, of
course, to the electric utility industry, not natural gas, and have no direct application to
the question of a gas marketing affiliate or matters before the Commission in this
proceeding.
To the extent Eastern sees them as applicable by analogy, BGE submits that far
more relevant are the same two agencies’ comments to FERC on the subject of how
much separation to require between natural gas pipelines and their marketing affiliates.
Those comments strongly supported a balanced, pragmatic degree of independent
functioning, not total separation; they were quoted at length in the Court of Appeals’
decision affirming FERC’s Order No. 497 standard requiring separation to the maximum
extent practicable. See Tenneco Gas v. F.E.R.C., 969 F.2d 1187, 1203-04 (D.C. Cir.
1992), quoted in BGE Initial Comments at p. 21, n.16.
5
Promoting Wholesale Competition Through Open Access Non-Discriminatory
Transmission Services By Public Utilities, Recovery Of Stranded Costs By Public Utilities
And Transmitting Utilities; Notice of Proposed Rulemaking And Supplemental Notice Of
Proposed Rulemaking, FERC Docket Nos. RM95-8-000 And RM94-7-001, 70 F.E.R.C. ¶
61,357 (1995) (Electric Mega-NOPR).
8
In any event, the DOJ and FTC comments in the Electric Mega-NOPR cited by
Eastern are heavily grounded in theoretical speculation about economic incentives, the
harm to which they may lead, and the ineffectiveness of regulation (or regulators) to
enforce nondiscriminatory standards of conduct in the absence of structural separation.
BGE submits that these types of speculative concerns should not drive this
Commission’s process, where the Commission has the benefit of real experience with
BGE and BNG and the actual record of FERC enforcement of the Order No. 497
standards in the gas industry.
As that experience shows, the standards are and can be effective because they
are comprehensive, are accompanied by reporting requirements, and are adhered to by
BGE/BNG. They depend not only on the will or investigative abilities of the Commission
or Commission Staff, but also on the diligence, motivated by self-interest, of BNG’s
competitors in bringing to light any possible abuses. In addition, both the regulatory and
the public oversight are aided and enhanced by the deterrent effect on BGE of knowing
that this public oversight exists. It is a healthy combination and one not adequately
recognized in the DOJ and FTC comments in the electricity context.
9
D.
COMPETING MARKETERS’ CLAIMS DO NOT SUPPORT THE RELIEF
REQUESTED
Certain marketers identify what they believe are instances of favoritism, undue
preference, or improper identification or use of an affiliate status by BNG/BGE. These
claims are groundless.
Contrary to Eastern’s allegation, the structure used by BGE/BNG does not result
in the same person “picking up the phone” to handle delivery service matters and BNG
sales matters. Eastern at pp. 3-4. As identified in the chart set forth in Appendix A of
BGE’s Initial Comments, different personnel purchase gas and capacity for BNG than
operate the distribution system and implement the delivery service program. Eastern
further goes on to imply that when BGE distributes a third party supplier’s gas, it favors
BNG. Eastern at pp. 15-16. This is absolutely not true and Eastern has not shown any
instances where this occurred.
Further, Eastern makes various erroneous statements about BNG’s reliance on
BGE’s credit worthiness. Eastern at p. 14. BNG has never relied on BGE’s credit
worthiness in order to qualify as a supplier or shipper on interstate pipelines (or other
LDC’s distribution systems) or to qualify as a supplier under BGE’s Rate Schedule DSG.
Nevertheless, Eastern requests that in order to “level the playing field,” the Commission
should require BNG to apply for credit in its own name and to independently qualify to
be a shipper on BGE and on third party interstate pipelines and other systems. Id.
In order to “level the playing field,” from BNG’s perspective, and give BNG the
financial wherewithal to more actively participate in the gas brokering market, BGE filed
on November 7, 1995 an application with the Commission for authorization to guarantee
up to $20 million of obligations and debt of BNG, Inc. Corporate guarantees of gas
marketing companies are prevalent in the gas industry. Many of the gas marketers and
10
brokers which compete with BNG for sales to delivery service customers currently
operate with a corporate guaranty.
In its Stay Motion, NORSTAR attempts to portray this filing as BGE’s
“disregarding” the Commission’s regulatory processes. NORSTAR Stay Motion at pp.
2-3. Nothing is farther from the truth.
BGE filed for the guarantee so as not to thwart the Commission’s processes.
Contrary to NORSTAR’s assertion, the filing is not a signal that the outcome of Case
No. 8709 is “immaterial” to BGE and that we will proceed as we wish. NORSTAR Stay
Motion at p. 3. Rather, regardless of the outcome of Case No. 8709, BGE submits that
it is appropriate for the guarantee to be approved by the Commission. Just imagine the
hue and cry from competing marketers if BGE waited until, let’s say, December 15, 1995
-- after the legislative hearing in Case No. 8709 -- to file the guarantee request. Under
these circumstances, for BGE not to have filed for the guarantee on November 7, 1995
would have been inappropriate and disrespectful of the Commission’s processes.
Eastern submitted a brochure titled “BGE Gas Brokering - Bringing Customers
Value from Wellhead to Your Business.” Eastern at Attachment A. It notes that the
brokering promotional material uses “BNG . . . interchangeably with BGE” and
complains that the overall focus is that BNG’s affiliate status with BGE will allow a
customer to receive a service superior to that available from their gas sellers. Eastern
at pp. 5-6. It then goes on to request that the recent joint sales call ruling by the
Commission be expanded to prohibit any joint presentations, including advertising and
literature. Eastern at p.15. NORSTAR’s Stay Motion attempts to fan the flames even
11
further by citing the brochure as indicating that BGE is operating in disregard of
Commission regulatory jurisdiction. Stay Motion at pp. 4-6. 6
BGE submits that there is nothing improper about the material used to promote
the brokering activity. BNG should not be prohibited from promoting or advertising its
affiliate status with BGE. Gas marketers generally are not reluctant to promote their
status as a member of a larger corporate entity, if indeed that is their status. The
competitive attributes of BGE and BNG should not be so limited as to significantly
restrict their ability to meaningfully participate in the marketplace.
Attachment A to Eastern’s Comments was not used to inform and educate
customers about their opportunities to use delivery service or to purchase gas from a
third party supplier. Rather, Appendix B to these Reply Comments contains various
letters and materials distributed by BGE since March 1995 in connection with the
expansion of Delivery Service. These materials are impartial and fair in explaining the
opportunities available to customers in connection with BGE’s expansion of Delivery
Service.7
As to concerns about joint sales calls, e.g. Eastern at p. 6, BGE recommended
that a change to the treatment of joint sales calls be adopted by the Commission. BGE
Initial Comments at p. 39. The Company proposes that it be permitted to participate in
6
NORSTAR also refer in its comments to certain promotional material distributed by BNG
in 1994 to indicate that BNG somehow improperly built upon its affiliate status with BGE.
NORSTAR at p. 9. At the time that matter was brought to the Commission’s attention,
BGE indicated that what was unique was the manner in which it would handle billing.
November 9, 1994 Tr. at 31-32.
7
It is a portion of the material in Appendix B to these Reply Comments that was the subject
of the colloquy between Commissioner Brogan and counsel for BGE cited in NORSTAR’s
Stay Motion at 4, n.9. As noted in the transcript, the conversation related back to the
following statement “First, that in terms of opening up this whole expansion and delivery
service, that the literature that went out didn’t even mention BNG.” May 31, 1995
Administrative Meeting Tr. at 37.
12
joint sales calls with all marketers, including BNG, where the customer specifically
requests that a representative from BGE be present. Under this proposal, a BGE
representative would accompany any marketer to visit a customer. The purpose of the
BGE presence would be to explain to the customer the options available to him from
BGE. It would not be to recommend one supplier over another, nor to undermine the
credibility of the third party marketer. In the view of the Company, joint sales calls under
these proposed guidelines provide a significant service to customers. BGE Initial
Comments at p. 41. The Commission should reject any attempt by Eastern or any other
marketer to “stack the deck” even more against BNG and should instead adopt the
Company’s proposal.
UtiliCorp submitted a potpourri of suggested additional standards of conduct,
safeguards, or other “wish list” type items that it would like to see in place. In general,
these consist of: 1) matters that have already been addressed by BGE
(nondiscriminatory treatment of transportation service requests - see Appendix A of
BGE’s Initial Comments, p. 2, column (3), row (d); 2) matters that are more
appropriately explored in the next phase of the Gas Roundtable or are unnecessary
given activities performed by BGE at this time (standards for LDC EBBs, Commissionsponsored customer information brochures, and non-traditional means of securing
customer service agreements); and 3) requests for information that are unnecessary or
competitively sensitive (market penetration of BNG and on a blind basis for other
marketers, as well as a “corporate functions” chart).8 UtiliCorp at pp. 2-3.
E.
BGE’S ACTIVITIES REGARDING ITS OTHER SUBSIDIARIES OR THE
ANNOUNCED MERGER WITH PEPCO ARE IRRELEVANT
8
BGE in its Initial Comments agreed to work with Commission Staff to develop a clarifying
document describing the Commission’s complaint procedures. BGE Initial Comments at
41-42.
13
Eastern asserts that BGE’s recently-announced energy services subsidiary and
the proposed merger between BGE and PEPCO “further supports the Commission’s
implementation” of Staff’s proposed separation requirements. Eastern at p. 12. Eastern
presents absolutely no support or rationale for its contention.
This case is solely about the reasonableness of BNG’s current activities and
whether it is necessary or proper to modify or terminate the arrangement. Order No.
72229 at p. 2. Therefore, BGE submits that the two matters cited by Eastern are totally
irrelevant to any Commission consideration of the BNG brokering activity.
F.
COSTS HAVE BEEN PROPERLY ALLOCATED AND THERE HAS BEEN NO
INAPPROPRIATE CROSS-SUBSIDIZATION
NORSTAR, Eastern, Beth Steel, and to a lesser extent Enron, raised a variety
of challenges as to the manner in which costs were allocated by BGE and claimed that
there has been inappropriate or unlawful cross-subsidization. Among other things, the
competing marketers9 alleged there is a potential for price advantage, below cost
pricing, impermissible competitive advantage, no benefits to ratepayers, lack of risk
borne by BGE shareholders, and that customers have been deprived of a choice of gas
sellers. NORSTAR at pp. 1, 3-7, 10-11; Eastern at pp. 6-7; Beth Steel at pp. 3,5.; and
Enron at p. 2. We disagree and so does OPC. OPC at pp. 2-4.
As explained in BGE’s Initial Comments, BGE ratepayers have benefited from
the Interim Brokering Service and margin-sharing because shareholders, not customers,
have borne all start-up expenses. To date, customers have not paid any brokering
expenses because at the time the Interim Brokering Service went into effect, there were
no brokering expenses reflected in BGE's gas base rates. See also OPC at p. 3. Given
9
This includes Beth Steel, which sells gas to customers behind BGE’s City Gate.
14
that historic brokering expenses will be included in base rates after the conclusion of the
current rate case in late November 1995, shareholders will continue to absorb additional
expenses as the brokering program expands. Stated differently, customers will enjoy
additional margin-sharing revenue as brokering gross profit expands, while shareholders
absorb all of the associated additional expenses.
Both Staff and OPC had access to certain data that BGE considers competitively
sensitive (such as portions of the Interim Period Information Report filed by BGE on
September 15, 1995) and a right to audit the data which supports the revenues and
expenses noted in the Commission’s November 16, 1994 ruling on the brokering
activity. Neither Staff nor OPC have indicated that costs have been allocated
improperly. BGE and BNG maintain separate books and accounts. In addition, this is a
start up business and it is not surprising that margins would be less than expenses in
such a short period of time. BGE Initial Comments at p. 32.
Finally, NORSTAR makes reference to two court cases that presumably support
its allegation of unlawful tying or some other antitrust-type violations. As to the first, its
reliance on Cajun Electric Power Coop. v. F.E.R.C., 28 F.3d 173, 177 (D.C. Cir. 1994),
is misplaced. NORSTAR at p. 7. Cajun dealt with an electric tariff filed by Entergy at
FERC in which the D.C. Circuit determined that the agency, as a matter of procedure,
erred by permitting a certain level of stranded investment costs to be recovered via its
open access transmission tariff. Id. at 180. The court had problems with the type of
hearing process used by FERC in view of disputed factual issues concerning the impact
of the transmission tariff on market power. Id. at 175. The language cited by
NORSTAR is dicta. Moreover, BGE does not have any stranded investment costs at
issue in connection with its brokering activity.
15
Youngstown Thermal Limited Partnership v. Ohio Edison Co., PUCO Docket No.
93-1408-EL-CSS, 1995 Ohio PUC Lexis 746 (Aug. 31, 1995), cited by NORSTAR at p.
5, is inapposite. In that case, the Public Utilities Commission of Ohio (Ohio PUC) found
that an electric utility violated a specific Ohio statute that prohibits a utility from
furnishing free service or service for less than actual costs for the purpose of destroying
competition. There was no affiliate issue involved in that case at all, nor any issues of
cost allocation or cross-subsidization. The Ohio PUC did not engage in any discussion
of these or any other related policy issues; it simply made a narrow finding under a
specific state statute based on the detailed evidentiary record before it. As NORSTAR
itself is compelled to admit, it ”is aware of nothing that would warrant such a severe
conclusion in this case.” NORSTAR at p. 5.
G.
THE BROKERING ACTIVITY AS PRESENTLY STRUCTURED IS
CONSISTENT WITH THE COMMISSION’S FRAMEWORK
Eastern and NORSTAR argue that the brokering activity runs afoul of various
principles set forth in the Commission’s Framework. Eastern at pp. 8-9; NORSTAR,
passim. If the Commission were to impose the separation requirements on BGE/BNG,
that would be inconsistent with the Framework. BGE Initial Comments at pp. 36-37. It
is ludicrous for any marketer on BGE’s system to suggest that we have not complied
with the Framework. BGE has been the most vigorous LDC advocate of the Framework
and its pro-competitive foundation, far more so than any other gas utility in Maryland.
BGE, through the Brokering Service, has provided a competitive alternative to third party
suppliers’ gas marketing services. BGE has appropriately allocated costs to the service
and revenue responsibility has been determined in the current gas rate case. In
addition, BGE has taken numerous steps to eliminate barriers to entry and has done so
on a non-discriminatory basis. It seems that whatever we do is never enough.
16
Therefore, the Commission should give no weight to Eastern and NORSTAR’s
contentions on this matter.
H.
WHAT MAY HAPPEN ON THE SEPARATION ISSUE IN OTHER STATES IS
IRRELEVANT
Eastern makes a vague reference to activities occurring in New York, New
Jersey, and Wisconsin as to the separation of marketing affiliates. Eastern at p. 910
NORSTAR cites with approval certain developments in New York and New Jersey,
NORSTAR at p. 7, but did not mention any developments in Wisconsin. In light of this
apparent oversight, NORSTAR filed with this Commission on November 17, 1995, a
Motion to Lodge a brief filed before the Wisconsin PSC by the Wisconsin PSC Staff on
July 28, 1995 on, among other things, the structural separation issue. NORSTAR’s
Motion to Lodge recites that the Wisconsin PSC voted on September 19, 1995 to adopt
the Staff’s recommendations and that the Chairman of the Wisconsin PSC advocated
structural separation at the most recent NARUC meeting. The Motion to Lodge attaches
no Wisconsin PSC order or ruling.
BGE addressed the New York and New Jersey situations in its Initial Comments
at pp. 25-26, and will not repeat its argument here. As to Wisconsin, to the best of
BGE’s knowledge, consideration of these issues before the Wisconsin PSC is ongoing
and will not be completed until at least May 1996. See Foster Natural Gas Report, No.
2053 (Oct. 26, 1995) at pp. 17-19 (a copy of which is attached as Appendix C). The
issue of whether to address the subject of utilities competing for deregulated business
through cost allocation or by requiring the formation of separate marketing affiliates
remains open and there apparently is no consensus on the issue among the PSC Staff.
10
Eastern cites Wisconsin as having “taken steps in that direction,” but cites no source for
evidence of this activity in Wisconsin.
17
Id. at 17 and n.1. A ”code of conduct” is likely to be developed, and the PSC staff
apparently expressed the view in August 1995 that some restrictions between LDCs and
their marketing affiliates are probably necessary, at least temporarily; “[a]s competition
emerges and is established, the PSC might then consider relaxing all or part of the
restrictions (in favor of case-by-case application).” Id. at 17-18. If there is a different
state of affairs in Wisconsin, one would have expected that NORSTAR would also have
lodged the Wisconsin PSC September 19, 1995 Order or ruling on the structural
separation issue. It did not so.
Even if the Wisconsin standards were final, there would be little basis for the
Commission to adopt them. As noted in BGE’s Initial Comments at p. 26, at most it may
be appropriate for the Commission to take note of what is going on in other jurisdictions.
The Commission should implement guidelines or safeguards in Maryland that are
appropriate to Maryland and supported by the record of experience in Maryland.
I.
IF THE COMMISSION IMPOSED STAFF’S SEPARATION REQUIREMENTS
SOLELY ON BGE, AND NOT ON OTHER GAS UTILITIES IN MARYLAND, IT
WOULD BE UNFAIR, INEQUITABLE, UNDULY DISCRIMINATORY AND
POTENTIALLY ANTICOMPETITIVE
In its Initial Comments, BGE explained why it is appropriate that any separation
requirements ultimately imposed by the Commission also be applied to the other large
gas utilities in Maryland, namely Washington Gas Light and Columbia. BGE Initial
Comments at pp. 37-39. At a minimum, it is appropriate that any standards of conduct
or safeguards applicable to BGE/BNG should also be applied to those utilities,
notwithstanding the corporate form used by those LDCs to market or sell gas on an
unbundled basis. Not surprisingly, Columbia disagrees with this approach and argues,
quite unconvincingly, that the difference between a subsidiary or affiliate structure is
somehow meaningful. Columbia at 2-3. Enron agrees with BGE and states that “BGE
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and BNG should not be penalized merely because they have more aggressively
embraced competition.” Enron at p. 3 (emphasis supplied).
J.
THE COMMISSION SHOULD DENY NORSTAR’S REQUEST FOR A STAY
NORSTAR seeks a stay of the Interim Gas Brokering Service effective
immediately. NORSTAR alleges that without a stay, there will be irreparable harm to the
regulatory process, to consumers, and generally to competition. It also alleges that no
harm attends grant of a stay. NORSTAR is wrong.
NORSTAR’s claims as to the Company’s filing of the guaranty, its jurisdictional
arguments, and its use of BNG marketing materials have been addressed earlier in
these Reply Comments. BGE has fully complied with the Commission’s regulatory
process and conducted its activities in an appropriate manner. Thus NORSTAR’s Stay
Motion has not demonstrated that irreparable harm will occur absent a stay.
There would be indeed be harm if a stay was granted, but not the type of harm
envisioned by NORSTAR. BGE submits that there would be harm to consumers if the
brokering program was stayed. BNG is a competitive gas supplier and presents
customers with an additional choice in the marketplace. Ongoing relationships with
customers are important and the marketplace has benefited by the brokering activity of
BNG. NORSTAR, then O&R Energy, filed a Motion for Stay in October 1994 before
BNG even commenced its first gas sale. The Commission did not grant its stay then
and it should not do so now.
K.
OPC’S PROPOSED CHANGES
OPC presents two proposed changes in its comments. In conjunction with
Commission approval of the proposed changes in BGE’s Initial Comments, the
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Company agrees with OPC’s proposal. As set forth in BGE’s Initial Comments, the
rules for the release of pipeline capacity by BGE to BNG need to be modified. The
currently effective FERC capacity release rules should be used by BGE and BNG, not
more restrictive standards. OPC at p. 3.
OPC’s other modification relates to the treatment of profits and losses for onsystem transactions. It proposes to modify the treatment such that the amount of
revenues received from the gas brokering operation would, after accounting for gas
costs, be used to provide a credit to PGA customers on a dollar-for-dollar basis for the
expenses relating to the BNG operations which are reflected in base rates. After that
point, remaining revenues, or margins, would be shared between ratepayers and
shareholders on the existing 70/30 percent basis. This proposed change is acceptable
to BGE.
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II.
CONCLUSION
The Commission should take action in this proceeding consistent with BGE’s
Initial and Reply Comments.
Respectfully submitted,
_____________________________
Robert S. Fleishman
Baltimore Gas & Electric Company
39 W. Lexington Street
Baltimore, Maryland 21201
(410) 234-6701
(410) 234-7168 (fax)
November 22, 1995
CERTIFICATE OF SERVICE
I certify that I have served a copy of the foregoing document upon each person
designated on the Commission’s Service List in Case No. 8709. Dated at Baltimore,
Maryland, this 22nd day of November, 1995.
_________________________________
Robert S. Fleishman
filings/1122bro
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