UNITED STATES COURT OF APPEALS FOR THE D.C. CIRCUIT


SO CA EDISON CO

v.

FERC


97-1699a

D.C. Cir. 1999


*	*	*


Williams, Circuit Judge: Petitioner Southern California  Edison Co.
("Edison") challenges FERC's refusal to look into  allegations that
Southern California Gas Company ("SoCal")  had abused its market power
in the "secondary release"  market for gas pipeline capacity. The
Commission decided  that SoCal's compliance with the maximum tariff
rate made  any inquiry into such issues unnecessary, and dismissed the
 complaint brought by Edison under s 5 of the Natural Gas  Act, 15
U.S.C. s 717d. Southern California Edison Co. v.  Southern California
Gas Co., 79 FERC p 61,157, reh'g de- nied, 80 FERC p 61,390 (1997). We
disagree and remand the  case.


* * *


Edison's complaint, filed in March of 1997, set out the facts  as
follows: Two interstate pipelines carry gas from the San  Juan Basin
to the California border. SoCal is the dominant  holder of firm
capacity on these lines and has market power  in that transportation
market. Of the 1450 MMcf/day of firm  capacity that it holds
(representing 30-40% of the total capac- ity), SoCal uses 1057
MMcf/day to provide gas to its "core"  customers--that is, residential
and small commercial users.1  The remaining 393 MMcf/day has been and
is available for  release into a secondary market. See 79 FERC p


By Edison's account, SoCal has exercised such market  power by
releasing capacity to one of its subdivisions at  below-market rates
and offering additional capacity only at an  


__________

n 1 Pursuant to gas industry restructuring, SoCal no longer  provides
interstate transportation service to "non-core" customers.


above-market minimum bid price. This overpricing of the  capacity
nominally offered to others costs SoCal nothing, says  Edison, because
the state regulatory agency allows SoCal to  recover, by means of an
Interstate Transportation Cost Sur- charge ("ITCS"), the difference
between the cost of the  capacity to it, approximately $12 per
MMBtu/month, and  anything it may recover by releases in the secondary
market  ($0.00 for capacity not released, and $1.20 for capacity re-
leased to its affiliate). According to Edison, SoCal set a  minimum of
$4.20 per MMBtu/month for releases to others.


The Commission, finding no violation of its capacity release 
regulations, 18 CFR s 284.243, dismissed Edison's complaint  without
factual inquiry. 79 FERC p 61,157. It then denied  rehearing,
rejecting Edison's contention that the agency had  to evaluate alleged
abuses of market power even absent a  violation of these regulations.
80 FERC p 61,390. Edison  filed this petition in November 1997.


* * *


FERC makes much of the here-uncontested finding that no  regulation was
violated. It points particularly to the regula- tory
requirement--satisfied here--that secondary release  prices be no
higher than the maximum tariff rate (that is, the  maximum rate the
Commission allows a pipeline--the pri- mary seller of capacity--to
charge). See 18 CFR  s 284.243(e), (h)(1). Because that maximum was
fixed as a  "just and reasonable" rate, FERC argues, Edison has no 


It is clear that, as a statutory matter, the Commission's  duties are
not so limited. Section 5 of the Natural Gas Act  gives FERC
jurisdiction not only over "unjust" and "unrea- sonable" "rate[s]" but
also over unjust and unreasonable  "practice[s]", as well as "unduly
discriminatory" or "preferen- tial" rates or practices. 15 U.S.C. s
717d(a). That the rate  charged in a particular instance is just and
reasonable still  leaves in place these other possible grounds for
Commission  action.


Nor was it enough for the Commission to point to SoCal's  compliance
with the established maximum rate for released  capacity. Here FERC
reasoned by analogy to its treatment  of pipelines. They are "presumed
to have market power," yet  are allowed to charge up to the maximum
just and reasonable  rate without further scrutiny; FERC apparently
believed  that a releasing shipper could not be better situated to
abuse  market power than a pipeline. 80 FERC p 61,391 at 62,302.  This
reasoning probably makes sense ordinarily, but here  overlooks the
ITCS. While revenue losses on unmade sales  constrain an ordinary
monopolist's ability to reduce output  and raise prices, the ITCS
enables SoCal to give its own units  artificially low prices, and to
price sales to others at unaccep- table prices, with no sacrifice of
transportation revenue what- ever.


FERC's final rationale--that shippers might refuse to par- ticipate in
the capacity release program at all if they knew  they would be
subjecting themselves to market power scruti- ny and the possible
remedies therefor, see id.--also fails to  account for the
distinguishing fact of the ITCS. There is no  reason why a decision to
examine market power issues here  need expose all shippers to possible
scrutiny: the Commis- sion could, by the terms of its decision, simply
limit possible  objects of investigation to those capacity-holders who
are  faced with the same perverse incentives as SoCal with the  ITCS.
Assuming that the ill effects of greater intervention  justify the
Commission's general reliance on compliance with  maximum rates, they
do not necessarily do so in the special  case of the ITCS, and the
Commission's assumption that they  do is unexplained.


* * *


Because the Commission's decision not to examine the  market power
issues raised by Edison was arbitrary and  capricious, we remand the
case. We note, however, that the  facts underlying Edison's claimed
aggrievement are now un- clear. At the time of the initial complaint
through the filing  of the petition for review, Edison owned a number


fired electricity generation plants, and was harmed in this  capacity
by higher gas prices. Pursuant to state law, howev- er, Edison sold
these plants in 1998; it now purchases  electricity for distribution
from the California Power Ex- change ("PX"). Although Edison continues
to generate pow- er from non-gas sources such as nuclear, coal and
hydroelec- tric, it is a net buyer from the PX. Because gas often is
the  fuel for marginal electricity supply, according to Edison's 
affidavit, gas prices drive PX electricity prices, and Edison 
continues to be adversely affected by gas price increases.  This and
other standing issues (such as Edison's possible  injury as a firm
that funds the ITCS) should be aired before  the Commission, so that
we may better evaluate standing if  the Commission's decision on the
merits leads Edison to  petition for review again.


SoCal, as Intervenor, points to other changes in circum- stance--its
merger with San Diego Gas & Electric and the  latter's sale of its
gas-fired plants--as signs that the incentive  structure no longer
favors the kind of market power abuse  alleged by Edison. But
manipulation of the downstream  electricity-generation market does not
exhaust the possible  benefits to SoCal from abuse of its market power
in the gas  transportation market. Edison points to the energy futures
 markets and to competition between electricity and core gas 
services. We leave these to be considered by the Commis- sion.


We grant Edison's petition and remand the case to FERC.


So ordered.