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Koch Blasts Protesters Of its Parking Deals

Koch Blasts Protesters Of its Parking Deals

An irate Koch Gateway Pipeline told FERC last week that Dynegy Marketing and Trade, Amoco Energy Trading and Marathon Oil don't have a clue how to run a gas pipeline and should refrain from attempting to understand how its parking and lending service (PAL) works. Despite being totally devoid of any factual basis, a joint protest filed last week by the marketers wasn't totally unexpected, however, Koch said.

"The fact that Dynegy and Amoco are parties to this protest is not surprising because both have a long-standing practice of raising affiliate abuse issues every time an opportunity presents itself. The mantra of affiliate abuse by these parties has become very tiresome," the pipeline told FERC, adding its answer would prove them wrong.

The dispute involves several PAL contracts Koch signed with its affiliate, Koch Energy Trading (KET) last fall.

The PAL services operate like short-term storage, where customers pay a 1- to 5-cent fee that gives them the option to store a certain amount of gas on the pipeline for a specified period. The service is used to take advantage of arbitrage opportunities in the futures market - which happens to be tied to the Henry Hub delivery point on Koch's pipeline system. The pipeline requires a large percentage of the profits if the service is utilized.

The contracts in question were filed with FERC a day prior to becoming effective Feb.1. They called for various large packages of KET's gas (totaling more than 345,000 MMBtu/d) to be parked on the pipe for the month of February 2000 and returned in portions during March, April and May. KET agreed to pay the option price and 90% of any profits made from the service.

The protesters claim the negotiated PAL agreements are an example of how Koch and its marketing affiliate, KET, violated Commission rules by working together to speculate on futures price spreads. But Koch responded that such a suggestion merely shows how little the marketers understand about the pipeline business.

"Koch is not speculating on anything when it enters into these transactions," the pipeline said. "Rather Koch is hedging its naturally long position, i.e., the pricing of the unsubscribed capacity on the asset it owns, by establishing a price for its services... [Furthermore] the Commission permits interstate pipelines to sell services using an index- or formula-based rate, provided those contracts are executed as negotiated rate transactions."

Koch also explained that the PAL service is the lowest scheduled interruptible service on its pipeline and is bumped by all others. Protesters' claims that "KET has unique opportunity to tie up more than half of the capacity moving into the Henry Hub for the month of November 1999" and had "an unfair competitive advantage over its competitors on Koch's system" are unfounded. If Koch "engaged in the nefarious activity referenced above, why would it select the service with the lowest scheduling priority on its system?

"These agreements did not preclude other customers from bumping KET and securing this capacity on either a firm or interruptible basis," the pipeline added.

The protesters also charged the pipeline raised its revenue sharing requirement for the PAL service to 90% from 80% when Dynegy requested the same service KET received (see NGI, Feb. 21).

But Koch Gateway denied any wrongdoing, saying it received 90% of the profits in more than 40% of the PAL transactions done last year.

In addition, the protesters said Koch violated Commission rules when it waited several months to file its agreements with KET and filed them one day prior to the effective date.

"There is simply no evidence supporting the claim that Koch withheld these transactions from the marketplace or discriminated against anyone," Koch said, urging the Commission to reject the protests.

Rocco Canonica

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