Natural Gas Clearinghouse’s (NGC) controversial transportationcontracts for 1.3 Bcf/d with El Paso Natural Gas came under fireagain last week as producers and marketers hammered away at thealleged anticompetitive nature of the firm agreements.

This “case is being hailed by El Paso as a solution to [its]capacity turnback problem, but the issue is at what price,” said agroup of protesters, who insisted the “resultant competitive harmto the marketplace from the contracts far outweighs any perceivedbenefits received by El Paso for reselling its excess capacity.”They urged the Commission to “immediately” suspend the contractsuntil the industry feud over the contracts is settled.

If FERC approves the “anticompetitive structure” of the ElPaso/NGC contracts, “it will create a precedent that will beemulated throughout the natural gas and related industries, andwill be adopted by only those who have sufficient resources andmarket power to replicate the deal,” the protesters said incomments subsequent to a technical conference held earlier thismonth.

“Only the largest of the large corporations (including andperhaps, particularly, pipeline marketing affiliates) will beposition to take advantage of such a deal. The group of protestersincludes Amoco Energy Trading, Amoco Production, BurlingtonResources Oil & Gas, Marathon Oil, Phillips Petroleum andPhillips Gas Marketing, which first made their objections to theNGC/ El Paso contracts known earlier this year when the agreementswent into effect.

The marketers and producers are most concerned about a provisionin the three NGC contracts that freezes El Paso’s monthlyinterruptible volume sales at their 1997 level for the next twoyears. NGC “insisted” on putting the clause in the contracts sothat it wouldn’t be “left holding the bag” if the pipeline sold ITcapacity to the same demand that NGC was hoping to serve. If ElPaso should exceed that IT threshold, the contracts call for thepipeline to adjust downward NGC’s $70-million payment for thecapacity. Marketers and producers blame the IT crediting mechanismfor El Paso’s decision to halt discounting of westbound IT capacityearlier this year, a move which they claim has artificiallyinflated transportation prices to the California border.

The IT revenue crediting mechanism “is tacitly an agreement notto compete,” the producer/marketer protesters insist. “In effect,El Paso has sold its market power to NGC who can be expected to useits control of one-third of El Paso’s total system (one-half of ElPaso’s system to California) to extract monopoly rents…”

The California Public Utilities Commission (CPUC) urged FERC toprobe each of the NGC/El Paso contracts, but particularly thesecond agreement in which NGC acquired “Block II capacity”consisting of 614 MMcf/d with primary receipt points throughout theEl Paso system. Points include the San Juan Basin with a primarydelivery point at the California border at Topock, AZ, into PacificGas and Electric’s intrastate system serving the northern part ofthe state. This contract directly violates El Paso’s settlement,which gave PG&E ratepayers “explicit provisions preserving”that 614 MMcf/d in return for them paying $58.4 million toward ElPaso’s risk-sharing amounts, the CPUC said.

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