El Paso Open Season Was 'Rigged,' CPUC Says

Armed with a "smoking gun" discovered in just-released data, the California Public Utilities Commission (CPUC) has launched a fresh offensive against El Paso Natural Gas' 1.22 Bcf/d transportation contract arrangement with affiliate El Paso Merchant Energy.

Based on information uncovered in an internal e-mail, the CPUC now contends that the open season last February for one third of El Paso's firm transportation capacity was "rigged" to show preference to El Paso Merchant.

The e-mail revealed that during the open season El Paso Merchant had "secretly negotiated" a two cents/MMBtu transportation discount rate on Mojave Pipeline, another El Paso affiliate, for service from Topock to Southern California Gas at Wheeler Ridge for quantities above 100,000 MMBtu/d effective March 1, 2000, the CPUC told FERC. The interruptible discount would last the entire 15 months of the new contracts offered in El Paso Natural Gas' open season, state regulators said, adding that Mojave had withheld announcing the discount until Feb. 18 --- after El Paso's open season had ended.

The discounted capacity on Mojave was critical, given that FERC previously had ruled that about half of the 1.22 Bcf/d El Paso capacity (Block II capacity) could not directly access the SoCal-Topock delivery point. As a way around this restriction, bidders in the El Paso open season knew they could use El Paso capacity to access Mojave Pipeline at Topock, and then have their gas shipped to SoCal at Wheeler Ridge, the CPUC said. But what they didn't know was that Mojave had negotiated a discount with El Paso Merchant, the commission noted. The shippers were operating under the assumption that the IT rate still was four cents/MMBtu, which it had been for the previous 18 months.

The information about the discount was disclosed in a Feb. 9 e-mail written by El Paso Merchant Vice President Robin Cox, which acknowledged that "Mojave is willing to offer" a two cent/MMBtu discount rate for volumes above 100,000 MMBtu/d. "I will not officially request this discount until next Wednesday assuming we win the capacity," the executive wrote. "After it is posted, it will be [available] to everyone."

This e-mail makes "clear that El Paso Merchant received preferential treatment from El Paso/Mojave and had unfair advantages over all other bidders during the open season" in violation of Sections 4 and 5 of the Natural Gas Act, the CPUC charged. It urged FERC to "fulfill its duty and abrogate" the El Paso-El Paso Merchant contract arrangement.

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