Armed with a “smoking gun” discovered in just-released data, theCalifornia Public Utilities Commission (CPUC) has launched a freshoffensive against El Paso Natural Gas’ 1.22 Bcf/d transportationcontract arrangement with affiliate El Paso Merchant Energy.

Based on information uncovered in an internal e-mail, the CPUCnow contends that the open season last February for one third of ElPaso’s firm transportation capacity was “rigged” to show preferenceto El Paso Merchant.

The e-mail revealed that during the open season El Paso Merchanthad “secretly negotiated” a two cents/MMBtu transportation discountrate on Mojave Pipeline, another El Paso affiliate, for servicefrom Topock to Southern California Gas at Wheeler Ridge forquantities above 100,000 MMBtu/d effective March 1, 2000, the CPUCtold FERC. The interruptible discount would last the entire 15months of the new contracts offered in El Paso Natural Gas’ openseason, state regulators said, adding that Mojave had withheldannouncing the discount until Feb. 18 — after El Paso’s openseason had ended.

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

The information about the discount was disclosed in a Feb. 9e-mail written by El Paso Merchant Vice President Robin Cox, whichacknowledged that “Mojave is willing to offer” a two cent/MMBtudiscount rate for volumes above 100,000 MMBtu/d. “I will notofficially request this discount until next Wednesday assuming wewin the capacity,” the executive wrote. “After it is posted, itwill be [available] to everyone.”

This e-mail makes “clear that El Paso Merchant receivedpreferential treatment from El Paso/Mojave and had unfairadvantages over all other bidders during the open season” inviolation of Sections 4 and 5 of the Natural Gas Act, the CPUCcharged. It urged FERC to “fulfill its duty and abrogate” the ElPaso-El Paso Merchant contract arrangement.

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