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El Paso Explores Negotiated Deal for Capacity

El Paso Explores Negotiated Deal for Capacity

Maybe the third time will be a charm for El Paso Natural Gas. After two failed open seasons --- one of which ended last week --- the pipeline is left holding the greater part of the 1.35 BBtu/d of soon-to-be-available firm capacity on its system. El Paso now hopes to do a negotiated arrangement for the California-bound capacity --- similar to the one it worked out with Dynegy Marketing and Trade two years ago.

El Paso President Richard Baish said no capacity was awarded during the second open season, which closed last Wednesday. The bids either were rejected because they failed to meet the "minimum revenue threshold" requirements for the capacity, were withdrawn by bidders or were disqualified because they didn't satisfy El Paso's credit requirements. This followed a similarly disappointing first open season, during which only one bid was accepted. It was from Williams Energy Marketing and Trading for 101,585 MMBtu/d of Block II firm capacity to California.

The poor results of the second open season were somewhat surprising, at least to the pipeline, given that none of the capacity up for bid - including the large block held by Dynegy - had a right-of-first-refusal (ROFR) attached to it. Dynegy had the right to match valid bids for its 1.2 BBtu/d of El Paso capacity during the first round, but it lost it in the subsequent open season. Absent that ROFR threat, Baish had expected to see more shipper interest the second time around.

But some industry sources believe the open seasons were doomed after a September order from FERC cautioned potential bidders that any El Paso capacity awarded might be "subject to prospective changes" in delivery point allocation methods. "I think that was a huge factor in their unsuccessful auctions," one observer said. The prospect of changes in delivery rights "has been prominent in our discussions" about bidding on the capacity. The Commission order was in response to a complaint accusing El Paso of overbooking capacity at its interconnection with Southern California Gas (SoCalGas) at Topock, AZ.

13 Bids Fall Short

During the second open season, "there were quite a number of bids [about 13], but we didn't find any that met our criteria.....We'll retain the capacity unless and until someone comes in and makes an offer, and then we'll do --- and this is the same thing that happened last time around --- a negotiated deal," Baish told NGI. Dynegy was said to be one of the unsuccessful bidders.

"We've given everyone who wanted the opportunity [to buy the capacity] that opportunity. Now we would feel free to go ahead and do a negotiated deal with anyone who might be interested in acquiring that capacity," he said.

Baish noted that "a number of people [already] have contacted" El Paso about doing a negotiated deal. "But I really can't be anymore specific than that. I can't identify who [the parties are]. You've got to keep some mystery."

He said El Paso was open to doing negotiated arrangements for pieces of the remaining package, which includes a total of 1.25 BBtu/d of Blocks I, II and III firm capacity for delivery to California. But, he added, "I'm not ruling.....out" the possibility of a single deal for the entire package. During the open seasons, however, nobody bid for the entire capacity, an El Paso shipper said.

Baish refused to say whether Dynegy, whose contract with El Paso expires at the end of the year, was one of the parties with which it was negotiating. And Dynegy was keeping the market guessing. In a filing at FERC last week, the Houston marketer said "a great deal of the capacity" that it currently holds on El Paso with primary rights to the Topock, AZ, delivery points "will be sold to new shippers, including, perhaps, Dynegy."

The remark was included in Dynegy's protest of a complaint brought by Amoco Production, Amoco Energy Trading Corp. and Burlington Resources Oil & Gas against El Paso. The complaint, which was filed last month, accused El Paso of overselling capacity at its interconnection with SoCalGas at Topock, resulting in the need to allocate capacity among firm shippers to that delivery point. As a remedy, they proposed that El Paso be required to limit primary delivery points at the interconnection with SoCalGas to the take-away capacity of the LDC's system (540 MMcf/d).

Such a remedy would give Amoco and Burlington higher priority to the "desired" SoCalGas-Topock delivery point on El Paso, while it would degrade the rights to the Topock point of the replacement shipper or shippers that purchase the capacity held by Dynegy, according to Dynegy. New shippers would be "effectively locked out" of using the SoCalGas-Topock point, while Burlington and Amoco would have a "corner on the market" for customers behind the LDC's citygate, it told FERC [RP99-507]. SoCalGas-Topock is the preferred delivery point of shippers transporting gas from the San Juan Basin to the southern California market.

In a separate filing at FERC, El Paso criticized the "eleventh-hour timing" of the Amoco/Burlington complaint, which was brought on Sept. 21 --- one week prior to the close of the pipeline's first open season. It was "no coincidence" that it came "in the middle of El Paso's attempt to remarket a huge amount of turned-back capacity," the pipeline said. "Clearly, the complaint was consciously timed to cause the maximum possible disruption to the open-season process."

Moreover, the pipeline said it found the complaint to be "more than a little ironic," given Amoco's and Burlington's apparent lack of interest in the available El Paso capacity. "Neither Amoco nor Burlington has shown any interest in actually paying to acquire a significant portion of the turned-back capacity. Thus, their complaints about restricted access to SoCal's system at Topock ring hollow."

Susan Parker

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ISSN © 2577-9877 | ISSN © 1532-1266
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