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Technical Conference Slated to Probe Koch PAL Deals

March 13, 2000
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Technical Conference Slated to Probe Koch PAL Deals

FERC has accepted and suspended subject to refund four negotiated parking and lending (PAL) agreements between Koch Gateway Pipeline and its marketing affiliate, Koch Energy Trading. In addition, the Commission has scheduled a technical conference on the matter to explore what it called "serious concerns" raised by protesters about Koch's dealings with its affiliate and use of its negotiated rate privileges. The Commission in August 1996 granted Koch's negotiated rate authority.

The Commission said a joint protest filed by Amoco Production, Amoco Energy Trading, Marathon Oil and Dynegy "raise[s] some very serious concerns as to whether Koch's proposed negotiated rate agreements represent a pattern of conduct that favors its affiliates and whether the conduct is based on use of regulated assets at a low price to make profits on unregulated commodity trades." The Commission said it lacked enough information to make an informed decision on the matter. As a result a technical conference was scheduled to explore the issues raised by the protesters.

The filing in question was made Jan. 31 and included four negotiated PAL agreements. In each, KET agrees to pay an option fee between 1 cent and 5 cents that locks in a PAL rate of equal value. Volumes, which were eligible to be parked in February for delivery at various times between March and May, vary between about 1 and 5 Bcf. Under each contract if KET elects to park gas to be redelivered, Koch Gateway receives 90% of any profits made as a result of arbitrage contracts KET has taken on the New York Mercantile Exchange.

The protesters charge that the 90% profit sharing term of the agreement prevent shippers other than Koch Gateway's affiliate from utilizing the service. They claim Koch raised the term to 90% from 80% when Dynegy inquired about using the PAL service with terms similar to those Koch had previously provided in an agreement it signed in January 1999. The protesters also told FERC Koch delayed in filing the four PAL contracts until a day prior to their effective date in an effort to prevent others from signing up for the same service.

Koch responded in an answer to FERC that the protesters simply don't understand how the service works. Most of the concerns raised, according to the pipeline, are supported by nothing more than innuendo or speculation. It also told the Commission that 40% of its PAL transactions last year included a 90% revenue sharing mechanism.

FERC said among the issues to be addressed at the technical conference are the following: How were Koch's previous PAL deals with Amoco and Dynegy implemented; were they negotiated agreements or discounts to the PAL recourse service? What advantage does a negotiated PAL agreement have over recourse PAL agreement, which does not require revenue sharing? How is the negotiated PAL rate charged? How does the long-term nature of Koch's negotiated PAL agreements comport with the short-term nature of the type of PAL service that FERC envisioned when it authorized the service? How and in what point in time does Koch tell its customers it is offering negotiated PAL services? Koch also should be prepared to address all the other issues raised by protesters, FERC said.

However, the Commission suspended the effectiveness of the agreements until Feb. 1, 2000 --- their original effective date --- subject to refund. Rocco Canonica

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