Court Challenges to Major El Paso Contracts Dismissed

A federal appeals court in Washington D.C. has dismissed challenges by California regulators and other petitioners to FERC's approval of the the controversial contract arrangement that awarded Dynegy Marketing and Trade more than 1 Bcf of turned-back capacity on El Paso Natural Gas.

"Because the contracts expired in December 1999, we hold that the issues underlying the petitions are moot, and accordingly, we dismiss the petitions," the U.S. Court of Appeals for the D.C. Circuit told the California Public Utilities Commission (CPUC) and other petitioners, which included producers, marketers and major utilities serving the California gas market.

The CPUC and petitioners claimed FERC "abused its discretion and acted arbitrarily" because it failed to give weight to the allegedly anticompetitive nature of the El Paso-Dynegy contracts, and allowed parties to violate the terms of a 1996 agreement between the pipeline and its customers with respect to Block II capacity.

Moreover, the court said it was "unpersuaded" by arguments that El Paso's post-Dynegy capacity contracts - first with Enron North American Corp. and now with affiliate El Paso Merchant - were subjecting California market participants to the "same anticompetitive harm," as well as the "same flawed legal analysis" by FERC. Enron North was awarded the El Paso capacity that held by Dynegy last January, but withdrew from its agreement. El Paso Merchant then quickly stepped in to pick up the firm capacity.

The CPUC and petitioners "fail to show the necessary parallels between these new contracts and the contracts upheld in the El Paso-Dynegy order," the court said. "The Dynegy contracts are materially different from the subsequent contracts entered into by El Paso."

For one, the Enron North contract "did not contain the RRM [revenue reduction mechanism], which was the key element that petitioners claimed made the El Paso-Dynegy transaction impermissibly anticompetitive," it noted. As for the contract deal with El Paso Merchant, the court said that was a "standard contract" under El Paso's tariff, and thus didn't require FERC approval.

"Were FERC to examine this contract, however, the relationship between El Paso and El Paso Merchant would trigger different concerns than a transaction between unrelated parties," the court wrote.

Susan Parker

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