El Paso Capacity Split Among 30 Suppliers

Affiliates of El Paso Merchant Energy, Enron, Duke Energy and Pacific Gas & Electric picked up the largest shares of the 1.2 Bcf/d of available space on El Paso Natural Gas lines to Southern California points in the latest capacity auction.

The assignments to a total of 30 companies mostly run for five or six years from the June 1, 2001 start date, with a few extending even longer. The current capacity holder, El Paso Merchant Energy declined to exercise its right-of-first-refusal (ROFR) for the total capacity, saying it "passed up a short-term profit" (and more controversy) to focus on "building our long-term relationship with our California customers."

"We just decided we don't want to spend our energies dealing with the problems" that have plagued the company lately regarding use of the large block of capacity by its merchant affiliate, spokesman Mel Scott said. "We've been made a scapegoat. We're even getting calls from residentials. Their utilities have told them we're to blame for the high prices. We're delivering all the gas that California can take. We're not withholding capacity. There's no way you can hide capacity on a pipeline. But, you can't explain that to a California TV station. They just don't understand how the system works."

Scott also pointed out that El Paso delivers about 3 Bcf/d out of the average 8 Bcf/d of natural gas that California uses. "There are other pipelines, but they seem to focus on us."

It appears the winning bidders were taking no chances in going for the long term, since El Paso had said its economic evaluation of the bids would include returns up to five years. Rates paid were not disclosed, but sources were assuming, given current demand for capacity, they were at or near the maximum. The bids posted totaled 1,243,072 MMBtu/d and the leaders were (all volumes in MMBtu/d): El Paso Merchant Energy with 276,932, Enron Energy Services 254,056, Duke Energy affiliates 211,697, PG&E affiliates 151,300, Texaco Natural Gas 58,407, and Dynegy affiliates 56,418. A total of 14.4 Bcf/d of bids were received and volumes were pro-rated.

For El Paso Merchant Energy, Enron, Duke and PG&E, the bulk of their capacity is for deliveries to PG&E at Topock. Other prospective capacity holders include (in descending order) MGI Supply Ltd., CEG Energy Options, Sempra Energy affiliates, Occidental Energy, Merrill Lynch Capital, Coral Energy, Mexicana del Cobre, AEP Energy Services, Allegheny Energy Supply, Williams Energy, Sacramento Municipal Utility District, Burlington Resources, Paramount Petroleum, California Steel Industries, and others.

Given the large volume of bids, El Paso also is considering expanding its pipeline and expects to hold an open season, although no date has been set, Scott said. The company also is considering FERC's suggestion that it expand its project to convert the existing 30-inch diameter, 1,088-mile crude oil pipeline it is acquiring from Plains All American Pipeline L.P. into new capacity for California. In the meantime El Paso Energy is conducting an open season to determine interest for six prospective LNG terminals - at least one and possibly two of which would be on the West Coast. The company said it is prepared to spend $1.5 billion over the next five years on the projects (see NGI, Feb. 12).

Coming in the wake of the capacity squeeze going into California over the last year, the latest allocation was a far cry from the two previous auctions for the block of capacity, representing about a third of El Paso's deliveries to California, relinquished by Pacific Gas & Electric in December 1997. Dynegy (then NGC) paid $70 million for the space for 1998 and 1999. The payment included about a 12-cent/Dth reservation charge, plus about 1.6-cent usage charge (see NGI, Jan. 19 & Feb. 2, 1998). After that a contract with Enron for the space fell through and El Paso Merchant Energy picked up the capacity in January 2000 for 15 months for $38.5 million (see NGI, Feb. 21, 2000).

Management of the space has been under attack by California regulators and shippers ever since the first contract was awarded to NGC. El Paso and high-flying California border prices currently are among the targets of several investigations on-going in California and Washington. The company recently issued a press release labeling as "demonstrably untrue" allegations that capacity was manipulated to increase prices (see NGI, Feb. 26).

Ellen Beswick

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