The controversial two-year period in which Dynegy Marketing andTrade held a huge chunk of El Paso’s firm capacity to the SouthernCalifornia border is coming to an end, and western gas traders arelooking for a new market regime in the new millennium. Unless thepipeline manages to negotiate a deal for most if not all of thecapacity expiring at the end of 1999, traders are expecting theabundance of transportation space from Southwest basins to theborder to lower regional prices next year.

Word on the street for the past couple of days was that El Pasowas about to announce a deal at any moment with a customer whowould take most of the expiring space. However, a pipelinespokesman said, “We are working very hard on marketing thiscapacity, but will have nothing to say about a negotiated deal” asof Thursday afternoon.

Will deliveries at the California border be lower starting Jan.1? It’s all up to El Paso, a trader said. He pegged the inclusiveEl Paso interruptible rate from San Juan Basin to the border atabout 38 cents currently. That rate won’t come down unless thepipeline discounts it, he said. However, the trader anticipatesthat will happen since the space will revert from Dynegy to El Pasoand could go unused if El Paso doesn’t “promote it.”

A marketer concurred that border prices will get “potentiallycheaper,” but only if El Paso releases the turned-back capacity inthe 30-day market.

But another marketer had some doubts. “When Dynegy came up withits own deal two years ago, people expected the San Juan-borderspread to widen greatly, but the market didn’t take long to findits own supply/demand equilibrium,” he said. There will be someimpact, he added, but it won’t be huge.

So far the pipeline has been largely unsuccessful inre-marketing the space that will become available New Year’s Day.In the first round of bidding this fall, only a little more than100 MMcf/d was awarded to Williams Energy Marketing and Trading.Other bids were rejected because they didn’t meet E Paso’s “minimumrevenue threshold” requirements.

For the same reason and also because of withdrawn bids or unmetcredit specifications, no awards were made in the second biddinground even with Dynegy’s right-of-first-refusal (ROFR) capabilityremoved. El Paso thought the ROFR might have been a deterrent topotential bidders in the first round.

Following the failure of the second open season, El Pasoessentially hoped to repeat what it had done with Dynegy two yearsearlier: assign the capacity in a negotiated arrangement.

One source said Dynegy was reluctant to resign all of its hugeEl Paso commitment because it was “getting hammered” this year ontake-or-pay provisions during the summer months. Including theapproximately 1.3 Bcf/d of capacity turned back by Pacific Gas& Electric in 1997, Dynegy has a shade less than 1.5 Bcf/d ofFT reserved, all of which expires at the end of this year. Dynegydeclined NGI’s request for comment on the El Paso capacity issue orhow much FT it wished to retain.

The only other single customer that comes near Dynegy incontrolling firm El Paso capacity to the border is distributorSouthern California Gas with about 1,176 MMcf/d. The SoCal Gascontract runs through Aug. 31, 2006.

In a side issue, Amoco and Burlington Resources took shots at ElPaso in a September complaint to FERC that the pipelineconsistently overbooks firm nominations at the Topock (AZ) deliverypoint into Southern California Gas. The producers alleged that theTopock allocation method causes them big monetary losses (Amocoestimated $1-2 million a year in its case). They wanted to stop ElPaso’s first open season for about 1.4 Bcf/d in FT, saying itsresults could exacerbate the situation.

A marketer agreed with the two producers this week, complainingthat El Paso essentially has been selling interruptible capacity asfirm. “I am almost never able to get 100% of my FT flows deliveredat the border” by El Paso, he said. The marketer estimated thatnominated firm deliveries by Transwestern average 95-100%, but saidEl Paso service can range from 5% to 100%.

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