A federal appeals court in Washington, DC last Friday dismissedclaims by California regulators and other petitioners that FERC”abused its discretion and acted arbitrarily” when it approved thecontroversial contract arrangement that awarded Dynegy Marketingand Trade more than 1 Bcf of turned-back capacity on El PasoNatural Gas.

“Because the contracts expired in December 1999, we hold thatthe issues underlying the petitions are moot, and accordingly, wedismiss the petitions,” the U.S. Court of Appeals for the DCCircuit told the California Public Utilities Commission (CPUC) andother petitioners, which included producers, marketers and majorutilities serving the California gas market.

The CPUC and petitioners challenged FERC’s action, arguing thatthe agency failed to give weight to the allegedly anticompetitivenature of the El Paso-Dynegy contracts, and allowed parties toviolate the terms of a 1996 agreement between the pipeline and itscustomers with respect to Block II capacity.

Moreover, the court said it was “unpersuaded” by arguments thatEl Paso’s post-Dynegy capacity contracts — first with Enron NorthAmerican Corp. and now with affiliate El Paso Merchant — weresubjecting California market participants to the “sameanticompetitive harm,” as well as the “same flawed legal analysis”by FERC. Enron North was awarded the El Paso capacity previouslyheld by Dynegy last January, but withdrew from its agreement. ElPaso Merchant then quickly stepped in to pick up the firm capacity.

The CPUC and petitioners “fail to show the necessary parallelsbetween these new contracts and the contracts upheld in the ElPaso-Dynegy order,” the court said. “The Dynegy contracts arematerially different from the subsequent contracts entered into byEl Paso.”

For one, the Enron North contract “did not contain the RRM[revenue reduction mechanism], which was the key element thatpetitioners claimed made the El Paso-Dynegy transactionimpermissibly anticompetitive,” it noted. As for the contract dealwith El Paso Merchant, the court said that was a “standardcontract” under El Paso’s tariff, and thus didn’t require FERCapproval.

“Were FERC to examine this contract, however, the relationshipbetween El Paso and El Paso Merchant would trigger differentconcerns than a transaction between unrelated parties,” the courtwrote.

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