North American Energy Conservation Inc.’s (NAEC) complaintaccusing CNG Transmission Corp. of ignoring its claim to right offirst refusal (ROFR) for expiring capacity is a last-ditch effortto win the capacity back, the pipeline said.

“NAEC’s complaint must be viewed by the Commission as alast-ditch gambit to recoup potential losses by a bidder whoguessed wrong about the market value of capacity on CNG’s system,”CNG Transmission said in response to the NAEC complaint filed lastmonth [RP99-477].

At issue is the capacity in a winter contract that was held byNAES, which expired last March. CNG Transmission put the capacityup for bid, and NAES lost out to a competitor, TXU Energy TradingCo. NAEC contends it was denied its claim to ROFR for the expiredcapacity, but CNG Transmission says otherwise.

CNG noted it negotiated two contracts with NAES – the wintercapacity contract and an existing summer capacity contract. Bothare short-term arrangements (for less than one year) and,consequently, no ROFR applies, the pipeline said.

“Because each agreement is a short-term contract of less thanone year, neither agreement creates a ROFR for NAEC under theCommission’s rules,” it noted. “CNG’s tariff also extends a ROFRonly to long-term agreements that are unambiguously defined ascontracts of one year or longer. The Commission’s inquiry in thiscase should go no further.”

Moreover, CNG insists NAEC’s “own actions belie its currentclaim that it has a ROFR.” The pipeline said its tariff requires ashipper to give “reasonable prior written notice” if it plans toexercise a ROFR, but NAEC didn’t give written notice until Aug. 6th- the final day of bidding for the 14,200 Dth/d of capacity thatwas posted by CNG.

“The complainant waited to give notice despite the fact that CNGinformed NAEC as early as April of this year in a face-to-facemeeting that it was CNG’s position that the ROFR did not apply toNAEC’s short-term services,” CNG Transmission said.

“At best, NAEC can claim that it only recently reached theconclusion that it has a ROFR. To CNG, the more likely explanationis that NAEC realized that it lost the capacity in the competitivebidding process, and only then seized upon the ROFR theory in itsgambit to have the Commission reverse the outcome in the market.”

It said TXU Energy Trading was the first bidder to offer themaximum rate for the capacity for an entire year, while NAEC bid adiscounted rate. “If CNG had sold capacity at a discount on along-term basis, it would have been subject to after-the-factchallenges from its customers that it had failed to obtain themaximum market value for its capacity over the long term,” thepipeline said.

“NAEC’s complaint must be seen for what it truly is. NAEC wasthe loser in a fair competitive bidding process. The winner of thebid now has the firm right to access the Albany [NY] market.Although that loss might cause NAEC some financial pain, that isthe business risk that NAEC assumed by following the biddingstrategy it chose.”

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