FERC has accepted and suspended subject to refund four negotiatedparking and lending (PAL) agreements between Koch Gateway Pipeline andits marketing affiliate, Koch Energy Trading (see Daily GPI, Feb. 18 andFeb. 25). In addition, the Commission has scheduled a technicalconference on the matter to explore what it called “serious concerns”raised by protesters about Koch’s dealings with its affiliate and useof its negotiated rate privileges. The Commission in August 1996granted Koch’s negotiated rate authority.

The Commission said a joint protest filed by Amoco Production,Amoco Energy Trading, Marathon Oil and Dynegy “raise[s] some veryserious concerns as to whether Koch’s proposed negotiated rateagreements represent a pattern of conduct that favors itsaffiliates and whether the conduct is based on use of regulatedassets at a low price to make profits on unregulated commoditytrades.” The Commission said it lacked enough information to makean informed decision on the matter. As a result a technicalconference was scheduled to explore the issues raised by theprotesters.

The filing in question was made Jan. 31 and included fournegotiated PAL agreements. In each, KET agrees to pay an option feebetween 1 cent and 5 cents that locks in a PAL rate of equal value.Volumes, which were eligible to be parked in February for deliveryat various times between March and May, vary between about 1 and 5Bcf. Under each contract if KET elects to park gas to beredelivered, Koch Gateway receives 90% of any profits made as aresult of arbitrage contracts KET has taken on the New YorkMercantile Exchange.

The protesters charge that the 90% profit sharing term of theagreement prevent shippers other than Koch Gateway’s affiliate fromutilizing the service. They claim Koch raised the term to 90% from80% when Dynegy inquired about using the PAL service with termssimilar to those Koch had previously provided in an agreement itsigned in January 1999. The protesters also told FERC Koch delayedin filing the four PAL contracts until a day prior to theireffective date in an effort to prevent others from signing up forthe same service.

Koch responded in an answer to FERC that the protesters simplydon’t understand how the service works. Most of the concernsraised, according to the pipeline, are supported by nothing morethan innuendo or speculation. It also told the Commission that 40%of its PAL transactions last year included a 90% revenue sharingmechanism.

FERC said among the issues to be addressed at the technicalconference are the following: How were Koch’s previous PAL dealswith Amoco and Dynegy implemented; were they negotiated agreementsor discounts to the PAL recourse service? What advantage does anegotiated PAL agreement have over recourse PAL agreement, whichdoes not require revenue sharing? How is the negotiated PAL ratecharged? How does the long-term nature of Koch’s negotiated PALagreements comport with the short-term nature of the type of PALservice that FERC envisioned when it authorized the service? Howand in what point in time does Koch tell its customers it isoffering negotiated PAL services? Koch also should be prepared toaddress all the other issues raised by protesters, FERC said.

However, the Commission suspended the effectiveness of theagreements until Feb. 1, 2000 — their original effective date —subject to refund.

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