A federal appeals court in Washington D.C. has dismissedchallenges by California regulators and other petitioners to FERC’sapproval of the the controversial contract arrangement that awardedDynegy Marketing and Trade more than 1 Bcf of turned-back capacityon El Paso Natural 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 D.C.Circuit told the California Public Utilities Commission (CPUC) andother petitioners, which included producers, marketers and majorutilities serving the California gas market.

The CPUC and petitioners claimed FERC “abused its discretion andacted arbitrarily” because it failed to give weight to theallegedly anticompetitive nature of the El Paso-Dynegy contracts,and allowed parties to violate the terms of a 1996 agreementbetween the pipeline and its customers with respect to Block IIcapacity.

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 that held byDynegy last January, but withdrew from its agreement. El PasoMerchant 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.

Susan Parker

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