Maybe the third time will be a charm for El Paso Natural Gas.After two failed open seasons — one of which ended last week —the pipeline is left holding the greater part of the 1.35 BBtu/d ofsoon-to-be-available firm capacity on its system. El Paso now hopesto do a negotiated arrangement for the California-bound capacity— similar to the one it worked out with Dynegy Marketing andTrade two years ago.

El Paso President Richard Baish said no capacity was awardedduring the second open season, which closed last Wednesday. Thebids either were rejected because they failed to meet the “minimumrevenue threshold” requirements for the capacity, were withdrawn bybidders or were disqualified because they didn’t satisfy El Paso’scredit requirements. This followed a similarly disappointing firstopen season, during which only one bid was accepted. It was fromWilliams Energy Marketing and Trading for 101,585 MMBtu/d of BlockII firm capacity to California.

The poor results of the second open season were somewhatsurprising, at least to the pipeline, given that none of thecapacity up for bid – including the large block held by Dynegy -had a right-of-first-refusal (ROFR) attached to it. Dynegy had theright to match valid bids for its 1.2 BBtu/d of El Paso capacityduring the first round, but it lost it in the subsequent openseason. Absent that ROFR threat, Baish had expected to see moreshipper interest the second time around.

But some industry sources believe the open seasons were doomedafter a September order from FERC cautioned potential bidders thatany El Paso capacity awarded might be “subject to prospectivechanges” in delivery point allocation methods. “I think that was ahuge factor in their unsuccessful auctions,” one observer said. Theprospect of changes in delivery rights “has been prominent in ourdiscussions” about bidding on the capacity. The Commission orderwas in response to a complaint accusing El Paso of overbookingcapacity at its interconnection with Southern California Gas(SoCalGas) at Topock, AZ.

13 Bids Fall Short

During the second open season, “there were quite a number ofbids [about 13], but we didn’t find any that met ourcriteria…..We’ll retain the capacity unless and until someonecomes in and makes an offer, and then we’ll do — and this is thesame thing that happened last time around — a negotiated deal,”Baish told NGI. Dynegy was said to be one of the unsuccessfulbidders.

“We’ve given everyone who wanted the opportunity [to buy thecapacity] that opportunity. Now we would feel free to go ahead anddo a negotiated deal with anyone who might be interested inacquiring that capacity,” he said.

Baish noted that “a number of people [already] have contacted”El Paso about doing a negotiated deal. “But I really can’t beanymore specific than that. I can’t identify who [the parties are].You’ve got to keep some mystery.”

He said El Paso was open to doing negotiated arrangements forpieces of the remaining package, which includes a total of 1.25BBtu/d of Blocks I, II and III firm capacity for delivery toCalifornia. But, he added, “I’m not ruling…..out” the possibilityof a single deal for the entire package. During the open seasons,however, nobody bid for the entire capacity, an El Paso shippersaid.

Baish refused to say whether Dynegy, whose contract with El Pasoexpires at the end of the year, was one of the parties with whichit was negotiating. And Dynegy was keeping the market guessing. Ina filing at FERC last week, the Houston marketer said “a great dealof the capacity” that it currently holds on El Paso with primaryrights to the Topock, AZ, delivery points “will be sold to newshippers, including, perhaps, Dynegy.”

The remark was included in Dynegy’s protest of a complaintbrought by Amoco Production, Amoco Energy Trading Corp. andBurlington Resources Oil & Gas against El Paso. The complaint,which was filed last month, accused El Paso of overselling capacityat its interconnection with SoCalGas at Topock, resulting in theneed to allocate capacity among firm shippers to that deliverypoint. As a remedy, they proposed that El Paso be required to limitprimary delivery points at the interconnection with SoCalGas to thetake-away capacity of the LDC’s system (540 MMcf/d).

Such a remedy would give Amoco and Burlington higher priority tothe “desired” SoCalGas-Topock delivery point on El Paso, while itwould degrade the rights to the Topock point of the replacementshipper or shippers that purchase the capacity held by Dynegy,according to Dynegy. New shippers would be “effectively locked out”of using the SoCalGas-Topock point, while Burlington and Amocowould have a “corner on the market” for customers behind the LDC’scitygate, it told FERC [RP99-507]. SoCalGas-Topock is the preferreddelivery point of shippers transporting gas from the San Juan Basinto the southern California market.

In a separate filing at FERC, El Paso criticized the”eleventh-hour timing” of the Amoco/Burlington complaint, which wasbrought on Sept. 21 — one week prior to the close of thepipeline’s first open season. It was “no coincidence” that it came”in the middle of El Paso’s attempt to remarket a huge amount ofturned-back capacity,” the pipeline said. “Clearly, the complaintwas consciously timed to cause the maximum possible disruption tothe open-season process.”

Moreover, the pipeline said it found the complaint to be “morethan a little ironic,” given Amoco’s and Burlington’s apparent lackof interest in the available El Paso capacity. “Neither Amoco norBurlington has shown any interest in actually paying to acquire asignificant portion of the turned-back capacity. Thus, theircomplaints about restricted access to SoCal’s system at Topock ringhollow.”

Susan Parker

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