El Paso Merchant Energy, declining to match bids for aboutone-third of the capacity on its affiliate El Paso Natural GasPipeline into California, “passed up a short-term profit” (and morecontroversy) to focus on “building our long-term relationship withour California customers,” according to spokesman Mel Scott.

The Merchant Energy arm of El Paso, did, however, pick up 270MMcf/d or 22% of the 1.22 Bcf/d awarded to 30 bidders earlier thisweek (see Daily GPI, Feb. 28). It wasthe largest slice, but not much above awards to three other largecapacity winners.

“We just decided we don’t want to spend our energies dealingwith the problems,” that have plagued the company lately regardinguse of the capacity by its affiliate, Scott said. “We’ve been madea scapegoat. We’re even getting calls from residentials. Theirutilities have told them we’re to blame for the high prices. We’redelivering all the gas that California can take. We’re notwithholding capacity. There’s no way you can hide capacity on apipeline. But, you can’t explain that to a California TV station.They just don’t understand how the system works.”

Scott also pointed out that El Paso delivers about 3 Bcf/d outof the average 8 Bcf/d of natural gas that California uses. “Thereare other pipelines, but they seem to focus on us.”

El Paso has not disclosed the total price to be paid under newcontracts for the capacity, which is to start flowing June 1. Thewinning bids were at tariff rates for a minimum of five years, withEl Paso Merchant Energy, Enron, Duke Energy and Pacific Gas &Electric collecting the largest shares. As the current holder ofthe capacity under a contract that expires May 31, El Paso Merchanthad the right-of-first-refusal, which allowed it to match andpre-empt the winning bids, if it chose to do so. It did not and theROFR period has now expired. Bids totaling 14.4 Bcf/d werereceived, making it necessary to prorate capacity.

Given the large volume of bids, El Paso also is consideringexpanding its pipeline and expects to hold an open season, although nodate has been set, Scott said. The company also is considering FERC’ssuggestion that it expand its project to convert the existing 30-inchdiameter, 1,088-mile crude oil pipeline it is acquiring from PlainsAll American Pipeline L.P. into new capacity for California In themeantime El Paso Energy is conducting an open season to determineinterest for six prospective LNG terminals – at least one and possiblytwo of which would be on the West Coast. The company said it isprepared to spend $1.5 billion over the next five years on theprojects (see Daily GPI, Feb. 6).

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