Armed with a “smoking gun” discovered in just-released data, theCalifornia Public Utilities Commission (CPUC) has launched a freshoffensive against El Paso Natural Gas’ 1.22 Bcf/d transportationcontract arrangement with affiliate El Paso Merchant Energy.

Based on information uncovered in an internal El Paso Merchante-mail, the CPUC now contends that the open season last Februaryfor one third of El Paso’s firm transportation capacity was”rigged” to show preference to El Paso Merchant.

The e-mail revealed that during the open season El Paso Merchanthad “secretly negotiated” a two cents/MMBtu transportation discountrate on Mojave Pipeline, another El Paso affiliate, for servicefrom Topock to Southern California Gas at Wheeler Ridge forquantities above 100,000 MMBtu/d effective March 1, 2000, the CPUCtold FERC. The interruptible discount would last the entire 15months of the new contracts offered in El Paso Natural Gas’ openseason, state regulators said, adding that Mojave had withheldannouncing the discount until Feb. 18 — after El Paso’s openseason had ended.

The discounted capacity on Mojave was critical, given that FERCpreviously had ruled that half of the 1.22 Bcf/d El Paso capacity(Block II capacity) could not directly access the SoCal-Topockdelivery point. As a way around this restriction, bidders in the ElPaso open season knew they could use El Paso capacity to accessMojave Pipeline at Topock, and then have their gas shipped to SoCalat Wheeler Ridge, the CPUC said. But what the non-affiliatedbidders didn’t know was that Mojave had negotiated a discount withEl Paso Merchant, the commission noted. These bidders wereoperating under the assumption that the IT rate on Mojave still wasfour cents/MMBtu, which it had been for the previous 18 months, andhas “factored that limitation” into their bids, it said.

The information about the discount was disclosed in a Feb. 9e-mail written by El Paso Merchant Vice President Robin Cox, whichacknowledged that “Mojave is willing to offer” a two cent/MMBtudiscount rate for volumes above 100,000 MMBtu/d. “I will notofficially request this discount until next Wednesday assuming wewin the capacity,” the executive wrote. “After it is posted, itwill be [available] to everyone.”

This e-mail makes “clear that El Paso Merchant receivedpreferential treatment from El Paso/Mojave and had unfairadvantages over all other bidders during the open season” inviolation of Sections 4 and 5 of the Natural Gas Act, the CPUCcharged in its motion for summary disposition [RP00-241]. It urgedFERC to “fulfill its duty and abrogate” the El Paso-El PasoMerchant contract arrangement. The deadline for El Paso to respondto CPUC’s motion was last week, but it asked FERC for an extensionuntil Sept. 29.

Susan Parker

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