Amid industry reports last week that Enron North American Corp.was actively trying to get out from under its conditionallyapproved large capacity contracts with El Paso Natural Gas, thepipeline sought a stay of the order. In the ruling, FERC deniedprimary rights at the prized Southern California Gas-Topock, AZ,delivery point for nearly half of the Enron affiliate’s firmtransportation capacity on El Paso.

Without skipping a beat, three gas producers asked theCommission to “immediately” reject El Paso’s request for stay, “assignificant dollars are at stake and El Paso’s shippers have beenoperating under the assumption that the FERC’s order…..willremain intact.” They accused El Paso of “arrogantly disregarding”the Commission’s decision, which requires the ordered changes to ElPaso’s contracts with Enron North America to take effect Feb. 1. Inseeking the stay, El Paso “has undertaken delay tactics in hopesthat the Commission will change its mind,” said Amoco Production,Burlington Resources Oil & Gas and Marathon Oil Co.

At the center of the storm is the Commission’s Jan. 19 orderthat said El Paso’s 1996 rate settlement restricted primary rightsfor the Block II capacity (almost 600 MMcf) on El Paso’s system tothe delivery point at Pacific Gas & Electric-Topock, withSoCal-Topock and Mojave-Topock designated as alternate deliverypoints. The decision, which was unfavorable for the pipeline,requires El Paso to amend the terms of its 1.2 Bcf/d contractarrangement with Enron that designated all three of the Topockdelivery points as primary.

The Commission’s action, which El Paso called “precipitous,”severely depresses the “commercial value” of the Block II capacitynow held by Enron North America, sources said, and promptedwidespread industry reports last week that the Enron affiliate waslooking to unload the capacity. Marketers and producers value firmcapacity to the SoCal-Topock delivery point much more than they docapacity to PG&E-Topock because they can get higher netbacksfor their San Juan Basin gas, one industry observer noted. WithoutSoCal-Topock as a primary delivery point, the Block II capacity”isn’t as valuable for Enron.” Even El Paso concedes theSoCal-Topock delivery point “is currently the most highly desiredby shippers serving the California market.”

Enron “has arranged for gas supplies and markets based on itsexpectation that the capacity it purchased would compete on an evenfooting. To upset those business arrangements summarily, withoutconsideration of all of the relevant facts, exposes Enron toirreparable harm,” El Paso said in its bid for a stay. The pipelineis seeking the stay until “the first day of the month” after theCommission acts on its request for rehearing, which it said it hadplanned to file last Friday.

What about the injury to existing El Paso customers that haveprimary firm delivery rights at SoCal-Topock, the producers asked.El Paso “myopically and unfairly would place the interest of itsnew customer, Enron, who pays only a portion of the firmtransportation rate, ahead of the interests of its existingcustomers, many of whom are paying the maximum rate and whosupported El Paso in the 1996 settlement,” they countered.

Moreover, the producers wanted to know why El Paso and notEnron, which is more likely to be harmed by FERC’s decision, wasseeking the stay. El Paso “will suffer no losses because it will bepaid for the firm Block II capacity in any event, whether or notthe gas flows to the desired delivery point.”

El Paso countered the impact of FERC’s order on Enron North willbe unmistakable. It “eliminates a significant quantity — almost600,000 Mcf/d — of Enron’s capacity from…competition. Thus,almost one half of the capacity Enron has contracted for will bedenied primary delivery point access to the market the Commissionhas recognized as the most highly valued.” Moreover, it’s likelythat “the business Enron would have enjoyed will be shifted toother suppliers. Restoring Enron’s rights two months, or sixmonths, or a year later will not guarantee that these customerswill return to Enron.”

FERC’s decision “will significantly alter the service to beprovided under the contract. The losses resulting from thisrevision are not and will not be compensable or reparable” if theCommission should determine later that it acted in error, El Pasonoted.

In deciding the 1996 El Paso settlement “improperly” allowedprimary rights at all three Topock points for Block II capacity, ElPaso contends the Commission “relied entirely on theself-interested and self-serving arguments of one side of thedispute to impose a gravely prejudicial interpretation of thesettlement on El Paso, without providing El Paso with a fairopportunity to respond fully to the argument.”

The pipeline now wants its day in court. “El Paso should begiven, at a bare minimum, the same opportunity as the protestingparties to demonstrate the intent of the settlement and to respondto the claims of adverse parties.”

Susan Parker

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