Enron North America Corp. has formally notified El Paso NaturalGas that it is bailing out of its Block II capacity agreement forabout 600 MMcf/d of firm capacity because it asserts the conditionsoriginally spelled out in its contract with the pipeline “have notbeen satisfactorily completed.”

As a result of FERC’s mid-January order denying Block IIcapacity on El Paso primary access to all three Topock, AZ,delivery points, Enron North America said it “considers that nocontractual obligations under the Block II service agreement exist”anymore. However, it noted it will pay El Paso for services on thepipeline system during January.

Enron’s two other one-year agreements with El Paso – for acombined total of 650 MMcf/d of Blocks I and III capacity – wereunscathed by the Commission’s January order, and apparently stillremain intact. Neither were mentioned in Enron’s letter abrogatingits contract arrangement for El Paso’s Block II capacity.

Enron filed with FERC a copy of its Jan. 27 notification to ElPaso. Enron wanted to set the record straight because El Paso, in acompliance filing made the very same day, led FERC to believe itwould submit a “fully executed” agreement for Block II capacityafter Enron was allowed more time to “internally review” thecontract revisions that were ordered by the Commission.

Earlier this week, FERC denied El Paso’s request to stay part ofthe order that disallowed primary delivery access to southernCalifornia for the Block II capacity, which accounted for almosthalf of the 1.2 Bcf/d firm capacity that Enron contracted for onthe El Paso system. Enron’s decision to pull out of the Block IIagreement moots El Paso’s stay request.

El Paso sought to stay only the decision curbing the primarydelivery rights for Block II capacity on El Paso. The Commissionhad ruled that the terms of El Paso’s 1996 turned-back capacitysettlement limited primary rights for Block II capacity solely tothe delivery point at Pacific Gas & Electric-Topock, anddesignated Southern California Gas-Topock and Mojave-Topock asalternate delivery points.

FERC’s decision would have required El Paso to amend the termsof its original negotiated contract deal with Enron that listed allthree Topock delivery points as primary for the Block II firmcapacity. Without primary rights at SoCal-Topock, the “commercialvalue” of the Block II capacity nose-dived, sources said, and hadprompted widespread reports last week that Enron was looking tounload the Block II capacity. Marketers and producers value firmcapacity to SoCal-Topock much more than they do capacity toPG&E-Topock because they can get higher netbacks for their SanJuan Basin gas.

Amoco Production, Burlington Resources Oil & Gas andMarathon Oil urged the Commission to reject El Paso’s stay request,saying that it was simply “delay tactics.” FERC seemed to agreewith the producers. In a one-paragraph decision, the Commissionlikened El Paso’s request for a stay to a “request for an extensionof time” in which to comply with its decision on delivery rights.

On Jan. 27, El Paso filed at FERC a “revised, partially executedamended and restated” Block II transportation agreement with EnronNorth America. It said this was because “Enron has not hadsufficient time, within the five business days time constraintprovided by the Jan. 19 order, to internally review and execute therevised [agreement].” As soon as Enron “executes” the agreement, ElPaso said it would file it with the Commission then. This statementprompted Enron to notify FERC that it was withdrawing from theBlock II contract.

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