The Federal Energy Regulatory Commission has put the brakes on an index-based transportation contract that Transwestern Pipeline negotiated with Dynegy Marketing and Trade, saying the agreement flies in the face of a mid-July order suspending the Enron-affiliated pipeline’s authority to do such deals for an entire year.

“The Commission has determined that Transwestern violated the July 17 order by filing a negotiated rate agreement with Dynegy based on an index-to-index rate differential,” FERC said in rejecting the contract agreement [RP97-288-028]. The July 17 order barred Transwestern from doing index deals based on spot prices for an entire year and directed it to pay refunds after the agency found that the pipeline received “windfall profits” by charging shippers excessive rates for preferential treatment during the California energy crisis in 2000 and 2001 (see Daily GPI, July 18).

FERC’s latest action was in response to protests filed separately by the California Public Utilities Commission (CPUC) and Indicated Shippers, which argued that the Dynegy contract breached the July 17 order prohibiting index-based deals by Transwestern because the contract was to take effect Nov. 1, about four months after the agency’s suspension order.

Transwestern countered, however, that it actually entered into the index-based arrangement with Dynegy on Jan. 11, 2001, more than six months before the Commission implemented the one-year ban on the contracts. The two-month contract called for delivery of 21,500 MMBtu/d of gas from the Bloomfield (NM) Compressor to SoCal Needles at a rate tied to NGI’s Weekly Gas Price Index.

At issue was the scope of the FERC suspension — did it apply only to those index-based contracts that were negotiated after July 17, as Transwestern claimed, or did it also apply to those deals that were negotiated pre-July 17 but took effect after the cut-off date, as the CPUC and Indicated Shippers argued. The Commission sided with California regulators and Indicated Shippers, a group of major producers.

In July, FERC Chairman Pat Wood said he feared that Transwestern’s practice — as well as the practice of other pipes — of tying transportation rates to spot gas prices at different points was “putting the pipelines back in the business we worked so hard to get them out of — that is, of having a vested interest in the commodity market.” This type of negotiated rate (index-based) “puts them back in the saddle very directly, in a relatively covert way,” he noted.

As a result of the growing popularity of index-based negotiated arrangements, the Commission has undertaken a review of its negotiated-rate policies and practices [PL02-6].

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