Producer/marketer shippers on El Paso Natural Gas and Californiaregulators aren’t going to like FERC’s ruling on Enron NorthernAmerica Corp.’s 1.2 Bcf/d contract arrangement with the pipeline— it accepted the mega-deal and rejected most of their protests.

The Commission, however, imposed two conditions. It ordered ElPaso to remove within five days a tariff provision giving Block IIcapacity, which is included in the El Paso-Enron transaction,primary rights at all Topock, AZ, delivery points. Also, itconfirmed the rights of El Paso shippers to recall Block IIcapacity from Enron Northern to serve the northern Californiamarket when Enron isn’t using it for that purpose.

El Paso shippers’ protests over the size of the El Paso-Enrontransaction and the revenue-sharing provision in the contracts, aswell as their concerns about the affiliation of Enron Northern andTranswestern Pipeline, were rejected by FERC. Both Enron Northernand Transwestern are owned by Enron Corp.

The Commission “does not believe that…..El Paso’s agreementwith Enron is necessarily inconsistent with the public interest.Size alone has not been grounds for rejecting a transportationagreement, nor is the affiliation of a producer and a pipeline,”the order said [RP97-287-040].

“While the Enron parent corporation owns Transwestern,Transwestern is required to award capacity at the maximum rate andmust do so on a non-discriminatory basis. There are no credibleallegations here that Transwestern has discriminated in theallocation of capacity. A speculative and unsupported allegationthat Enron, acting through its affiliate, may withhold capacityfrom the market on Transwestern is not adequate grounds to rejectthe Enron transaction.”

Moreover, FERC concluded the hotly contested revenue-sharingmechanism “on its face is less inhibiting of competition than thatcontained in El Paso’s previous agreement” with Dynegy Marketingand Trade. Under its contracts with Enron, El Paso “will retain100% of any revenue it earns by competing with Enron…..while thiswas clearly not the case with El Paso’s prior transaction withDynegy. Moreover, if the price of capacity rises and Enron does notuse its capacity itself, or decides not to release it, Enron muststill pay El Paso 25% of the increased value of the capacity…..Therefore, there is some pressure on Enron to either release thecapacity, thereby covering the additional cost, or use the capacityitself.”

The Commission acknowledged that El Paso has a current policy ofnot discounting its interruptible transportation to protect thevalue of its firm transportation capacity to California. But “thefact that this may occur does not render the …..transactionunduly discriminatory or unduly preferential,” the order said.

Although it accepted the contracts, FERC said it will “activelymonitor” the El Paso-Enron transaction due to the level ofprotests. This would include periodically reviewing the capacitythat Enron and its affiliates control on both El Paso andTranswestern, and the capacity-release prices on both pipelines.FERC said it would quickly respond to any “bona fide” allegationthat Transwestern or El Paso are not allocating capacity on anon-discriminatory basis. As part of this, El Paso will be requiredto disclose in its quarterly filings of its index of shippers theactual delivery points of any contracts for the delivery of gas tothe California market. And if the review or a “meritorious”complaint shows that Enron has been withholding capacity in amanner that is unjustly or unduly discriminatory, FERC said it willconsider imposing a remedy — such as mandatory capacity release,which was requested by California regulators.

In the order, FERC dispelled the belief that Enron Northern nowcontrols most of the capacity into California market. It notedPacific Gas and Electric and Southern California Gas (SoCalGas)combined control 1.34 Bcf/d of capacity on both Transwestern and ElPaso, compared to 1.29 Bcf/d for Enron Northern. FERC estimatedthat Enron holds only 41,000 Mcf/d on Transwestern.

The order pointed out the similarities between the Enron andDynegy contracts with El Paso. They’re “almost exactly the samesize and scope,” and as a result the Enron deal is “likely to havethe same results.” Also the rate is about the same (12 cents/Dth),and the “awarding of the capacity should, therefore, have an impactsimilar to that of the prior transaction unless demand conditionschange dramatically,” according to FERC.

“What has changed is the inclusion of a more restrictive minimumpay provision and the removal of a clearly anticompetitivenon-competition clause. While the former indicates that demand issomewhat firmer, the latter is a gain in terms of the totalcompetition situation” into California, the Commission said.

Susan Parker

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