FERC has granted Northwest Pipeline Corp. and Duke Energy Trading Marketing LLC’s (DETM) requests for waivers of the pipeline’s tariff that would allow DETM to carry out the permanent transfer of its transportation capacity in its Northwestern Regional Book to an unidentified prearranged replacement shipper.

This action would permit DETM, a joint venture of Duke Energy Corp. (60%) and ExxonMobil Corp. (40%), to sell its capacity and exit the gas marketing business in an orderly fashion, according to the FERC order [RP04-575]. With the sale of the Northwest contracts, DETM will have succeeded in unwinding the joint venture to the point where the trading unit may be completely dissolved by the end of the year or shortly thereafter, a spokesman said. Duke will continue to trade on its own account through its Duke Energy North America unit.

The FERC order issued Friday would allow Northwest Pipeline to hold a reverse auction to determine if DETM can get a better deal than the one it plans with the unidentified shipper. DETM hopes to have the transfer completed by Nov. 1. The deal also would transfer certain rights on Kern River Gas Transmission.

First evidence that the partnership, which had been entered into by Mobil before the merger with Exxon, had turned sour surfaced in early 2003 when disputes over partnership proceeds resulted in an arbiter’s decision ordering Duke to enter into discussions to buy out ExxonMobil’s interest. At the time a spokesman for ExxonMobil said “one of the points of contention” was that ExxonMobil believed Duke Energy was booking profits and revenues to its other affiliates that should have gone to DETM. The arbiter denied the claim, but ordered the discussions (see Daily GPI, Jan. 6, 2003).

Since then DETM has sold off or transferred to Duke Energy North America most of its contracts, the spokesman said.. Earlier this year DETM transferred 167 power sale arrangements with various counterparties to Morgan Stanley Capital Group (see Power Market Today, March 11). Also this spring, the trading unit transferred to Williams Power Co. Inc. four wholesale power sales transactions between DETM and certain third parties for power sales in New Mexico.

In 2003, Duke Energy and ExxonMobil decided to reduce the scale and scope of DETM’s activities, and set up what they termed a “data-room” process to offer DETM’s assets for sale. DETM said it has completed the data-room process for its Northwestern Regional Book, which consists of 174 transportation contracts between Northwest Pipeline and DETM or its affiliate, ANGI Gas Services Co. (ANGI), five associated and dependent delivery commitments (with three counterparties) and two Kern River Gas Transmission transportation contracts.

The contracts on Northwest’s system include: 1) seven base contracts with DETM under Rate Schedule TF-1 for a total of 133,458 Dth/d of long-term, maximum rate capacity; 2) 165 temporary capacity-release replacement contracts, resulting from maximum rate segmented releases of DETM’s base contracts; and 3) two temporary capacity-release replacement contracts with DETM, resulting from maximum rate releases of capacity from other shippers.

Noting that the data-room process was successful, DETM reported it plans to enter into a purchase and sale agreement, including a binding prearranged capacity-release deal, with an unidentified prearranged replacement shipper. DETM would only say the replacement shipper is a “large and sophisticated national energy marketer, who is a qualified, creditworthy third party that is not affiliated with DETM, its parents or Northwest.”

The agreement would call for DETM’s transportation capacity contracts on Northwest Pipeline to be “permanently transferred to the prearranged replacement shipper en masse and intact, with no change in contract rates or terms,” DETM said. In exchange for the prearranged replacement shipper acquiring the contracts at Northwest’s maximum tariff rates for the remaining terms of the contracts, DETM has agreed to make an undisclosed payment to the replacement shipper, it noted.

To carry out this transfer, the Federal Energy Regulatory Commission said it would “1) permit the permanent releases of capacity even encumbered with temporary releases; 2) post the subject contracts as a single package; 3) permit bidding based on confidential disclosures; and 4) permit replacement shippers to assume permanently released contracts as proposed” by DETM and Northwest. In addition, the Commission granted a waiver necessary to implement a proposed reverse auction process.

There is one caveat, FERC said. “While DETM can permanently release its own primary firm capacity, it cannot release capacity for which another shipper holds the primary capacity contract,” it noted. This would apply to the two temporary capacity-release replacement contracts of DETM, which were the result of releases of capacity from other shippers.

DETM has asked Northwest Pipeline to hold a reverse auction to determine whether there are any other potential replacement shippers that are willing to accept a maximum rate permanent release with a lower payment from DETM than what DETM’s prearrangement replacement shipper is willing to accept. “In the reverse auction, the potential replacement shippers bid the amounts that they are willing to receive from the releasing shipper [DETM] to take the releasing shipper’s capacity at maximum rate. The replacement shipper willing to take the least amount of money from the releasing shipper is the winner of the capacity under the reverse auction.” the order noted.

“In the Commission’s view, the reverse auction procedure provides a transparent manner in which the value of the transportation capacity to a replacement shipper may be ascertained. The Commission will grant the requested waiver…for good cause shown.”

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