An irate Koch Gateway Pipeline told FERC this week that DynegyMarketing and Trade, Amoco Energy Trading and Marathon Oil don’thave a clue how to run a gas pipeline and should refrain fromattempting to understand how its parking and lending service (PAL)works. Despite being totally devoid of any factual basis, theirjoint protest filed last week with the Commission wasn’t totallyunexpected, however, Koch said.

“The fact that Dynegy and Amoco are parties to this protest isnot surprising because both have a long-standing practice ofraising affiliate abuse issues every time an opportunity presentsitself. The mantra of affiliate abuse by these parties has becomevery tiresome,” the pipeline told FERC, adding its answer wouldprove them wrong.

The dispute involves several PAL contracts Koch signed with itsaffiliate, Koch Energy Trading (KET) last fall.

The PAL services operate like short-term storage, wherecustomers pay a 1- to 5-cent fee that gives them the option tostore a certain amount of gas on the pipeline for a specifiedperiod. The service is used to take advantage of arbitrageopportunities in the futures market — which happens to be tied tothe Henry Hub delivery point on Koch’spipeline system. Thepipeline requires a large percentage of the profits if the serviceis utilized.

The contracts in question were filed with FERC a day prior tobecoming effective Feb.1. They called for various large packages ofKET’s gas (totaling more than 345,000 MMBtu/d) to be parked on thepipe for the month of February 2000 and returned in portions duringMarch, April and May. KET agreed to pay the option price and 90% ofany profits made from the service.

The protesters claim the negotiated PAL agreements are anexample of how Koch and its marketing affiliate, KET, violatedCommission rules by working together to speculate on futures pricespreads. But Koch responded that such a suggestion merely shows howlittle the marketers understand about the pipeline business.

“Koch is not speculating on anything when it enters into thesetransactions,” the pipeline said. “Rather Koch is hedging itsnaturally long position, i.e., the pricing of the unsubscribedcapacity on the asset it owns, by establishing a price for itsservices… [Furthermore] the Commission permits interstatepipelines to sell services using an index- or formula-based rate,provided those contracts are executed as negotiated ratetransactions.”

Koch also explained that the PAL service is the lowest scheduledinterruptible service on its pipeline and is bumped by all others.Protesters’ claims that “KET has unique opportunity to tie up morethan half of the capacity moving into the Henry Hub for the monthof November 1999” and had “an unfair competitive advantage over itscompetitors on Koch’s system” are unfounded. If Koch “engaged inthe nefarious activity referenced above, why would it select theservice with the lowest scheduling priority on its system?

“These agreements did not preclude other customers from bumpingKET and securing this capacity on either a firm or interruptiblebasis,” the pipeline added.

The protesters also charged the pipeline raised its revenue sharingrequirement for the PAL service to 90% from 80% when Dynegy requestedthe same service KET received (see Daily GPI, Feb. 18).

But Koch Gateway denied any wrongdoing, saying it received 90%of the profits in more than 40% of the PAL transactions done lastyear.

In addition, the protesters said Koch violated Commission ruleswhen it waited several months to file its agreements with KET andfiled them one day prior to the effective date.

“There is simply no evidence supporting the claim that Kochwithheld these transactions from the marketplace or discriminatedagainst anyone,” Koch said, urging the Commission to reject theprotests.

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