Transwestern Pipeline is disputing California regulators’ claims that an index-based rate contract negotiated with Dynegy Marketing and Trade violates a FERC order barring the Enron-affiliated pipeline from doing such deals for a one-year period.

The California Public Utilities Commission (CPUC) argues the Dynegy contract breaches the Commission’s July 17 order prohibiting the deals by Transwestern because the contract took effect Nov. 1, about four months after the FERC ruling. The July decision banned Transwestern from negotiating transportation contracts based on basis differentials for “one year following the date of this order.” FERC took this action in response to allegations that Transwestern charged excessive rates during the California energy crisis in 2000 and 2001 (See Daily GPI, July 18).

But Transwestern pointed out that it entered into the index-based arrangement with Dynegy on Jan.11, 2001, more than six months before the Commission implemented the ban on the contracts.

At issue is the scope of the FERC prohibition — does it apply only to those index-based contracts that were negotiated after July 17, or does it also apply to those deals that were negotiated pre-July 17 but took effect after the cut-off date.

The “CPUC claims that even if the Dynegy contract [was] ‘entered into’ prior to July 17, 2002, it ‘would still be prohibited’ because the July 17 order ‘can have meaning only if the prohibition means such contracts cannot be implemented,'” Transwestern said. But, the pipeline argued, the order “has ‘meaning’ because it prohibits Transwestern from entering into negotiated rate contracts based on index pricing for an entire year.”

The Commission’s July order did not retroactively void contracts that had already been negotiated, the pipeline insists. “It would be highly disruptive to the marketplace to void contracts which were lawful when entered into and serve a market need.”

The CPUC has asked FERC to hold a technical conference on the matter, while Indicated Shippers recommended that the Dynegy contract be made subject to the outcome of settlement discussions currently being held. Transwestern requested that parties be permitted to reach a settlement before FERC decides whether to call a technical conference or take other action.

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