Claiming to be an innocent victim, TXU Energy Trading is seekinga stay of a decision ordering CNG Transmission to turn overpipeline capacity that was initially awarded to TXU toan existingpipeline shipper, who FERC found had properly exercised itsright-of-first-refusal (ROFR) for the capacity.

TXU asked the Commission to take this action pendingreconsideration of the Sept. 17 order, which directed CNG insteadto honor North American Energy Conservation’s (NAEC) ROFR on the13,350 Dth/d package of capacity on its system.

“Because of the chaos in the marketplace caused by uncertaintyover the rightful ownership of the pipeline capacity,” TXU alsourged the Commission to immediately schedule a technical conference”to hear directly from all interested parties to this controversy.”

The FERC order was in response to a complaint filed by NAEC inAugust, which accused CNG of ignoring its claim of ROFR for thecapacity due to expire Nov. 1. CNG argued that NAEC didn’t qualifyfor ROFR because the capacity was held under two short-termcontracts (less than one year). But the Commission ruled that NAECand CNG had entered into a single, long-term contract of 15 months,rather than several short-term contracts, which entitled NAEC toretain the capacity under CNG’s ROFR procedures. FERC held thatNAEC had given the pipeline reasonable notice that it wanted toexercise its ROFR.

“The effect of the Commission’s decision is to take the capacityaway from TXU and give it to NAEC. Although the record consistedentirely of diametrically opposed factual statements…..theCommission initially determined that the ‘material facts areundisputed,’ and proceeded to reach a decision based on thepleadings. In reality it appears that the Commission simplyaccepted NAEC’s version of the facts,” TXU said in its request forstay and rehearing [RP99-477]

Additionally, “…..the Commission appears to accepted at facevalue NAEC’s assertion that CNG’s request to execute two separateshort-term contracts was part of a scheme by CNG to ‘avoid theimposition of the right of first refusal,” it noted.

Also troubling TXU was FERC’s ruling that NAEC had givenreasonable notice to CNG to exercise its ROFR procedures, eventhough it had waited until Aug. 6th – the last day of bidding onthe capacity – to inform the pipeline of its intent. The Commissionheld that CNG’s tariff provides that a customer can give thepipeline notice “upon expiration” of a long-term agreement, whichin this case is Nov. 1.

“Under this construction of CNG’s tariff, a shipper couldliterally wait until midnight of the day the underlying contractexpires to make a ROFR claim to retain the capacity…In fact, theCommission in this case appears to hold that NAEC could have waiteduntil the contract expired on Nov. 1, 1999 to assert its ROFRrights!” TXU said. “As a practical matter, that makes no sense,either for the pipeline or shippers, who must have continuity ofservice and some reasonable amount of time prior to the expirationof the existing contract in order to do business.”

And “contrary to the Commission’s assumption, NAEC did not matchTXU’s bid,” which it was required to do to retain the capacity. TXUbid the maximum rate for a primary term of one year, and anadditional two years. It also offered to pre-pay all demand chargesfor the first year of service. “NAEC’s bid on the last day of thebidding period did not match TXU’s bid in either respect,” TXU toldFERC.

TXU also took issue with FERC’s statement that it should haveknown when it was awarded the capacity on CNG Transmission that itcould be harmed if the Commission later determined that NAEC hadlegitimately invoked a ROFR. “…,,TXU was not aware that NAEC hadinvoked a ROFR before it was awarded the capacity. In fact, TXU hadno reason to believe that any shipper, let alone NAEC, evenpossessed a ROFR for the capacity.” CNG Transmission later informedTXU that NAEC intended to file a complaint at the Commission, butit gave TXU “no reason to doubt the validity of its right to thecapacity” won through an open bidding process.

“TXU does not understand why the Commission appears to have goneout of its way to place blame on TXU for the precarious situationit is in. TXU knew nothing of NAEC’s ROFR claim and participated inCNG’s bidding process in good faith,” TXU said.

If CNG improperly denied NAEC’s rights, as FERC said, then TXUargues that CNG also improperly denied TXU’s rights to capacitythat it obtained by “participating in good faith in CNG’s biddingprocess.” Under these circumstance, it said the Commission also is”obligated to protect” TXU’s rights.

TXU said it has been “well-known as a reliable supplier ofnatural gas to the Albany [NY] area for 15 years.” But in the wakeof the NAEC complaint and FERC’s order, its “market has been inturmoil, with customers anxious to learn whether their contractswill be renewed and services continued.” It now faces “not onlysubstantial financial losses, but its long-term customerrelationships are in serious jeopardy.”

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