Message-ID: <12017279.1075846657061.JavaMail.evans@thyme>
Date: Thu, 30 Dec 1999 04:55:00 -0800 (PST)
From: susan.scott@enron.com
To: dave.schafer@enron.com, gina.taylor@enron.com, eric.thode@enron.com
Subject: The El Paso Controversy Continues
Cc: kevin.hyatt@enron.com
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I'm attaching an article that I just received about the CPUC's and Indicated
Shippers' protests of the recent ENA deal on El Paso. I have a call in to
Drew Fossum to talk about formulating a formal response, and I will keep you
in that loop in case you get any inquiries. (My initial, unofficial reaction
is that with the marketing affiliate rules and other safeguards in place, the
fact that ENA and Transwestern have the same parent company should make no
difference to the FERC.) Until further notice, I would avoid any
communication with ENA on these issues. If you have any questions, please
e-mail or call me (x30596).
---------------------- Forwarded by Susan Scott/ET&S/Enron on 12/30/99 12:41
PM ---------------------------
Kevin Hyatt
12/30/99 12:39 PM
To: Susan Scott/ET&S/Enron@ENRON
cc:
Subject: The El Paso Controversy Continues
---------------------- Forwarded by Kevin Hyatt/ET&S/Enron on 12/30/99 12:38
PM ---------------------------
ET & S Business Intelligence
From: Lorna Brennan on 12/30/99 09:18 AM
To: Bill Cordes/ET&S/Enron@ENRON, Julie McCoy/ET&S/Enron@ENRON, Lou
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Hass/ET&S/Enron@ENRON, Donna Fulton/Corp/Enron@ENRON
cc:
Subject: The El Paso Controversy Continues
Enron-El Paso Deal Could Mute Competition to CA
Fearing an end to pipeline competition in California, the state's
regulators and Indicated
Shippers have called on FERC to summarily reject the three
transportation agreements by
which Enron North America Corp. has contracted for 1.25 Bcf/d of
unsubscribed firm
capacity on El Paso Natural Gas.
Approval of these agreements would give Enron Corp., parent of
Transwestern Pipeline
and Enron North America, control over all the available transportation
capacity to the
southern California border, warned Harvey Morris, principal attorney for
the California
Public Utilities Commission (CPUC), which plans to submit its protest
today. Between
the two pipelines, he estimated Enron will control 2.34 Bcf/d of firm
capacity from the
San Juan and Permian basins to California.
For Morris, Enron North America's contracting of the El Paso capacity
represents a
worse threat to the pipeline's other shippers than Dynegy Marketing and
Trade, who has
held the capacity for past two years and whose contract expires Dec. 31.
"At least then
there was some Transwestern competition to the Dynegy situation. Now
it's Enron, the
owner of Transwestern, who's stepping into Dynegy's shoes."
But "what's even worse," he told NGI, is the revenue-sharing provision
in the contracts. It
stipulates that "after Enron makes $35 million off of these contracts,
it has to share the
proceeds with El Paso for 25% of anything beyond $35 million. So
effectively, Enron and
El Paso have become partners in how high they can jack up the
transportation rate
differential between the California border and the Southwest producing
basins."
The two pipeline companies "that have for decades competed with each
other in carrying
Southwest supplies to California are now partners. We think that's
anticompetitive, and
there's no way FERC should approve it," Morris said. He recalled the
basis differential
between the San Juan Basin spot price and the California border shot up
by 17% during
1998, the first year during which Dynegy controlled the El Paso capacity
into California.
This situation could worsen under Enron, he believes.
"At first blush the El Paso-Enron contracts [do] not appear to contain
the same
anticompetitive features of the El Paso-Dynegy contracts," Indicated
Shippers noted, but
a "closer review and analysis" reveals the anticompetitive effects of
the revenue-sharing
provision (RSP) in El Paso-Enron contracts "are not only similar" to
those of the hotly
contested reservation-reduction mechanism (RRM) in the El Paso-Dynegy
case, "but are
increased......due to the fact that the contracts are with a marketing
affiliate of El Paso's
primary interstate pipeline competitor," Transwestern.
Both the RRM and RSP "operate to provide a disincentive for El Paso and
its competitors
to compete against each other, or to take any other action that will act
to drive down the
basis differential that defines the market value of the capacity,"
Indicated Shippers told
FERC in a protest filed on Wednesday [RP97-287-041]. The group includes
producers
Amoco Production, Burlington Resources Oil and Gas, Marathon Oil, and
Phillips
Petroleum, and two marketers - Amoco Energy Trading and Phillips Gas
Marketing.
FERC "should reject the tariff filing immediately. The Commission erred
in allowing the
El Paso-Dynegy contracts to remain intact for their two-year term after
finding that the
contracts were anticompetitive. This issue is pending in the [D.C. Court
of Appeals].
That same error should not be repeated here," the producers and
marketers said.
The CPUC's attempt to block the Enron-El Paso contracts at the outset is
a little bit
unusual for the agency, Morris said, but it learned its lesson following
Dynegy. "When the
Dynegy situation first hit, we asked for FERC to investigate the matter.
We thought
FERC did a very inadequate job then.....This time around we're asking
for FERC to
summarily reject it. It's hard for an agency like ours to take such a
strong stand right at
the beginning, but we've learned too much from two years of suffering
under the Dynegy
situation. And this is even worse."
In the event the Commission should reject California's request, the CPUC
has asked that
an "anti-hoarding condition" be included in the contracts, which would
require Enron to
release unused capacity into the short-term market at a price higher
than what it's paying
El Paso for the capacity. "They must make a little profit," Morris
noted. "We're confident
Enron can't use the entire 1.2 Bcf/d of capacity.....so there's going to
be unused
capacity."
The agency also wants FERC to clarify that the primary delivery point
for the Block II
portion of the capacity (579MMcf/d) is PG&E-Topock in keeping with the
terms of the
1996 settlement between El Paso and its customers. Morris said he agreed
fully with
Amoco, Burlington Resources and Southern California Gas (SoCalGas),
which accused
El Paso of violating the 1996 agreement by allowing Dynegy to use
SoCalGas-Topock as
a primary delivery point for the Block II capacity last summer. They
contend the alleged
violation is included in the Enron contracts.
He also noted the CPUC will challenge the ability of Enron to call back
Block II capacity
after it already had been recalled by El Paso shippers to serve Pacific
Gas and Electric
(PG&E) customers in northern California. Last July, FERC granted Dynegy
the right to
do this under its contracts with El Paso. But Morris contends the
decision violates the
1996 settlement under which PG&E paid $54 million to preserve the right
of the pipeline's
shippers to recall the Block II capacity to serve end-users in its
service territory.
The CPUC also intends to challenge the Commission's decision that would
enable Enron
to "just sit on the capacity," thereby withholding idle Block II
capacity from the market.
Indicated Shippers also contend the Enron contracts violate the Block II
capacity
provisions of the 1996 rate case, as well as "exacerbate" the primary
firm delivery point
capacity-allocation issues that are pending before FERC now.
The CPUC accused El Paso of "deliberately" filing the Enron contracts at
FERC just
before the holidays to avoid controversy. The pipeline "is trying to
sneak one of the most
controversial things ever past FERC right before Christmas so that
protests would be
minimized," said Morris. "They did this with the Dynegy contracts two
years ago. They
have a pattern of filing right at the last minute, making it harder for
people to protest and
harder for FERC to stop it from going into effect."
,Copyright 1999 Intelligence Press Inc. All rights reserved. The preceding
news report may not
be republished or redistributed, in whole or in part, in any form, without
prior written consent
of Intelligence Press, Inc.