Bids far exceed capacity on El Paso's California pipeline

By the OGJ Online Staff

HOUSTON, Feb. 28, 2001—A unit of El Paso Corp. Wednesday said it received bids totaling 14.4 bcf/day for 1.22 bcf/day of available capacity on its pipeline system serving California.

As a result, the company said it plans to announce another open season to determine if there is sufficient support to expand its pipeline system serving the region. The Houston energy company recently denied allegations its El Paso Merchant Energy unit withheld capacity from the market driving up prices or that a "conspiracy" existed in 1996 to limit construction of new interstate pipeline serving California.

El Paso Natural Gas Co. said it awarded contracts to 30 distinct corporate entities for 1.22 bcf/day of capacity on its system. The company posted for sale capacity held by El Paso Merchant Energy-Gas LP, subject to right of first refusal, Jan. 12. The bidding closed Feb. 12.

El Paso said the contracts were awarded following expiration of a right of first refusal that was not exercised. It said contracts were awarded in accordance with the guidelines for this open season, which provided for proration when requests exceed available capacity.

The contracts, which range in duration from 17 months to 15 years, were awarded at the "just and reasonable" published tariff rate approved by the Federal Energy Regulatory Commission (FERC), the company said.

Lawsuits filed Dec. 18 in California Superior Court in Los Angeles allege units of Sempra Energy and El Paso illegally conspired not to compete against each other in the southern California gas market. El Paso owns one of the largest interstate gas pipelines which transports gas from the producing basins to the California border. Its affiliate El Paso Merchant Energy was awarded the right to a majority of that pipeline's capacity in a bidding process early in the spring.

El Paso has reiterated its contention that as recently as last year, there were periods when significant quantities of unused capacity were available on the pipeline. Notwithstanding its availability, the company said, this capacity was not used by shippers to California to fill in-state natural gas storage facilities for future use.

Storage down in 2000
If California had stored in 2000 the same volumes of natural gas stored in 1999, El Paso said, "reliance on the spot market would have been reduced and the steep rise in prices at the California border could have been substantially mitigated or avoided."

El Paso said capacity held by El Paso Merchant Energy has been used or made available for use by others to serve California and other Western markets. The Houston energy firm said it isn't possible for any holder of capacity on the El Paso pipeline to cause a significant increase in California gas prices by refusing to use that capacity.

The pipeline is required by law to post availability of any unused capacity on its public bulletin board and is obligated to sell that capacity for no more than the published tariff rate found to be just and reasonable by the FERC, the company has said.

Moreover, El Paso said there was no "conspiracy" in 1996 to limit new interstate pipeline capacity into California. It says all new pipelines considered during the 1990s were either built or were not viable because they lacked sufficient customer support to justify construction.

In 1996, according to estimates, there was 1-2 bcf/day of excess gas transportation capacity on existing interstate pipelines serving California. El Paso said misplaced reliance on the continuing availability of excess capacity prompted the California Public Utilities Commission to encourage Pacific Gas & Electric Co, Southern California Edison Co. and Southern California Gas, beginning in 1996 and continuing into 1998, to relinquish over 1.5 bcf/day of firm transportation capacity on the El Paso pipeline.

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