|
|
Enron Mail |
FERC EXTENDS INVESTIGATION OF NEGOTIATED RATE AGREEMENTS BETWEEN PG&E GAS T= RANSMISSION NORTHWEST AND SHIPPERS, LOOKING FOR EVIDENCE OF MARKET MANIPULA= TION 09/27/2001=20 Foster Natural Gas Report=20 Page 7=20 © Copyright 2001, Foster Associates, Inc.=20 FERC issued an order in mid-month September that set for hearing certain co= nsolidated proceedings involving several negotiated rate transactions betwe= en PG&E Gas Transmission, Northwest Corporation (RP99-518) and various ship= pers. The Commission believes closer scrutiny is called for because these t= ransactions appear to provide the opportunity to impose rates many multiple= s in excess of maximum approved tariff rates.=20 The Commission had issued a suspension order in each proceeding that, among= other things, directed GTN to explain (1) how it had the firm capacity ava= ilable to move gas under the transactions in these proceedings, and (2) why= its entering into the subject negotiated service agreements did not violat= e regulations and policy regarding firm transportation service and negotiat= ed rate agreements. The new expedited hearing procedures are intended to fu= rther explore these matters. Pending the outcome, GTN must revise both its = tariff and capacity availability postings to provide for clear identificati= on of operational capacity; and must post and contract operational capacity= on each day of its availability (i.e., on a day-to-day basis), unless it c= an demonstrate such capacity will be available for some longer period of ti= me.=20 Questions Same as Those Addressed to Transwestern Earlier=20 FERC's concerns in this case are remarkably similar to FTS-1 deals recently= arranged by Transwestern Pipeline Co. (RP97-288) that are now the subject = of an expedited hearing and investigation. Beginning in January 2001, Trans= western made a series of eight filings implementing FTS-1 negotiated transa= ctions with five shippers. The filings were accepted and suspended, subject= to conditions, by orders issued March 2 and 28 and April 27. Staff issued = data requests to Transwestern , Sempra and Richardson. In the March 28 orde= r, FERC also directed Transwestern to show cause why its negotiated rate tr= ansactions did not violate the regulations. Transwestern answered that the = negotiated rate contracts at issue, and any others for that matter, would n= ot have been any less firm or provided a lower quality of service had shipp= ers elected, instead, to pay the recourse rate. Underlying these transactio= ns, Transwestern said, is capacity that becomes available only for a short = time.=20 In July the Commissioners voted to establish the hearing to further explore= Transwestern 's negotiated transactions that tied rates to gas spot market= price differentials between the California border and producing basins in = New Mexico and West Texas. For service to the border, Sempra Energy Trading= Corp., Richardson Products Co., BP Energy Co., Astra Power LLC and Reliant= Energy Services elected to pay Transwestern negotiated rates as high as $2= 7/MMBtu compared to a maximum FTS-1 (recourse) rate of 38 cents/MMBtu, excl= uding surcharges and fuel.=20 In Transwestern 's case, the Commission expressed the belief that closer sc= rutiny of transactions that provide the opportunity to impose rates many mu= ltiples in excess of maximum approved tariff rates is necessary: "Did Trans= western withhold capacity that otherwise could have been made available und= er recourse service in order to make the capacity available under negotiate= d rate charges at substantially higher rates?" (See REPORT NO. 2346, pp9-10= .)=20 Background=20 Beginning in March 2001, GTN made a series of separate filings pursuant to = its rights to implement various negotiated rate transactions under its FTS-= 1 Rate Schedule with (1) Sempra, (2) Dynegy Marketing and Trade, (3) Relian= t Energy Services Canada Ltd., (4) Western Gas Resources (Western), (5) Ens= erco Energy, Inc., (6) Mirant Americas Energy Marketing, L.P. , (7) BP Ener= gy Co., and (8) CEG Energy Options, Inc.. The filings were accepted and sus= pended, subject to further proceedings by orders issued on 3/28/01, 5/1/01,= 5/31/01, and 6/29/01. The transactions established transportation rates ti= ed to natural gas spot market price differentials between the Northwest Pip= eline interconnection at Stanfield, Oregon and the Pacific Gas and Electric= Co. and Tuscarora Gas Transmission Co. interconnection at Malin, on the Or= egon-California border.=20 According to the data collected by FERC, the negotiated rate transactions w= ould yield average daily transportation rates many multiples of the maximum= FTS-1 rate (approximately $0.155/MMBtu, Stanfield to Malin), exclusive of = surcharges and fuel, based on the publicly reported price differentials at = the contract receipt and delivery points during the term of the contracts. = The Commission initiated additional review procedures to further explore qu= estions regarding conditions under which operational transportation capacit= y may be available on the GTN system.=20 GTN has already told the Commission that all negotiated rate shippers knew = service was available at the recourse rate, but that these shippers chose t= o structure the pricing of their contracts in this distinct fashion anyway.= Further, GTN insists the subject firm capacity was posted as available on = the company's website and EBB, consistent with the Commission's regulations= .=20 Pursuant to the suspension order, FERC received the following information:= =20 - Sempra clarified that 10,000 MMBtu/d of its 20,000 MMBtu/d total capacity= arrangement with GTN was subscribed at the FTS-1 rate. But GTN insists Sem= pra requested firm backhaul service with the intent of reversing the path. = Under the negotiated alternative, Sempra was persuaded it would not have to= pay reservation charges on the full MDQ for a secondary, lower priority re= verse path service. In its response, Sempra asserted it wanted to use the c= apacity on a secondary basis and thus chose to negotiate a rate structure t= hat would best reflect its price risk profile to account for the fact that = the capacity may not be available every day. Further, Sempra stated that th= e gas transported was sold into the daily markets at Malin, PG&E's citygate= , or the Southern California border market.=20 - Dynegy's rationale for choosing a rate formula rather than the FTS-1 reco= urse rate was to gain additional value from the capacity. GTN had suggested= it could enter into a negotiated agreement based on the daily index-to-ind= ex spread because the Stanfield-Malin spread, less fuel, did not cover the = cost of the FTS-1 recourse rate. Based on GTN's information, Dynegy believe= d the price spread was expected to widen and thereby would give it "a prici= ng opportunity."=20 - According to Western, it initially sought 20,000 MMBtu/d of capacity at t= he FTS-1 recourse rate, but GTN's response did not allow for the total volu= me to be shipped at that rate. Instead, GTN proposed and Western accepted a= nother price option: 10,000 MMBtu/d at the FTS-1 Recourse Rate and 10,000 M= MBtu/d at the Negotiated Gas Daily Index Rate.=20 - Neither Reliant nor Enserco filed a response to the Commission's 5/1/01 o= rder.=20 - Mirant cited three reasons for choosing the monthly index spread rather t= han the recourse rate: 1) the index spread was easily hedged, 2) at the tim= e the market spread was more desirable, and 3) reduction of market risk. Mi= rant believed there were no other practical options to move gas from Stanfi= eld to Malin.=20 - GTN established four negotiated rate agreements with two different shippe= rs: BP Energy and CEG Energy. The BP Energy agreement was accepted as propo= sed, but FERC accepted and suspended the CEG Energy agreements subject to r= efund and further information. Similar to the other parties, CEG Energy sta= ted that it chose a negotiated rate rather than the recourse rate because i= t believed the index spread was less expensive than the FTS-1 recourse rate= .=20 FERC Has Serious Concerns=20 According to the September 13 order, GTN's negotiated rate transactions und= er investigation "present several serious concerns." Even with the addition= al information in hand, the Commission concludes that the filings raise man= y issues that need to be investigated further. Accordingly, an expedited he= aring should explore issues including, but not limited to: whether the tran= sportation capacity was advertised and awarded in an accurate and fair mann= er consistent with GTN's tariff; whether the rates negotiated by GTN were t= he product of an exercise of market power (i.e., did GTN withhold capacity = that otherwise could have been made available under recourse service just t= o make the capacity available under negotiated higher rates); why the shipp= ers agreed to these rates when lower recourse rates should have been availa= ble; and, lastly, whether the practice of improving a shipper's standing in= the scheduling process by selling firm transportation to undesirable prima= ry points so an alternative point can be nominated is discriminatory agains= t interruptible transportation shippers (since the alternative point is als= o available on a somewhat best-efforts basis).=20 Since the negotiated rate transactions also raise concerns regarding GTN's = posting procedures and its use of firm service contracts for operational ca= pacity, the Commission also spelled out the need to require GTN to undertak= e immediately certain measures to identify more clearly the operational cap= acity available on the GTN system and the period for which such capacity is= awarded.=20 Finally, the Commission discovered discrepancies between GTN and the other = negotiated parties' representations regarding the capacity quantities avail= able at the FTS-1 recourse rate. Specifically, FERC's concerns go to the Se= mpra and Western rate agreements whereby the parties initially desired 20,0= 00 MMBtu/d at the recourse rate but were provided with a combination of rec= ourse service and a negotiated service. These actions by GTN may reflect th= e exercise of market power and manipulation of the capacity market, the Com= mission surmises. Mark McConnell Transwestern Pipeline Company 713-345-7896 office 713-822-4862 cell 713-646-2551 fax mark.mcconnell@enron.com
|