El Paso Merchant Declines ROFR Opportunity
El Paso Merchant Energy, declining to match bids for about one-third of the capacity on its affiliate El Paso Natural Gas Pipeline into California, "passed up a short-term profit" (and more controversy) to focus on "building our long-term relationship with our California customers," according to spokesman Mel Scott. 
The Merchant Energy arm of El Paso, did, however, pick up 270 MMcf/d or 22% of the 1.22 Bcf/d awarded to 30 bidders earlier this week (see Daily GPI, Feb. 28 <d20010228f.html>). It was the largest slice, but not much above awards to three other large capacity winners. 
"We just decided we don't want to spend our energies dealing with the problems," that have plagued the company lately regarding use of the capacity by its affiliate, Scott said. "We've been made a scapegoat. We're even getting calls from residentials. Their utilities have told them we're to blame for the high prices. We're delivering all the gas that California can take. We're not withholding capacity. There's no way you can hide capacity on a pipeline. But, you can't explain that to a California TV station. They just don't understand how the system works." 
Scott also pointed out that El Paso delivers about 3 Bcf/d out of the average 8 Bcf/d of natural gas that California uses. "There are other pipelines, but they seem to focus on us." 
El Paso has not disclosed the total price to be paid under new contracts for the capacity, which is to start flowing June 1. The winning bids were at tariff rates for a minimum of five years, with El Paso Merchant Energy, Enron, Duke Energy and Pacific Gas & Electric collecting the largest shares. As the current holder of the capacity under a contract that expires May 31, El Paso Merchant had the right-of-first-refusal, which allowed it to match and pre-empt the winning bids, if it chose to do so. It did not and the ROFR period has now expired. Bids totaling 14.4 Bcf/d were received, making it necessary to prorate capacity. 
Given the large volume of bids, El Paso also is considering expanding its pipeline and expects to hold an open season, although no date has been set, Scott said. The company also is considering FERC's suggestion that it expand its project to convert the existing 30-inch diameter, 1,088-mile crude oil pipeline it is acquiring from Plains All American Pipeline L.P. into new capacity for California In the meantime El Paso Energy is conducting an open season to determine interest for six prospective LNG terminals - at least one and possibly two of which would be on the West Coast. The company said it is prepared to spend $1.5 billion over the next five years on the projects (see Daily GPI, Feb. 6 <d20010206c.html>).