Transwestern Denies Withheld Capacity to Boost Negotiated Deals 
A Transwestern Pipeline executive yesterday dismissed allegations that the pipeline withheld firm transportation capacity bound for California from its recourse-rate shippers last winter in order to free up more capacity for contracts at substantially higher negotiated rates. 
Mary Kay Miller, vice president of rates and certificates, acknowledged Transwestern may have had discussions and exchanged faxes (prior to posting its available capacity) with two shippers -- Sempra Energy and Richardson Products II Ltd. -- that subsequently entered into negotiated-rate transactions. But she stressed that requests for capacity by Sempra Energy and Richardson were considered "moot" by the pipeline until after the available operational capacity was posted. 
"Even if they would have sent...a fax the day before" capacity became available, "it would have been irrelevant because there was no capacity posted" at that time, said Miller. Capacity requests that came in prior to Jan. 31, the day that available capacity was posted for February contracts on Transwestern, were "null and void." The only "relevant" ones were those that Transwestern received on or after Jan. 31, she noted. 
Miller spent much of Wednesday on the stand being quizzed by lawyers for FERC and producers about Transwestern's methods for notifying customers about available capacity, the manner in which it chooses winning bids and about its pre-posting contacts with Sempra Energy and Richardson. 
It was the first day of a FERC hearing exploring charges that Transwestern exercised market power in awarding negotiated-rate contracts that led to shippers being charged as much as $27/MMBtu last February, far in excess of the pipeline's maximum allowed rate of 38 cents/MMBtu for firm transportation service to the California border. The Commission proceeding yesterday focused on four negotiated-rate contracts of Sempra Energy and Richardson for a total 45,000 MMBtu/d of service on Transwestern during February and March. 
Richardson and Sempra "clearly did not have any 'deal' entitling them to the posted capacity before it was posted," Miller said in prepared rebuttal testimony. The two companies "had the right to the capacity only 'after' they submitted their bids, 'after' the posting period ended, 'after' Transwestern determined that no other bids were submitted, and 'after' a contract was agreed upon between Transwestern, Richardson or Sempra," she noted. 
Despite claims made by FERC energy industry analyst Barry E. Sullivan to the contrary, "Transwestern did not withhold capacity that otherwise could have been made available under recourse rates in order to make the capacity available under substantially higher negotiated rates," Miller testified. 
Sullivan, an analyst in the FERC Office of Markets, Tariffs and Rates' (OMTR) Division of Litigation, contends that Transwestern threatened to withhold capacity unless shippers agreed to negotiated rates.  In fact, he believes the pre-posting discussions between Transwestern and shippers were intended to raise doubts about the availability of capacity at the maximum recourse rate, so that shippers might be more "willing to enter into negotiated-rate contracts above the recourse rate, in the hope of securing some of the capacity if and when [it became] available." But Miller counters that Sullivan "offers not support for his claim." 
She noted that even Sempra Energy and Richardson, in response to a data request by Southern California Edison, support Transwestern's claims. Both companies replied "no" when asked whether "any employee of Transwestern or any Transwestern affiliate ever indicated at any time that Transwestern would not provide the capacity at the maximum tariff rate." 
The "capacity at issue was offered on Transwestern's web site at the recourse rate in the exact same manner that all other capacity is offered on Transwestern's web site at the recourse rate; there was no prohibition, restrictions, limitation, condition or suggestion that a potential shipper could not bid for the capacity at the recourse rate; and any potential shipper, including Richardson or Sempra, could have submitted a bid for the capacity at the recourse rate." 
Sullivan contends that Transwestern's motive for allegedly advancing negotiated-rate transactions at the expense of recourse-rate deals was pure profit. Under questioning by Thomas J. Burgess of FERC's OMTR, Miller conceded that Transwestern earned $1.8 million from Sempra Energy's contract in March, $1.3 million from Richardson's March contract, and a "comparable" amount from Richardson's February contract. She noted the pipeline received a "substantially higher" amount as a result of Sempra's February contract, but she didn't provide an exact figure. FERC's Sullivan estimated the pipeline's profit from the Sempra February contract was more than $5 million. 
Sullivan said that much of the profits that wound up in Transwestern's coffers would have gone to Sempra Energy and Richardson if they have been able to acquire the capacity at recourse rates. But Miller countered that the Commission's negotiated-rate policy "does not require a minimum level of profit to shippers or contemplate any hindsight analysis of whether shippers could have gotten a better deal or made more profits." 
Furthermore, she said the Transwestern case shouldn't be used to consider changes to the negotiated-rate policy, as Sullivan has suggested. This case "is the wrong forum for such an issue because modifying the negotiated-rate policy should only be done on an industry-wide basis so no pipeline or group of pipeline customers is competitively disadvantaged."