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El Paso Allocation Case Elicits Mixed ADR Reviews

El Paso Allocation Case Elicits Mixed ADR Reviews

A group of natural gas producers has called on FERC to step in and settle once and for all the controversial issue of re-designing the capacity-allocation procedures of El Paso Natural Gas so that "firm" capacity on El Paso would really come to mean firm, and the practice of overbooking firm primary transportation capacity would become history at the pipeline's SoCal/Topock delivery point into California.

But Pacific Gas and Electric (PG&E) and even El Paso believe the parties are making headway on these sticky issues through alternative-dispute-resolution (ADR) negotiations, which currently are ongoing. It's "fair to say that the parties have not given up on the possibility that a settlement will be negotiated" via ADR, El Paso told FERC [RP99-507]. This process should be permitted to continue until "resolution or until it becomes clear that no unanimous settlement is possible," the pipeline said, adding a settlement of the issues through the ADR process was much preferable to a Commission-imposed resolution.

Likewise, PG&E urged FERC to issue an order that would offer "substantive guidance" supporting the continuation of the ADR process, as well as address the issue of the receipt point capacity of El Paso full-requirements customers, and reconfirm the rights of northern California shippers to recall "idle" Block II capacity in accordance with El Paso's turned-back capacity settlement of 1996.

But Indicated Shippers contend the three technical conferences and three ADR settlement conferences that have been held so far have elicited little progress with respect to allocating capacity on El Paso's system. The Commission "should decide this issue on the merits NOW...," noted the group, which includes six major/independent producers and one marketer. "The litigation of this matter has now been forestalled for 280 days," the group said, adding that some parties intentionally have been trying to frustrate attempts to reach a resolution, "with the hopes that if the case drags on long enough it will either go away or die a peaceful death."

Indicated Shippers said they would be willing to continue to try to resolve the issues through the settlement process "only so long as there is a parallel path under which the Commission is actively processing" the complaint brought by Amoco Production, Amoco Energy Trading and Burlington Resources Oil & Gas in September 1999, which spawned the ongoing, expanded Section 5 review of El Paso's allocation, scheduling and pooling procedures.

In response to the producers' complaint, FERC ruled last November that El Paso's pro-rata procedures for allocating capacity appeared to create "uncertainty and unreliability" with respect to scheduling and pooling on its system. It directed El Paso to devise a proposal for a more equitable capacity-allocation method for its system, and ordered the pipeline and its customers to resolve the issue through technical conferences.

El Paso's new capacity-allocation proposal, which was unveiled in February, "was roundly condemned as unworkable by virtually all parties," Indicated Shippers said (see NGI, March 13). El Paso indicated last week that it may submit a revised allocation proposal in the event no ADR settlement is reached. Burlington Resources has proposed an alternative to El Paso's proposal, but it failed to garner enough support to result in an uncontested settlement.

Indicated Shippers (which includes Burlington and Amoco) clearly made it known that they would prefer FERC to adopt Burlington's proposal, which would allocate firm transportation rights on El Paso as fully "pathed" based on the pipeline's design capacity. In contrast, El Paso proposes to designate each firm shipper's contract demand (CD) as partially "pathed" and partially "non-pathed" (See NGI, Feb. 14). With pathed rights, firm shippers would create specific receipt-and-delivery point combinations to transport their gas, which would make them less vulnerable to curtailments by El Paso. Under non-pathed, however, El Paso shippers would continue the existing practice of selecting a specific delivery point, but not a receipt point. The non-pathed shippers still would be susceptible to interruptions.

The El Paso proposal would assign a firm customer pathed rights to about 80% of its contract demand, of which only 47% of the capacity would be out of the shipper-preferred San Juan Basin. However, Indicated Shippers contend Burlington's plan would offer maximum rate shippers "no less than 77% of assured capacity out of the San Juan Basin."

Specifically, Burlington's proposal calls for firm capacity on El Paso's system to be allocated first to maximum rate shippers, on a pro rata basis, and then to the remaining firm shippers based on the percentage of the maximum rate being paid. All shippers would elect the receipt basins and the desired delivery points for 100% of their firm contract quantities, subject to any contract restrictions. In the event there is insufficient capacity to path all firm contracts, the remaining contracts either would be converted to interruptible contracts and/or would have their CD rights reduced. Also, shippers would not have to pay the demand charges for firm capacity that was nominated but not delivered on a particular day (for reasons other than force majeure). Burlington's proposal, according to Indicated Shippers, also would bar East-of-California full requirements customers from nominating capacity in excess of their billing determinants.

Complainants Amoco and Burlington Resources would be "two of the biggest losers under this approach" --- they would lose two of the lowest priced contracts on the system --- but the producers "are willing to sacrifice these contracts in order to gain the reliability and efficiency of a pathed system on El Paso, said Indicated Shippers.

The producer group believes the Burlington proposal offers shippers more benefits than El Paso's capacity-allocation plan, including it would treat full requirements customers (who pay based on billing determinants) and contract demand customers (who pay based on their CDs) equally; capacity would be allocated based on shippers' choices rather than being "arbitrarily imposed" by El Paso; and unsubscribed capacity (including Block I, II and III capacity) could not be resold by El Paso to points that are fully overbooked or oversold.

If FERC should oppose the Burlington capacity-allocation plan, Indicated Shippers suggested that an "acceptable alternative" would be an auction, where all of El Paso's capacity would be for sale in an open season and be awarded to the highest bidders. The Southern California Generation Coalition (SCGC) also liked the idea of a "jump ball" auction, with shippers bidding on El Paso capacity and the net-present-value high bidders prevailing.

"Obviously, under such a system there would be the possibility of total bids under-shooting or over-shooting El Paso's current and future revenue requirement," said the SCGC, adding that "some guard rails" should be put in place so that El Paso shareholders "would neither reap an excessive windfall nor suffer the prospect of insolvency.

PG&E did not comment on the Burlington proposal. The utility, as well as the CPUC, said their chief concern was ensuring that any changes to El Paso's allocation procedures do not interfere with the "assured access" to San Juan gas by shippers serving the northern California market of PG&E. PG&E and its customers paid $58.4 million as part of the 1996 El Paso settlement to guarantee this access for shippers.

If there should be an "unwarranted departure" from the 1996 settlement, PG&E then "would have no choice but to exercise its right to withdraw from the settlement, elect contesting party status, and demand repayment of the large sum of money PG&E and its ratepayers contributed to the settlement," PG&E told FERC.

Susan Parker

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