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
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
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
"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.