CA Customers Turn to FERC for Relief from Delivery Costs
El Paso Merchant Energy, an affiliate of El Paso Natural Gas, is
reaping "monopoly rents in excess of 7,000% higher than the just
and reasonable rate approved by the Commission for its regulated
sibling," Southern California Edison told the Federal Energy
Regulatory Commission last week.
To remedy this, FERC should act quickly on a complaint seeking
abrogation of the 1.22 Bcf/d transportation contract arrangement
between the pipeline and its affiliate, Edison said, citing the
rapid escalation in gas delivery costs to the Southern California
In light of the "extraordinary events in the California gas and
electricity markets," Edison urged FERC to "immediately consider
--- and grant" summary disposition of the complaint in which the
California Public Utilities Commission (CPUC) alleged that El Paso
Merchant was given "preferential treatment" by El Paso during the
open season for the capacity. The CPUC had sought summary
disposition of the complaint last August, but FERC has yet to act.
Since then, the average price of gas at El Paso's Southern
California Gas delivery points has increased from $6.13 (Aug. 13)
to $36.245/Mcf on Dec. 7, Edison told FERC. There were price quotes
as high as $53/Mcf last Thursday. "And as the Commission is
painfully aware, the California border price of natural gas is a
major force behind the astronomical increase in California
Given that San Juan Basin gas prices rose only to $9.150/Mcf
from $3.585/Mcf during the period ended Dec. 7, this means "the
value of El Paso capacity from the San Juan Basin to the California
border --- a significant portion of which is held by the pipeline's
affiliate [El Paso Merchant] --- has increased in value to almost
$27," the electric company said.
"And the current market value of the El Paso transportation held
by [El Paso Merchant] is over 7,000% higher than El Paso's 100%
load factor rate for firm transportation of approximately 38
cents," Edison estimated.
While at the outset of this complaint proceeding, "the
Commission may have viewed this.as a theoretical exercise in the
study of market power. Today's California energy market presents
the harsh reality of an abuse of that market power that can no
longer be permitted to continue," Edison argued.
In the event FERC chooses not to act quickly on the CPUC
complaint, Edison asked the Commission in the alternative to
enforce a September order that directed El Paso Merchant to turn
over certain materials to the CPUC and other involved parties.
Edison contends El Paso Merchant has refused to comply with the
order, blocking resolution of the complaint.
While El Paso Merchant "drags out the process of resolving this
complaint, the escalating California border prices continue to
provide [it] with the opportunity to profit from arrangements that
are alleged in the complaint to be anticompetitive."
California Dairies Inc., a farmer-owned dairy cooperative with
five milk-processing plants in the state, also asked the Commission
to rule quickly on the CPUC complaint involving El Paso and its
"We believe that your positive action on this complaint holds
the best chance to influence a reduction in the gas price in the
near term," wrote Executive Vice President J.A. Gomes in a letter
last week to Chairman James J. Hoecker.
Gomes said California Dairies, which consumes 1,762,000
therms/month, has seen its gas costs increase from $670,000 in May
to $2.2 million in December, and it expects the costs to nearly
double to $4 million in January.
"This is a sixfold increase amounting to over $100,000 per day,"
he noted. "Since we cannot recover these costs in our product
prices, it puts our business in jeopardy. Further, I believe that
these gas prices will be a severe financial challenge for most
businesses and could result in an economic crisis for California,"
"We don't understand how increases of this magnitude can occur
in a 'competitive' natural gas market."