El Paso Capacity Re-Assignments Upheld at FERC
FERC last week gave El Paso Natural Gas high marks for carrying
out firm capacity re-assignments in accordance with a plan that it
approved for the pipeline's system last October. At the same time,
it shot down all of the protests and rehearing requests lodged by
Southern California Gas (SoCal).
"The Commission.finds that the [capacity] election and
assignment process was administered properly" by El Paso, the
rehearing order said. "Other than SoCal, no other shippers have
complained about the [capacity] election and assignment process."
In fact, several shippers on El Paso said it "has been handled in a
fair, equitable and reasonable manner."
Last October, FERC outlined its scheme to resolve the capacity
allocation and scheduling problems on El Paso after the pipeline
and its shippers failed to accomplish the task on their own. It
ordered El Paso to carry out its plan to re-distribute the firm
delivery rights of the pipeline's shippers to more evenly match the
design capacity of each Topock delivery point on the pipeline. The
goal was to reduce the traffic through the constrained SoCal/Topock
point, which is the "most economically desirable delivery point
into California from El Paso, and divert more gas deliveries to the
three other, less-traveled Topock points. The revised capacity
allocations on El Paso are due to go into effect April 1, 2001.
On rehearing, SoCal argued that the Commission's allocation
scheme abrogated its contract, which it said entitled it to the
entire 540 MMcf/d of firm primary delivery rights at SoCal/Topock.
But FERC begged to differ. "In this case, the currently effective
contract between SoCal and El Paso gives SoCal specific delivery
point rights of 610,000 Mcf/d at Ehrenberg and 540,000 Mcf/d of
aggregate delivery point rights at the various Topock delivery
points," not just at SoCal/Topock, the order said [RP99-507-004].
Because the total of all shippers' first elections at
SoCal/Topock exceeded the firm design capacity of that point, El
Paso was forced to award delivery point rights on a pro-rata basis.
SoCal received 489,822 Mcf/d at the various Topock points, of which
202,281 Mcf/d was at SoCal/Topock. The California LDC then shifted
the remaining 50,178 Mcf/d of its Topock delivery point rights to
Ehrenberg, FERC noted. "Thus SoCal received its full entitlement of
540,000 Mcf/d of aggregate Topock delivery point rights, and its
contract has not been abrogated," the order said.
In addition to the 200.2 MMcf/d held by SoCal at SoCal/Topock,
the revised allocation results reveal that ten other shippers now
share the delivery point rights at SoCal/Topock: Aera Energy (7.4
MMcf/d), BP Energy (9.3 MMcf/d), Burlington (37.1), LADWP (13.4),
El Paso Merchant Energy (143.6 in two packages), Oneok (7.4),
Saquarno Power (7.4), Texaco (64.9), US Borax & Chemical (7.1),
and Williams Energy (42.2 in two packages).
Despite claims otherwise, neither [the California regulators]
nor SoCal have shown how the Commission's [allocation] order will
mean that SoCal will not be able to serve its customers, nor how
SoCal will not be able to provide service at just and reasonable
rates," it noted.
Given that FERC refused to confirm that SoCal has prior claim on
the full 540 MMcf/d of firm primary delivery rights into
SoCal/Topock, the California LDC asked that it be given the option
to step down its contract maximum daily quantity with El Paso. But
the Commission wasn't receptive to the idea.
"It would be inconsistent to allow SoCal to abrogate its
contract with El Paso, when a fundamental principle in this
proceeding has been to avoid abrogation of shippers' contracts.
Further, if SoCal were to relinquish its PG&E Topock and Mojave
Topock capacity, El Paso could be exposed to a potential revenue
shortfall if it was unable to remarket that capacity."
FERC further rejected SoCal's request to exclude El Paso
Merchant Energy and Williams Energy Marketing and Trading from the
capacity election and assignment process on El Paso. The two
companies acquired 1.4 Bcf/d of Topock capacity on El Paso last
year, of which 487 MMcf/d had firm delivery point rights into
SoCal/Topock. This aggravated an already-constrained delivery point
at SoCal/Topock, claimed SoCal and other shippers.
"While the Commission acknowledges that [El Paso Merchant's and
Williams'] acquisition of aggregate capacity at Topock may have
exacerbated the problems at SoCal/Topock, the contracts were
consistent with El Paso's existing tariff and did not prevent the
other shippers from exercising their aggregate Topock rights," the
order said. As a result, "the Commission finds that [they] should
not be excluded from the election and assignment process."
FERC also refused a request to give shippers (who participated
in the capacity re-assignment process) first crack to acquire
Topock capacity becoming available under expiring contracts before
the pipeline offers it for sale. "Because the contractual rights of
the Topock shippers have been satisfied and no contracts have been
abrogated, there is no reason to grant a first call on new
capacity, although certain shippers may not be satisfied with the
allocations they received during the election and assignment
process," the order said.
"After the revised capacity allocations are placed into effect,
any shipper who wishes to acquire capacity that becomes available
at any of the Topock delivery points should be allowed to do so
without regard to whether it was a pre-existing Topock shipper or a
The Commission did respond favorably to Indicated Shippers'
request for a review of the system-wide capacity allocation
problems on El Paso. Indicated Shippers argue that the constraints
aren't just limited to the Topock delivery points, but also can be
found on El Paso's Havasu Crossover, the Maricopa Crossover and the
FERC ordered El Paso and its shippers to begin addressing the
system-wide allocation issues as part of the pipeline's Order 637
proceeding. It further directed El Paso to submit a proposal
focusing on the system-wide concerns within 30 days of the order.
The California Public Utilities Commission (CPUC) asked FERC to
rule that shippers of Block I capacity (500 MMcf/d) did not have
the same rights at the SoCal/Topock delivery point as firm shippers
with primary receipt and delivery points at Topock, but FERC denied
The CPUC further claimed the Commission's capacity-allocation
scheme did not offer any deterrent to El Paso's practice of
overselling capacity at SoCal/Topock. It suggested that FERC
require El Paso to offer capacity only when shippers are assured
their full contractual entitlements will be honored.
But FERC pointed out in the order that --- contrary to the
CPUC's claim --- it never found that El Paso oversold capacity at
SoCal/Topock or any other Topock delivery point. "Rather, the
Commission found that the manner in which El Paso allocated
delivery point capacity was unjust and unreasonable. The solution
to the problems at the SoCal/Topock delivery point was to direct El
Paso to assign specific delivery point rights at each of the Topock
As a result of last October's order, "El Paso is prohibited from
selling at any of the Topock points that is above the design
capacity of the point. The Commission finds that no other action is
Lastly, FERC ruled that shippers acquiring El Paso capacity
through the secondary market were entitled to receive a pro-rata
share of the rights to delivery point capacity that were allocated
to the releasing shippers under the capacity election/assignment