California regulators and a number of shippers on the existing El Paso Natural Gas system (EPNG) have called on FERC to either reject or defer the pipeline’s bid to roll in the costs of a proposed complex and multifaceted expansion that would boost capacity by 502 MMcf/d.

El Paso Electric called El Paso’s request for rolled-in rate treatment of the so-called Line No. 1903 project “premature,” and said the issue should be dealt with in June 2005 when the pipeline is due to file its next general rate case. Pacific Gas and Electric Co. (PG&E) also urged the Federal Energy Regulatory Commission to defer a decision on the issue until El Paso’s next rate case.

Rolling in the costs of the Line No. 1903 project will require subsidization from existing shippers that do not contract for the new capacity, El Paso Electric said. It noted that El Paso estimates that the annual cost of service for the project will be $31.1 million, but that the incremental annual revenues associated with the Line No. 1903 expansion will be about $8.6 million, leaving a shortfall of $23.5 million.

El Paso contends that an expected $22.8 million in contract extensions on its existing system make the case for rolling in the Line No. 1903 project costs into system-wide costs, but El Paso Electric counters that the extensions are immaterial.

“Whether existing customers will extend their contracts is an entirely speculative matter. Neither [El Paso] nor FERC has a crystal ball in which they can predict the future conduct of individual shippers on the EPNG system,” the El Paso, TX-based utility said. If the Commission should permit rolled-in pricing based on contract extensions, “the entire capacity could be stranded at the end of the contract extensions, [and] existing customers would be responsible for the costs.”

El Paso’s application offers few details on the customers, the length of contract extensions and the options available to the extending customers, according to El Paso Electric.

“There is no question that the project, regardless of any particular merits, will be paid for by prohibited cross-subsidies funded by captive shippers not using the project, the cost of which appears to be significantly overstated to begin with,” said the El Paso Municipal Group, which includes a number of East-of-California distributor customers.

“The Commission may not allow revenue from extension contracts to count in the rolled-in cost analysis…If the Commission treats the revenue generated from contract extensions on par with income from new contracts, it will sanction the subsidies proscribed by [its own] policy statement. The reason is that the pipeline is counting the same revenue twice,” the municipal group noted.

Noting that there was “no urgency,” PG&E asked FERC to hold off consideration of the roll-in rate issue until mid-2005. “Because of the novel and complex nature of this project, there are difficult questions presented by El Paso’s request for pre-approval of rolled-in rate treatment for these facilities…The instant case is unlike those in which the Commission in recent years has granted prior approval of rolled-in rates in the context of a certificate application,” the utility said.

The California Public Utilities Commission (CPUC), in a protest, also urged against rolled-in treatment for the El Paso project, saying that it clearly does not meet the standard for providing system-wide benefits. “The Line 1903 project directly provides benefits to expansion shippers and particular existing shippers that sign up for capacity on the project, rather than providing general system benefits to El Paso’s customers. Those customers who benefit directly from the Line 1903 project should bear the responsibility for its costs.”

The Line No. 1903 would essentially provide a needed crossover between El Paso’s North System and South System mainlines, similar to the already existing Havasu Crossover, the pipeline told FERC in its application [CP05-2].

The centerpiece of the project is the conversion of an 88-mile segment of a former crude oil pipeline to natural gas transportation. In early 2000, El Paso Corp. purchased from Plains All American Pipeline LP a 1,088-mile crude oil transmission line that extends from Bakersfield, CA, to McCamey, TX. El Paso placed the portion of the crude oil line extending from McCamey to the Arizona/California border into gas service in late 2002. The latest project would involve a segment of the line that is primarily located within the state of California.

The Line No. 1903 project would combine existing facilities owned and operated by El Paso, Mojave Pipeline and Kern River Gas Transmission; the acquisition by El Paso of firm capacity on Mojave; the construction of a new interconnect at a point between Mojave and Line No. 1903 (the Cadiz Crossover); the modification of facilities at Kern River’s existing compressor station at Daggett, CA, to permit gas to flow east from Daggett to Mojave; and the conversion to gas service of Line No. 1903.

The cost of converting 88 miles of the crude line and construction of 6.4 miles of interconnecting pipelines will be $73.4 million, according to El Paso. It estimated that the annual cost of capacity on the Mojave and Kern River systems will be about $17.9 million. The interstate pipeline asked FERC to issue a certificate for the project by July 31, 2005, so that the expansion could go into service by no later than Dec. 31, 2005.

El Paso said it has acquired rights to, or will have acquired rights to, up to 312.4 MMcf/d of transportation capacity on Mojave’s system. This capacity will permit it to deliver gas to Mojave at the existing Topock point, transport on the Mojave system, and then deliver to Line No. 1903 at a proposed point of interconnection between Mojave and El Paso’s Line No. 1903 in San Bernardino County, CA, the pipeline noted.

In Bernardino County, El Paso proposes to build a 6.4-mile, 30-inch diameter crossover connecting the Mojave system to Line No. 1903. “When combined with the El Paso receipts…from the Mojave system at the Daggett point, made possible by the utilization of Kern River’s existing compression at the Daggett point, El Paso will be able to transport up to 502 MMcf/d through Line No. 1903 for deliveries to Ehrenberg, North Baja and east to Phoenix markets. Additionally, the Line No. 1903 project will allow El Paso to reduce [its] current reliance on displacement to provide firm transportation service for the North-to-South capacity prompted by El Paso’s allocation of firm rights at receipt points to its shippers.”

The project will clear the way for deliveries of up to 189,438 Mcf/d of Rocky Mountain supplies received from Kern River at Daggett via the Mojave system to Line No. 1903; the receipt of up to 182,106 Mcf/d of San Juan Basin supplies via the North System through acquired capacity on Mojave; and 130,456 Mcf/d of average annual capacity available to mitigate North-to-South displacement concerns, El Paso said.

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