Producers and other protesters lost a major skirmish Wednesdaywhen FERC accepted with only minor changes Natural GasClearinghouse’s (NGC) contracts for 1.3 Bcf/d of transportationcapacity on El Paso Natural Gas.

The decision on rehearing came as somewhat of a surprise toproducers, marketers and the California Public Utilities Commission(CPUC), which had accused NGC of buying up El Paso’s firmtransportation capacity to deprive its competitors on the pipelineof rate discounts similar to the ones that it enjoyed. A statesource doubted that FERC’s ruling would be the last word on this.The Federal Trade Commission reportedly is interested in thecontracts, too.

The Commission got producers’ hopes up when it agreed theinterruptible (IT) revenue crediting provision of the NGC-El Pasocontracts was anticompetitive because it reduced El Paso’sincentive to compete in the IT market to California. But then itjust as quickly dashed those hopes when it said theanticompetitiveness did not result in an “unduly discriminatorysituation” in the gas transportation market in that state.

Despite the fact that a large portion of El Paso’s capacity isnow being held by NGC, FERC said the rates for primary andsecondary market capacity from the Southwest producing fields toCalifornia remained well below the maximum rates on both El Pasoand Transwestern Pipeline. It conceded that firm transportationrates have risen since the NGC-El Paso contracts went into effectlast January, but not enough to constitute discrimination.

Given this and the fact that the contracts are affecting allthird-party shippers on El Paso “equally,” protesters have “nogrounds to complain” that the NGC-El Paso contracts are “undulydiscriminatory or inconsistent with the public interest,” theCommission said [RP97-287]. The parties “have not demonstratedinjury to themselves as NGC’s competitors or the public thatwarrants relief under the just and reasonable standard…”

The CPUC and Pacific Gas and Electric (PG&E) won a mixeddecision on the recallability of the Block II portion (644 Mcf/d)of the capacity that El Paso sold to NGC. The two argued that theawarding of the Block II capacity violated the terms of El Paso’s1996 settlement with its customers. As part of the agreement,PG&E paid $58 million to reserve that capacity for use by gascustomers located behind its citygate.

The Commission ruled that shippers located in northernCalifornia couldn’t recall the Block II capacity simply because itwasn’t being used by NGC. However, it added the transportationcapacity would become recallable in the event that NGC used it toserve customers outside of PG&E’s service territory.

FERC said it wanted the recall provisions attached to the BlockII capacity to be implemented in a manner that provided protectionto both NGC and the recalling shipper. “Since the recall feature iseffective only in periods of constrained firm transportation demandin northern California, the Commission believes that the recallfeature should be exercised only if firm capacity is not availablefor a shipper to northern California on El Paso or on any otherpipeline available to the shipper,” it said. “If such capacity isnot available, the shipper may request Block II capacity eitherfrom NGC or from El Paso, which creates competition between NGC andEl Paso in times of constrained capacity.”

However, FERC added “the recall should be exercised only if NGCdeclines to release Block II capacity that it is not using forservice to California on terms acceptable to the shipper requestingthe release.” If NGC fails to release the capacity, “the shippermay demand that El Paso recall the Block II capacity at a rateacceptable to both parties.”

©Copyright 1998 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press,Inc.