A group of natural gas producers has called on FERC to step inand settle once and for all the controversial issue of re-designingthe capacity-allocation procedures of El Paso Natural Gas so that”firm” capacity on El Paso would really come to mean firm, and thepractice of overbooking firm primary transportation capacity wouldbecome history at the pipeline’s SoCal/Topock delivery point intoCalifornia.

But Pacific Gas and Electric (PG&E) and even El Paso believethe parties are making headway on these sticky issues throughalternative-dispute-resolution (ADR) negotiations, which currentlyare ongoing. It’s “fair to say that the parties have not given upon the possibility that a settlement will be negotiated” via ADR,El Paso told FERC [RP99-507]. This process should be permitted tocontinue until “resolution or until it becomes clear that nounanimous settlement is possible,” the pipeline said, adding asettlement of the issues through the ADR process was muchpreferable to a Commission-imposed resolution.

Likewise, PG&E urged FERC to issue an order that would offer”substantive guidance” supporting the continuation of the ADRprocess, as well as address the issue of the receipt point capacityof El Paso full-requirements customers, and reconfirm the recallrights of Northern California shippers to “idle” Block II capacityin accordance with El Paso’s turned-back capacity settlement of1996.

But Indicated Shippers contend the three technical conferencesand three ADR settlement conferences that have been held so farhave elicited little progress with respect to El Paso’scapacity-allocation practices.The Commission “should decide thisissue on the merits NOW…,” noted the group, which includes sixmajor/independent producers and one marketer. “The litigation ofthis matter has now been forestalled for 280 days,” the group said,adding that some parties intentionally have been trying tofrustrate attempts to reach a resolution, “with the hopes that ifthe case drags on long enough it will either go away or die apeaceful death.”

Indicated Shippers said they would be willing to continue to tryto resolve the issues through the settlement process “only so longas there is a parallel path under which the Commission is activelyprocessing” the complaint brought by Amoco Production, Amoco EnergyTrading and Burlington Resources Oil & Gas in September 1999,which spawned the ongoing, expanded Section 5 review of El Paso’sallocation, scheduling and pooling procedures.

In response to the producers’ complaint, FERC ruled lastNovember that El Paso’s pro-rata procedures for allocating capacityappeared to create “uncertainty and unreliability” with respect toscheduling and pooling on its system. It directed El Paso to devisea proposal for a more equitable capacity allocation method for itssystem, and ordered the pipeline and its customers to resolve theissue through technical conferences.

El Paso’s new capacity allocation proposal, which was unveiledin February, “was roundly condemned as unworkable by virtually allparties,” Indicated Shippers said. El Paso indicated last week thatit may submit a revised allocation proposal in the event no ADRsettlement is reached. Burlington Resources has proposed analternative to El Paso’s proposal, but it didn’t garner enoughsupport to result in an uncontested settlement.

Indicated Shippers (which include Burlington and Amoco) clearlymade it known that they would prefer FERC to adopt Burlington’sproposal, which would allocate firm transportation rights on ElPaso as fully “pathed” based on the pipeline’s design capacity. Incontrast, El Paso proposes to designate each firm shipper’scontract demand (CD) as partially “pathed” and partially”non-pathed.” With pathed rights, firm shippers would createspecific receipt-and-delivery point combinations to transport theirgas, which would make them less vulnerable to curtailments by ElPaso. Under non-pathed, however, El Paso shippers would continuethe existing practice of selecting a specific delivery point, butnot a receipt point. The non-pathed shippers still would besusceptible to interruptions.

Specifically, Burlington’s proposal calls for firm capacity onEl Paso’s system to be allocated first to maximum rate shippers, ona pro rata basis, and then to the remaining firm shippers based onthe percentage of the maximum rate being paid. All shippers wouldelect the receipt basins and the desired delivery points for 100%of their firm contract quantities, subject to any contractrestrictions. In the event there is insufficient capacity to pathall firm contracts, the remaining contracts either would beconverted to interruptible contracts and/or would have their CDrights reduced. Also, shippers would not have to pay the demandcharges for firm capacity that was nominated but not delivered on aparticular day (for reasons other than force majeure). Burlington’sproposal, according to Indicated Shippers, also would barEast-of-California full requirements customers from nominatingcapacity in excess of their billing determinants.

The producer group believes the Burlington proposal offersshippers more benefits than El Paso’s capacity allocation plan,saying it would treat full requirements customers (who pay based onbilling determinants) and contract demand customers (who pay basedon their CDs) equally. Also capacity would be allocated based onshippers’ choices rather than being “arbitrarily imposed” by ElPaso; and unsubscribed capacity (including Block I, II and IIIcapacity) could not be resold by El Paso to points that are fullyoverbooked or oversold.

If FERC should oppose the Burlington capacity allocation plan,Indicated Shippers suggested that an “acceptable alternative” wouldbe an auction, where all of El Paso’s capacity would be for sale inan open season and be awarded to the highest bidders.

PG&E did not comment on the Burlington proposal. Theutility, as well as the California Public Utilities Commission,said their chief concern was ensuring that any changes to El Paso’sallocation procedures do not interfere with the “assured access” toSan Juan gas by shippers serving the Northern California market ofPG&E. PG&E and its customers paid $58.4 million as part ofthe 1996 El Paso settlement to guarantee this access for shippers.

If there should be an “unwarranted departure” from the 1996settlement, PG&E threatened it “would have no choice but toexercise its right to withdraw from the settlement, electcontesting party status, and demand repayment of the large sum ofmoney PG&E and its ratepayers contributed to the settlement,”PG&E told FERC.

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