Arizona regulators voted last Thursday to seek a stay and court review of FERC’s decision requiring El Paso Natural Gas shippers who now receive preferential full-requirements (FR) service to convert to contract demand (CD) service on Sept. 1.

The five members of the Arizona Corporation Commission (ACC) unanimously agreed to petition the U.S. Court of Appeals for the District of Columbia to review the ruling, said agency spokeswoman Heather Murphy. She also noted that several FR (also called East-of-California) customers — Phelps Dodge Corp., Citizens Utilities and the Arizona Electric Power Cooperative — indicated they plan to challenge FERC’s decision as well.

“The commission believes the FERC ruling will lead to higher prices and [lays the groundwork] for Arizona to have less than adequate and reliable supplies of gas,” Murphy told NGI.

El Paso’s FR shippers, which serve Southwest gas markets, suffered a major setback earlier this month when FERC refused to delay the deadline for service conversion on the capacity-constrained pipeline yet again. The Commission had pushed back the deadline on two previous occasions. The ruling was a victory for El Paso’s existing CD shippers, who have been urging the agency for years to make the pipeline an all-CD system.

There has been considerable friction between the FR and CD shipper groups over capacity on El Paso for years, and FERC is hoping that the system-wide contract conversion to CD service will resolve the bickering. As a result of a 1996 settlement between El Paso and its customers, FR shippers have been allowed almost unfettered access to incremental capacity on El Paso’s system at no additional reservation costs, while CD shippers have had to bear the risks of demand charges for all of their capacity, even that which has been subject to pro rata cuts.

Because of the unrestricted access, the FR shippers have been able to essentially hijack capacity to serve their markets in the Southwest that was originally intended for CD shippers’ markets in California.

Under the latest FERC order, converting FR shippers will continue to pay the same monthly bills for capacity for the remainder of the 10 years of the El Paso settlement, even though their capacity allocations have grown substantially over time. However, they will be charged additional costs for any incremental capacity they seek “beyond and above” what was allocated to them under the FERC-approved conversion (see NGI, July 14).

“What FERC did…was to set a cap on the amount of natural gas Arizona can draw from the El Paso line,” said ACC Commissioner Bill Mundell following FERC’s decision. Previously, FR contracts “gave Arizona natural gas users all the gas they needed, as much as they needed, whenever they needed it.”

This Commission’s ruling “signals an alert to natural gas companies, power plants, mining companies and large manufacturers that natural gas is about to get more expensive and supplies may be unpredictable unless we get serious about finding other suppliers,” noted ACC Chairman Marc Spitzer. “That means moving fast — lightning fast — on getting another pipeline built to move natural gas in Arizona.”

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