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Captive Southwestern Shippers Protest El Paso Rate Hike

East-of-California shippers have voiced strong objections to El Paso Natural Gas pipeline's proposed service and rate plan, with one shipper asking "where's the fire?" in response to the pipeline's plea for an Aug. 1 effective date.

In numerous protests filed at the Federal Energy Regulatory Commission earlier this month, the El Paso Municipal Customer Group, Southwest Gas Corp., Salt River Project Agricultural Improvement and Power District, producers and others took aim at the proposal in which the pipeline seeks a 10.5% hike on average for its firm transportation rates and an increase in rate base of approximately 38%.

Calling El Paso's Section 4 rate filing "enormous," the El Paso municipal group, which represents municipal distributors in the Southwest, said it "rivals in scope the NGA Section 5 proceedings that restructured interstate pipelines more than a decade ago when entire tariffs were rewritten."

The "rate shock" that would be created by the Commission's acceptance of El Paso's rate filing "nearly defies description," the El Paso municipal group told the Commission [RP05-422].

El Paso is seeking an effective date of Aug. 1 for its proposed tariff changes. Shippers asked FERC to either reject the rate hike outright, or to suspend the rate filing for five months to become effective on Jan. 1, 2006, and order an evidentiary hearing in the meantime. A number of shippers argued that the timing of El Paso's rate filing violates a 1996 settlement between El Paso and its shippers, which imposed a rate freeze for 10 years.

As a result of El Paso's proposal, the El Paso municipal group, as well as other former full-requirements customers on the El Paso system, will face a "triple whammy: 1) the end of the 1996 settlement rate freeze; 2) a proposed reformation of their plain old firm service that would require them to purchase some amount of new fangled firm service; and 3) dramatically increased and bloated costs of the pipeline, combined with other rate devices like discount adjustments that inflate the rates of captive customers," the El Paso municipal group said.

"The urgent tone of [El Paso's] pleas to instigate momentous change to its firm service connotes a western wildfire that only regulatory action can suppress...[But] there is no emergency that requires radical change today. Rather, the pipeline's urgent tone is the familiar 'fire' of discrimination used by monopolists to shift [their] business risk to...captive shippers," it noted.

Granted, the pipeline and its shippers have been through the "regulatory ringer" in the past years, but "there is no crisis on the [El Paso] system that mandates these harsh changes," the El Paso municipal group said. "Order 637 changes are being implemented this year, and the system appears to run smoothly. Therefore, the purpose behind the proposal is exclusively and audaciously economic."

The El Paso municipal group contends that the rate proposal "is designed to insulate [El Paso] from risk in competitive markets while exacting even higher monopoly rents from non-competitive captive markets."

In its filing, El Paso is asking FERC to "allow it to impose unprecedented large rate increases on East-of-California shippers. Any other description is window dressing," the group claimed.

As evidence, the group said one of its members, the City of Last Cruces, would see its annual costs rise to $2.79 million under El Paso's rate hike, from its current cost of $896,267. In contrast, El Paso's largest shipper, Southern California Gas, would incur only a 12% increase in annual costs, it noted.

UNS Gas Inc., an affiliate of UniSource Energy Corp. of Tucson, AZ, said its current rates would more than triple under El Paso's proposal to over $12 million from $3.5 million a year.

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ISSN © 2577-9877 | ISSN © 1532-1266
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