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FERC Approves New Premium Hourly Firm Services on El Paso

March 27, 2006
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After considering the results of an often contentious technical conference last fall and a settlement agreement, FERC approved new premium hourly firm transportation and daily balancing services proposed by El Paso Natural Gas last week. The services are designed to provide customers with greater flexibility to cover swings in demand while ensuring system reliability. However, the Commission made some modifications to the penalties El Paso intended to impose and to the tolerance levels for such penalties.

The Federal Energy Regulatory Commission (FERC) rejected shipper concerns about potential degradation of service, noting the new services will be offered in addition to existing firm service and will provide options currently unavailable that can be tailored to shipper needs. FERC said the new services also address clearly identified operational problems and will properly allocate costs of service.

El Paso Electric and Sempra had argued that the new services would decrease flexibility rather than enhance it because customers would have to sign new contracts with potentially higher requirements in order to maintain the same level of service. Southern California Edison said it would have to pay more for power purchased from east-of-California generators, and Blythe, a generator, said it would have to shut down a 520 MW power plant that sells power to California markets.

However, the Commission said their concerns were misinformed because shippers will not be required to cancel their existing firm transportation agreements. "El Paso proposes to continue to offer ratable-take FT-1 service to shippers and states a significant degree of flexibility will continue to be provided to FT-1 shippers," FERC said. "Therefore, El Paso has not changed the nature of the FT-1 service..."

FERC said the costs of the new flexibility will be more transparent and will give customers the ability to avoid unnecessary charges. "El Paso's proposal responds to market conditions which, as demonstrated by El Paso through its filed evidence, increasingly operate on an hourly basis with larger variation of flows," the Commission said.

The new services proposed by El Paso include hourly entitlement enhancement nominations (HEEN), hourly firm transportation service (FT-H), firm daily balancing service (FDBS), daily no-notice service, hourly no-notice service, interruptible storage service, interruptible hourly swing service and a park and loan service.

A HEEN nomination made by a shipper designates some portion of its available daily FT-1 entitlement to be used to support expected non-uniform rates of flow during the gas day and thus allows shipper to separately nominate peak hour requirements. FT-H provides defined peak-hour limits and durations in several different packages, tailored to the different hourly behavior profiles of El Paso's shippers. And FDBS is a storage-patterned service using pipeline assets and linepack as "horizontal" storage. FDBS acts as storage with injection and withdrawal rights and maximum capacity and inventory rights.

Some shippers argued that El Paso isn't responding to an operational failure and, therefore, has no right to come up with a new service designed to address a specific operational problem, but FERC disagreed.

"El Paso's testimony and the operational data appended to the testimony demonstrate that shippers that incur large daily and hourly imbalances have an increasingly significant and potentially harmful impact on El Paso's system and on its other shippers," FERC said. "El Paso has also shown that some shippers currently engage in extensive hourly swings and that hourly swings by several shippers and delivery points have exceeded 300% of their average daily usage under shippers' current contracts."

One extreme case showed hourly deliveries at a single point in excess of 2,000% of average usage rates. FERC noted that California shippers and points exhibited by far the smallest hourly and daily variations. The big swings were seen east of California.

"El Paso has also demonstrated that the occurrence of an extreme weather front resulting in simultaneous peaking by major shippers could substantially affect system reliability... Therefore, the Commission finds that El Paso has sufficiently demonstrated operational justification for the implementation of new hourly and daily services, which should enhance reliability."

Nevertheless, the Commission made some modifications to the way in which El Paso calculates hourly and daily service penalties, which shippers generally opposed. FERC found that the tolerance levels set would discriminate against small shippers. As a result, it told El Paso to expand its tolerance levels to include both proportionate and absolute tolerance levels. FERC also rejected El Paso's daily balancing penalties, concluding that the pipeline already has sufficient tools in place.

The new services are effective April 1. El Paso must file revised tariff sheets within 30 days.

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ISSN © 2577-9877 | ISSN © 1532-1266
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