El Paso, Adversaries Spar over Level of `Unavailable' Capacity

As the five-week-old hearing into whether El Paso Natural Gas manipulated gas prices in California last year wound down at FERC last Tuesday, a war of words erupted over just how much transportation on the pipeline was unavailable to customers during 2000 for reasons other than operational factors.

The point is crucial to the case of California regulators, Pacific Gas and Electric and Southern California Edison, which claim that El Paso and its merchant power generators intentionally withheld capacity -- made it "unavailable" to customers for "unexplained" reasons -- to drive up gas prices in the state last year.

A witness for SoCal Edison earlier had estimated that, prior to the rupture on the pipeline last August in New Mexico, there was as much as 500 MMcf/d of "unavailable" El Paso capacity that couldn't be explained away by operational factors. After the rupture, he said the figure dropped to about 200-400 MMcf/d. These estimates, the witness testified, were over and above the capacity that was "unavailable" to the California market last year as a result of the August pipeline explosion, maintenance work and the increased demand by El Paso's east-of-California (EOC) shippers.

In his second appearance before the hearing, John Somerhalder, president of the El Paso Pipeline Group, last Tuesday countered that SoCal Edison's 500 MMcf/d estimate for unexplained, unavailable capacity failed to take into consideration three other factors. These included: a 185 MMcf/d reduction in El Paso's peak-day capacity due to production-area deliveries; an additional 196 MMcf/d capacity reduction due to higher, summer ambient air temperatures on the pipeline; and a further cut of roughly 200 MMcf/d due to El Paso's inability to run at maximum allowed operating pressure (MAOP) conditions, he said.

"When you consider the additional factors that I talked about," including the fact that "pressures were higher at certain times and lower at other times" and North Mainline shippers "were asking us to not move much gas to Topock, but [to] take it down to the South System...there is not [the] unexplained, unavailable capacity" on El Paso that SoCal Edison claims there was, Somerhalder testified.

In addition to the capacity that was "unavailable" due to production-area deliveries, higher ambient temperatures and below-MAOP conditions, Somerhalder acknowledged that about 542 MMcf/d was "unavailable" to El Paso customers in California between July 1, 2000-March 31, 2001 due to the pipeline rupture in Carlsbad, NM, maintenance work and the higher demand by the pipe's EOC market.

The 542 MMcf/d figure also reflected the "fairly significant" drop in capacity (about 450 MMcf/d) at El Paso's then "unhealthy" Cornudas Compressor Station in late July 2000, said Somerhalder, but he added this lasted for only a two-week period. "Very quickly we got that capacity back up," he noted. When the Carlsbad rupture occurred soon afterward, "it [Cornudas] was no longer the controlling factor" in the market.

This first phase of the hearing has focused on on whether El Paso affiliates El Paso Merchant Energy Gas L.P. and El Paso Merchant Energy Co., which had held 1.22 Bcf/d of capacity on the pipeline up until last month, had market power and exercised it to manipulate gas prices in California last year. The hearing wrapped up last Tuesday (June 19), with rebuttals by lawyers for the California Public Utilities Commission (CPUC) and SoCal Edison.

Chief Administrative Law Judge Curtis L. Wagner Jr. announced last week that the second phase of the hearing will be much briefer, beginning July 12 and lasting until July 16 or 17. It will explore whether El Paso pipeline showed preference to its to merchant power affiliates in awarding them the 1.22 Bcf/d of capacity. The CPUC and SoCal Edison claim the pipeline skewed the bidding process in early 2000 to favor its affiliates over non-affiliate bidders.

Curtis said he plans to issue his initial decision in the case by Sept. 21.

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