Shippers, CPUC Seek Immediate End to FR Contracts, Mandatory Expansion of El Paso

Enough's enough, shippers and customers of El Paso Natural Gas told FERC Friday in requesting fast-track processing of a complaint requesting immediate mandatory expansion of the pipeline and a change in its contracting practices to convert unlimited full requirements obligations to set contract demand pacts.

It was the first time in the long-running litigation over El Paso capacity that large producers joined with the California contingent, including the California Public Utilities Commission (CPUC) and California LDCs in petitioning the Federal Energy Regulatory Commission to restructure the El Paso system. An upcoming technical conference will get nowhere, the petitioners said, unless FERC rules quickly on its complaint. "Parties will continue to be mired in debate, firm contract demand (CD) shippers will continue to be forced to pay for firm services they are not receiving, and firm deliveries to energy-starved California markets will continue to be subject to the scheduling uncertainty that plagues El Paso's system every day."

"By it's own admissions, El Paso has sold more firm capacity than it can reliably provide," in violation of its most basic public service obligations, the complainants said. El Paso nevertheless is holding open seasons to sign up new customers for system expansions. The pipeline should be ordered to expand its system and to use the expanded capacity to meet existing CD obligations. Further, the pipeline's full requirements contracts should be converted to firm contracts for set volumes. There cannot continue to be an infinity of service obligations with no reasonable limits, the petitioners said, noting that most pipelines long ago did away with full requirements pacts.

The petitioners pointed to statements that FR growth was greater than anticipated made by El Paso Pipeline Group President John Somerhalder in a hearing on another El Paso case before the Commission. Somerhalder said that FR loads recently were on average 300 MMcf/d higher than in the past.

The extraordinary growth in demands by the pipeline's East of California full requirements (FR) customers "results in unjust, unreasonable and unduly discriminatory services on the El Paso system, in violation of Section 5, and in violation of El Paso's certificate obligations under Section 7 of the Natural Gas Act." Full requirements shippers, "through ever-increasing nominations above their billing determinants (which they do not pay for), are preempting the ability of the CD shippers to utilize the capacity for which they have contracted and are paying. These problems also have contributed to artificially high gas prices on the El Paso system, which have caused enormous harm to both gas and electric markets throughout the West."

Over the last two years the East of California load on El Paso has increased by about 50%, while the billing determinants on which demand charges are paid appear to be only about one/half of the peak demand. The complainants asked that the FR contracts be converted and that the CD level of those contracts be adjusted by means of a transition mechanism. "Beginning immediately, and extending until El Paso has expanded its system, FR contracts should be converted to CD contracts at a CD level equivalent to the billing determinants in the FR contracts, which is the volume upon which transportation demand charges are paid. In the alternative, recognizing the seasonality of FR loads, the FR shippers should be given an opportunity for season CD levels that, on an annual average basis, equal their billing determinants. Further negotiations could be entered into with FR customers after capacity has been expanded.

A blatant example of unreasonable demands under an FR contract, the petitioners said, was the attempt to include the proposed a 410 MMcf/d load for the proposed new 1,120 MW Pinnacle West generating plant under affiliate Arizona Public Service' full requirements contract, a 600% requirement increase (see NGI, April 23). They noted the contract was discussed at FERC's June 27 meeting, and remarks indicated that opponents' arguments were "plausible." The complaint filed Friday was in response to a FERC suggestion that a complaint could be filed to address the problem.

In addition to the CPUC, the petitioners include Aera Energy, Amoco Production, BP Energy, Burlington Resources, Conoco, Coral Energy, ONEOK Energy, Pacific Gas & Electric, Panda Gila River, Southern California Edison, Southern California Gas and Texaco Natural Gas.

There will never be a settlement of capacity allocation issues, the petitioners said, because the East of California FR shippers have no incentive to agree to any change in their favored status. The technical conference set for July 18 in El Paso's Order 637 proceeding (RP00-336) is unlikely to produce results (see NGI, April 9). The issues have been pending for two years already.

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