El Paso, Shippers See Growing FR Usage as Threat to Reliability

Full requirements (FR) service for East of California customers, which gives them unlimited access to firm capacity at no additional demand charges, is a "significant contributing factor" to the shortfall of transportation capacity on El Paso Natural Gas, and the practice should be ended, said producers, marketers, utilities and other pipeline shippers last week. Even El Paso agreed that the time has come for FERC to address its FR contracts.

"The problem is not solely lack of construction of new capacity [on El Paso] nor should the problem be solved solely by constructing new facilities," said Southern California Gas (SoCalGas, which echoed calls for the Commission to convert the existing FR service on El Paso to contract-demand (CD) service, under which a shipper's rights to capacity are limited by the terms of its contract.

SoCalGas has aligned itself with a complaint brought in mid-July by a coalition of producers, marketers and utilities (CD shippers), which, along with the California Public Utilities Commission, contend that El Paso has been unable to fulfill its firm capacity obligations due to its alleged practice of overselling its mainline capacity and a 50%-plus growth in FR usage since 1995 [RP01-484].

They called for the Federal Energy Regulatory Commission (FERC) to switch all of the FR contracts to CD contracts at CD levels equivalent to a FR customer's billing determinants on a seasonal basis, or in the alternative until El Paso expands its system to the level needed to serve its current firm demand on a reliable basis. They also asked the Commission to direct El Paso to expand its system to meet its current firm contract demand consistent with its obligations.

SoCalGas, however, said it could not fully support a separate complaint filed by a group of Texas, New Mexico and Arizona shippers (FR customers) against El Paso, primarily because the East of California group believes that throwing new capacity at the problem is the sole solution. The group wants FERC to order El Paso to expand its system by an additional 1 Bcf/d to meet the "certificated entitlements" of its firm customers.

"SoCalGas understands the frustration of the FR customers and generally supports their complaint. SoCalGas, however, urges the FR shippers, and the Commission, to recognize that FR service [itself] is part of the problem and eliminating FR service is an essential part of any solution," the LDC told the Commission.

Indicated Shippers, which were party to CD customer complaint against El Paso, agreed. "[E]xpansion alone will not provide scheduling certainty, will not correct the over-nomination problem out of the San Juan Basin, and will not remedy the daily financial injury to CD shippers due to stranded demand charges and lost markets," the group said last week, adding that the conversion of FR service contracts to CD service was crucial.

"There is no equitable, rational or justifiable reasons to allow full requirements service to be perpetuated on the El Paso system, especially in light of the significant detriment to other shippers and the diminution in the level and reliability of service to all other customers on the El Paso system as a result of these anomalous full requirements contracts."

Responding to the FR shipper complaint last week, El Paso appeared to agree with critics that a review of its FR contracts was needed. "[A]llowing FR shippers to demand service for unlimited growth, particularly for unanticipated, large, gas-fueled power plants, will make it difficult, if not impossible, for [El Paso] to provide greater predictability on the system. Consequently, [El Paso] concludes that the time has come for the Commission to address whether there is a reasonably proportionate limitation implied in [its] FR contracts," the pipeline said.

"It is ludicrous for the [FR] shippers to suggest that it is economically justifiable for [El Paso] to construct expensive mainline facilities, costing hundreds of millions of dollars, to serve ever-increasing FR loads at {El Paso's] commodity rates which average approximately two cents per MMcf/d. Yet, this is the outcome of the position advocated by these customers in their complaint," El Paso noted.

SoCalGas said it backed part of the FR shippers' complaint to the extent that it would require El Paso to award capacity on new or expanded lines to meet the needs of existing shippers first. But this must be combined with the elimination of FR service on El Paso, it stressed. "Absent both steps, certainty and reliability can never be established on the El Paso system."

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