El Paso: All Systems Clear at Its End for Service Conversion on May 1

Responding to pleas for either a deferral or stay of systemwide contract conversion on its pipeline, El Paso Natural Gas says that "for the record" it is prepared to switch full requirements (FR) service to contract demand (CD) service by the FERC-ordered deadline of May 1, and under the terms outlined by the agency last September.

The pipeline also appeared to dispel the arguments of Arizona regulators and El Paso's existing FR shippers that the recent $17 billion settlement negotiated between El Paso and California might diminish the quantity or terms of service of transportation capacity to be allocated to FR shippers during the contract conversion process.

"El Paso and California parties...have done nothing in that settlement which could or would affect the Commission's legal determination that FR service is no longer just and reasonable," El Paso told FERC [RP00-336]. "El Paso has invested substantial resources in preparing for the May 1 conversion. It has rewritten its business systems to accommodate the FR conversion and the new specific receipt point rights."

At its March 26 meeting, the Commission postponed action on the El Paso contract conversion proceeding until it has the opportunity to see the final El Paso-California settlement, which resolves allegations that the company manipulated natural gas prices in the state during 2000 and 2001 [RP00-241]. The agency indicated the settlement terms could have a bearing on the case.

If FERC should grant the deferral, which was requested by the Arizona Corporation Commission and FR shippers, El Paso said it was "imperative" the Commission announce it no later than April 11 in order to give "El Paso's shippers time to arrange their May capacity sales and acquisitions on terms that reflect continuation of the existing allocation system."

A group of producers and marketers said they "vigorously oppose" a stay or deferral of the scheduled conversion date, saying that FR shippers "are now seizing on that [El Paso settlement] development to seek, yet again, further delay of the contract conversion." FERC must "JUST SAY NO to the...delay tactics and get on with the remedy."

Based on the terms of a 1996 settlement FR shippers, who are mostly located in southwestern states east of California, have been allowed almost unfettered access to incremental capacity on El Paso's pipeline system at no additional reservation costs for years, while CD shippers have had to bear the risks of demand charges for all of their capacity, even that which has been subject to pro rata cuts.

Because of the unrestricted access, FR shippers have been able to essentially hijack capacity to serve their markets in the Southwest that was originally intended for CD shipper markets in California. This has been a source of considerable friction between the two sides, and FERC is hoping that the scheduled conversion of El Paso to an all-CD system will finally resolve the dispute.

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