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FERC Expands Review of El Paso Procedures

November 15, 1999
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FERC Expands Review of El Paso Procedures

FERC has ordered a sweeping review of the allocation, scheduling and pooling procedures on El Paso Natural Gas. The Commission took this action in response to a producer-marketer complaint assailing the pipeline for its atypical method of allocating capacity at delivery points at the California Border. Last week, FERC not only found that these practices "may be unjust and unreasonable," but it expanded the scope of the proceeding to include the pipeline's allocation methods at receipt points and its scheduling and pooling procedures.

In its decision, the Commission said Amoco Production, Amoco Energy Trading Corp. and Burlington Resources Oil & Gas "have presented valid arguments" that El Paso's allocation practices at delivery points on its system "are causing serious operational and economic harm." And "while not raised by the...complaint, there are similar problems on the El Paso system with respect to the allocation of receipt-point capacity...," the order said [RP99-507]. As a result, "the Commission, on its own initiative, will expand the scope of this proceeding to include El Paso's receipt point allocation methods."

FERC took this step after it rejected in a concurring opinion El Paso's pooling proposal for its failure to allow for multi-directional pooling [RP98-407]. "While El Paso here has labeled its pooling filing 'progressive pooling,' [it] has in essence merely re-filed its linear pooling proposal of December 1996." The Commission believes the pipeline's multi-directional pooling problems are closely linked to its allocation practices at receipt points. Consequently, the issues should be "examined in one proceeding."

The concurring order identifies "a chronic problem that is the root of the concern," said Commissioner William Massey. "Unlike other pipelines, El Paso does not [assign] primary receipt point capacity directly to its customers, but instead uses a pro rata allocation method," which makes it "difficult to allow multi-directional pooling" and for the pipeline "to comply with the GISB timelines." Additionally, he noted it "makes it difficult for [El Paso] customers to know in advance exactly how much capacity to schedule for delivery to these delivery points."

FERC said it was "reluctant to impose a solution" to the allocation and scheduling problems, but instead believed any changes would be "best worked out between El Paso, its customers and other affected parties." It ordered the pipeline to submit a detailed proposal for changing its current capacity-allocation methods within 60 days. It also directed FERC staff to convene technical conferences to discuss the proposal and report back to the Commission.

In drafting its proposal, El Paso "should take into account the principle that capacity should be allocated to those shippers that value a particular point most," and it "should not favor any one shipper based on the historical accident of when the shipper obtained its firm transportation rights..... The Commission recognizes its conclusions here might have some effect on the value of El Paso's existing contracts. But this would appear to be nothing more than what the complainants state is already occurring due to the impact of El Paso's pro rata nomination and allocation procedures."

In their complaint, Amoco and Burlington accused El Paso of selling primary delivery point capacity to the Southern California Gas (SoCalGas) delivery point at Topock, AZ, in excess of the capacity available at that point. This has resulted in significant curtailments for shippers at SoCaoGas-Topock. Amoco and Burlington report shippers have experienced pro-rata cuts as high as 57% of nominations recently. The problem is that many El Paso contracts do not specify a specific delivery point, but instead give shippers the flexibility to deliver to several points at Topock. But for many shippers transporting gas from the San Juan Basin to southern California, the SoCalGas-Topock point is the preferred delivery point.

As a remedy, Amoco and Burlington proposed that El Paso be required to limit primary delivery point capacity at the interconnection with SoCalGas to the take-away capacity of the LDC's system (540 MMcf/d). Amoco estimates it's losing $1-$2 million annually and Burlington said it's losing $3,000/day because of the curtailments at the Topock point.

The Commission agreed that El Paso's practice of allocating capacity on a pro rata basis at Topock was contrary to its existing policy. FERC's "general policy is that, where operationally feasible, pipelines should assign customers specific capacity rights at receipt and delivery points," the order said, adding that El Paso does neither.

Susan Parker

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ISSN © 2577-9877 | ISSN © 1532-1266
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