FERC has ordered a sweeping review of the allocation, schedulingand pooling procedures on El Paso Natural Gas. The Commission tookthis action in response to a producer-marketer complaint assailingthe pipeline for its atypical method of allocating capacity atdelivery points at the California Border. Last week, FERC not onlyfound that these practices “may be unjust and unreasonable,” but itexpanded the scope of the proceeding to include the pipeline’sallocation methods at receipt points and its scheduling and poolingprocedures.

In its decision, the Commission said Amoco Production, AmocoEnergy Trading Corp. and Burlington Resources Oil & Gas “havepresented valid arguments” that El Paso’s allocation practices atdelivery points on its system “are causing serious operational andeconomic harm.” And “while not raised by the…complaint, there aresimilar problems on the El Paso system with respect to theallocation 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’sreceipt point allocation methods.”

FERC took this step after it rejected in a concurring opinion ElPaso’s pooling proposal for its failure to allow formulti-directional pooling [RP98-407]. “While El Paso here haslabeled its pooling filing ‘progressive pooling,’ [it] has inessence merely re-filed its linear pooling proposal of December1996.” The Commission believes the pipeline’s multi-directionalpooling problems are closely linked to its allocation practices atreceipt points. Consequently, the issues should be “examined in oneproceeding.”

The concurring order identifies “a chronic problem that is theroot of the concern,” said Commissioner William Massey. “Unlikeother pipelines, El Paso does not [assign] primary receipt pointcapacity directly to its customers, but instead uses a pro rataallocation method,” which makes it “difficult to allowmulti-directional pooling” and for the pipeline “to comply with theGISB timelines.” Additionally, he noted it “makes it difficult for[El Paso] customers to know in advance exactly how much capacity toschedule for delivery to these delivery points.”

FERC said it was “reluctant to impose a solution” to theallocation and scheduling problems, but instead believed anychanges would be “best worked out between El Paso, its customersand other affected parties.” It ordered the pipeline to submit adetailed proposal for changing its current capacity-allocationmethods within 60 days. It also directed FERC staff to convenetechnical conferences to discuss the proposal and report back tothe Commission.

In drafting its proposal, El Paso “should take into account theprinciple that capacity should be allocated to those shippers thatvalue a particular point most,” and it “should not favor any oneshipper based on the historical accident of when the shipperobtained its firm transportation rights….. The Commissionrecognizes its conclusions here might have some effect on the valueof El Paso’s existing contracts. But this would appear to benothing more than what the complainants state is already occurringdue to the impact of El Paso’s pro rata nomination and allocationprocedures.”

In their complaint, Amoco and Burlington accused El Paso ofselling primary delivery point capacity to the Southern CaliforniaGas (SoCalGas) delivery point at Topock, AZ, in excess of thecapacity available at that point. This has resulted in significantcurtailments for shippers at SoCaoGas-Topock. Amoco and Burlingtonreport shippers have experienced pro-rata cuts as high as 57% ofnominations recently. The problem is that many El Paso contracts donot specify a specific delivery point, but instead give shippersthe flexibility to deliver to several points at Topock. But formany shippers transporting gas from the San Juan Basin to southernCalifornia, the SoCalGas-Topock point is the preferred deliverypoint.

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

The Commission agreed that El Paso’s practice of allocatingcapacity on a pro rata basis at Topock was contrary to its existingpolicy. FERC’s “general policy is that, where operationallyfeasible, pipelines should assign customers specific capacityrights at receipt and delivery points,” the order said, adding thatEl Paso does neither.

Susan Parker

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