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El Paso's Allocation Procedures Take More Fire

El Paso's Allocation Procedures Take More Fire

While El Paso's new agreement covering 1.2 Bcf/d of its firm transportation capacity is likely to draw intense public and regulatory scrutiny, it may not be able to overshadow the growing concern over its capacity allocation procedures. Despite some concerns that revisiting the issue could undermine the recently approved major settlement, more existing shippers have come forward claiming huge losses due to El Paso's overbooked pipeline.

KN Marketing LP told the commission in a new complaint last week against El Paso that it has lost nearly $800,000 and its reputation has been tarnished because at times as much as 46% of its contracted firm capacity has been curtailed due to overbooking on the pipeline.

The company said it holds two contracts for firm capacity. One covers 50,000 MMBtu/d from all San Juan, Permian and Anadarko primary receipt points to a delivery point at a connection with Westar in West Texas (IWESTARW). A second covers 30,069 MMBtu/d from the same receipt points to a delivery point on El Paso's Plains-to-Dumas line. KN pays $4,452,697 each year in demand charges on these contracts.

However, from July through October of this year the shipper experienced curtailments on 25% of the volume under its first contract (50,000 MMBtu/d) and on 21% of the volume under the second. In August, the cuts reached an average of 38% under contract No. 1 and 29% under contract No. 2, the company said. The cuts reached a peak of 46% on Aug. 6 on contract No. 1 from receipts in the San Juan Basin to Westar, despite minimal maintenance that day affecting only 3% of design day capacity of 2.2 Bcf/d, KN said.

"Fluctuating volumes cause [KN] and its customers to face constant uncertainty, which reduces the market's perception of [KN] as a reliable service provider," the company told FERC in its complaint. "For the period April 1999 though November 1999, [KN] estimates that the capacity allocation has caused a loss in revenues of at least $413,000, which represents lost market opportunities and fixed price exposure. In addition, [KN] has incurred demand charges of approximately $377,000 with respect to the allocated volumes. The damage to [KN's] reputation as a reliable supplier in the Southwest U.S. is difficult to measure, but could be sizable, particularly if this situation is allowed to continue."

KN's complaint is only the latest on this issue. On Sept. 21, BP Amoco and Burlington Resources filed a similar complaint focused on El Paso's allocation procedures at the Topock, AZ delivery point, particularly into Southern California Gas. They accused El Paso of overselling capacity, resulting in the need to allocate on a pro rata basis. The allocation resulted in capacity cuts as high as 57% of nominations. As a remedy, they 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 up to $2 million annually and Burlington said its losses average $3,000/day because of the curtailments at the Topock point.

FERC responded to their complaint on Nov. 10, concluding that El Paso's pro rata allocation methods as opposed to the industrywide practice of assigning receipt point and delivery point rights "appears to be creating uncertainty and unreliability with respect to pooling and scheduling on El Paso's system, and therefore may be unjust and unreasonable." As a result, FERC initiated a Section 5 proceeding to revise El Paso's allocation of capacity at both receipt and delivery points. By a FERC established deadline of Jan. 10, El Paso has been ordered to come up with a revised method of allocation. Following receipt of the revision and comments from shippers, FERC staff is scheduled to hold a technical conference on the matter.

KN told the commission that although its experiences are similar to those of BP Amoco and Burlington, the situation on the east end of El Paso is more serious. It involves mainline capacity allocation rather than a "custody" issue at a particular delivery point, the shipper said.

Meanwhile some shippers are angered that the Commission is opening this can of worms after just recently approving a settlement on these issues. The East of California (EOC) shippers, including the Salt River Project, Phelps Dodge Corp., Arizona Electric Power Cooperative, Arizona Public Service, Southern Union Gas and others filed a motion for stay and a request for rehearing of the BP Amoco Complaint order as well as two other related orders that were issued on the same day, one an Order on Remand approving the 1996 El Paso Settlement and the other an order rejecting a filing by El Paso to revise its pooling methods (Pooling Order).

The East of California shippers say the Complaint Order and the Pooling Order "directly conflict with the Settlement Order approved on the same day," which approved the continued use of El Paso's existing capacity allocation method for 10 years. "The two courses of action are mutually exclusive," they told FERC, noting that every party to El Paso's 1996 settlement agreed that its capacity allocation methods are just, reasonable and function just fine.

"By requiring El Paso to modify its capacity allocation methodology, the Commission is undermining this landmark agreement that resolved El Paso's unsubscribed capacity crisis. It is not in the public interest to unravel the 1996 Settlement."

As a result, the EOC shippers requested that the Commission either grant rehearing of the three orders or grant their request for clarification that "any outcome resulting from any Section 5 investigation cannot take effect prior to Jan. 1, 2006." If the Commission does neither, they request the three dockets be consolidated for further litigation.

Rocco Canonica

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ISSN © 2577-9877 | ISSN © 1532-1266
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