El Paso's Lateral to Mexico Gets FERC Stamp

The Federal Energy Regulatory Commission (FERC) last week approved construction of a proposed 60-mile, 130 MMcf/d pipeline lateral off El Paso's mainline in Arizona to proposed Mexican border crossing facilities. The proposed $30 million pipe and border crossing facilities are designed to serve several existing and proposed gas-fired power plants in Sonora.

The project will involve building a 56-mile, 20-inch diameter lateral line from a new Willcox receipt point in Cochise County, AZ, near El Paso's existing Willcox compressor toward the Mexican border to a pipeline fork where two lines will branch off and continue in different directions to the border. The west branch line will connect with an existing Pemex line through border crossing facilities. It will serve the existing 150 MW Hermosillo Power plant and a proposed 225 MW expansion plant. The proposed expansion plant is expected to begin testing in early 2001 and begin commercial operation in the summer of 2001. The 12-mile east branch line will cross the border near Douglas, AZ, and will serve the proposed 225 MW El Fresnal/Nogales Power Plant. No construction contract has been awarded for the El Fresnal/Nogales plant. However, gas consumption is expected to be about 40 MMcf/d. El Paso has signed separate but mutually exclusive agreements with three parties who are submitting bids to build the plant.

El Paso claims to have binding agreements for 60% of the proposed 130 MMcf/d capacity, but FERC determined the pipeline "really only has one firm service agreement for transportation over the Willcox lateral at this time, and that is a 25-year agreement for 39 MMcf/d with [affiliate El Paso Merchant Energy Co.]," which has an agreement to supply the 225 MW combined cycle Hermosillo expansion plant with up to 43 MMcf/d.

FERC has required El Paso to revise its initial rates for service on the lateral because its filed rates are based on a weighted average depreciable life using only one 25-year contract with its affiliate. The proposed incremental rate for service on the lateral is $0.1467/Dth/day, and it applies only to Willcox lateral shippers.

Despite the relatively large size of the lateral, El Paso is not planning to build upstream capacity and that has triggered concerns among some of its shippers, particularly Southwest Gas. Southwest claims the project could cause problems during peak summer periods because it will result in available mainline capacity being diverted to the lateral. However, FERC concluded the project would not adversely affect existing shippers. "Our analysis confirms that El Paso's system will be capable of maintaining delivery of historical non-coincidental peak volumes to its existing full-requirements customers at mainline pressures above those required by its contracts," the Commission said.

FERC also said Apache made "unsupported" claims that El Paso's inflated its proposed cost of service and made undisclosed arrangements concerning mainline capacity in order to benefit from a revenue crediting mechanism that is included in its shipper agreement.

The Commission said it believes El Paso's proposal will not result in subsidization by existing shippers nor will adversely affect existing shippers, other pipelines or landowners.

Rocco Canonica

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