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CA Customers Turn to FERC for Relief from Delivery Costs

CA Customers Turn to FERC for Relief from Delivery Costs

El Paso Merchant Energy, an affiliate of El Paso Natural Gas, is reaping "monopoly rents in excess of 7,000% higher than the just and reasonable rate approved by the Commission for its regulated sibling," Southern California Edison told the Federal Energy Regulatory Commission last week.

To remedy this, FERC should act quickly on a complaint seeking abrogation of the 1.22 Bcf/d transportation contract arrangement between the pipeline and its affiliate, Edison said, citing the rapid escalation in gas delivery costs to the Southern California Border.

In light of the "extraordinary events in the California gas and electricity markets," Edison urged FERC to "immediately consider --- and grant" summary disposition of the complaint in which the California Public Utilities Commission (CPUC) alleged that El Paso Merchant was given "preferential treatment" by El Paso during the open season for the capacity. The CPUC had sought summary disposition of the complaint last August, but FERC has yet to act.

Since then, the average price of gas at El Paso's Southern California Gas delivery points has increased from $6.13 (Aug. 13) to $36.245/Mcf on Dec. 7, Edison told FERC. There were price quotes as high as $53/Mcf last Thursday. "And as the Commission is painfully aware, the California border price of natural gas is a major force behind the astronomical increase in California electricity prices."

Given that San Juan Basin gas prices rose only to $9.150/Mcf from $3.585/Mcf during the period ended Dec. 7, this means "the value of El Paso capacity from the San Juan Basin to the California border --- a significant portion of which is held by the pipeline's affiliate [El Paso Merchant] --- has increased in value to almost $27," the electric company said.

"And the current market value of the El Paso transportation held by [El Paso Merchant] is over 7,000% higher than El Paso's 100% load factor rate for firm transportation of approximately 38 cents," Edison estimated.

While at the outset of this complaint proceeding, "the Commission may have viewed a theoretical exercise in the study of market power. Today's California energy market presents the harsh reality of an abuse of that market power that can no longer be permitted to continue," Edison argued.

In the event FERC chooses not to act quickly on the CPUC complaint, Edison asked the Commission in the alternative to enforce a September order that directed El Paso Merchant to turn over certain materials to the CPUC and other involved parties. Edison contends El Paso Merchant has refused to comply with the order, blocking resolution of the complaint.

While El Paso Merchant "drags out the process of resolving this complaint, the escalating California border prices continue to provide [it] with the opportunity to profit from arrangements that are alleged in the complaint to be anticompetitive."

California Dairies Inc., a farmer-owned dairy cooperative with five milk-processing plants in the state, also asked the Commission to rule quickly on the CPUC complaint involving El Paso and its affiliate.

"We believe that your positive action on this complaint holds the best chance to influence a reduction in the gas price in the near term," wrote Executive Vice President J.A. Gomes in a letter last week to Chairman James J. Hoecker.

Gomes said California Dairies, which consumes 1,762,000 therms/month, has seen its gas costs increase from $670,000 in May to $2.2 million in December, and it expects the costs to nearly double to $4 million in January.

"This is a sixfold increase amounting to over $100,000 per day," he noted. "Since we cannot recover these costs in our product prices, it puts our business in jeopardy. Further, I believe that these gas prices will be a severe financial challenge for most businesses and could result in an economic crisis for California," Gomes warned.

"We don't understand how increases of this magnitude can occur in a 'competitive' natural gas market."

Susan Parker

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