El Paso Capacity Re-Assignments Upheld at FERC

FERC last week gave El Paso Natural Gas high marks for carrying out firm capacity re-assignments in accordance with a plan that it approved for the pipeline's system last October. At the same time, it shot down all of the protests and rehearing requests lodged by Southern California Gas (SoCal).

"The Commission.finds that the [capacity] election and assignment process was administered properly" by El Paso, the rehearing order said. "Other than SoCal, no other shippers have complained about the [capacity] election and assignment process." In fact, several shippers on El Paso said it "has been handled in a fair, equitable and reasonable manner."

Last October, FERC outlined its scheme to resolve the capacity allocation and scheduling problems on El Paso after the pipeline and its shippers failed to accomplish the task on their own. It ordered El Paso to carry out its plan to re-distribute the firm delivery rights of the pipeline's shippers to more evenly match the design capacity of each Topock delivery point on the pipeline. The goal was to reduce the traffic through the constrained SoCal/Topock point, which is the "most economically desirable delivery point into California from El Paso, and divert more gas deliveries to the three other, less-traveled Topock points. The revised capacity allocations on El Paso are due to go into effect April 1, 2001.

On rehearing, SoCal argued that the Commission's allocation scheme abrogated its contract, which it said entitled it to the entire 540 MMcf/d of firm primary delivery rights at SoCal/Topock. But FERC begged to differ. "In this case, the currently effective contract between SoCal and El Paso gives SoCal specific delivery point rights of 610,000 Mcf/d at Ehrenberg and 540,000 Mcf/d of aggregate delivery point rights at the various Topock delivery points," not just at SoCal/Topock, the order said [RP99-507-004].

Because the total of all shippers' first elections at SoCal/Topock exceeded the firm design capacity of that point, El Paso was forced to award delivery point rights on a pro-rata basis. SoCal received 489,822 Mcf/d at the various Topock points, of which 202,281 Mcf/d was at SoCal/Topock. The California LDC then shifted the remaining 50,178 Mcf/d of its Topock delivery point rights to Ehrenberg, FERC noted. "Thus SoCal received its full entitlement of 540,000 Mcf/d of aggregate Topock delivery point rights, and its contract has not been abrogated," the order said.

In addition to the 200.2 MMcf/d held by SoCal at SoCal/Topock, the revised allocation results reveal that ten other shippers now share the delivery point rights at SoCal/Topock: Aera Energy (7.4 MMcf/d), BP Energy (9.3 MMcf/d), Burlington (37.1), LADWP (13.4), El Paso Merchant Energy (143.6 in two packages), Oneok (7.4), Saquarno Power (7.4), Texaco (64.9), US Borax & Chemical (7.1), and Williams Energy (42.2 in two packages).

Despite claims otherwise, neither [the California regulators] nor SoCal have shown how the Commission's [allocation] order will mean that SoCal will not be able to serve its customers, nor how SoCal will not be able to provide service at just and reasonable rates," it noted.

Given that FERC refused to confirm that SoCal has prior claim on the full 540 MMcf/d of firm primary delivery rights into SoCal/Topock, the California LDC asked that it be given the option to step down its contract maximum daily quantity with El Paso. But the Commission wasn't receptive to the idea.

"It would be inconsistent to allow SoCal to abrogate its contract with El Paso, when a fundamental principle in this proceeding has been to avoid abrogation of shippers' contracts. Further, if SoCal were to relinquish its PG&E Topock and Mojave Topock capacity, El Paso could be exposed to a potential revenue shortfall if it was unable to remarket that capacity."

FERC further rejected SoCal's request to exclude El Paso Merchant Energy and Williams Energy Marketing and Trading from the capacity election and assignment process on El Paso. The two companies acquired 1.4 Bcf/d of Topock capacity on El Paso last year, of which 487 MMcf/d had firm delivery point rights into SoCal/Topock. This aggravated an already-constrained delivery point at SoCal/Topock, claimed SoCal and other shippers.

"While the Commission acknowledges that [El Paso Merchant's and Williams'] acquisition of aggregate capacity at Topock may have exacerbated the problems at SoCal/Topock, the contracts were consistent with El Paso's existing tariff and did not prevent the other shippers from exercising their aggregate Topock rights," the order said. As a result, "the Commission finds that [they] should not be excluded from the election and assignment process."

FERC also refused a request to give shippers (who participated in the capacity re-assignment process) first crack to acquire Topock capacity becoming available under expiring contracts before the pipeline offers it for sale. "Because the contractual rights of the Topock shippers have been satisfied and no contracts have been abrogated, there is no reason to grant a first call on new capacity, although certain shippers may not be satisfied with the allocations they received during the election and assignment process," the order said.

"After the revised capacity allocations are placed into effect, any shipper who wishes to acquire capacity that becomes available at any of the Topock delivery points should be allowed to do so without regard to whether it was a pre-existing Topock shipper or a new shipper."

The Commission did respond favorably to Indicated Shippers' request for a review of the system-wide capacity allocation problems on El Paso. Indicated Shippers argue that the constraints aren't just limited to the Topock delivery points, but also can be found on El Paso's Havasu Crossover, the Maricopa Crossover and the Plains-to-Eunice line.

FERC ordered El Paso and its shippers to begin addressing the system-wide allocation issues as part of the pipeline's Order 637 proceeding. It further directed El Paso to submit a proposal focusing on the system-wide concerns within 30 days of the order.

The California Public Utilities Commission (CPUC) asked FERC to rule that shippers of Block I capacity (500 MMcf/d) did not have the same rights at the SoCal/Topock delivery point as firm shippers with primary receipt and delivery points at Topock, but FERC denied the request.

The CPUC further claimed the Commission's capacity-allocation scheme did not offer any deterrent to El Paso's practice of overselling capacity at SoCal/Topock. It suggested that FERC require El Paso to offer capacity only when shippers are assured their full contractual entitlements will be honored.

But FERC pointed out in the order that --- contrary to the CPUC's claim --- it never found that El Paso oversold capacity at SoCal/Topock or any other Topock delivery point. "Rather, the Commission found that the manner in which El Paso allocated delivery point capacity was unjust and unreasonable. The solution to the problems at the SoCal/Topock delivery point was to direct El Paso to assign specific delivery point rights at each of the Topock delivery points."

As a result of last October's order, "El Paso is prohibited from selling at any of the Topock points that is above the design capacity of the point. The Commission finds that no other action is necessary..."

Lastly, FERC ruled that shippers acquiring El Paso capacity through the secondary market were entitled to receive a pro-rata share of the rights to delivery point capacity that were allocated to the releasing shippers under the capacity election/assignment process.

Susan Parker

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