Bidding for turned-back capacity on El Paso Natural Gas came to a close at 8 p.m. (Eastern Standard Time) Friday, despite a last-minute plea by a group of full-requirements (FR) shippers for FERC to postpone the closing deadline, and a challenge by California regulators and utilities to El Paso’s decision to give FR shippers preferential access to the capacity. The bidding was seen as a critical first step in the FERC-ordered plan to convert all of the FR shippers on El Paso to contract-demand (CD) service by Nov. 1 of this year, and end a years-long dispute over the disparate manner in which capacity has been allocated on the pipeline.

In an eleventh-hour plea, FR shippers had asked FERC to postpone the Aug. 9 closing deadline to bid on the turned-back capacity “until three business days after the Commission determines how much capacity is available for allocation among the [FR] shippers and whether the turnback commitments will provide firm or only interruptible capacity.” The Commission turned a deaf ear to the appeal, having had extended the closing deadline once before.

The open season for the turned-back capacity began July 22. There was an estimated 725 MMcf/d of capacity available for mostly FR shippers to bid on. An El Paso spokesman said the pipeline would begin evaluating the bids this week. She noted that El Paso was under no deadline from FERC to complete the bid review and report the results.

In a separate request filed last Wednesday, the California Public Utilities Commission (CPUC), Pacific Gas and Electric and Southern California Edison had called on FERC to order El Paso to give “full and equal participation” to California CD shippers in bidding for the turned-back capacity. They argued that El Paso’s decision to give the pipeline’s 15 FR shippers preferential access to the capacity over the nearly 70 CD shippers was illegal, and urged FERC to respond before Friday. But the Commission remained silent.

It’s “ambiguous” whether FERC’s May 31 decision, which ordered the service conversion on El Paso, required FR shippers to “get first crack” at the turned-back capacity, said CPUC attorney Harvey Morris. “We think California should have an equal right at the table,” he told NGI.

In a report to FERC on Aug. 1, El Paso said that while it would entertain bids from the California CD shippers, the bids of the pipeline’s FR shippers — who mostly serve southwestern markets — would be treated on a “preferential basis.” The CPUC and utilities contended such action by El Paso would be contrary to the Natural Gas Act (NGA), which it said “bars natural gas companies from granting…undue preference or advantage to any of its customers in any rate, service or practice.”

This means that the “best turnback contracts, in terms of price, length, receipt point and delivery priorities, will first be made available solely to El Paso’s East of California (EOC) FR customers, and then only what is left over will be made available to the California CD shippers, even though these turnback contracts have been historically used to meet California’s certificated capacity needs,” they told FERC.

Furthermore, “the transfer of significant capacity rights from California to EOC shippers may result in insufficient pipeline capacity to serve the needs of California, which could lead to a repeat of the California energy crisis,” the CPUC and utilities warned. To prevent this, the CPUC ordered California utilities to participate in the turnback process in order to retain as much California-bound capacity on El Paso as possible.

While El Paso is attempting to help existing FR shippers convert to CD service by the end of the year, as has been ordered by FERC, the California parties argued that the pipeline’s action was unduly preferential nonetheless. In particular, they cited El Paso’s offer to make available “for free” to FR customers 195,503 MMcf/d of transportation capacity that had previously been contracted by Enron for delivery to the California border. This capacity is “not at all [available] to CD shippers, even if…California shippers are willing to pay for such capacity.”

This is the latest chapter in the seemingly never-ending feud between the FR and CD shippers on the El Paso pipeline. FR shippers — who serve Arizona, New Mexico and Texas — have had practically unfettered access to El Paso capacity over the years, often without paying reservation costs for incremental capacity, prompting numerous complaints from the CD shippers that supply gas to California. “They’ve been getting a free ride” under El Paso’s 1996 global settlement, which essentially froze FR shippers’ rates for a 10-year period, noted the CPUC’s Morris.

In its Aug. 1 report to FERC, El Paso informed the agency that an agreement reached by FR shippers to convert their transportation service to CD agreements was “unworkable,” and it asked the Commission to undertake the task of divvying up capacity on its pipeline. FERC had threatened on several occasions to take matters into its own hands if El Paso and its shippers failed to agree on a way to divide up the scarce amount of available capacity on its system.

Questioned last week about the failed efforts of El Paso’s shippers, Chairman Pat Wood told NGI to just say “HE SCOWLED.” He added “they didn’t get the hint to solve their own problems.” Asked if the Commission would assume the task of allocating capacity on El Paso, he simply said, “we’re here to do our job.”

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