Texas Gas Service Co., a division of ONEOK Inc., has filed a Section 5 complaint against El Paso Natural Gas, saying that the pipeline’s collection of fuel costs on a postage stamp basis is forcing shippers on the east end of El Paso’s pipeline to subsidize shippers on the west end.

In the complaint, Texas Gas made clear that it is not trying to block the recovery of any fuel costs by El Paso, but it takes issue with the postage stamp methodology to recover the fuel costs “because it fails to reflect distance of haul and therefore results in improper cross-subsidy between the rates charged to shippers served by [El Paso].” Under the postage stamp method, shippers pay a flat rate without regard to distance.

Texas Gas, the third largest natural gas distributor in Texas, asked the Federal Energy Regulatory Commission to order El Paso to replace its postage stamp practice for recovering fuel costs with a “just and reasonable” fuel recovery methodology that properly reflects distance of haul [RP10-951].

“The assessment of fuel charges on the [El Paso] system on a postage stamp basis constitutes a significant cross-subsidy by mostly captive, maximum rate shippers in the Texas and New Mexico zones at the east end of the system of shippers in the California and Arizona zones, where shippers generally have more competitive options as evidenced by the fact that the vast majority of discounts have been granted on the west end of the system,” Texas Gas said.

The Austin, TX-based company estimated that El Paso shippers in Texas, New Mexico and Nevada are overcharged for fuel by approximately $12.7-25.3 million annually as a result of the pipeline’s postage stamp method for collecting fuel costs. “Conversely shippers in California and Arizona are subsidized by that same amount,” Texas Gas said.

If El Paso were required to replace its postage stamp fuel rate with a Texas zone specific fuel rate, Texas Gas estimated it would pay $1.52 million less in fuel costs annually — based on actual 2008 throughput and 2008 average gas costs.

Texas Gas called on the Commission to fast-track the complaint, saying that “the structure of Section 5 of the NGA [Natural Gas Act} places ratepayers at a severe disadvantage vis-a-vis the pipeline [because]…any relief is limited to a prospective basis.” And, the distributor added, “pipelines can cut off Section 5 rights by filing new Section 4 rate cases.”

The complaint responds to El Paso’s March filing of an offer of rate settlement that resolved all but four issues. It established rates on a “black box” basis during a term that ends no earlier than March 31, 2011 and no later than March 31, 2012, during which time a rate moratorium will be in effect, the complaint said. The stipulation allowed for any shipper to file a complaint with respect to the pipeline’s postage stamp rate design for fuel reimbursement.

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