El Paso Natural Gas concedes it has been forced to allocatecapacity on a pro rata basis on the East End of its system betweenthe San Juan Basin and Texas, but it said it’s not because it hasoversold capacity on that section of its pipeline, as KN Marketinghas alleged. But rather it’s because of the scheduling flexibilityEl Paso affords shippers that allows them to use any receipt pointon the system, up to the volume limit of their contract.

In a complaint filed in December, KN Marketing accused El Pasoof overbooking east-bound capacity out of San Juan, resulting incapacity curtailments of more than 20% between July and October oflast year [RP00-139]. But, in its response, El Paso said suchallegations were “unsupported” and “incorrect.”

El Paso sells transportation capacity only when it builds newmainline capacity or when an existing shipper relinquishes itscapacity, the pipeline told FERC. El Paso’s contracts “never commitmore than the amount of physical capacity available in the system.”However, this “does not mean, for a party such as [KN Marketing]that has access to system-wide receipt points, that there will becapacity in every segment of the system every day to transport allof the volumes it has contracted for,” it said.

That’s because KN Marketing’s capacity agreements, like most ElPaso agreements, are not restricted to specific volumes atindividual receipt points, the pipeline said. As a result, “theflexibility offered by these contracts has meant that, from time totime, shippers [will] seek to move gas from (or to) parts of thesystem in amounts disproportionate to the capacity availablethere.” When that happens, El Paso said it’s forced to allocatecapacity on a pro rata basis.

For example, “when the gas price in a particular supply areabecomes particularly attractive, most shippers on the system willseek to purchase as much gas as possible from that area. When thisoccurs, the amount of gas being purchased can sometimes exceed ElPaso’s take-away capacity in that area, or the system-wide flowcharacteristics resulting from shippers’ purchasing and schedulingdecisions can create bottlenecks in particular parts of the system.When these conditions arise, El Paso is required to apply thecapacity-allocation provisions of its tariff to determine whichshipper’s gas will be scheduled and in what amount.”

El Paso contends such conditions have been responsible for thecurtailments to KN Marketing’s service. “That is, the high level ofdemand for receipts in the San Juan Basin, coupled with the flowconditions associated with the delivery-point locations requestedby the shippers, has created a situation in which, in recent monthsat least, shippers scheduling gas from the San Juan Basin to [its]South System delivery points (including delivery points in Texas)are experiencing capacity allocations.”

As a result of these scheduling uncertainties, the Commissionhas undertaken a major review of El Paso’s practices for allocatingreceipt point and — at Topock, AZ — delivery point capacity todetermine whether a different method should be adopted. It hasdirected El Paso to come up with a proposal for a bettercapacity-allocation method by Feb. 9.

Although KN Marketing has framed its complaint as an “East End”problem, El Paso contends it’s no different than thecapacity-allocation problems that shippers are experiencing at theother end of its system in California and Arizona. Consequently,the pipeline urged the Commission to dismiss KN Marketing’scomplaint, but allow it to pursue its concerns as part of FERC’sreview of El Paso capacity-allocation procedures [RP99-507].

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.