El Paso Natural Gas openly concedes it has had to curtaildeliveries on the East End of its system between the San Juan Basinand Texas in recent months, but it said it wasn’t because it hasoversold capacity on that section of its system, as KN MarketingL.P. has alleged. Rather it’s been due to the schedulingflexibility El Paso affords shippers that allows them to use anyreceipt point on the system, up to the volume limit of theircontract.

In a complaint filed in December, KN Marketing accused El Pasoof overbooking east-bound capacity out of the San Juan Basin,resulting in capacity curtailments for the marketer of more than20% between July and October of last year [RP00-139]. But, in itsresponse, El Paso said such allegations were “unsupported” and”patently 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.

El Paso contends KN Marketing should pursue its concerns as partof FERC’s review of El Paso capacity-allocation procedures[RP99-507].

The Commission called for the analysis of El Paso’s allocationpractices in response to a complaint filed by Amoco Production,Amoco Energy Trading and Burlington Resources Oil & Gas, whichalso have accused El Paso of overselling capacity on its system.

Amoco said “independent evidence” reveals the pipeline hasintentionally oversold its mainline capacity by almost 1 Bcf/d,”requiring its customers to pay for firm capacity that they are notpermitted to use because of daily curtailments. El Paso has beenperforming a shell game by shifting supply from [its] North Systemto the South system (or vice versa)…..”

Susan Parker

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