The Federal Energy Regulatory Commission voted Wednesday to push back the planned conversion on El Paso Natural Gas of full requirements (FR) service to contract demand (CD) service from Nov. 1, 2002 to May 1, 2003, allowing existing CD shippers whose transportation capacity may be subject to continuing pro rata cuts to receive demand charge credits in the interim period.

Following months of failed talks between the pipeline and its shippers over how to allocate capacity, the Commission took charge and ordered El Paso to award capacity to the converting FR shippers based on their individual monthly usage of the system over the last 12 months, ended Aug. 31. If a converting shipper’s monthly allocation turns out to less than the billing determinants under the global 1996 settlement between El Paso and its shippers, then the billing determinants will be used as the shipper’s monthly allocation, the order said [RP00-336].

The total available daily capacity to be divided among shippers will be 5.4 Bcf once El Paso’s Line 2000 power-up project (230 MMcf/d) is completed, it noted. FERC opted for El Paso’s more conservative 5.4 Bcf estimate as the starting point, rather the capacity calculation of FR shippers, which was 300 MMcf more.

Based on the terms of the 1996 settlement, FR shippers have been allowed almost unfettered access to incremental capacity on the pipeline’s system at no additional reservation costs, while CD shippers have had to bear the risks of demand charges for all of their capacity, even that which has been subject to pro rata cuts. Because of this unrestricted access, FR shippers have been able to hijack capacity to serve their markets in the Southwest that was originally intended for CD markets in California. This has been a considerable source of friction between the two sides, and FERC is hoping that the conversion of El Paso to an all-CD system will finally resolve the dispute.

Once allocations are made to converting FR customers, FERC further has ordered El Paso to re-allocate the current aggregate FR shipper revenue responsibility among FR shippers. “In this way, the revenue responsibility for the new [FR-turned-CD shippers] will be equitably distributed among the FR shippers. Each shipper will pay for the service it receives. This reallocation of costs will not, however, affect system rates,” the order said.

In addition, any capacity contracts that expire or are up for renewal during the interim period will automatically become available to FR shippers unless the expiring shipper has the right of first refusal. FERC took the action after lengthy negotiations between CD and FR shippers ended in stalemate. “The parties got very close, but no cigar,” Chairman Pat Wood said in announcing the decision at FERC’s regular meeting (see Daily GPI, Aug. 28).

Wood noted the bulk of the order was “absolutely necessary,” particularly the decision to extend the conversion deadline, but he expressed reservations about re-allocation of the aggregate FR shipper revenue responsibility. “I don’t know if it’s necessary to…go back and say, ‘We’re going to re-allocate that pot of dollars among all of you [FR shippers] on a new basis based on these new CD [capacity contracts].'”

Nevertheless, FERC’s order is necessary to get this “critical piece of infrastructure in one of the fastest growing regions of the country…back to normal business,” he said.

FERC had “no choice, but to step up to the plate,” said Commissioner William Massey. FR shippers — who for years have had virtually free access to El Paso capacity, often at the expense of CD shippers — have fought long and hard to retain that status. The Commission last May ruled that capacity allocation on El Paso was unjust and unreasonable. It ordered FR shippers to switch to CD service by Nov. 1 to put all shippers on the same page, threatening that if they failed to reach an agreement, FERC would make the call. The FR shippers serve southwestern (East of California) gas markets while its current CD shippers primarily cater to California.

The Commission has further ordered El Paso to submit a report by Dec. 2 on the results of the capacity allocations to the converting FR shippers.

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