The FERC-ordered plan to convert all transportation on El Paso Natural Gas to contract demand (CD) service by the end of the year “has to a large extent been whipsawed” by the fierce tug-of-war for capacity being waged between existing full-requirements (FR) customers and California CD customers, the pipeline told the Commission.

The FR shippers in particular have filed a “long list of objections” to the conversion process and FERC’s May 31 decision, which ordered all current FR shippers — who have had virtually unlimited access to El Paso capacity in the past — to convert to CD service by Nov. 1 of this year. “Contrary to allegations that El Paso has attempted to short-circuit the process, [it] has done everything within its power to move the allocation process forward in a good faith, constructive way that adheres to the letter and spirit of the order,” it said in a filing at the Commission this week (see Daily GPI, May 31).

The pipeline urged the Commission to reject the numerous arguments and objections filed against its Aug. 1 progress report, and to “expeditiously proceed to issue an order establishing the entitlements of the FR shippers as advocated in the report.” In the Aug. 1 report, El Paso called “unworkable” an agreement reached by FR shippers to convert their contracts to CD, and asked the agency to decide the issue of how much capacity FR shippers will be entitled to under CD contracts (see Daily GPI, Aug. 5).

By placing all of El Paso’s customers on the same page with respect to transportation contracts, the Commission is hoping to broker an accord between El Paso’s FR shippers, which serve southwestern (East of California) gas markets, and its California CD shippers over the inequitable manner in which capacity has been doled out on the pipeline’s system over the years. The source of the friction has been FR shippers’ easy access to incremental El Paso capacity at no additional reservation costs.

The first step of the contract conversion process is proving to be the most toughest nut, as neither El Paso nor the FR shippers can agree on how much capacity will be available to FR shippers under CD contracts. El Paso says FR shippers have overestimated the amount of capacity available to them on the pipeline by approximately 580 MMcf/d, of which they seek to set aside about 354 MMcf/d for themselves. The pipeline cited “two fundamental errors” in the apparent capacity miscalculation by FR shippers.

First, FR shippers’ calculation is based on El Paso’s system design capacity, rather than on the “sustainable capacity” of the pipeline, it noted. Sustainable capacity is capacity that can be made available to shippers “without the prospect of pro rata curtailments except during periods of force majeure events or maintenance,” El Paso said. It takes into account certain “transient conditions” on the pipeline, such as shipper imbalance, uneven hourly takes by local distribution companies and power generators, and shippers’ decisions to receive and deliver gas at points that do not maximize system capacity.

Of the total 580 MMcf/d overstatement, El Paso estimated that 265 MMcf/d was caused by FR shippers’ failure to account for the “transient conditions” on the pipeline.

“The FR shippers are asking the Commission to require El Paso to allocate ‘phantom’ capacity. However, no amount of rhetoric by the FR shippers can magically increase the amount of sustainable capacity on El Paso’s pipeline system by eliminating the transient conditions — for which they are, in part, responsible — that prevent El Paso from operating on a continuous, sustained basis at MAOP (particularly a system such as El Paso’s that lacks any market-area storage).”

A second flaw in FR shippers’ capacity calculation was their treatment of El Paso’s west-flow CD obligations, El Paso said. While El Paso has agreed to offer them 195.5 MMcf/d of firm capacity that was formerly held by Enron at no additional cost, “the FR shippers claim that El Paso also should make available to them — again with no additional revenue responsibility — 320.5 MMcf/d of capacity that currently is covered by CD contracts that will expire between now and Nov. 1.”

El Paso said it “strongly disagrees” with FR shippers’ attempt to obtain this capacity at no additional cost. “El Paso believes that it is permitted under the terms of the [May 31] order to re-subscribe capacity that becomes available under expiring CD contracts as soon as it has completed the capacity allocation process and filed its [final] report” due at FERC on Sept. 3.

While FR shippers would have a “preferential right” to this expiring capacity, “they would be required to assume reservation charge responsibility for such capacity,” El Paso noted.

After accounting for its Line 2000 conversion and power-up projects, the former Enron capacity and backhaul shipments from Topock on a primary basis, El Paso said it will have added approximately 900 MMcf/d of capacity to meet FR shipper transportation needs. “This capacity contributed by El Paso is approximately 20% of El Paso’s post-expansion west-flow capacity, and is larger than a number of stand-alone pipeline systems.” Given this, “there is simply no equitable or legal basis on which to require El Paso to contribute an additional 320.5 MMcf/d of capacity at its own expense.”

El Paso claimed that FR shippers snubbed its open season for 725 MMcf/d of turned-back capacity earlier this month “in part on [the] hope that the Commission will permit them to acquire the 320.5 MMcf/d of capacity…thereby obviating or minimizing the need for them to acquire turnback capacity and assume reservation charge responsibility.” (see Daily GPI, Aug. 16)

Likewise, the California CD shippers complained they were shut out of the bidding for the turned-back capacity on El Paso, the pipeline said. But El Paso pointed out that of the 221 MMcf/d of capacity awarded, CD customers (California utilities) picked up approximately 206 MMcf/d. The CD shippers also claimed that El Paso’s offering of the former Enron (Block II) capacity to FR shippers was illegal because the capacity had been dedicated by prior FERC certificate orders to the California market.

“There simply has been no ‘certificated dedication’ of turnback capacity, including Block II capacity, to the California market,” El Paso countered. In any event, the pipeline noted the Block II capacity can be recalled from FR customers by Northern California shippers under the terms of El Paso’s contract.

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