NGI The Weekly Gas Market Report
While El Paso’s new agreement covering 1.2 Bcf/d of its firmtransportation capacity is likely to draw intense public andregulatory scrutiny, it may not be able to overshadow the growingconcern over its capacity allocation procedures. Despite someconcerns that revisiting the issue could undermine the recentlyapproved major settlement, more existing shippers have come forwardclaiming huge losses due to El Paso’s overbooked pipeline.
KN Marketing LP told the commission in a new complaint last weekagainst El Paso that it has lost nearly $800,000 and its reputationhas been tarnished because at times as much as 46% of itscontracted firm capacity has been curtailed due to overbooking onthe pipeline.
The company said it holds two contracts for firm capacity. Onecovers 50,000 MMBtu/d from all San Juan, Permian and Anadarkoprimary receipt points to a delivery point at a connection withWestar in West Texas (IWESTARW). A second covers 30,069 MMBtu/dfrom the same receipt points to a delivery point on El Paso’sPlains-to-Dumas line. KN pays $4,452,697 each year in demandcharges on these contracts.
However, from July through October of this year the shipperexperienced curtailments on 25% of the volume under its firstcontract (50,000 MMBtu/d) and on 21% of the volume under thesecond. In August, the cuts reached an average of 38% undercontract No. 1 and 29% under contract No. 2, the company said. Thecuts reached a peak of 46% on Aug. 6 on contract No. 1 fromreceipts in the San Juan Basin to Westar, despite minimalmaintenance that day affecting only 3% of design day capacity of2.2 Bcf/d, KN said.
“Fluctuating volumes cause [KN] and its customers to faceconstant uncertainty, which reduces the market’s perception of [KN]as a reliable service provider,” the company told FERC in itscomplaint. “For the period April 1999 though November 1999, [KN]estimates that the capacity allocation has caused a loss inrevenues of at least $413,000, which represents lost marketopportunities and fixed price exposure. In addition, [KN] hasincurred demand charges of approximately $377,000 with respect tothe allocated volumes. The damage to [KN’s] reputation as areliable supplier in the Southwest U.S. is difficult to measure,but could be sizable, particularly if this situation is allowed tocontinue.”
KN’s complaint is only the latest on this issue. On Sept. 21, BPAmoco and Burlington Resources filed a similar complaint focused onEl Paso’s allocation procedures at the Topock, AZ, delivery point,particularly into Southern California Gas. They accused El Paso ofoverselling capacity, resulting in the need to allocate on a prorata basis. The allocation resulted in capacity cuts as high as 57%of nominations. As a remedy, they proposed that El Paso be requiredto limit primary delivery point capacity at the interconnectionwith SoCalGas to the take-away capacity of the LDC’s system (540MMcf/d). Amoco estimates it’s losing up to $2 million annually andBurlington said its losses average $3,000/day because of thecurtailments at the Topock point.
FERC responded to their complaint on Nov. 10, concluding that ElPaso’s pro rata allocation methods as opposed to the industry-widepractice of assigning receipt point and delivery point rights”appears to be creating uncertainty and unreliability with respectto pooling and scheduling on El Paso’s system, and therefore may beunjust and unreasonable.” As a result, FERC initiated a Section 5proceeding to revise El Paso’s allocation of capacity at bothreceipt and delivery points. By a FERC established deadline of Jan.10, El Paso has been ordered to come up with a revised method ofallocation. Following receipt of the revision and comments fromshippers, FERC staff is scheduled to hold a technical conference onthe matter.
KN told the commission that although its experiences are similarto those of BP Amoco and Burlington, the situation on the east endof El Paso is more serious. It involves mainline capacityallocation rather than a “custody” issue at a particular deliverypoint, the shipper said.
Meanwhile some shippers are angered that the Commission isopening this can of worms after just recently approving asettlement on these issues. The East of California (EOC) shippers,including the Salt River Project, Phelps Dodge Corp., ArizonaElectric Power Cooperative, Arizona Public Service, Southern UnionGas and others filed a motion for stay and a request for rehearingof the BP Amoco Complaint order as well as two other related ordersthat were issued on the same day, one an Order on Remand approvingthe 1996 El Paso Settlement and the other an order rejecting afiling by El Paso to revise its pooling methods (Pooling Order).
The East of California shippers say the Complaint Order and thePooling Order “directly conflict with the Settlement Order approvedon the same day,” which approved the continued use of El Paso’sexisting capacity allocation method for 10 years. “The two coursesof action are mutually exclusive,” they told FERC, noting thatevery party to El Paso’s 1996 settlement agreed that its capacityallocation methods are just, reasonable and function just fine.
“By requiring El Paso to modify its capacity allocationmethodology, the Commission is undermining this landmark agreementthat resolved El Paso’s unsubscribed capacity crisis. It is not inthe public interest to unravel the 1996 Settlement.”
As a result, the EOC shippers requested that the Commissioneither grant rehearing of the three orders or grant their requestfor clarification that “any outcome resulting from any Section 5investigation cannot take effect prior to Jan. 1, 2006.” If theCommission does neither, they request the three dockets beconsolidated for further litigation.
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