A team of El Paso Natural Gas executives took the opportunityyesterday to explain in detail to their transportation customersthe pipeline’s new capacity-allocation proposal, but many left theFERC technical conference more bewildered than when they arrived.

After a one-hour presentation on the proposal, which involves”pathed” and “non-pathed” rights, shippers who initially thoughtthey understood the capacity-allocation plan weren’t quite sureanymore. “As a preliminary matter, I think that one thing isclear…..we need some additional kind of more formalizeddiscovery,” said Katherine Edwards, a Washington D.C. attorneyrepresenting Amoco Production and Burlington Resources Oil and Gas,which brought the complaint that led to El Paso’s allocationproposal. Not one to mince words, Edwards likened the El Pasoproposal to a “shell game.”

“I think it’s been difficult to follow in some respects even forthose who are very close to the issue,” she told El Paso’s BillHealy, who authored the new allocation method. “The basic problemthat we are seeing here, at least that motivated our complaint, wasthe over-sale [of firm capacity]” to the Southern California Gas(SoCalGas) delivery point at Topock, AZ, Edwards said.

According to Edwards’ own estimates, the combined design daycapacity of El Paso’s north mainline to Topock and its south systemfrom between the Maricopa Line and Havasu Crossover to theEhrenberg delivery point is about 2.6 Bcf/d, while the combinedcontract demand to the Topock and Ehrenberg points is 3.25 Bcf/d.

“See that’s the problem we got here, and that’s the problem thatthis presentation hasn’t really addressed” — that there’s toomuch firm demand chasing too little capacity on El Paso, she said.”What we need to do is nail down the number as to how much gas youcan deliver in aggregate on the same day to California.” Healy, ElPaso’s vice president of operations control and pipeline planning,estimated the pipeline’s deliverability capacity to California atabout 3.29 Bcf/d.

Thursday’s technical conference was the first of what isexpected to be a “multiple proceeding event” at the Commissionaddressing El Paso’s new proposal for allocating capacity on itssystem. Last November, the Commission directed El Paso to devise abetter capacity-allocation method as part of a Section 5 complaintproceeding. Shippers had complained the pipeline routinely hadoverbooked primary point capacity to the SoCalGas delivery point atTopock in excess of take-away capacity, resulting in significantpro-rata curtailments.

Under its plan filed in February, El Paso proposed to allocateprimary firm capacity designating a percentage of each firmshipper’s contract demand (DC) as “pathed,” with the remaining tobe assigned as “non-pathed.” With pathed rights, firm shipperswould create specific receipt-and-delivery point combinations totransport their gas, which would make them less vulnerable tocurtailments. Under non-pathed rights, El Paso shippers wouldcontinue with the existing practice of selecting a specificdelivery point, but not a receipt point. These shippers still wouldbe vulnerable to curtailments.

At the technical conference, it was estimated that El Paso hadbeen able to assign pathed rights to about 80% of its totalcontract demand, which El Paso put at 5.22 Bcf/d. Does that meanthat 80% of the CD is “guaranteed firm service…..that thoseshippers will get service every day of the year?” Edwards asked.

“The answer to that would be ‘no,'” Healy responded.

Then “I don’t understand…..I thought the purpose of havingthis was to remove all of the uncertainty in the scheduling” on ElPaso’s system, she said. “But that’s not what firm is on El Paso,”Healy explained. He further noted that while “pathed” shipperswouldn’t be guaranteed delivery, they would receive greaterassurance that they wouldn’t be curtailed.

A Conoco shipper also had problems with El Paso’s proposal,saying it “has allocated our firm rights that we purchased toget…..gas out of the San Juan Basin to other basins. If we areallocated capacity…..in the basins where we don’t haveproduction, how does that improve the predictability of thesystem?”

But Healy noted that El Paso’s contract with Conoco permittedsuch action. “Nothing in the contract promises [that] when youaccepted a contract [or] bought a contract with system-wide receiptrights that you could get all of you gas out of a single basin.”

While El Paso tried its best to assure customers that theircontract rights would remain the same, one shipper countered, “No,you changed my rights. Right now I have a right to take 100% of mygas from the San Juan Basin. Now [it] may be curtailed. The fact isnow you’ve changed my 100% San Juan receipt point rights towhatever.”

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