The Federal Energy Regulatory Commission (FERC) approvedconstruction of a proposed 60-mile, 130 MMcf/d pipeline lateral offEl Paso’s mainline in Arizona to proposed Mexican border crossingfacilities. The proposed $30 million pipe and border crossingfacilities are designed to serve several existing and proposedgas-fired power plants in Sonora.

The project will involve building a 56-mile, 20-inch diameterlateral line from a new Willcox receipt point in Cochise County,AZ, near El Paso’s existing Willcox compressor toward the Mexicanborder to a pipeline fork where two lines will branch off andcontinue in different directions to the border. The west branchline will connect with an existing Pemex line through bordercrossing facilities. It will serve the existing 150 MW HermosilloPower plant and a proposed 225 MW expansion plant. The proposedexpansion plant is expected to begin testing in early 2001 andbegin commercial operation in the summer of 2001. The 12-mile eastbranch line will cross the border near Douglas, AZ, and will servethe proposed 225 MW El Fresnal/Nogales Power Plant. No constructioncontract has been awarded for the El Fresnal/Nogales plant.However, gas consumption is expected to be about 40 MMcf/d. El Pasohas signed separate but mutually exclusive agreements with threeparties who are submitting bids to build the plant.

El Paso claims to have binding agreements for 60% of theproposed 130 MMcf/d capacity, but FERC determined the pipeline”really only has one firm service agreement for transportation overthe Willcox lateral at this time, and that is a 25-year agreementfor 39 MMcf/d with [affiliate El Paso Merchant Energy Co.],” whichhas an agreement to supply the 225 MW combined cycle Hermosilloexpansion plant with up to 43 MMcf/d.

FERC has required El Paso to revise its initial rates forservice on the lateral because its filed rates are based on aweighted average depreciable life using only one 25-year contractwith its affiliate. The proposed incremental rate for service onthe lateral is $0.1467/Dth/day, and it applies only to Willcoxlateral shippers.

Despite the relatively large size of the lateral, El Paso is notplanning to build upstream capacity and that has triggered concernsamong some of its shippers, particularly Southwest Gas. Southwestclaims the project could cause problems during peak summer periodsbecause it will result in available mainline capacity beingdiverted to the lateral. However, FERC concluded the project wouldnot adversely affect existing shippers. “Our analysis confirms thatEl Paso’s system will be capable of maintaining delivery ofhistorical non-coincidental peak volumes to its existingfull-requirements customers at mainline pressures above thoserequired by its contracts,” the Commission said.

FERC also said Apache made “unsupported” claims that El Paso’sinflated its proposed cost of service and made undisclosedarrangements concerning mainline capacity in order to benefit froma revenue crediting mechanism that is included in its shipperagreement.

The Commission said it believes El Paso’s proposal will notresult in subsidization by existing shippers nor will adverselyaffect existing shippers, other pipelines or landowners.

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