Phelps Dodge Corp. has accused El Paso Natural Gas of refusing to provide new transportation service to its refining facility under the company’s existing agreement because the terms of the pipeline’s comprehensive rate settlement would prevent the Texas-based pipeline from making any money on the deal.

In a complaint at FERC, Phelps Dodge said El Paso spurned its request when it realized it wouldn’t receive any incremental revenue under the mining company’s existing agreement if it provided new service to the refining plant. That’s because Phelps Dodge’s contract agreement is subject to the pipeline’s rate settlement, which locked in customers’ firm transportation rates for over a 10-year period in return for paving the way for El Paso to re-market the excess capacity on its system.

Because the contract demand and billing determinants on which the settlement rates are based will remain constant for the 10-year term, Phelps Dodge contends that any increase in a full requirements customer’s gas usage during that period – such as it is seeking – will not translate into higher reservation charges for El Paso. In fact, the end result will be a lower unit rate for gas service provided to Phelps Dodge by El Paso, it says. The pipeline’s denial of additional service to Phelps Dodge ” is driven by El Paso’s after-the-fact realization that honoring such contractual commitments in a post-settlement world will not result in any additional revenue.”

El Paso has offered to provide the service to the refining facility in El Paso, TX, but under a separate contract. Phelps Dodge opposes this because the service “can be priced separately, and it’s not under the rate moratorium of the settlement,” said Barbara S. Jost, a Washington D.C. attorney representing Phelps Dodge. “They’re treating it [our request] as a new service by a new customer. And the terms and conditions of service for a new customer…are not as favorable,” she noted. “We don’t believe Phelps has an issue…,” said El Paso Energy spokeswoman Norma Dunn, who added the pipeline would file a response later this month.

Several outside parties already have asked FERC for permission to intervene in the case. “It really deals with an important issue as to the responsibilities of El Paso as a pipeline to do certain things during the 10-year global settlement period,” said an LDC official, who asked not to be identified. “We’re one of the signatories to that settlement and, therefore, we’re interested in what Phelps Dodge has to say and what El Paso will say in response.”

In the event “FERC were to rule that El Paso doesn’t have to do anything during the next 10 years – that it doesn’t have to expand the services it provides to full requirements customers – that might be a problem,” he noted. The real issue here is “what did El Paso give up in agreeing to the settlement.”

Susan Parker

©Copyright 1998 Intelligence Press. All rights reserved. Thepreceding news report may Not be republished Or redistributed, in wholeOr in part, without prior written consent of Intelligence Press.