Over the objections of natural gas producers, marketers and East-of-California shippers, FERC last Wednesday accepted El Paso Natural Gas pipeline’s revised tariff proposal that would allow it to reserve capacity for future expansions.
The tariff proposal, which took effect July 15, allows El Paso to reserve capacity for a maximum of one year prior to the time it files a certificate seeking approval to build a project and until the facilities are placed into service. The capacity to be reserved either must not be subject to a right-of-first-refusal (ROFR) or subject to a ROFR that a shipper does not exercise, the order said [RP04-330].
In its certificate application, El Paso must prove to the Federal Energy Regulatory Commission that the reserved capacity was made available for sale to new shippers and that firm service to existing shippers will not be adversely affected by the expansion.
Under the revised tariff filing, El Paso is required to first post the available capacity at least five business days prior to reserving it for an expansion project and to award the capacity to shippers according to the terms and conditions of its tariff. If the expansion project does not go forward, any capacity reserved for a future project will be re-posted as generally available capacity within 30 days of the date that the capacity becomes available, the order said.
The critics called El Paso’s revised tariff filing “premature” in light of all of the unresolved capacity-related cases that the pipeline is involved in at the Commission. They argued that the pipeline hasn’t even demonstrated that it has enough capacity to serve its existing firm shippers, much less reserve capacity for future expansion projects (see NGI, July 5).
But FERC disagreed. “Contrary to the assertion of these commenters, the rights of firm shippers to capacity on the El Paso system are clearly defined,” the order noted.
“In El Paso’s capacity-allocation proceeding, the Commission ordered changes to El Paso’s system operations and capacity-allocation methodology to restore reliable firm service on the El Paso system. Among other things, the Commission directed that full-requirements service be converted to contract demand service and that specific entitlements be assigned to shippers under their new CD contracts. In addition, the Commission ordered the conversion of system-wide receipt point rights to specified rights at specific receipt points. These changes took effect on El Paso’s system on Sept. 1, 2003,” the order said.
“Therefore, mainline and receipt point capacity rights are in place on El Paso’s system and the capacity rights of its customers are defined. This provides El Paso a basis for determining how much capacity it needs to serve its existing shippers and whether capacity is available for future expansions.”
Reliability of service to existing shippers on the El Paso system will not be downgraded by the tariff proposal, according to FERC. “The Commission has held that El Paso may not enter into new firm service contracts unless it can demonstrate that it has capacity available to provide that service without degrading service to existing customers and further that when new capacity becomes available on its system, El Paso must first offer that capacity to its existing firm shippers before it offers it to a new shipper. These requirements will not be affected by El Paso’s proposal,” the order said.
FERC cited other protections for existing El Paso shippers. “Under the Commission’s requirements for reserving capacity for future expansions, a pipeline must first post all of its available capacity so that shippers can bid on such capacity. Further, a pipeline is not permitted to set aside or withhold capacity solely for expansion shippers but must provide all parties with the opportunity to bid on available capacity. We believe that these requirements and the Commission’s directives in its order on El Paso’s filing in RP04-328 provide adequate safeguards to permit El Paso to establish a mechanism now to reserve capacity for future expansions.”
In addition, “our decision to accept El Paso’s proposal is based on [the pipeline’s] representation that it will demonstrate in its certificate application for any new expansion project that includes such reserved capacity that: 1) the reserved capacity was available for sale to new shippers; and 2) firm service to existing shippers will not be adversely affected by the expansion,” the order said.
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