FERC Monday upheld its prior decisions not to reallocate costs among El Paso Natural Gas pipeline’s former full-requirement (FR) shippers as part of the conversion of the FR shippers to contract demand (CD) service nearly four years ago.

The latest order upholds a May 2006 order on remand, which affirmed a prior decision that reallocation of the costs of El Paso’s one-time FR shippers was not justified as part of the conversion. Southwest Gas Corp., a Las Vegas, NV-based local distribution company and the largest ex-FR shipper on El Paso, sought rehearing of that decision [RP00-336-032].

The systemwide conversion to CD service on El Paso took place in September 2003 to resolve disputes on the capacity-constrained pipeline. As a result of a 1996 settlement between El Paso and its customers, FR shippers (also known as East-of-California shippers) had been allowed almost unfettered access to incremental capacity on El Paso’s system at no additional reservation costs for years, while CD shippers had to bear the risks of demand charges for all of their capacity, even that which had been subject to pro rata cuts. Because of the unrestricted access, FR shippers in Arizona, New Mexico and Texas had been able to essentially hijack capacity to serve their markets in the Southwest that was originally intended for CD shippers’ markets in California.

The Federal Energy Regulatory Commission made a “narrow” adjustment to the 1996 settlement to allow for the service conversion on El Paso, but it did not make any rate changes.

“The Commission has never found any of the various 1996 settlement rates to be unjust and unreasonable. The Commission has found only that the continuation of FR service was contrary to the public interest and, therefore, replaced that service with CD service,” the order said.

“To successfully challenge the decision on rehearing and persuade the Commission to prescribe different rates for all of the former FR shippers, Southwest would have to show that the settlement rates were no longer in the public interest. Southwest has not made that showing.

“The Commission’s approach was appropriate. While the reallocation of revenue responsibility advocated by Southwest would result in a decrease in Southwest’s revenue payments, the annual revenue payments of some of the other former FR shippers would increase above the level they agreed to in the settlement, thereby eliminating the rate certainty that was a primary benefit of the settlement,” the order noted.

“In essence, reallocating costs among the former FR shippers would have resulted in some shippers paying more and some paying less, and not in lower rates for all of the former FR shippers.”

Southwest Gas “has failed to demonstrate any harm to the public interest from maintaining the settlement rates for the remaining two years of the term of the settlement. Southwest has merely alleged that it perceives itself to have been disadvantaged with respect to other FR shippers. This is not a sufficient basis for disturbing the rate certainty, the flexible delivery and the pooling of supplies that were significant parts of the settlement bargain for all of the FR shippers,” FERC said.

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