FERC commissioners Wednesday endorsed an inquiry into a staff proposal that calls for the Commission to convert full requirements (FR) service on the El Paso Natural Gas system to contract demand (CD) service, a move that potentially could resolve a long-simmering dispute over capacity allocation on the pipeline.

The Commission plans to issue a notice to convene a technical conference to hear industry comments on staff’s proposal, which would “place all [El Paso] customers on equal footing and send the proper price signals for expansion” of the pipeline, said Robert Petrocelli of FERC’s Office of Markets, Tariffs and Rates during the agency’s regular meeting. He indicated that staff may consider an exception for small customers on El Paso’s system.

Staff’s proposal would put an end to the controversial FR service, which has given customers located in Arizona and New Mexico almost unlimited access to El Paso firm transportation capacity without the cost of additional demand charges, often at the expense of the pipeline’s CD shippers. CD shippers complained that the east-of-California (EOC) customers added massive loads for new power plants under their existing FR contracts without paying the incremental costs of new pipeline capacity to serve the loads (see Daily GPI, April 17, 2001). As a result, they said their own capacity on El Paso often went to serve the EOC customers, rather than intended California markets.

Upon ridding El Paso of FR service, staff proposed that FERC order the pipeline to allocate CD service based on either the higher of customer billing determinants as specified in a 1996 settlement, or the “coincidental” system peak of Dec. 12, 2001.

It further called for the Commission to approve a policy that would require specific receipt rights to be assigned to shippers within the three production basins that El Paso serves — San Juan, Anadarko and Permian. This recommendation “will assign certainty for supplies for all firm shippers and will eliminate daily pro-rata curtailments in the basins,” Petrocelli said.

Staff also suggested that FERC accept an El Paso proposal to narrow the geographic pools served by its system to 20. This would provide “customers with their supply choices without [the] complicated mathematical scheduling formulas that seem to baffle everybody,” he noted. El Paso further pledged not to have any more curtailments due to compression or wellhead constraints.

These recommendations will restore firm service on El Paso and provide “equal access to supply for all shippers,” said Petrocelli. Staff’s proposals were in response to a number of complaints and protests that have been filed over the past two years against El Paso for the method in which it allocates capacity on its system, which staff said was “no longer just and reasonable.”

Absent FERC action to eliminate FR service, the capacity of El Paso would continue to remain stationary, while the load for some El Paso’s Southwestern customers would grow by as much as 200% over the next couple of years, according to staff. Under those circumstances, allocating capacity on El Paso would be like trying “to squeeze a size 15 foot into a size 10 shoe,” Petrocelli said.

“You have persuaded me that full Commission action is needed here,” said Commissioner William Massey in response to staff’s proposals.

Commissioner Linda Breathitt called it “a reasonable approach.” Chairman Pat Wood noted that the system “is broke,” and the only question is whether this is “the best fix.”

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