The Federal Energy Regulatory Commission reminded El Paso Natural Gas and its shippers Wednesday that the clock was winding down very quickly for them to submit an agreement identifying the specific capacity amounts that full-requirements (FR) shippers will be entitled to when the FERC-ordered conversion to system-wide contract demand (CD) service goes into effect on the pipeline later this year. If a pact isn’t filed by Aug. 1, the Commission has threatened to take matters into its own hands.

FERC set the iron-clad deadline for the agreement in late May when it ordered FR service customers on El Paso to convert to CD service, signing contracts for their exact transportation requirements, effective Nov. 1. By putting El Paso’s transportation customers on equal footing with respect to the type of contract, the Commission is hoping to bring an end to a years-long dispute over the manner in which capacity is allocated on the El Paso system (See Daily GPI, May 31). Until now, FR shippers have had unfettered access to El Paso capacity often without paying additional costs, CD shippers have complained. The practice has caused considerable friction over the years.

“The Commission is very serious about solving the problems that this case presents to us, and will act forcefully [if] necessary to do so,” warned Commissioner William Massey.

“We have two very important, critical weeks left” to divvy up capacity between CD and existing FR shippers on the El Paso system, noted Commissioner Linda Breathitt. “If there isn’t resolution made [by then]…we do have a full array of options before us to consider taking that matter into our own hands.” It would be to the El Paso shippers’ benefit to resolve the issue on “their own terms and conditions,” rather than leaving it up to FERC to decide, she said.

By requiring uniformity of contract service, the Commission is trying to broker a peaceful resolution to the bickering between CD and FR shippers on El Paso. CD shippers have accused FR shippers, who mostly serve southwestern gas markets (New Mexico, Arizona and Texas), of hijacking transportation capacity that was intended to be used to serve the California market.

The controversial FR service has given east-of-California (EOC) customers almost unlimited access to El Paso firm transportation capacity over the years without the cost of additional demand charges, often at the expense of the pipeline’s CD shippers. CD shippers have long complained that the 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. They said their own capacity on El Paso often was diverted to serve the EOC customers.

Many FR customers have been opposed to the service conversion, claiming it would violate the sanctity of their existing contracts that were reached following El Paso’s 1996 global settlement with its customers.

“If ever there were a case that demonstrated the need for regional cooperation, it is this one,” observed Commissioner Nora M. Brownell. She said she was encouraged that the chairman of the Arizona Corporation Commission had written to the chair of the California Public Utilities Commission, urging both sides to sit down and cooperate. “I would hope that is, in fact, happening” or has happened already.

“I think it is in no one’s best interest to be fighting over scarce [capacity] interests in a way that is parochial. It simply does not bode well for the region and the needs of the region,” Brownell said.

California regulators, however, apparently have not heard the call for cooperation. Instead on Wednesday, the CPUC approved rules that require the state’s utilities and marketers serving the state to buy up as much capacity on El Paso as possible to head off what the CPUC believes will be a massive flight of El Paso capacity to power plants in neighboring Arizona.

The CPUC voted 3-2 to order the utilities to buy up available capacity. Dissenters felt the commission was “overreaching,” and said it could have an adverse impact on the secondary transportation capacity market.

The CPUC also took the unusual step in 4-1 vote (Commissioner Michael Peevey opposing) of ordering unregulated marketers who serve California to sign up for “as much of the new turn-back capacity as is feasible.”

Noting “time is of the essence,” CPUC Chair Loretta Lynch said the state has only 14 more days to deal with this, and that California must avoid a replay of the winter of 2000-2001 when she estimated the state paid “over $4 billion extra” in natural gas costs. Lynch said not all of the expansion of other interstate pipelines serving California necessarily will be available to the state so she does not want to lose a substantial portion of El Paso 3.2 Bcf/d coming into the state.

Lynch was critical of the stance Sempra Energy’s Southern California Gas Co. utility has taken on the issue. SoCalGas has expressed an interest in turning back a portion of its firm interstate capacity rights in excess of its core needs. She “questioned whether Sempra has the best interests of its utility companies at heart.” Lynch noted that the CPUC action Wednesday included both SoCalGas and San Diego Gas and Electric Co., the two Sempra utilities.

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