Although El Paso shippers are pleased that the Federal EnergyRegulatory Commission (FERC) finally has recognized that El PasoNatural Gas has been unjustly overselling firm capacity, they areexasperated over the Commission’s proposed solution.

In a request for rehearing last week, Southern California Gasexpressed outraged over the proposed remedy. The California utilitysaid FERC’s plan basically allows other shippers to come in andillegally take its firm delivery capacity away, potentially harmingits ratepayers.

FERC unveiled its “multi-step” solution in October afterstakeholders were unable to come to agreement on a plan (see DailyGPI, Oct. 26). The Commission’s proposalrequires El Paso make a one-time assignment of primary firm capacityrights based on shipper elections to alleviate the congestion at thefour Topock, AZ, delivery points at the California border. “[W]hilethe firm delivery point capacity that each shipper currently has atthe Topock points will be reduced, each shipper will be guaranteedthat it can nominate up to its assigned amount on any day at anyTopock delivery point without a daily pro rata reduction absent forcemajeure or unusual circumstance,” the Commission said in its order(Docket RP99-507). Although the remedy is “unlikely to satisfy allparties,” said Commissioner Linda Breathitt, it is fair.

SoCalGas, like many other El Paso shippers, agreed with thegeneral conclusion that the southwestern pipeline unjustly oversolddelivery point capacity at the California border. However, theCommission’s proposed remedy is anything but fair, according toSoCal.

The remedy “totally disregards the fact that SoCalGas has priorclaim to the entire 540 MMcf/d of firm primary delivery rights atSoCal Topock… Since 1955, SoCalGas has had contractualentitlements for firm deliveries into that point for the full 540MMcf/d physical design capacity… SoCalGas has never relinquishedits firm rights to the SoCal Topock delivery point” despite thefact that El Paso did oversell delivery point rights [mainly to itsaffiliate, El Paso Merchant Energy] into SoCal Topock when no suchcapacity was available, the utility said.

At SoCal/Topock, El Paso has awarded contracts giving shippersthe ability to nominate about 1.555 Bcf/d of firm capacity to thedelivery point when the design capacity of SoCal/Topock is only 540MMcf/d.

In the first step of FERC’s new capacity-assignment plan, firmshippers — which have rights to the Topock delivery points inaggregate, but not to a specific Topock point(s) — must choosehow their delivery point rights are to be distributed among theindividual Topock delivery points. For example, if a firm shipperhas rights to 100 units at Topock, it can designate all 100 unitsto the SoCal/Topock delivery point, or 25 units to each of the fourTopock points, the order said. In the second step, El Paso wouldadd up all of the firm shippers’ rights at each Topock deliverypoint. This would include the selections made by shippers in stepone and the rights of other firm shippers at specific Topockpoints. The pipeline then would calculate for each firm shipper ateach point the percentage that a shipper has of the total contractrights at that point. Using these percentages El Paso would divvyup the “available physical capacity” at each Topock point.

FERC’s prescribed remedy would reduce SoCalGas’ contract rightsby more than half, the utility said. “This is clear abrogation ofSoCalGas’ [transportation agreements] and related capacity releasearrangements.”

Furthermore, SoCal said, the remedy “significantly compromises[its] ability to meet its public utility duty to serve bysignificantly reducing [its] ability to continue having suppliesdelivered directly into its system on a firm primary basis. This isespecially serious going into the heating season.”

As a result, SoCal requests a stay of implementation until March31, 2001 or until the final issuance of an order in thisproceeding. SoCal initially estimated its costs of complying withthis order to be $50-$100 million, but that estimate has turned outto be “significantly understated,” SoCal said. In addition, thereare significant reliability concerns associated with negotiatingnew transportation and delivery arrangements necessary for SoCalGasto meeting its system requirements.

“The request for stay through the winter months is even morecritical. As of this writing, spot basin-border differentialsexceed $10/MMBtu, about 20 times the transport cost at the ‘asbilled’ rate. Monthly indices indicate the basin-borderdifferential to be in excess of $6/MMBtu. This transfer of wealthto El Paso and its affiliates will put severe economic andoperational strain on El Paso customers and will threaten SoCalGas’system reliability.”

Indicated Shippers, including Amoco, Burlington Resources,Conoco, Marathon and other producers that originally filed thecomplaint that started this proceeding, also expresseddisappointment with the Commission’s proposed remedy but for muchdifferent reasons. In a request for rehearing, the shippers toldFERC it was wrong in not applying its proposed remedy to theremainder of El Paso’s system, specifically the three constrainednorth-south crossover lines. “In short, the Commission shouldrequire El Paso’s system to be fully pathed, like all otherinterstate pipelines, such that El Paso’s firm transportationcustomers have specific primary receipt, mainline path and primarydelivery point rights that do not exceed the physical receipt anddelivery point capacities on its system.”

In its Oct. 25 decision, FERC decided to put on hold a relatedcomplaint brought by KN Marketing LP that accused El Paso ofoverbooking firm capacity on the east end of its pipeline system.FERC said it “would like to examine the results and impact of theallocation method imposed [in Amoco at the Topock point] before ittackles broader and more complicated system-wide issues,” the ordernoted [RP00-139].

The producers claim El Paso is doing “significant financialharm” through capacity allocations on many other parts of itssystem. “The remaining capacity allocation issues should not lingerin an abeyance ‘hold pattern,’ while significant cuts continue onEl Paso’s system in a manner that violates the Commission’sregulations and the NGA. These cuts result in huge financial harmto El Paso’s shippers… It is illegal and grossly inequitable torequire shippers to pay for firm services, which they do notreceive.”

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