FERC denied rehearing of a June order that permits Arizona Public Service Co. to assign its full-requirements (FR) capacity contract on El Paso Natural Gas to affiliate Pinnacle West Energy to serve a new gas-fired generation facility that it is building in Arizona. On the surface, it seemed a clear victory for the companies involved. However, Chairman Pat Wood made it very clear that he has concerns about FR service on El Paso, which entitles customers to unlimited capacity at frozen rates, and that he plans to take up the issue at a later date.

“I will reluctantly go along with the order denying rehearing, but [I] look forward very aggressively to a forum in which we can address the capacity concerns” on El Paso, Wood said Wednesday during a marathon Commission meeting, the first over which he presided [CP01-90, RP00-336]. The proper forum for discussion of the FR service will be El Paso’s Order 637 proceeding, he noted.

As a lawyer, “it’s hard for me…to find an excuse to grant rehearing here. Because this is not the appropriate docket to do that, I will concede that after four months of being browbeat into submission…that sometimes you ought to fold up,” Wood said. “But I remain concerned about the [interplay] on the pipeline that if we don’t engage in some long-term planning,” the situation could “lead to a bedsore for the customers out there in the Southwest.”

The new chairman made clear that he was not “a fan or supporter of 10-year rate freezes or any extended rate freezes” that are made available to certain FR customers. “I understand that there’s a tremendous disincentive here because of that for needed expansions to occur,” Wood noted.

He openly invited parties to challenge at the Commission the limits of FR service. He noted that FR customers “seem to have an unbounded upper-end, which I would love the opportunity to [address] if we ever get a contested pleading to define exactly just how full full-requirements can be.”

The “interplay” of frozen rates and unlimited access to pipeline capacity in a “growth part of the country that needs to have generation [makes for] a very complicated pipeline scenario,” Wood said.

In the June order, FERC gave the go-ahead for El Paso to construct and operate two delivery points and about six miles of lateral pipeline to provide service to the proposed gas-fired electric generation facilities of Pinnacle West and Duke Energy Maricopa LLC in Maricopa County, AZ. Pinnacle’s 2,120 MW Redhawk power plant will require about 410 MMcf/d of gas, while Duke’s 1,000 MW Arlington Valley plant will burn 210 MMcf/d. Both plants have scheduled in-service dates of June 1, 2002.

Major producers and other El Paso shippers attacked El Paso’s plan to provide FR service of 410 MMcf/d to the Redhawk plant, arguing that the service would further constrain an already capacity-tight El Paso system. Specifically, they objected to El Paso’s plan to assign the FR contract (66,042 MMBtu/d) of Arizona Public Service to affiliate Pinnacle West Energy, as well as give a “huge increase” in the contract amount in order to serve the Redhawk plant. The protestors further argued that the plan would give Pinnacle West Energy a competitive rate advantage over existing contract-demand customers on the pipeline.

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