El Paso customers complain to FERC of insufficient capacity

By the OGJ Online Staff

HOUSTON, July 27, 2001 — Natural gas and electric utilities in Arizona, New Mexico, and Texas have filed a complaint with federal regulators alleging El Paso Natural Gas interstate pipeline system has insufficient capacity to serve its captive customers.

Instead, the complaint alleged the pipeline is seeking various expansion projects for new customers to the detriment of customers who have reserved firm capacity in those states.

The parties claimed the shortfall is so “significant” the pipeline will be unable to comply with the contracts of firm transportation customers. They said El Paso, a unit of El Paso Corp., Houston, needs capacity to move another 500-700 MMcfd.

The plaintiffs asked the Federal Energy Regulatory Commission to order El Paso to dedicate proposed expansion projects to existing firm transportation customers rather than customers who might bring higher revenue, but who also “move on and off the El Paso system for economic benefit.”

The utilities filing the complaint include Public Service Co. of New Mexico, Albuquerque, NM, Salt River Project, Phoenix, Ariz.; Arizona Electric Power Cooperative Inc., Benson, Ariz.; El Paso Electric Co., El Paso, Tex.; and Southern Union Gas Co., Austin, Tex.

They alleged El Paso violated the Natural Gas Act by failing to maintain the physical capacity of the system in line with the requirements of contracts that entitled the utilities to receive their full gas requirements on a daily basis. The shippers complaint said they are captive customers with no other gas transportation alternatives.

According to the complaint, the current problem is rooted in a 1996 rate settlement case. The utility customers, El Paso, and FERC agreed to resolve an overcapacity problem on the pipeline with a 10-year rate settlement. The shippers agreed to pay fixed reservations charges at maximum rates for 10 years even though the pipeline load factor was only 70%.

In addition, they agreed to pay the then ailing pipeline $250 million to compensate for capacity the pipeline was unable to sell. El Paso agreed to freeze its rates for 10 years and maintain quality service. El Paso served swing needs of customers in the far West with firm capacity, while much of the gas required for base load consumption in California came down from Canada through other pipelines.

Pacific Gas &Electric Co. the utility unit of PG&E Corp., and a shipper in northern California, turned back capacity on the El Paso pipeline. Much of the time the capacity was not under contract. With the flexibility of being the swing provider and PG&E’s spare capacity, El Paso could serve all firm transportation customers in and outside California.

Circumstance changed when the Alliance pipeline began to divert cheap Canadian gas away from California to the Midwest, and El Paso became the base load gas supplier for much of the state. At the same time El Paso could no longer count on California underutilization of its pipeline to compensate for growth in other markets, the shippers said.

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