18 INSIDE FERC-August 13, 2001
?2001 The McGraw-Hill Companies, Inc. Reproduction forbidden without permission.
BLAMING EACH OTHER, EL PASO SHIPPERS CALL FOR ALLOCATION OVERHAUL
Contract demand shippers last week argued anew that insufficient physical capacity exists on the El
Paso Natural Gas Co. system and that full-requirement shippers often are to blame for system disruptions
on peak days. In comments, various El Paso shippers called on FERC to address their concerns and many
suggested that the commission should pull together separate but related El Paso proceedings.

For its part, El Paso rebutted a July 17 complaint (RP01-486) by a group of mostly full-requirements
shippers located east of California. The EOC shippers alleged that El Paso was neglecting its responsibili-ties
to existing shippers while concentrating on drumming up new business without needed system
upgrades or expansions. The shipper group claimed that a 10-year rate freeze running through 2005 gives
El Paso no incentive to improve its system to maintain service quality (IF, 23 July, 3).

The complaint "is without foundation in fact, law or policy," El Paso insisted in an Aug. 6 answer. The
pipeline "has consistently maintained" facilities or built new capacity "whenever it has been economically
justifiable" under the 1995 settlement. In the meantime, a large and unexpected increase in full-require-ments
load has triggered use of a capacity-allocation scheme, which also was agreed to by parties in the
settlement, El Paso told FERC.

Frustration with the capacity-allocation methodology was expressed by CD shippers in response to the
complaint. In representative comments, the Indicated Shippers agreed with the EOC shippers that a
"chronic" shortage of capacity exists on El Paso but did not accept the EOC group's version of events that
led to the problem or its proposed solution. The EOC group asked FERC to direct El Paso to add facilities
and dedicate all of the 230,000 Mcf/day of capacity from an ongoing conversion project to existing firm
contractual obligations.

The Indicated Shippers derided the term "existing firm obligations" as vague enough to cover
new power plants and referred to the controversy surrounding El Paso's Redhawk project, which FERC
recently agreed can be built under automatic blanket authorization to serve two power plants in
Maricopa County, Ariz. To bring certainty to the El Paso system, all shipper rights must be better
defined, the Indicated Shippers demanded in calling for all full-requirements contracts to be converted
to contract demand contracts, echoing a similar assertion made in a July 13 complaint by a group of
CD shippers (RP01-484).

Otherwise, full-requirements shippers will enjoy unlimited use of capacity at the expense of other
customers, the Indicated Shippers continued. "The absurdity of the claim is demonstrated by analogy to a
request that an airplane be built to carry all customers who might request service on a particular day,
without requiring the customers to make a reservation," they said.

The "entire ability" of El Paso to handle increased volumes systemwide was questioned earlier this
summer by Commissioner Pat Wood III in a June 27 discussion prior to the Redhawk vote (IF, 2 July, 4). El
Paso was directed to relate in its order 637 proceeding (RP00-336) how well upstream capacity can handle
new load on the system. El Paso committed in a July 9 letter to serve full-requirements customers "while
satisfying" obligations to California customers.

On days of short supply, shippers using primary points are scheduled ahead of those using alternate
points and interruptible shippers, El Paso went on to say. If firm shippers using primary points exceed
available capacity, then volumes are allocated on a pro-rata basis. El Paso also reiterated its plans to use
the capacity from the conversion of the All American Pipeline L.P. to serve existing customers.

Beyond requesting the information in the order 637 proceeding, FERC should take another step to
consider "the totality of circumstances on the El Paso system" and reopen the pipeline's rates under section
5 of the Natural Gas Act, Southern California Edison Co. asserted. The increased load by full-requirements
shippers caused problems in flowing contracted quantities on El Paso, SoCal Ed contended.

Full-requirements and contract demand shippers pay for service differently, SoCal Ed continued. While
CD shippers pay demand charges for all their volumes, full-requirements shippers pay charges based on
total billing determinants of 766,659 Dt/day. When FR customers use more than that, El Paso is unable to
honor firm commitments and the customers "enjoy a free ride at the expense of California consumers," the.utility complained.

Oneok Energy Marketing and Trading Co. L.P. registered a similar concern, contending that the pro-rata
allocation methodology favors FR customers. "Full-requirements shippers can game the system by
nominating volumes far in excess of their actual needs, and thus receive disproportionate volumes in the
pro-rata allocation scheme" that El Paso uses, Oneok said.

Given that the related complaints deal with the same issue, Pacific Gas and Electric Co., Enron Corp.
and El Paso asked FERC to consolidate the cases. The cases should be addressed in one hearing where
"numerous allegations of contested fact" could be investigated, El Paso submitted.

But neither shipper group is right, the pipeline maintained. It insisted that it adheres to the letter of its
contracts, tariff and two settlements to meet obligations to customers. Because unanticipated growth in
full-requirements demand has caused use of the capacity allocation procedures, El Paso would like to
establish a new systemwide allocation methodology in the order 637 proceeding, it told FERC.

"In anticipation that this escalating usage under the FR contracts will come under commission
scrutiny, the [EOC] shippers apparently chose to make a pre-emptive strike," El Paso said. FERC
should consider whether there is a "reasonably proportionate limitation implied" in El Paso's FR
contracts, the pipeline continued. Full-requirements shippers cannot demand more and more volumes
without paying for it, El Paso held.

"It is ludicrous for the [EOC] shippers to suggest that it is economically justifiable for [El Paso] to
construct expensive mainline facilities, costing hundreds of millions of dollars, to serve ever-increasing FR
loads at [EL Paso's] commodity rates," El Paso argued.

Besides, the commission has no authority to force a pipeline to expand under the circumstances at
hand, El Paso continued. Under NGA section 7(a), FERC's ability to order a physical connection to a
pipeline is limited to service for local distribution, El Paso noted. Any decision about other pipeline
facilities must be left to stockholders and directors of the companies, it concluded.