CPUC and So Cal Utilities Protest El Paso Gas Subsidy

The Federal Energy Regulatory Commission should reject El Paso Natural Gas Company?s proposal to roll into systemwide rates its $76 million in pipeline extension project costs, the California Public Utilities Commission, Southern California Gas, and Southern California Edison argue in a recent filing. Otherwise, all shippers would be forced to subsidize pipeline extensions that will primarily serve Arizona markets, they said. El Paso is seeking a certificate of public convenience and necessity from FERC for its Line 1903 project, which would boost capacity by up to 502 MMcfd. It would provide a critical crossover in California, enabling the company to move gas between the pipeline?s northbound and southbound systems. The project would combine facilities owned by El Paso, its wholly owned downstream affiliate Mojave Pipeline, and Kern River Gas Transmission, enabling El Paso to supply Rocky Mountain gas to customers through Kern River. El Paso would acquire an 88-mile crude oil pipeline and convert it to natural gas transport. The extension would interconnect with El Paso?s system near Ehrenberg, Arizona, to Cadiz in San Bernardino County. El Paso also would construct 6.4 miles of interconnecting pipelines and acquire 312.4 MMcfd of firm capacity rights from Mojave Pipeline. El Paso asked federal regulators to issue the certificate before next August so that the pipeline expansion can go into service by December 31, 2005. The company asserts all customers will benefit from an expected $22.8 million in contract extensions on its existing system. In its protest to federal regulators, the CPUC argues that El Paso?s expansion would provide systemwide benefits only to shippers who sign up for the expanded capacity. ?Those customers who benefit directly from the Line 1903 expansion should bear the responsibility for its costs,? the commission maintained. Pacific Gas & Electric, which holds firm capacity on El Paso?s pipeline at the Arizona border, did not protest the application but instead asked FERC to defer considering the issue until El Paso?s general rate case next June. PG&E also asked federal regulators to require El Paso to work with the utility to ensure it can deliver Canadian gas supplies to El Paso shippers and provide them access to the utility?s Northern California storage facilities. PG&E?s pipeline already interconnects with El Paso?s system on the California side of the border near Topock, Arizona. Alternatively, PG&E wants El Paso to provide for deliveries with PG&E?s pipeline through displacement. El Paso?s pipeline expansion will likely benefit California shippers and customers by providing greater capacity and flexibility and lower gas costs, according to PG&E. However, the utility is concerned about who pays for it. Southern California municipal utilities and large privately owned generators support the line extension because it will add capacity to the system and provide greater flexibility, said Norman Pederson, an attorney with Hanna & Morton representing the Southern California Generation Coalition. Many members of the coalition, including the Los Angeles Department of Water & Power, have contract demand rights on El Paso?s and Kern River?s pipelines. However, none has executed agreements for capacity on the line extension, Pederson said. ?Certainly all of Southern California depends on the El Paso line?it?s the most significant supply resource.? The coalition has not yet taken a position on the roll-in issue but will likely do so at its next meeting on November 15. It may urge FERC to defer the issue until El Paso?s general rate case next June, according to Pederson. ?Certainly anything that?s going to increase the costs of transportation will be of concern,? he said. ?But if there?s systemwide benefits, it may justify a cost roll-in.? El Paso?s bid to roll costs into its system rates is more complex than and substantially different from the CPUC?s September 2 decision authorizing SoCal Gas and San Diego Gas & Electric to establish receipt points for liquefied natural gas, Pederson said ( D0409022 ). The CPUC agreed to consider whether utilities may roll pipeline upgrade costs into their rate bases on a case-by-case basis. The commission will permit interconnection costs to be included in system rates if utilities can show that customer benefits exceed upgrade costs. SoCal Gas and SDG&E are expected to ask the CPUC to build into their rate bases up to $300 million of LNG pipeline improvements ( Circuit , October 8, 2004).

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CPUC and So Cal Utilities Protest El Paso Gas Subsidy

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