D.C. Court Allows Gas Shipping Changes

By Published On: November 11, 2005

Part of the Federal Energy Regulatory Commission’s two-decade-old effort to increase natural gas competition was approved by a federal court. As a result, California utilities will pay higher shipping rates – but not right away. The U.S. Court of Appeals for the D.C. Circuit rejected the industry?s arguments that FERC should limit the length of contracts local utilities have to sign with pipelines when they exercise their right of first refusal. The length of a contract can be a proxy for price – which the commission has a responsibility to regulate – explained Jeff Petrash, the American Gas Association’s senior regulatory affairs counsel. The group took the lead in its ultimately failed appeal of FERC?s ruling to the D.C. court because it feared that long contracts would force its members to pay for capacity reserved to serve customers who decided to buy gas from a competitive supplier as local markets are deregulated. The court also upheld the commission?s view in its late – October ruling that pipeline users could take delivery of gas volumes exceeding the shipper’s contracted capacity at a given delivery point. While the case was pending before the court, the possibility of having to pay for excess pipeline capacity caused SoCal Gas to renegotiate its contract with El Paso Natural Gas, the pipeline’s parent company said in its third-quarter 10Q report to the Securities and Exchange Commission. The utility negotiated new contracts, effective September 2006, providing about 750 million cubic feet per day of capacity on the El Paso system with terms extending from 2009 to 2011, according to the 10Q. El Paso Corp. owns seven interstate pipeline systems – including its namesake, El Paso Natural Gas, which links the west Texas gas fields to California. Under the new SoCal contracts, another 500 MMcfd of capacity the utility now holds to serve noncore customers will be released by SoCal next September, according to El Paso. The pipeline is remarketing this capacity but is uncertain how much of it will be contracted by another shipper or what rates that shipper will pay. Among the utilities concerned by the possibility was Pacific Gas & Electric. Spokesperson Jon Tremayne said the utility was “moderately disappointed” by the court”s ruling but “pleased there?s been a resolution [the company is] able to live with.” When asked about the ruling’s impact, spokesperson Richard Wheatley said these are still live issues in El Paso Natural Gas’s current rate case. The rate request filed with FERC in June 2005 proposed an increase in revenues of 10.6 percent, or about $56 million a year, according to El Paso Corp.’s 10Q filing. With the approval of the new tariffs, reduced rates under many previous agreements will expire, providing the company with a total annual revenue increase of about $138 million.

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