Subject: El Paso ADR Settlement Conference, June 12-13
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked], [email-masked], [email-masked]
Date: Sun, 18 Jun 2000 09:59:00 -0700 (PDT)

In the final analysis, we did not make a lot of progress in reaching 
agreement to settle the RP99-507 proceeding on El Paso's capacity allocation 
proposal at the conference in San Francisco last week.

The parties have agreed to proceed on a dual track because of Burlington's 
concerns about timing.  We will  reconvene for settlement discussions July 12 
and 13 at Southwest Gas's offices in Las Vegas after comments and reply 
comments are filed as permitted under the procedures agreed to at the May 2 
technical conference at FERC.  Comments are due June 30 and reply comments on 
July 7.  Amoco and Burlington filed the original complaint on September 21, 
1999, and requested fast-track processing under the Commission's new 
complaint procedures.  Burlington is pushing to have the Commission adhere to 
the fast-track processing of the complaint, maintaining that an order should 
have been issued within 240 days (I don't know where they got that from -- I 
can't find any such requirement), and vehemently opposed any attempts to 
extend the procedural schedule.

The tone of the meeting was set when Harvey Morris, representing the CPUC, 
was allowed to make a statement because he had to leave by 1:30 (the meeting 
started about 12:30).  He started by saying that the CPUC was in complete 
opposition to the Settlement Proposal circulated by El Paso on June 6, and 
then outlined all the reasons it was unfair to California shippers and was in 
violation of the '96 Settlement.  

After Harvey spoke, El Paso then reviewed its June 6 settlement proposal, 
which you received by e-mail, and provided some additional explanations of 
assumptions, etc.  Then the parties met in individual groups to caucus on 
their positions and reconvened as a group to discuss. 

Of particular note was the allocation of the 360 MM/d of San Juan-only 
capacity that El Paso proposed to take back from Burlington (97J4) and Amoco 
(97JB).  El Paso said that it had been allocated 106 MM to the Havasu 
shippers, 180 MM to the EOC shippers, and 74 MM to all others (California CD 
shippers).  This was a major point of contention in most of the ensuing 
discussions -- California shippers objected to EOC getting the lion's share 
of the additional San Juan capacity.  Under El Paso's proposal, EOC shippers 
would get 82% of their rights from San Juan and 18% from Permian, based on 
BDs.  CD shippers, on the other hand, get 61% and 39%, respectively.

EOC shippers pointed out that the BDs were not actually representative of 
their load.  BDs were simply a number negotiated among the EOC shippers to 
allocate the costs that were allocated between EOC and California in the '96 
settlement.  Certain EOC shippers suggested that their specified rights 
should be based on some other calculation, such as non-coincident peak day 
usage, rather than BD.

Another major issue was the proposal that full requirements shippers (FR 
shippers) be given systemwide receipt point rights in addition to the 
specified rights they would get based on their billing determinants (BD).  El 
Paso proposed that these systemwide rights would have a scheduling priority 
superior to that of a CD shipper using its capacity on an alternate firm 
basis (either alternate receipt/primary delivery or alternate 
receipt/alternate delivery).  Of course, the FR shippers approved of the 
proposal but most other parties  objected to it.  Several suggestions were 
advanced to try to reach a compromise (for instance, limiting FR shippers to 
primary specified receipt point rights during Cycle 1 nominations), but none 
were accepted.  Most non-FR shippers stated concerns about the practical 
impact of giving FR shippers such a scheduling priority, particularly since 
El Paso's interpretation was that the FR shippers would not have to nominate 
any of their Permian specified rights in order to come back to the San Juan 
with  the systemwide rights.

Everyone pretty much agreed that El Paso's proposal for capacity release of 
receipt point rights (#4 in their write-up) was a non-starter.  It was put on 
the table to address an earlier suggestion by EOC shippers that, if they 
could be made economically neutral to using non-San Juan points, they might 
be more receptive to some restrictions on their specified rights.  What they 
were looking for was some discount for using Permian and there was some 
further discussion along those lines but El Paso was not receptive, stating 
that such would mean opening the allocation of costs in the rate case.

A third issue was who gets what rights at SoCal/Topock.  SoCal Gas doesn't 
consider El Paso's proposal not to sell Block II turned-back capacity to its 
Topock point to be of much value since FERC has said they can't anyway.  
SoCal Gas is looking for a right to get out of any of its contract for which 
it cannot get a specified delivery point of SoCal/Topock.  However, SoCal Gas 
can't at this point commit to the group a number that it could live with as a 
specified right at Topock.  Conversely, all the other CD shippers who think 
they bought firm rights at SoCal/Topock are not willing to see SoCal Gas get 
all the rights unless they, too, can get out of their contracts.

Fuel was the other contentious issue that seems to be a key sticking point 
for certain parties -- some insist it has to remain in the settlement, others 
say there can't be a settlement if it stays in.  El Paso's proposal would 
move the fuel rate back to 4.85% effective 2/1/00 by changing the way they 
eliminate fuel used in facilities that have been refunctionalized as 
gathering.  In the filing to be effective 2/1/01, the rate would go down to 
approximately 4.4% and then to 3.88% on 1/1/03.  Burlington insists they will 
opt out of the settlement if they don't get relief on fuel.  Apparently, to 
the extent El Paso doesn't include the costs of compressors that Burlington's 
gas utilizes in systemwide fuel, they have to pay a higher fuel rate to El 
Paso's gathering affiliate.  They say it has already cost them several 
million dollars (I heard numbers between $9 and $27 million -- no hard data), 
and they will not settle without getting something in return.  

After the full group discussion and statements of position on Monday 
afternoon, Rick Miles, the FERC ADR facilitator, pushed for individual 
meetings between the various segments (EOC, California, producers, marketers, 
El Paso), based on several parties' representations that they were willing to 
continue talking.  A schedule was worked out and the individual meetings took 
up the morning on Tuesday.  Just before lunch, the entire group got back 
together and accepted Mr. Miles' suggestion that each segment select three or 
four representatives who would then engage in a full discussion of the 
issues.  He felt that with a smaller group it might be easier to reach some 
understandings.  However, it apparently didn't work because he called us all 
back late in the afternoon for a full group discussion, where the positions 
outlined above were stated and restated.  Certain parties, when pressed, 
could not agree to certain basic principles because, they said, they would 
have to get input from others in their organization.  Mr. Miles expressed his 
frustration that parties were at the table who didn't know what their bottom 
line position was (e.g., SoCal Gas, Southwest Gas).  Following discussion by 
the producers, particularly Burlington, as noted above that they would not 
agree to an extension of the date for filing comments, the next settlement 
meeting was scheduled after the filing dates.  Mr. Miles requested that 
parties send him an e-mail note that would state their bottom line settlement 
position, which he would keep confidential.  He would review all the 
positions and to the extent possible put then together and float a settlement 
package of his own.  He assured all that no one would be able to identify the 
individual positions from his package.

One positive note at this meeting was that there was no conflict over the 
pooling committee's report.  No one registered any complaints, although a few 
parties who had not been at the last settlement conference indicated that 
they would like to participate.

 This is how I see our bottom-line position.  I would like to send it to Rick 
late this week if everyone agrees.

A pooling procedure that will follow assigned priority rankings for both 
market and supply with no restrictions on pool-to-pool transfers (loops 
allowed).
Only San Juan receipt point rights on our Havasu contract, or, preferably, 
termination of the contract so that the San Juan rights could be allocated to 
others as part of a settlement.
Full requirements shippers systemwide rights above their specified point 
rights would not have a higher priority than CD shippers using alternate 
delivery points, although no objection to using some allocation method other 
than billing determinants, such as peak day volume, to establish those 
specified point rights. 

Do you have any opinion about the allocation of SoCal/Topock rights?  Please 
give me a call when you've had a chance to look this over.  I'm sure you'll 
have some questions!  Also, we'll need to talk about what kind of comments we 
want to file.