El Paso Natural Gas Company Docket Nos. RP10-1398-003 RP10-1398-000 RP10-1398-004
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154 FERC ¶ 61,120 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION El Paso Natural Gas Company Docket Nos. RP10-1398-003 RP10-1398-000 RP10-1398-004 OPINION NO. 528-A ORDER ON INITIAL DECISION, REHEARING AND COMPLIANCE Issued: February 18, 2016 Docket Nos. RP10-1398-000, et al. ii Table of Contents Paragraph Numbers I. Background ............................................................................................................................ 3. A. Current Proceeding (2011 Rate Case) .............................................................................. 9. B. Filings Made Following Opinion No. 528 ....................................................................... 16. II. Rehearing Issues – Docket No. RP10-1398-004 .................................................................. 19. A. Depreciation and Negative Salvage ................................................................................. 20. 1. Mainline and Storage Depreciation Rates .................................................................... 20. 2. Willcox Lateral Depreciation ....................................................................................... 26. 3. Negative Salvage Rate .................................................................................................. 33. B. Rate Base (Tucson/Deming Compressor Station Abandonment) .................................... 40. C. Cost Allocation and Rate Design ..................................................................................... 57. 1. Zone of Delivery Rates ................................................................................................. 57. 2. Discount Adjustments ................................................................................................... 129. 3. Variable Cost Allocation .............................................................................................. 149. 4. Rate Design for Premium Rate Schedules -- FT-H and IHSW .................................... 156. D. Article 11.2 ....................................................................................................................... 179. 1. Article 11.2 Shortfall .................................................................................................... 187. 2. Article 11.2(b) Remand ................................................................................................ 190. 3. Just and Reasonable Review ......................................................................................... 201. E. Return On Equity and El Paso’s Placement in the Proxy Group .................................... 215. 1. Proxy Group Composition ............................................................................................ 217. 2. Discounted Cash Flow (DCF) Analysis ....................................................................... 248. 3. Placement of El Paso’s ROE within the Proxy Group ................................................ 285. F. Power-Up Project Phase III Prudence .............................................................................. 341. III. Remand Proceeding, Article 11.2(b) – Docket No. RP10-1398-003 .................................. 343. A. Allocation of 1995 Capacity Costs Under Article 11.2(b) ............................................... 344. B. The Remedy ...................................................................................................................... 381. IV. Compliance Filing – Docket No. RP10-1398-000 .............................................................. 442. A. Discount Cost Allocation ................................................................................................. 448. B. Rate Calculations .............................................................................................................. 451. C. Data ................................................................................................................................... 460. D. Compliance ....................................................................................................................... 464. 154 FERC ¶ 61,120 UNITED STATES OF AMERICA FEDERAL ENERGY REGULATORY COMMISSION Before Commissioners: Norman C. Bay, Chairman; Cheryl A. LaFleur, Tony Clark, and Colette D. Honorable. El Paso Natural Gas Company Docket Nos. RP10-1398-003 RP10-1398-000 RP10-1398-004 OPINION NO. 528-A ORDER ON INITIAL DECISION, REHEARING AND COMPLIANCE (Issued February 18, 2016) 1. In this order, the Commission acts on requests for rehearing, an Initial Decision on remand and the Compliance Filing all made in response to Opinion No. 528, the October 17, 2013 Opinion and Order on Initial Decision in Docket No. RP10-1398-000.1 In this Opinion 528-A, the Commission reviews and with one exception denies the requests for rehearing and clarification filed by El Paso Natural Gas Company, L.L.C. (El Paso) and a number of other Parties2 in response to Opinion No. 528. The Commission grants rehearing with respect to its decision that El Paso should follow the Commission’s policy favoring allocation of costs based on unadjusted billing determinants, with the result that discount adjustment costs would be allocated within the zone in which the discount was granted. The rate data provided in the Compliance Filing shows unreasonable rate disparities when the policy is applied to the existing El Paso zonal rate structure. 1 El Paso Natural Gas Co., Opinion No. 528, 145 FERC ¶ 61,040 (2013), addressing, Initial Decision, 139 FERC ¶ 63,020 (2012) (ID or Initial Decision). El Paso’s December, 16, 2013 Compliance Filing was submitted in Docket No. RP10-1398-000. 2 Opinion No. 528, Appendix A provides the designations identifying the Parties in this proceeding. Docket No. RP10-1398-003, et al. - 2 - 2. In addition, the Commission adopts the Presiding Judge’s determination in the Initial Decision issued on September 17, 2014 finding the methodology proposed by Trial Staff to be a just and reasonable remedy to ensure that El Paso’s rates are consistent with Article 11.2(b) of the 1996 Settlement, and addresses the arguments raised in the briefs on and opposing exceptions on the remanded issue that were filed in Docket No. RP10-1398-003.3 In keeping with these actions, the Commission accepts El Paso’s revised tariff records as consistent with the Commission’s directives in Opinion No. 528, subject to revision to incorporate the determinations made in this Opinion No. 528-A. I. Background 3. El Paso is a natural gas company that operates an interstate pipeline system for the transportation of natural gas from areas in the southwestern United States through the States of Texas, New Mexico, Colorado, and Arizona, to two points of termination near the California border at Ehrenberg and Topock, Arizona. El Paso also delivers natural gas to numerous on-system delivery points and off-system eastern markets. El Paso’s system consists of the South System and North System mainlines, which can deliver natural gas from the San Juan, Permian, and Anadarko Basins to various delivery points throughout its system. Its system also includes several “cross-overs,” delivering natural gas between the North and South Systems. 4. The issues addressed in this proceeding relate to events on El Paso’s system dating back over twenty years. The last fully litigated El Paso rate proceeding was in 1959. Since that time, El Paso has filed several Natural Gas Act (NGA) general section 4 rate cases, which resulted in settlements, including the 1996 Settlement, the 2006 Rate Case Settlement, and the 2008 Rate Case Settlement.4 5. The 1996 Settlement, among other things, established a rate cap for certain shippers, in exchange for up front risk sharing payments, and also entitled settling customers to a portion of remarketing revenues for the term of the settlement. Specifically, Article 11.2(a) of the 1996 Settlement provided that rates for capacity then 3 El Paso Natural Gas Co., Initial Decision, 148 FERC ¶ 63,014 (2014) (Remand Decision). This Remand Decision reviewed proposals to address Article 11.2(b) of the 1996 Settlement, which restricts El Paso from charging settling customers costs of undersubscribed 1995 capacity; see filing of conforming changes to stipulation and agreement, Docket No. RP95-363-008 (June 9, 1997) (1996 Settlement), accepted in El Paso Natural Gas Co., 79 FERC ¶ 61,028, reh’g denied, 80 FERC ¶ 61,084 (1997). 4 See Opinion No. 528, 145 FERC ¶ 61,040 at PP 5-19 for a summary of these major events. See also Remand Decision, 148 FERC ¶ 63,014 at PP 1-12. Docket No. RP10-1398-003, et al. - 3 - under contract by eligible shippers would be capped, subject to inflation, and that the rate cap would continue to apply until the termination of shippers’ transportation service agreements (TSA).5 Article 11.2(b) provided that even if eligible shippers entered into new service agreements in the future, their rates would never include costs attributable to capacity, up to the level in existence on the El Paso system at the time of the 1996 Settlement, that becomes unsubscribed or is subscribed at less than the maximum applicable tariff rate. 6. In the March 20 Order, the Commission established a presumption that the Article 11.2(b) requirement would not be triggered if El Paso had subscribed service of at least 4,000 MMcf/d (representing capacity El Paso had under subscription in 1995) priced at the Article 11.2(a) rate or above.6 The Commission later explained that “the first 4,000 MMcf/d presumption