Mojave Pipeline Co., Bakersfield, Calif., expects the Federal Energy Regulatory Commission to decide quickly to regulate the company's northward extension as an interstate pipeline.
FERC's decision could come by the end of this month, said Michael Holland, Mojave president and chief executive officer.
Mojave early in May asked FERC to quickly settle jurisdictional issues raised in late April by the California Public Utilities Commission (CPUC) and Pacific Gas & Electric Co. (PG&E). CPUC and PG&E claimed part of the Mojave system, north from a point at Sycamore, Calif., on its existing pipeline system and including its proposed extension, should be regulated by CPUC because it will be shipping some gas intrastate and delivering gas to customers in a manner similar to a local distribution company.
Mojave said issues raised by CPUC and PG&E previously have been settled by FERC rulings and in federal courts.
NO DELAYS
Holland said uncertainty caused by the dispute has not interfered with Mojave's preliminary expansion planning.
Neither did the quarrel delay El Paso Natural Gas Co.'s acquisition of Enron Mojave Inc.'s 50% interest in Mojave. The latter deal closed June 1, as expected, leaving El Paso 100% owner of Mojave through its El Paso Mojave Pipeline Co. and EP&G Mojave Inc. subsidiaries.
Since past decisions have affirmed FERC's jurisdiction over Mojave, Holland said CPUC and PG&E apparently are trying to slow Mojave's expansion in the hope of raising enough doubt about interstate gas supplies to prompt some of Mojave's possible gas customers to defect to intrastate gas transporters.
But Mojave's potential customers want competitive gas transportation service so badly, "they're working hard to assure CPUC is turned back and PG&E's positions are defeated, as well," Holland said.
CONFLICT'S ORIGIN
Conflict over who should regulate Mojave's 475 MMcfd expansion arose about 6 weeks after the pipeline company in mid-March proposed to FERC a $466 million construction plan that included laying about 600 miles of line from Mojave's current terminus northeast of Bakersfield.
The extension's 30 in. main line would parallel California Highway 99 through Fresno and Modesto to Ripon, where it would split into smaller lines bound for Sacramento, Palo Alto, and the east and south areas of San Francisco Bay. Plans include adding compression and loops to Mojave's present 361 mile, 400 MMcfd line from Topock, Ariz., into Kern County, Calif.
In motions filed with FERC in late April, CPUC claimed jurisdiction over Mojave's north extension, and PG&E ask FERC to dismiss Mojave's application for a permit to build the north extension and operate it as an interstate pipeline.
Mojave in its early May FERC filing said CPUC and PG&E were contending Mojave's expanded pipeline system would perform local distribution services based on these factors:
- Mojave or any other interstate pipeline cannot deliver gas to an end user without engaging in local gas distribution.
- CPUC claims exclusive authority over gas distribution system components, including taps, meters, regulators, latent segments, lateral lines, and local delivery lines.
- There is no distinction between high pressure and low pressure gas pipelines as a basis of telling interstate transmission systems from intrastate systems.
However, Mojave maintained the U.S. Supreme Court has interpreted the Natural Gas Act (NGA) to define local distribution facilities as "equipment for distributing gas among consumers within a particular community, not the high pressure pipelines transporting gas to the local mains."
Mojave said operating pressures near the beginning of its proposed expansion will be about 1,200 psi and at its farthest extension still more than 350 psi. By contrast, PG&E's high pressure distribution lines operate normally at 30-60 psi and low pressure lines delivering gas to the meter at 1/4 psi.
"Mojave will transport gas exclusively at high pressure and will never attempt to divide the gas into tiny streams for entry in small service lines," Mojave's May 3 FERC filing said. "In all cases, Mojave's facilities will connect to take away facilities owned by others or to municipal distribution systems for further distribution of the gas."
INTRASTATE DELIVERIES
Under Mojave's preliminary plans, Kern River pipeline at Sycamore will deliver about 50 MMcfd of gas into Mojave for redelivery to intrastate customers. CPUC claimed that volume of intrastate gas-about 6% of Mojave's transportation capacity-would make Mojave a Hinshaw pipeline and free it from federal regulation.
Mojave rejected that argument because Kern River gas would use such a small part of Mojave's system capacity and would be transportation gas, not pipeline supply available for resale.
Mojave contended an interstate pipeline cannot be transformed suddenly into a Hinshaw line "by addition of a branch that happens to receive some gas that is consumed wholly within the state of receipt." Because FERC and federal courts have confirmed Mojave is an interstate pipeline, the Hinshaw amendment to the NGA can't apply to the system, with or without the expansion.
In addition, Mojave said, the U.S. Fifth Circuit Court of Appeals refused to assign Hinshaw status in a case in which a local branch of an interstate pipeline system delivered to intrastate customers all gas taken at entry points along its route.
Also, Mojave said, if an interstate pipeline transports directly to an end user gas sold out of state by a third party, legal precedent shows "state regulatory agencies have no jurisdiction over the pipeline and cannot interfere with the federal regulations of the pipeline."
Mojave's May 3 FERC filing said: "Mojave is a transportation only pipeline, making no sales. Parties that will purchase gas delivered by Mojave will purchase that gas outside California's borders, and Mojave will transport that third party gas."
COMPETITION BYPASS
Mojave said CPUC's and PG&E's challenges to its expansion plans were in direct contrast to FERC procompetition policies being adopted in other parts of the U.S. If their positions were accepted, pipeline to pipeline competition would be prevented in California, essentially creating "an intrastate fortress at the expense of interstate commerce in natural gas."
Holland said PG&E is trying to discourage competition because it has held a virtual monopoly in northern California for the past 50 years.
"We're the first real competitor in the region, and we've had some considerable success in attracting customers away from PG&E because of the high level of service and the low transportation rates we can offer on our interstate pipeline," he said.
Compared with PG&E tariffs earlier this year, Holland estimated customers of Mojave's expansion would save $88 million/year in transportation fees. Fifty-five potential customers have asked for transportation capacity on the proposed expansion.
In addition, Holland said, CPUC views Mojave's entry into northern California's gas transportation market as a regulatory bypass. Mojave would cause a decrease in the volume of gas shipped in northern California under CPUC jurisdiction, "and CPUC doesn't want to lose control."
He said, "Of course, our customers and we want exactly that. California is struggling with the issue because it is among the last states in the union not to have interstate vs. intrastate competition."
CPUC likely will consider allowing California pipeline operators to reduce transportation rates and tariffs to make them more competitive with interstate gas pipelines. But even if CPUC allowed PG&E to drop its transportation rate to 30cts/Mcf, Holland doubts Mojave would lose customers.
"Shippers in California can't rely on PG&E rates being in effect for 15 fears like our rate will be," he said. "History out here has shown CPUC is willing to change-and in essence punish the industrial sector of the gas market on behalf of homeowners-anytime it seems right to do so."
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