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ONG, Regulators Continue Fierce Battle Over Gas Unbundling

ONG, Regulators Continue Fierce Battle Over Gas Unbundling

Negotiations between the Oklahoma Corporation Commission and Oklahoma Natural Gas over the fate of unbundling in the state reached an impasse once again last week and probably will remain stalled until an Oklahoma Supreme Court decision is issued on the matter. The stalemate further delays implementation that was originally scheduled to start Aug. 1.

Regulators and the utility have been in a heated battle since July over some of the changes ordered by the commission in its upstream unbundling interim order. ONG filed an appeal of the order with the state Supreme Court two weeks ago, saying it raised a number of constitutional issues. The Supreme Court won't be in session until Sept. 8 and observers believe it could be a long wait before a decision is handed down.

"The commission has worked very hard to get unbundling in place for the winter heating season, but ONG seems to be saying 'we're not going to let you run our company. The way this thing seems to be written leaves us no choice but to block it.' So it's kind of a standoff right now," said OCC spokesman Patrick Petrie.

On Aug. 17, the OCC filed a motion with the state Supreme Court to dismiss the appeal on grounds its order was an interim ruling. ONG subsequently filed a motion with the commission for a stay of its unbundling order, stating the order could not go forward because of the appeal. During a hearing last Wednesday, the commission took up the motion for a stay but stopped short of making a decision.

"ONG is trying to get the commission to voluntarily stay the effectiveness of the order, and all the commission has done is listen to arguments and say 'Okay we'll take that under advisement,'" said Petrie. ONG maintains it requested the stay as a mere formality. It argues the order was automatically stayed when it appealed to the Supreme Court. "There's even disagreement among the commissioners," said Petrie. "That's been going on since the unbundling order came out. We originally started with three different versions and finally hammered out something the two could live with. It was a two-to-one vote."

The OCC took an unusual approach to unbundling in the state, ordering ONG to separate into upstream (supply, transmission, storage) and downstream (distribution) companies. Most of the current dispute focuses on how costs and assets are allocated between the two divisions because the upstream company will have to compete with others, and ONG wants it as lean and low-cost as possible.

It appeared a dispute over about $11 million was the only thing standing in the way of a settlement agreement late last week. That apparently was not the case as ONG declared a stalemate with the commission Friday over what it called the OCC's meddling in its internal operations.

"There was significant concern on the part of our management about some of the aspects of the order that, as we said in our Supreme Court appeal, invade management's discretion," said ONG spokesman Don Sherry. "Specifically, there was contention about where certain assets belong with respect to whether certain parts of the pipeline system should be part of Oklahoma Natural Gas Co., which is the regulated LDC, or whether they should be part of our affiliate, which is ONEOK Gas Transportation. Both asset and cost issues between these two entities had been areas of contention. By [Friday] we were virtually at agreement on the allocation of costs between these two entities. But there were actually issues relative to which systems ought to belong to the pipeline. The commission was attempting to impose its direction in this, and we felt it was beyond their jurisdiction."

As it stands now, the utility refuses to begin a competitive bidding process on upstream transmission service to the state's major cities. But a spokesman said Friday ONG will move forward on competitive bidding for a portion of its supply needs for this winter despite the impasse.

"Consumers who wonder what all this means should know this: Oklahoma Natural Gas Co. is going ahead with competitive bidding. If there are savings as a result of this process, they will be passed along," said ONG President Jim Kneale. "Any claim that customers are going to suffer because we are pursuing our legal rights is not accurate."

Rocco Canonica

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