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Unconditional OK of $32M Deal Urged by Edison

Unconditional OK of $32M Deal Urged by Edison

Southern California Edison called on FERC last week to approve "without condition or modification" an agreement under which El Paso Natural Gas would pay the California electric utility $32 million and make other concessions to forestall the collapse of its 1996 capacity-turnback settlement. The deal, if approved by FERC, would put an end to a four-year legal battle by Edison, the only El Paso customer to object to the settlement in its entirety. It also "clears the way" for Commission approval of the settlement.

"There was a potential that the whole thing [1996 El Paso settlement] could fall apart," said one source familiar with the case, adding that El Paso agreed to pay Edison the large sum "to make the whole thing go away." The El Paso-Edison agreement was filed at FERC earlier this month. Industry comments initially were due at the Commission last week, but an extension was given until Aug. 24th [RP-363-002].

Industry observers speculated that the reaction of other El Paso customers to the multi-million dollar agreement could go either way. "Some may ask why El Paso should reward a company that dug in its heels" in opposition to the settlement, said one observer. But the El Paso customers, who signed the settlement, "have to remember that Edison took on all the risks and the litigation costs" in its battle with the pipeline. "It was a toss of the coin," and Edison won.

"We're happy to have the litigation behind us. And we believe that the settlement is a fair and just resolution of all of the issues that divided us," said Kevin Lipson, a Washington D.C. attorney for Edison. "We look forward to prompt Commission approval of the settlement agreement."

The agreement "provides for a long-term (ten-year) resolution of any rate issues between El Paso and Edison. It resolves all of Edison's objections to the 1996 settlement, and it does so on a basis that preserves without change all of the terms and conditions" of the original deal for El Paso's other customers, the pipeline said.

Under the terms, El Paso will pay Edison $32 million plus interest from July 1, 1999 until the date of payment, which shall be 10 days after the agreement takes effect. This payment "resolves all issues and claims raised or that could have been raised" by Edison between Jan. 1, 1996 through June 30th of this year. Also, Edison will be subject to the same rates (excluding the reservation add-on component) that apply under the 1996 settlement for firm service to California, retroactive to July 1. In return, Edison has agreed to withdraw its opposition to the settlement and will terminate its rate litigation at FERC.

The "two critical provisions" of the settlement, according to Edison, are the utility's exemption from paying the risk-sharing amounts for El Paso's unsubscribed capacity, and El Paso's $32 million payout to Edison. "Edison views this amount as compensating it for, among other things, future impacts of the 1996 settlement," the utility told FERC last week. If the agreement is modified by the Commission, both El Paso and Edison will have to agree to the revision before it could become effective.

At issue all along in the case has been Edison's right to contest the El Paso settlement as both a direct customer of the pipeline and an indirect customer (via Southern California Gas). In the 1997 orders approving the El Paso settlement, FERC acknowledged Edison's right to contest the settlement as a direct customer of El Paso, thus allowing the California utility to be severed from the settlement and to have its rates litigated separately. But the Commission declined Edison's request to also litigate its objections to the settlement as they applied to SoCalGas, through which Edison indirectly receives gas from El Paso.

Last December, the D.C. Circuit Court of Appeals reversed and remanded the orders approving the 1996 settlement, holding that FERC's ruling with respect to Edison's claims as an indirect customer was "inconsistent with the settlement precedents of both the Commission and this Court." The decision threatened the very foundation of the El Paso settlement.

Susan Parker

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