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
"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
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.