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Interim Restructuring Proposal Floated in Southern CA

Interim Restructuring Proposal Floated in Southern CA

The possibility of a quick-fix, interim settlement that would open up receipt points on the Southern California Gas Co. transmission system emerged as the only positive development from another round of all-party talks last week, according to one of the major shippers attending the session. It came at the conclusion of the all-day session in a downtown LA hotel. Talks are expected to resume Sept. 23, with a counter-proposal from Enron being offered for discussion prior to a SoCalGas all-parties meeting. Other meetings among some of the parties will be held Sept. 15.

"They could implement something as a 'quickie' via advice letter [to state regulators] and take some of the pressure off the talks," said a large shipper on the Kern River Pipeline system. "It just may work in a couple of weeks." Based on reports from the confidential discussions, the interim proposal would open receipt points along the SoCalGas system and leave them open to the maximum level with large penalties for inflating nominations. "The market would basically decide what they have to do," said the large shipper. "If abusers begin to do the usual over-nominating, they would be revealed pretty quickly."

Also attached to this interim change might be the addition of at least one new receipt point on the SoCalGas system at a point used internally by the large gas-only utility. It is called Hector Road in the eastern part of SoCalGas' territory near the transmission pipelines coming in from the Arizona border. A consultant for one of the interstate pipelines noted that while "not as much progress was made as the parties would have hoped for," SoCalGas demonstrated that it is "not dragging its feet, and is seriously committed to trying to get things done." Having said that, the same insider said some of the proposals being floated could disadvantage existing interstates.

A lot of the focus has been on the Wheeler Ridge receipt point in the Bakersfield area where Kern River, Mojave and PG&E interstate pipelines interconnect, along with Elk Hills lines. However, Enron's principal concern is where Transwestern's pipeline comes into the state at the Arizona border near Ehrenberg.

Since different parties and groups of parties have such widely differing interests, observers are skeptical about the possibility of a true all-party settlement and a more consistent gas transmission and storage system inside the state. "Real market pricing for a cost-based public utility like SoCalGas does not necessarily work for everyone," said the interstate pipeline consultant.

Representatives for the city of Long Beach municipal gas utility, a wholesale customer, raised issues regarding wholesalers who have firm rights on the interstate pipelines upstream and core customers depending on them downstream. How do the proposed settlement changes affect their rights and responsibilities before and after the SoCalGas system? No one reportedly had any good answers.

With two more months of breathing room to work out a long-term solution, SoCalGas modified its original restructuring proposal for the Sept. 9 resumption of settlement negotiations. The major changes SoCal made include the elimination of so-called "windowing" of various receipt points along its intrastate transmission network, keeping monthly balancing as opposed to the proposal to switch to daily balancing (except under OFO conditions), and the use of operational flow orders (OFOs) when the system gets too far out of balance as are used on the Pacific Gas and Electric Co. intrastate gas transmission system in the north.

The utility distributed its revised proposal to all parties before the Labor Day weekend. The action followed the Sept. 1 decision by state regulators to extend until Oct. 27 the deadline for achieving an all-party settlement or providing tangible evidence of a settlement being achievable.

California regulators have been strongly encouraging SoCalGas and PG&E's gas utility to work out an all-encompassing settlement that will provide a market solution to the remaining unbundling of California's gas business, particularly focusing on transmission and storage operations. Without a market solution, the California Public Utilities Commission is set to conduct a series of evidentiary administrative law hearings early next year.

Richard Nemec, Los Angeles

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