Settlement Reached in PITCO Restructuring
Parties have reached an agreement on terms for unraveling
long-term transportation arrangements that for years enabled
Southern California Gas to control its imports of Canadian gas
through its paper pipeline affiliate, Pacific Interstate
Transmission Co. (PITCO).
Resolution of a controversial issue involving a
contract-specific operational flow order (OFO) enabled parties to
reach a proposed settlement last week, according to one of the
negotiators involved in the deal. "The overall effect of this is
that PITCO will cease to exist as an interstate pipeline entity,
and the entire arrangement will be restructured whereby Pan-Alberta
Gas will hold all of PITCO's capacity [on Northwest Pipeline and
PG&E Gas Transmission] and will sell gas directly to Southern
California Gas Co.," said Lad Lorenz, director of capacity and
operational planning for SoCalGas, who oversaw the negotiations.
The last key item at issue was whether Pan-Alberta Gas (US)
would honor the OFO, which is integral to PITCO's existing
agreement with Northwest Pipeline, after PITCO assigned its 240
MMcf/d capacity on Northwest Pipeline and PG&E Gas Transmission,
Northwest Corp. (PG&E GT-NW) over to the Canadian aggregator.
The OFO issue was critical for Northwest and its customers since
the pipeline relies on PITCO's gas flows to provide displacement
service to shippers on its system.
The settlement would hold Pan-Alberta to the contract-specific
OFO until October 2003, requiring it to flow 144 MMcf/d from
Stanfield, OR, to Ignacio/Bondad to El Paso Natural Gas or to
Ignacio/LaPlata A to Transwestern Pipeline, where the gas then
would be delivered to SoCalGas, according to the terms. However,
"even though Pan-Alberta will continue to hold capacity on
Northwest after that, they will not have a specific OFO
obligation," SoCalGas is an affiliate of PITCO.
The settlement also would require PITCO to pay $16 million to
Northwest in an escrow agreement or trust fund to be used in
"resolving or minimizing displacement limitations on the Northwest
system." This could include constructing additional pipeline
facilities on Northwest's system to eliminate or reduce reliance on
"This is the final piece that we think allows this whole package
now to come together," Lorenz told NGI. The proposed settlement is
supported or not opposed by the majority of shippers on Northwest's
system. "We're not aware of anybody that's opposed to this," Launer
said. FERC has been asked to approve the settlement, without
modification or condition, by Dec. 18.
PITCO has asked that the proposed settlement be consolidated
with its original application filed last May. In that filing, PITCO
sought the go-ahead to abandon by sale its 30% interest in 351
miles of loops on Northwest Pipeline, and to assign all the firm
and interruptible capacity and capacity rights it holds on
Northwest and PG&E Gas Transmission to Pan-Alberta. PITCO asked
FERC for a waiver of the rules so it can permanently assign the
capacity rather than release it [CP98-529].
The May proposal, and the subsequent settlement, are largely in
response to a 1994 global settlement between SoCalGas and its
customers in which the LDC was strongly encouraged to restructure
its gas supply and transportation arrangements with PITCO, which
most agree has outlived its purpose. PITCO was created solely to
buy and transport Canadian gas supplies for resale to SoCalGas at a
time, in the early 1980s, when LDCs were severely restricted in
their ability to purchase gas at the international border and
transport it. During that time, PITCO had been exempted from the
Commission's restructuring rulemakings. SoCalGas now is shedding
its long-time arrangement with PITCO as part of its effort to
become more competitive.
The global agreement calls for SoCalGas ratepayers and
shareholders of Sempra Energy, SoCalGas's parent, to share the
costs associated with the PITCO restructuring, 82.5% and 27.5%
respectively, Lorenz noted. The amount of the passthrough to
SoCalGas would be limited to $31 million, which is what Pan-Alberta
would be paid by PITCO to accept its capacity rights on the two
In a separate but related filing, PITCO also asked the
Commission to consolidate the numerous dockets in the case.