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Settlement Reached in PITCO Restructuring

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&ampE 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&ampE Gas Transmission, Northwest Corp. (PG&ampE 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 displacement.

"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&ampE 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 pipeline systems.

In a separate but related filing, PITCO also asked the Commission to consolidate the numerous dockets in the case.

Susan Parker

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