NGI The Weekly Gas Market Report / NGI All News Access

Unbundling Moves Forward in Northern California

Unbundling Moves Forward in Northern California

Giving gas unbundling efforts in California a shot in the arm, FERC last week approved a major agreement to restructure the long-term transportation and gas sales arrangements that have enabled Southern California Gas (SoCalGas) over the years to receive imports of Canadian gas through its paper pipeline affiliate, Pacific Interstate Transmission Co. (PITCO).

The net effect of the settlement calls for PITCO to be dissolved, and for the U.S. affiliate of Pan-

Alberta Gas Ltd. (PAGUS) to step into its shoes. As its successor, PAGUS will be directly assigned all of PITCO's capacity on Northwest Pipeline and PG&ampE Gas Transmission, Northwest Corp., which amounts to 244,000 MMBtu/d. It will use most of that capacity, 144,000 MMBtu/d, to provide SoCalGas with gas deliveries until October 2003 [CP98-370].

The only remaining stumbling block to the settlement was an objection to PITCO's proposal to permanently assign to PAGUS its entire capacity on the two pipelines, particularly the 100,000 MMBtu/d on PG&ampE/Northwest, rather than release it. PITCO had asked FERC specifically for a waiver of its capacity-release rules to carry this out. But DEK Energy, a marketer, insisted that since PAGUS didn't need the entire amount of capacity to meet the reduced-contract needs of SoCalGas, there wasn't any justification to assign the capacity outside of the capacity-release mechanism at a lower price.

The Commission disagreed with DEK, saying that allowing the direct assignment of capacity at the price currently paid by PITCO wouldn't be "unduly discriminatory or anticompetitive..." If anything, it said the restructuring proposal, including the direct assignment of capacity, would "preserve the status quo vis-a-vis DEK's competitive position" in the California market. Further, FERC indicated it was concerned that if it rejected PITCO's request for capacity assignment, it could trigger a chain reaction causing other parts of the settlement to unravel.

The settlement also stipulates that PAGUS will honor a contract-specific operational flow order (OFO), which has been integral to PITCO's existing agreement with Northwest Pipeline, upon the transfer of PITCO's capacity on Northwest and PG&ampE/Northwest to the Canadian aggregator. Obtaining a commitment from PAGUS on the OFO issue was critical to Northwest and its customers, which have depended on PITCO's gas flows to provide displacement service to shippers along Northwest's route.

The agreement would hold PAGUS to the terms of the contract-specific OFO until October 2003, requiring it to deliver 144,000 MMBtu/d from Stanfield, OR, to El Paso Natural Gas and Transwestern Pipeline at the interconnections between the pipelines and Northwest at Ignacio, CO, where it would then be picked up by SoCalGas. After 2003, PAGUS has offered to continue making the displacement deliveries in return for payment from Northwest. The Commission declined to determine "at this time" to what extent Northwest would be able to pass through to its shippers any shortfalls in revenues resulting from the post-2003 displacement service by PAGUS. This, it added, should be addressed in a rate case.

Under the agreement, PITCO will be required to pay $16 million to Northwest in an escrow account for the benefit of the pipeline's shippers in the event the displacement capacity on Northwest's system is compromised following the expiration of the contract-specific OFO. The money could be used to build additional pipeline facilities on Northwest's system to eliminate or reduce reliance on displacement.

FERC also granted PITCO's request to abandon by sale its 30% interest in 351 miles of looping on Northwest. Under this deal, PITCO has agreed to pay Northwest an exit fee of $2.3 million to cover its share of the operating and maintenance expenses associated with its 30% ownership interest until the operating agreement expires in October 2003.

The settlement was 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 settlement requires 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. Under this scenario, the amount of the passthrough to SoCalGas would be limited to $31 million, which is what PITCO would be required to pay PAGUS for assuming its contract obligations. In the event a Dec. 31 deadline isn't met, SoCalGas will be held at risk for all costs associated with ongoing PITCO service.

Susan Parker

©Copyright 1998 Intelligence Press, Inc. All rights reserved. The preceding news report may not be republished or redistributed in whole or in part without prior written consent of Intelligence Press, Inc.

Copyright ©2018 Natural Gas Intelligence - All Rights Reserved.
ISSN © 2577-9877 | ISSN © 1532-1266
Comments powered by Disqus