California regulators Thursday unanimously approved an accounting approach for distributing nearly $500 million of the state’s more than $1 billion portion of the settlement earlier this year with El Paso Corp. The settlement followed years of litigation over whether El Paso manipulated the power and gas markets in the West (see NGI, March 24).

The El Paso settlement funds, $500 million of which went to three other western states (Washington, Oregon and Nevada), will be distributed through numerous transactions over a period of up to 20 years, the California Public Utilities Commission order stated, adding that as a result, the regulators will adopt “a simple, direct, uniform and minimalist (accounting) approach…to the fullest extent possible,” declining what they called “complicated, indirect, and controversial methods.”

The CPUC’s order addresses the large amounts of the settlement assigned to the state Department of Water Resources (DWR) power-buying revenue requirement, electric utilities, natural gas utilities, incentive mechanisms among the utilities and finally the income tax implications. Its proposed distribution of California’s portion of the settlement doles out slightly more than $1 billion.

DWR gets $425 million, Pacific Gas and Electric Co., Southern California Edison and San Diego Gas and Electric Co. power customers get $210 million, $195 million, and $60 million, respectively; PG&E, Southern California Gas Co., SDG&E and Southwest Gas natural gas customers get $75 million, $36 million, $29 million, and $5 million respectively for a total of $1.035 billion.

In the June 4 settlement, El Paso agreed to provide an estimated $1.5 billion to resolve the outstanding litigation, including $900 million in cash ($45 million annually for 20 years, or over 15 years if El Paso achieves an investment-grade credit rating); $125 million in reductions to El Paso’s supply contract with DWR; $352 million of up-front cash; and proceeds for the sale of more than 26 million shares of El Paso Corp. stock (estimated to be worth about $227 million, or about $8.60/share).

“The settlement for this case was the largest ever in an energy-related matter,” said CPUC Commissioner Susan Kennedy. “This decision addresses the accounting and ratemaking processes for a portion of the settlement proceeds going to the utilities and ratepayers subject to this commission’s jurisdictions.

“We’re finally getting out from the past of the energy crisis, and back in the business of making sure California ratepayers get justly priced energy.”

CPUC President Michael Peevey said he thought this was a “signal day for California,” calling the size of the El Paso settlement “quite significant, and it demonstrates that aggressiveness by the CPUC and the whole state administration, and I hope there are others to come just like this.”

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