A joint settlement filed with FERC last Wednesday by El Paso Corp. and California parties to resolve charges of manipulative and questionable behavior offers “cognizable benefits not just to the California settling parties, but to all of [El Paso Natural Gas (EPNG) pipeline’s] shippers” by giving them “more certainty” about capacity, the parties to the agreement told FERC.

As in the proposed settlement, which was announced in late March, El Paso signaled that the cost of settling the regulatory and legal actions against it still stood at $1.69 billion (see NGI, March 24).

The parties said the joint accord was “one element of a larger settlement” that resolves all claims against EPNG and its affiliate El Paso Merchant Energy Co. relating to any alleged actions that increased or could have increased natural gas prices, natural gas pipeline capacity prices, or electric power prices in California between Sept. 1, 1996 and March 20, 2003. The comprehensive settlement has three parts, with the 200-300 page joint agreement being the first to be filed.

If approved by the courts and FERC, the broad agreement would close a number of private lawsuits in California, Washington, Oregon and Nevada and an investigation by California’s Attorney General’s office. It also would resolve the more than two-year-old complaint proceeding at the Commission, which accuses EPNG of withholding capacity from California in 2000-2001 to drive up gas prices [RP00-241].

Two other elements of the agreement will be filed soon: a stipulated judgment to resolve civil actions will be submitted in U.S. District Court for the Central District of California; and a master settlement agreement, when finalized, will be filed in a California state court where a class-action lawsuit is pending, the parties said. Although FERC approval of these agreements isn’t required, the parties said they would submit copies to the agency.

The settling parties urged the Commission to approve the joint deal “at the earliest possible date,” and “without any condition or modification.” They contend that any change by federal regulators could unravel the agreement.

Submitting the offer of settlement to FERC were EPNG, El Paso Merchant Energy, the California Public Utilities Commission (CPUC), Southern California Edison Co., Pacific Gas and Electric Co. and the City of Los Angeles. The CPUC and the Los Angeles City Council have not yet formally approved the agreement, they noted, but are expected to do so soon. In addition to the settling parties, there were a number of secondary participants, including California Gov. Gray Davis and the attorneys general of California, Washington, Oregon and Nevada.

The joint agreement primarily tackles the capacity problems on the El Paso system; it does not address the nearly $1.69 billion in financial concessions that the pipeline agreed to in the proposed settlement two months ago. These are likely to be taken up in the other parts of the comprehensive settlement.

Specifically, the joint accord requires the EPNG to make 3.29 Bcf/d of firm primary capacity available to California delivery points during the five-year term of the agreement. The pipeline “agrees that it will not add any firm incremental load to its system which would prevent it from satisfying [this] obligation,” parties said in the settlement offer.

In addition, El Paso “unequivocally” commits to building its proposed Line 2000 Power-Up project, which would add 320 MMcf/d of new capacity to the pipeline system. FERC approved the Power-Up project last Wednesday (see related story). The pipeline said it will forego the recovery of its cost of service associated with the expansion ($42 million a year) until its next rate case, according to the settlement.

El Paso pipeline estimated that the Power-Up project and its planned system-wide conversion to contract-demand service would make a total of 3.84 Bcf/d of physical capacity available for delivery to the California border.

Of the 3.29 Bcf required for California delivery, the settlement said 623 MMcf/d will be offered with dual primary delivery point rights, giving any shipper who buys the capacity the right to deliver gas to primary points in California and the East-of-California (EOC) markets. This was included in the agreement in an attempt to ameliorate the ongoing capacity dispute between El Paso’s California and EOC shippers.

“Both the California and EOC markets will benefit because dual primary delivery points will enable gas to flow to the market that values it the most… If California places a higher value on gas being sold by shippers holding dual primary delivery points, then gas will flow to California; conversely, if the EOC market places a higher value on gas being sold by a shipper with dual delivery rights, then the gas will flow to the EOC points,” the settlement said.

The agreement also tries to end some of the bickering over the recall rights of Northern California shippers associated with Block II capacity (614 MMcf/d). It seeks to “define more precisely than EPNG’s existing tariff the conditions that a recalling shipper must meet before it can attempt to recall Block II capacity, and the rate that recalling shippers will pay.”

Most notably, the “settling parties have agreed that [Block II] capacity not being used will be recalled ‘before’ capacity that actually is being used,” the agreement said. “By placing shippers who are actually using their capacity, including EOC shippers, last in the queue of Block II capacity that can be recalled, the settlement actually decreases the chance that shippers that are using their Block II capacity will have their capacity recalled.”

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