FERC staff has recommended that the full Commission approve anaccord under which El Paso Natural Gas has agreed to pay SouthernCalifornia Edison $32 million and make certain rate concessions topreserve its 1996 capacity-turnback settlement.

The agreement, which staff referred to as “fair, reasonable andin the public interest,” calls for Edison in return to withdraw itslong-standing opposition to the settlement, thus removing the solemajor obstacle to FERC “finally” approving the controversialdocument, staff said. The deal, if accepted by the Commission,would put an end to a four-year legal battle by Edison, the only ElPaso customer to object to the 1996 settlement in its entirety.

Still remaining would be Williams Field Services Group Inc. andthe California Industrial Group/California ManufacturersAssociation, “both of whom request modification of certain portionsof the 1996 settlement,” staff noted. But it indicated these issuescould be resolved quickly “without further proceedings.”

The proposed agreement between El Paso and the Californiautility provides for a “long-term (10-year) resolution” of all therate issues between the two parties. It clears up all of Edison’sobjections to the 1996 settlement, without changing any of theterms and conditions of the original deal for El Paso’s othercustomers.

Under the terms, El Paso would pay Edison $32 million plusinterest from July 1 until the date of payment, which shall be 10days after the agreement takes effect. The payment “resolves allissues and claims raised or that could have been raised” by Edisonbetween Jan. 1, 1996 through June 30 of this year. Also, Edisonwould be subject to the same rates (excluding the reservationadd-on component) that apply under the 1996 settlement for firmservice to California, retroactive to July 1. In return, Edison hasagreed to withdraw its opposition to the settlement and terminateits rate litigation at FERC.

At issue all along has been Edison’s right to contest the ElPaso settlement as both a direct customer of the pipeline and anindirect customer (via Southern California Gas). In the 1997 ordersapproving the El Paso settlement, FERC acknowledged Edison’s rightto contest the settlement as a direct customer of El Paso, thusallowing Edison to be severed from the settlement and to have itsrates litigated separately. But the Commission declined Edison’srequest to also litigate its objections to the settlement as acustomer of SoCalGas, through which Edison indirectly receives gasfrom El Paso.

Last December, the D.C. Court of Appeals reversed and remandedthe orders approving the 1996 settlement, holding that FERC’sruling with respect to Edison’s claims as an indirect customer was”inconsistent with the settlement precedents of both the Commissionand this Court.” That decision threatened the very foundation of ElPaso’s settlement.

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