In a deal that could be the first of its kind in the nation,Pacific Gas and Electric is locked in serious negotiations withnorthern California natural gas producers to sell them itsextensive utility gas gathering system linked to in-state wells,most of which are in the dry gas fields of the greater SacramentoValley. The deal being sought, which is expected to take the betterpart of 1998 to gain final regulatory approvals, is an offshoot ofthe omnibus Gas Accord unbundled intrastate transmission andstorage services that start March 1. The parties will not put adollar value on the facilities involved in the negotiations, but itis conservatively estimated at tens-if not hundreds-of millions ofdollars, involving hundreds of miles of low- and medium-pressurepipelines and related gathering facilities linked to more than 100producers.

As a concept, the proposed sale has been in the developmentstages by the northern California-based gas producers for nearly 10years, since a gas cooperative was authorized by the CaliforniaIndependent Petroleum Association (CIPA), according to Brian Sway,president of the California Natural Gas Cooperative Association.The producers have been unhappy with the long-term contracts theyhad with PG&E. Sway said two distinct sets of issues have beendriving local producers for many years: (1) the gas suppliers haveargued for a long time that PG&E’s pricing of gas was out ofstep with the changing marketplace, and (2) there were always whatthe producers have perceived as “problems with the cost and accessof the PG&E gathering system. “They always thought that it costtoo much and took too much time to get new connections to thegathering system,” Sway said. “And as for the price of the gas,producers clearly wanted out of those contracts-many of them werevery old-and PG&E finally agreed to do that.”

As part of the Gas Accord negotiations, PG&E agreed torelease the local suppliers from their contracts. That began midwaythrough 1997 and is close to completion, Sway said. “We have beenattempting to hammer out a deal with them,” he said, noting it maytake six to 12 months to get everything completed. “This is a majorasset sale.”

If the system is sold to the producer cooperative the facilitieswould no longer be regulated by the CPUC. California lawspecifically exempts cooperatives from CPUC jurisdiction, Swaysaid. The use of cooperatives is very common in other industries,but Sway said they have not been used thus far in the oil and gasbusiness. He thinks the California deal will be a “first in thenation.” The natural gas cooperative is modeled after several ofthe large agricultural coops in California.

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