Parties have reached an agreement on terms for unravelinglong-term transportation arrangements that for years enabledSouthern California Gas to control its imports of Canadian gasthrough its paper pipeline affiliate, Pacific InterstateTransmission Co. (PITCO).

Resolution of a controversial issue involving acontract-specific operational flow order (OFO) enabled parties toreach a proposed settlement last week, according to one of thenegotiators involved in the deal. “The overall effect of this isthat PITCO will cease to exist as an interstate pipeline entity,and the entire arrangement will be restructured whereby Pan-AlbertaGas will hold all of PITCO’s capacity [on Northwest Pipeline andPG&ampE Gas Transmission] and will sell gas directly to SouthernCalifornia Gas Co.,” said Lad Lorenz, director of capacity andoperational planning for SoCalGas, who oversaw the negotiations.

The last key item at issue was whether Pan-Alberta Gas (US)would honor the OFO, which is integral to PITCO’s existingagreement with Northwest Pipeline, after PITCO assigned its 240MMcf/d capacity on Northwest Pipeline and PG&ampE Gas Transmission,Northwest Corp. (PG&ampE GT-NW) over to the Canadian aggregator.The OFO issue was critical for Northwest and its customers sincethe pipeline relies on PITCO’s gas flows to provide displacementservice to shippers on its system.

The settlement would hold Pan-Alberta to the contract-specificOFO until October 2003, requiring it to flow 144 MMcf/d fromStanfield, OR, to Ignacio/Bondad to El Paso Natural Gas or toIgnacio/LaPlata A to Transwestern Pipeline, where the gas thenwould be delivered to SoCalGas, according to the terms. However,”even though Pan-Alberta will continue to hold capacity onNorthwest after that, they will not have a specific OFOobligation,” SoCalGas is an affiliate of PITCO.

The settlement also would require PITCO to pay $16 million toNorthwest in an escrow agreement or trust fund to be used in”resolving or minimizing displacement limitations on the Northwestsystem.” This could include constructing additional pipelinefacilities on Northwest’s system to eliminate or reduce reliance ondisplacement.

“This is the final piece that we think allows this whole packagenow to come together,” Lorenz told NGI. The proposed settlement issupported or not opposed by the majority of shippers on Northwest’ssystem. “We’re not aware of anybody that’s opposed to this,” Launersaid. FERC has been asked to approve the settlement, withoutmodification or condition, by Dec. 18.

PITCO has asked that the proposed settlement be consolidatedwith its original application filed last May. In that filing, PITCOsought the go-ahead to abandon by sale its 30% interest in 351miles of loops on Northwest Pipeline, and to assign all the firmand interruptible capacity and capacity rights it holds onNorthwest and PG&ampE Gas Transmission to Pan-Alberta. PITCO askedFERC for a waiver of the rules so it can permanently assign thecapacity rather than release it [CP98-529].

The May proposal, and the subsequent settlement, are largely inresponse to a 1994 global settlement between SoCalGas and itscustomers in which the LDC was strongly encouraged to restructureits gas supply and transportation arrangements with PITCO, whichmost agree has outlived its purpose. PITCO was created solely tobuy and transport Canadian gas supplies for resale to SoCalGas at atime, in the early 1980s, when LDCs were severely restricted intheir ability to purchase gas at the international border andtransport it. During that time, PITCO had been exempted from theCommission’s restructuring rulemakings. SoCalGas now is sheddingits long-time arrangement with PITCO as part of its effort tobecome more competitive.

The global agreement calls for SoCalGas ratepayers andshareholders of Sempra Energy, SoCalGas’s parent, to share thecosts associated with the PITCO restructuring, 82.5% and 27.5%respectively, Lorenz noted. The amount of the passthrough toSoCalGas would be limited to $31 million, which is what Pan-Albertawould be paid by PITCO to accept its capacity rights on the twopipeline systems.

In a separate but related filing, PITCO also asked theCommission to consolidate the numerous dockets in the case.

Susan Parker

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