Southern California Edison called on FERC last week to approve”without condition or modification” an agreement under which ElPaso Natural Gas would pay the California electric utility $32million and make other concessions to forestall the collapse of its1996 capacity-turnback settlement. The deal, if approved by FERC,would put an end to a four-year legal battle by Edison, the only ElPaso customer to object to the settlement in its entirety. It also”clears the way” for Commission approval of the settlement.

“There was a potential that the whole thing [1996 El Pasosettlement] could fall apart,” said one source familiar with thecase, adding that El Paso agreed to pay Edison the large sum “tomake the whole thing go away.” The El Paso-Edison agreement wasfiled at FERC earlier this month. Industry comments initially weredue at the Commission last week, but an extension was given untilAug. 24th [RP-363-002].

Industry observers speculated that the reaction of other El Pasocustomers to the multi-million dollar agreement could go eitherway. “Some may ask why El Paso should reward a company that dug inits heels” in opposition to the settlement, said one observer. Butthe El Paso customers, who signed the settlement, “have to rememberthat Edison took on all the risks and the litigation costs” in itsbattle with the pipeline. “It was a toss of the coin,” and Edisonwon.

“We’re happy to have the litigation behind us. And we believethat the settlement is a fair and just resolution of all of theissues that divided us,” said Kevin Lipson, a Washington for Edison. “We look forward to prompt Commission approvalof the settlement agreement.”

The agreement “provides for a long-term (ten-year) resolution ofany rate issues between El Paso and Edison. It resolves all ofEdison’s objections to the 1996 settlement, and it does so on abasis that preserves without change all of the terms andconditions” of the original deal for El Paso’s other customers, thepipeline said.

Under the terms, El Paso will pay Edison $32 million plusinterest from July 1, 1999 until the date of payment, which shallbe 10 days after the agreement takes effect. This payment “resolvesall issues and claims raised or that could have been raised” byEdison between Jan. 1, 1996 through June 30th of this year. Also,Edison will 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 willterminate its rate litigation at FERC.

The “two critical provisions” of the settlement, according toEdison, are the utility’s exemption from paying the risk-sharingamounts for El Paso’s unsubscribed capacity, and El Paso’s $32million payout to Edison. “Edison views this amount as compensatingit for, among other things, future impacts of the 1996 settlement,”the utility told FERC last week. If the agreement is modified bythe Commission, both El Paso and Edison will have to agree to therevision before it could become effective.

At issue all along in the case has been Edison’s right tocontest the El Paso settlement as both a direct customer of thepipeline and an indirect customer (via Southern California Gas). Inthe 1997 orders approving the El Paso settlement, FERC acknowledgedEdison’s right to contest the settlement as a direct customer of ElPaso, thus allowing the California utility to be severed from thesettlement and to have its rates litigated separately. But theCommission declined Edison’s request to also litigate itsobjections to the settlement as they applied to SoCalGas, throughwhich Edison indirectly receives gas from El Paso.

Last December, the D.C. Circuit Court of Appeals reversed andremanded the orders approving the 1996 settlement, holding thatFERC’s ruling with respect to Edison’s claims as an indirectcustomer was “inconsistent with the settlement precedents of boththe Commission and this Court.” The decision threatened the veryfoundation of the El Paso settlement.

Susan Parker

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