II. Introduction and Background
After years of litigation between El Paso and the Commission, Edison PG&E, and others in the Commission's complaint proceeding at the FERC (FERC Docket Nos. RP00-241-000, et al.), litigation against El Paso in 15 lawsuits, including class action lawsuits, consolidated in the San Diego Superior Court, and investigations which could result in complaints filed by the California AG and the Attorney Generals, from Nevada, Washington, and Oregon, El Paso has chosen to settle these disputes and enter into the Settlement with all of the above-mentioned parties. The Settlement also resolves a dispute between El Paso and the Commission, CDWR and the California Electricity Oversight Board (CEOB) concerning El Paso's long-term wholesale power contracts with CDWR by reducing the electric prices therein by $125 million.
The Settlement consists of the Master Settlement Agreement, and separate settlement agreements, which were recently filed in the San Diego Superior Court, the FERC settlement providing structural relief to California shippers utilizing the El Paso system, and a Stipulated Judgment, which will be filed in the United States District Court for the Central District of California and will also provide for structural relief to California. Most of the consideration, which El Paso has agreed to pay to resolve these disputes, is provided in the Master Settlement Agreement, and, therefore, this OIR will focus on this aspect of the Settlement.
In the Settlement, El Paso has agreed to provide more than $1.5 billion (nominal value) in consideration for resolving all of this litigation:
· $900 million in cash at $45 million per year for 20 years (15 years if El Paso achieves an investment grade credit rating) with a prepayment option for El Paso
· $125 million reduction in El Paso's long-term contracts with CDWR
· $352 million in up front cash
· Proceeds from the sale of more than 26 million shares of El Paso stock.
Under the Allocation Agreement attached to the Master Settlement Agreement, the parties have agreed to hundreds of millions of dollars in consideration to persons or entities beyond the ratemaking jurisdiction of the Commission, such as the Attorney Generals of Nevada, Oregon and Washington; certain litigants (e.g., the City of Long Beach) in private lawsuits against El Paso; municipalities, which can establish in a claims process in the court that they were harmed by high natural gas prices at the California border during the time in question; non-core natural gas customers, which will also go through a claims process in the court; and CDWR, which will receive the $125 million reduction in its long-term contracts with El Paso, as well as more than $300 million (nominal value).
The parties have also agreed that more than $600 million (nominal value) of the consideration will be allocated to the California natural gas and electric investor-owned utilities under the Commission's jurisdiction. When considering the lower revenue requirements of CDWR, which will result from the consideration under the Settlement, and the consideration allocated to the California public utilities, we estimate that more than $1 billion (nominal value) of the consideration will ultimately benefit the California public utilities and their ratepayers.
There is an Allocation Agreement between the Settling Parties that controls the specific allocation of the consideration under the Master Settlement Agreement. In addition, El Paso has provided consideration to parties in separate Settlement Agreements and a $125 million reduction in price in the long-term contracts with CDWR. The Master Settlement Agreement provides for "up-front" consideration that includes both cash ($78,590,070) and the proceeds of the sale of El Paso common stock (26,371,308 shares), whose value can only be estimated at this time. There is additional Master Settlement Agreement consideration ($875,626,072) that is "deferred" in forty equal semi-annual payments over twenty years. The total of all of the Settlement consideration is likely more than $1.5 billion in nominal dollars. The total consideration's net present value exceeds $1 billion, which is less than its nominal value due to the deferred payments.
The more than $1.5 billion in the consideration amount includes the consideration under the separate settlement agreements as well as predetermined amounts for certain settling parties under the Master Settlement Agreement. In addition, there is an iterative process involving the municipalities' claims and the payment of attorneys' fees, which makes the precise residual amount of consideration for the public utilities' ratepayers unknown at this time.
The following estimate for the Commission's jurisdictional allocations is intended only to provide a context for the application of the proposed ratemaking and accounting procedures proposed in this proceeding:
Consideration Affecting the Rates of Commission Jurisdictional Customer Groups |
Estimated Allocation |
Electric |
|
Reduction of CDWR Revenue Requirements |
$425.0 |
PG&E Electric Customers |
$210.0 |
Edison Electric Customers |
$195.0 |
SDG&E Electric Customers |
$60.0 |
Gas |
|
PG&E Core Gas Customers |
$75.0 |
SoCalGas Core Gas Customers |
$36.0 |
SDG&E Core Gas Customers |
$29.0 |
Southwest Core Gas Customers |
$5.0 |
