CANADA, CALIF. REGULATORS AGREE ON ACCESS TO NATURAL GAS PIPELINE

CANADA, CALIF. REGULATORS AGREE ON ACCESS TO NATURAL GAS PIPELINE

A group of regulators from Canada and California have reached a tentative agreement aimed at resolving a long-running feud over access to a key pipeline that brings Canadian natural gas to California buyers and the price of gas on that pipeline.

The issue involves annual sales of 373.5 billion cubic feet of gas, worth about $1 billion, by western Canada producers to California through the pipeline.Details of the agreement are not expected to be made public for another week or so.

However, regulators who participated in the negotiations said the agreement, in general, outlines a way for the matter to be resolved by the private companies involved in the dispute. That mainly involves Pacific Gas and Electric and the 190 Canadian gas producers that sell their gas to the utility under long-term contracts.

"A tentative agreement has been reached," said Brian Frank, director of natural gas exports for Canada's Ministry of Energy, Mines and Resources. "It strongly supports a commercial solution as opposed to a government or regulatory-imposed one."

Canada and California have been engaged in a bitter, highly public dispute on this issue, which escalated last year when the California Public Utilities

Commission said that starting this October, the Pacific Gas pipeline would have to grant access to any customer who wants to buy gas directly from western Canadian producers.

That setup would bypass the existing relationship in which the producers sell gas under long-term contracts to Pacific Gas and Electric, the fifth- largest U.S. gas utility, which then distributes the gas to 7 million users in California.

Defending the move as an extension of federal policy aimed at decontrolling the gas industry, the CPUC said the current arrangement between the producers and the utility is a cartel-like relationship that causes Californians to pay above-average prices for their gas.

The CPUC's consumer advocacy division has charged that Pacific Gas and Electric owes customers $392 million for overpriced gas during the three years

from 1988 through 1990. For instance, in 1990, the division said Pacific Gas and Electric charged $1.83 per million British thermal units for its gas when spot-market prices averaged $1.02.

The CPUC's actions have touched off a storm of controversy. Pacific Gas and Electric, which operates the pipeline, charged that the commission was trying to scrap the long-term contracts in order to allow California customers to cash in on the collapse in natural gas prices.

Canadian authorities have taken some steps, and threatened to enact even more, designed to restrict any short-term exports to California that might displace gas being shipped under the long-term contracts.

Meanwhile, about a dozen regulators representing both sides of the issue have been meeting periodically since December to try to reach a compromise.

Those negotiators included representatives from the U.S. and Canadian federal governments, the state of California and the provinces of Alberta and British Columbia.

"We agreed that the restructuring of the existing agreement would be best done by negotiations between private parties, as opposed to government regulation," Mr. Frank said.

Those private parties, he said, included Pacific Gas and Electric, its Calgary subsidiary, Alberta and Southern Gas, and western Canadian producers such as Amoco and Shell Canada.

Paul Clanon, an energy policy adviser to the CPUC, who was involved in the negotiations, was quiet about the specifics of the agreement, but he hinted it contains some kind of financial compensation to the Canadian producers, in exchange for reworking their supply contracts.

"If you were a Canadian producer, you would want to achieve a message from the CPUC that commercial arrangements will be respected, and compensation might be part of a new agreement," Mr. Clanon said.

If the contracts are reworked, prices of gas coming into California are likely to drop because more gas would be bought directly from producers without using the pipeline as a middleman, a trend already under way at other U.S. pipelines.

The tentative agreement is being reviewed by the heads of each of the regulatory agencies involved.

"We have taken it back to the lawyers and others, and we are certainly hopeful there will be some sort of public announcement soon," Mr. Frank said.

Although regulators apparently have agreed to keep to the sidelines of the controversy, Mr. Frank said their agreement does include thematic guidelines for the private parties to follow, and also implied the regulators have set a deadline for the contracts to be reworked.

However, it remains to be seen how successfully the private parties will be able to resolve the situation.