Pact Could Cut Gas Costs by $1.5 Billion

Southern California Gas Co. said Tuesday that it has signed agreements with two major gas suppliers that could result in as much as $1.5 billion in savings to utility customers over the next 19 years.

The utility and its gas-supply affiliates will pay less for gas in exchange for lump-sum payments and flexibility in other terms for their suppliers of California offshore and Canadian natural gas, the utility said.

The long-term net savings will cost the gas company $500 million counting payments to the suppliers and transporters and the cost of transferring some pipeline and gas treatment facilities to Exxon, which supplies gas to the utility from offshore California wells.

The new agreements “are fair both to our customers and the supplier of this gas,” said Richard D. Farman, chief executive of the gas company.

A spokesman for Exxon confirmed the agreement but declined to disclose the size of the payment it will collect or any other terms. Pan-Alberta Gas Ltd., the Canadian supplier, said it will receive a payment of $192 million and will lower the price at which it sells gas to the utility to rates competitive with U.S. gas sources.

In recent years, natural gas utilities across the country have renegotiated long-term supply contracts first signed during the 1970s, a period of high gas prices and occasional shortages. The original contracts left utilities buying gas at rates well above the current market.

Tuesday’s announcement is a direct result of an agreement orchestrated last fall by the state Public Utilities Commission between the gas company, several industrial customers and consumer groups addressing this and other energy cost problems.

“I think this is finally putting the matter to bed for SoCal Gas,” said Yves Siegel, an analyst with Smith Barney, Harris Upham & Co. in New York.