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Sempra Energy surrenders Nova Scotia franchise
October 10, 2001

Sempra Energy has notified the Government of Nova Scotia and the Nova Scotia Utility and Review Board of its intention to surrender its Nova Scotia natural gas distribution franchise. The announcement was made in a press release dated September 24, 2001.

Sempra Energy is an American company based in San Diego, California. Two years ago it won a franchise to supply Nova Scotians with natural gas. The gas was to be supplied from the Sable Island gas field that went into production in late 1999. However, two years later, gas has yet to flow to Nova Scotia consumers.

Initially, Sempra established a Nova Scotia company known as Sempra Atlantic Gas Co. to conduct the franchised operations. However, Sempra's efforts to construct and operate the natural gas distribution system have been frustrated by problems that it claims are beyond its control. In April of this year, Sempra announced that it was reconsidering its business plan. On June 29th, Sempra filed an application with the Nova Scotia Utility and Review Board seeking the Board's consent to surrender its licence or alternatively, to amend the terms of the franchise.

Sempra cited three problems in its June application to the N.S.U.R.B. These were the inability to install pipes under provincial secondary roads and road shoulders, unprecedented volatility in the North American energy market which impacted the company's margin and the proposed operation of the Point Tupper Lateral at a pressure materially less than that which the company had relied upon in formulating its plan to service that area. Sempra claimed that these problems had made the franchise uneconomic and it stated that it would rely upon an escape clause in the franchise.

It appears from the company's recent press release that it has now abandoned the idea of seeking amendments to the franchise. The company states that it has invested $35 million to date in the project and it hopes to recoup some of this investment, presumably from sale of the assets to a future franchisee. The N.S.U.R.B. plans to conduct a hearing commencing November 19th to consider applications from other parties interested in obtaining the franchise.

While Nova Scotians wait for natural gas connections, some of their neighbours in New Brunswick are now cooking with gas from Sable Island. The New Brunswick franchise was awarded to Enbridge Gas New Brunswick which is now serving customers in that province.

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