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FERC Dismisses Challenge to Results of Southern Open Season

FERC last week dismissed a complaint accusing El Paso Corp.'s Southern Natural Gas of acting improperly in awarding capacity during an open season that closed in August.

In a Section 5 complaint filed at the Federal Energy Regulatory Commission (FERC) in October, Texican N. La. Transport LLC, an affiliate of Houston-based Texican Natural Gas Co., claimed that after the close of the open season for capacity on Southern's system west of its Bienville Compressor Station in Bienville Parish, LA, Southern Natural decided to use a procedure for aggregating bids that it had never used in any previous open season and had not informed potential bidders about (see NGI, Oct. 26, 2009).

Texican argued that the new method was a violation of FERC precedent and Southern Natural's tariff, which requires that the open season notice describe all of the criteria to be used by Southern Natural to determine and evaluate the net present value (NPV) of the bids it receives. Southern Natural countered that Texican and other bidders were informed beforehand of the aggregation methods.

"FERC dismisses [the] complaint. Texican has not demonstrated that Southern failed to comply with its tariff or that the award of capacity pursuant to the WOB [west of Bienville] open season was otherwise unjust and unreasonable," the FERC order said [RP09-1086]. WOB capacity is located at the upstream western end of Southern's North Main Pipeline and straddles the Texas-Louisiana border.

"To the contrary, we find that Southern acted in accordance with its tariff in awarding capacity pursuant to the WOB open season and that Southern's award methodology was consistent with Commission policy and was just and reasonable and not unduly discriminatory.

"We find that it would not be fair to shippers that have justifiably relied on the capacity award to undo [the] allocation due to a potential misunderstanding of the terms of the open season. Accordingly, we uphold the results of the WOB open season."

Texican's bid for 66,000 Mcf/d for 35 years and seven months at the maximum applicable tariff rate had the highest NPV of any of the bids submitted in the Southern Natural open season, namely $50.7 million. Shell submitted a bid for 65,000 Mcf/d for 30 years with an NPV of $48.8 million. Nevertheless, Southern Natural chose to award Texican 10,000 Mcf/d while awarding 63,000 Mcf/d to Shell, the second place bidder, Texican said.

While the high bid was $50.7 million, Southern Natural noted that the combination or aggregation of the two winning bids (Texican and Shell) had a higher NPV -- $55 million. The additional revenue produced by aggregating the bids of $4.3 million "will ultimately benefit Southern's customers after its next rate case," the pipeline said in its reply to the complaint.

Southern Natural defended its action by saying it optimized both the NPV and the maximum capacity to be awarded by awarding 63,000 Mcf/d to Shell and 10,000 Mcf/d to Texican. Southern said it was able to sell more incremental capacity to Shell because a new receipt point where Shell was delivering its gas to the pipeline was farther downstream than most of the receipt points bid by Texican and was much closer to a new Tennessee Gas Pipeline interconnection.

"Southern's approach gives the pipeline virtually unlimited discretion in deciding to whom capacity is awarded," complained Texican, which supplies gas to Southeast markets over Southern Natural and Transcontinental Gas Pipe Line.

The Industrial Energy Consumers of America (IECA) filed a motion in support of Texican's complaint, saying Southern's procedure for awarding capacity "will undermine the open season process in a fundamental way and could set a national precedent of discrimination by natural gas pipelines to the detriment of all natural gas consumers."

If Southern's approach is allowed to stand, the capacity bidding process "would be turned into an obscure guessing game with bidders unable to develop effective strategies for obtaining capacity," the IECA said.

"Of particular concern to IECA is that under Southern's new approach to aggregation, the ability of end-users, such as IECA members, to use the open season process to obtain limited amounts of capacity they need to support their operations would be severely compromised."

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