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Destin Pipeline's Lateral Projects Win FERC Approval

Destin Pipeline's Lateral Projects Win FERC Approval

FERC has given the go-ahead for Destin Pipeline Co. L.L.C. to build lateral pipeline facilities that would connect offshore production with its new 1 Bcf/d mainline system for eventual delivery into downstream markets.

The proposed facilities would transport gas from two new production platforms in the Gulf of Mexico to be located in Main Pass Block 279 and 281 to an offshore connection with Destin's new mainline system at its Main Pass 260 platform, which FERC approved last November. There, the gas would be delivered to a processing plant in Mississippi that would interconnect with five interstate pipelines.

The facilities include a 24-inch outside diameter lateral pipeline, a 12-inch OD tie-in pipeline, a 20-inch OD tie-in pipeline, and two receipt points on the Main Pass 279 and Main Pass 281 platforms. Three producers -- CNG Producing, Walter Oil &amp Gas and Sonat Exploration GOM -- have committed to transport up to 230 MMcf/d.

The Commission approved the offshore lateral facilities over the strenuous objections of Viosca Knoll Gathering Co. L.L.C., whose existing gathering facilities would run parallel to Destin's proposed laterals. Viosca Knoll contends the project is undersubscribed. Specifically, it said the 230 MMcf/d of existing capacity commitments represent only a little more than 40% of the 403 MMcf/d capacity that would be available on the 24-inch OD lateral that Destin proposes to build.

But FERC disagreed on all counts. "The Commission has found that the market should determine which project or projects are best suited to serve infrastructure needs on the OCS [Outer Continental Shelf] and to allow for the most reserves and OCS transportation facilities. We will not substitute our judgment for business decisions of private parties in the absence of anticompetitive actions," the order said, adding that Destin's proposal was "not anticompetitive."

The Commission also gave Destin the authority to roll in the costs of the $19 million offshore project. The order [CP98-238] noted that pipeline projects that qualify for authorization under FERC's blanket certificate procedures, such as Destin's, automatically qualify for presumption in favor of rolled-in prices, and can do so without undergoing "a case-specific analysis of system-wide benefits because the resulting rate impact in such situations is usually de minimis." Susan Parker

The CEO of the newly merged Sempra Energy has indicated he expects Southern California Gas to announce in August the winning bidders for its future rights to buy the California portion of Kern River and Mojave interstate gas pipelines. And he said Kern and Mojave may turn out to be the winners, although he didn't rule out the possibility of a "third party" winning the bidding. SoCalGas is one of two principal utility subsidiaries under Sempra, and its sale of its rights was one of the requirements laid down by regulators in exchange for their approval of the $6.2-billion merger. SoCalGas holds the exclusive right to buy 370 miles of large-diameter pipeline and related facilities that move 1.1 Bcf/d of gas from Rocky Mountain and Southwest supply basins.

Louis Dreyfus Natural Gas received a payment of $40 million for early termination of a long-term, fixed-price gas sales contract. The terminated contract, which was with an independent power producer, covered 4 Bcf/year of gas which would have been delivered through 2006. The total volumes of 33 Bcf, covered by this terminated contract, are now available to be sold to other customers or in the spot market. Proceeds will be used to reduce bank debt. The payment monetizes a portion of the value of Dreyfus' portfolio of long-term, fixed-price contracts. The value of these contracts is not reflected on its balance sheet. In the aggregate, the remaining contracts have a present value (discounted 10%) in excess of market of about $125 million.

Enron Energy Services has signed General Cable Corp. to an energy management and supply contract covering 22 U.S. facilities that will tie the price level mainly to General Cable's business. Pricing for the multi-year contract valued at $120 million will be tied to the pounds of copper consumed, feet of cable produced and weather conditions experienced during the company's production process. The rationale is that if more cable is produced, more energy will be used and the unit price then would be lower. Enron claims a first for this type of agreement for a retail energy customers. Besides taking over the energy management for General Cable's Highland Heights, KY, headquarters and other facilities, Enron also will provide electricity to the company's Sanger, CA, data communications wire and cable manufacturing plant and will manage energy procurement at other locations. Other services include financing and construction of a substation and chillers and installation of meters featuring Enron's two-way interactive system. The agreement, running between five and 10 years, calls for Enron to guarantee savings through comprehensive energy management and efficiency projects.

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