Probe Sought of Southern LNG's Open Season
FERC has been asked to place an immediate hold on Southern LNG
Inc.'s applications to reactivate and upgrade its mothballed
liquefied natural gas (LNG) storage and send-out facility on Elba
Island in Georgia, pending the outcome of a probe being requested
into the company's open-season procedures.
Enron Americas LNG Co. urged the Commission to conduct an
investigation into allegations that Southern LNG showed
preferential treatment by awarding the terminal's entire 4 Bcf
capacity to marketing affiliate Sonat Energy Services (SES),
following a brief open season in early June. The Enron company
petitioned FERC to carry out the probe after informal talks between
it and Southern LNG broke down [CP99-582].
If its allegations are confirmed by the investigation, Southern
LNG at a minimum should be required to allocate delivery capacity
at the Elba Island terminal on a pro rata basis among all shippers
that had submitted open-season bids at maximum rates for terms of
at least 15 years; or it should have to conduct a new open season,
according to Enron Americas LNG. However, if the investigation
should find that Enron Americas' bid had the highest net present
value (NPV) - even higher than that of SES - then Southern LNG
should be directed to award the terminal's entire capacity to Enron
Americas, it said.
The open season, which ran from June 1 to June 15, was launched
just days after Southern LNG became aware that SES had concluded
commercial arrangements with a consortium led by British Gas
Trinidad and Tobago Ltd. to import 80 Bcf/year of LNG from Trinidad
to the Elba Island facility, Enron Americas said. Southern LNG and
Southern Natural Gas, both affiliates of Sonat Inc., "apparently
also participated extensively in discussions with British Gas.
Neither the public nor other potential shippers were similarly
given advance notice on Southern Natural's electronic bulletin
board or otherwise...that an open season was imminent or that it
would promptly follow a Sonat/British Gas commercial agreement."
Enron Americas charged the open season was cloaked entirely in
secrecy. "There was no mass mailing. No faxes were sent. No press
releases. No e-mails. This stands in stark contrast to what the
industry has required of other terminal service providers, and to
the practices of [Southern LNG's] own affiliates in recent open
seasons." Enron Americas said it didn't learn of Southern LNG's
open season until June 7th, which gave it only eight days to put
together a bid.
Further, "the 14-day duration of the open season was
unreasonably short by any industry standard, especially given the
exacting bid requirements and the complexities inherent in
international LNG transactions, with the result that only parties
with advance knowledge of the project and prearranged transactions
could have readily submitted a fully responsive and unconditional
bid." It reminded FERC that in 1995 - when the company was
considering possible reactivation of the Elba Island facility - it
had to extend the open season from 3 1/2 months to 6 1/2 months to
give shippers sufficient time to participate. It ultimately decided
at that time not to recommission the facility, which has been
dormant since 1982.
Interested parties this time had only two weeks to bid on the 4
Bcf of available storage capacity, with service beginning in
January 2002. Their bids had to be at maximum rates and for a
minimum term of 15 years. Bidders also had to show "evidence that
LNG tanker ships [would] be available and ready to commence
service...as of the in-service date, and [would] interface with
Southern LNG's unloading facilities without any modification of the
Elba Island Terminal," noted Enron Americas.
Additionally, Enron insisted that structuring the open season
around storage capacity made it "virtually impossible" for bidders
to bid for anything other than the total capacity, which meant
there would be only one winner in the end.
But all of this aside, Enron Americas LNG contends that its bid
for the entire capacity of the LNG facility - at maximum rates for
a term of 15 years - beat out SES' bid in the open season. It said
its bid possessed a higher net present value (NPV) because it had
an earlier in-service date - Jan. 1, 2002 as opposed to SES' Oct.
1, 2003 - and wasn't subject to the 7- to 10-year rate moratorium
that was offered to SES. If that's not enough, Enron Americas noted
it's prepared to match the deal that Southern LNG struck with SES -
a 22-year term with a 7- to 10-year rate cap - and still "stand by"
the earlier in-service date.
Separately, Atlanta Gas Light (AGL) and Chattanooga Gas believe
that they and other historic firm sales customers of Southern
Natural Gas - who have been paying a surcharge over the years to
maintain the LNG facilities at Elba Island - should get 90% of
additional revenues that result from recommissioning the LNG
facilities. Recommissioning could result in up to 330 MMcf/d of
additional throughput on the Southern Natural system.
But "it is not that simple," responded Southern LNG. "Deliveries
of regasified LNG from the Elba Island Terminal also could displace
up to 330 MMcf/d of [firm transportation] on Southern" and mean a
revenue loss for the pipeline.