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FERC OKs Sale of 254 Miles of Southern Natural Pipe to AGL

January 31, 2005
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FERC last Tuesday approved the sale of 254 miles of Southern Natural Gas Co.'s pipeline system to Atlanta Gas Light Co. (AGL) for an estimated $32 million. The pipelines sold include various segments serving Atlanta, GA.

In connection with the transaction, the Atlanta-based local distribution company (LDC) agreed to extend the term of its contracts for firm transportation, no-notice and storage service on Southern Natural's pipeline to 2008 through 2015 on a staggered basis. The existing agreements were to expire primarily in 2005 and 2006. Southern Natural expects to reap $125.7 million in additional reservation charges as a result of AGL's contract extensions.

The facilities targeted for sale include pipeline segments located between Southern Natural's south mainlines and north mainlines, which serve the metropolitan area of Atlanta. The pipe segments span 13 different lengths and sizes and make up an inverted "Y" that runs north from Southern Natural's southern main line to the Atlanta area. The pipeline segments range from four to 30 inches in diameter.

Southern Natural, a subsidiary of El Paso Corp., and AGL plan to close the sale of the so-called Triangle Facilities no later than April 1 of this year.

"Southern says the purchase of the Triangle Facilities by Atlanta will enable Atlanta to operate its local distribution system more efficiently by removing bottlenecks around existing [liquefied natural gas] peak-shaving facilities and creating a more flexible distribution system. In addition, the purchase of [the] facilities will allow Atlanta to complete its distribution loop that encircles the city of Atlanta," the order noted [CP04-340].

AGL and Southern Natural will "isolate" the Triangle Facilities so that they are connected to Southern Natural's system only at four large delivery points to be constructed, the order noted.

Following the closing of the sale, Southern Natural plans to construct 6.36 miles of 30-inch pipeline to close the gap between two segments of its system in Spalding County, GA. This will allow the pipeline to continue to provide firm service to its existing customers and to maintain a continuous transmission pipeline between its north and south main lines, it said. Southern Natural also proposes to upgrade about 11 miles of its 16-inch pipeline in Jefferson and Richmond Counties, GA, to continue meeting its existing firm obligations downstream. It estimates the cost of the new facilities will be $19.3 million.

Under the staggered contract extensions, AGL will remain a customer of Southern Natural at its full volume of 926.5 MMcf/d through Aug. 31, 2008. AGL will continue as a shipper through 2015, but its daily volumes will decrease each year.

Scana Energy Marketing Inc. called on the Federal Energy Regulatory Commission to reject Southern Natural's application, saying it would frustrate the state of Georgia's retail unbundling effort. Specifically, the marketer argued that it would lock the Georgia market into contract extensions up until 2015, with the potential for $125 million in stranded costs if the extended contracts are not used; and it claimed the revised Southern Natural/AGL systems would not provide gas marketers with no-notice flexibility.

"Scana's arguments that the application should be rejected as anti-competitive are unpersuasive," the FERC order said. In addition, "the Commission will deny Scana's request for a ruling that would prohibit Southern and Atlanta from extending their existing contracts. To do so would require us to void the contract between Southern and Atlanta dated April 14, 2004 which recites the parties' intent to extend the terms of their [firm transportation] agreements covering discrete volumetric packages."

In approving the application, FERC said the project serves the "public convenience and necessity by providing benefits to both involved systems and their customers, allowing the reduction of Southern's system costs, while reducing the potential for capacity turn-back on Southern's system."

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