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Shippers, Regulators Bemoan Northern Natural's Proposed Sale of West Hugoton Facilities

Natural gas producers, marketers, municipal utilities and Kansas regulators have attacked Northern Natural Gas' proposal to sell its West Hugoton gas pipeline facilities in Kansas and Oklahoma to a Midland, TX-based energy company.

The shippers on Northern Natural's West Hugoton pipe system have asked the Federal Energy Regulatory Commission to either reject the sale or order revisions to the prospective buyer's proposed natural gas tariff for service on the facilities.

In March Northern Natural, a MidAmerican Energy pipeline subsidiary, sought FERC authorization to sell approximately 264 miles of pipeline, ranging in diameter from three to 26 inches, and associated facilities to WTG Hugoton LP, an affiliate of West Texas Gas Inc., the fourth largest investor-owned public utility company in Texas [CP06-89, CP06-90]. The agreed-upon price was approximately $24 million for the pipe assets located in seven counties in southwestern Kansas and in Texas County, OK, according to the two companies.

WTG asked FERC to award it a certificate to acquire, own and operate the West Hugoton facilities, which would make it a new interstate gas pipeline company.

ExxonMobil Gas & Power Marketing Co., a holder of two 10-year contracts for firm service with Northern Natural on the West Hugoton system, called on the Commission to deny the proposed sale, saying it had not been assured continuity of service. "While preliminary discussions have taken place between ExxonMobil and WTG, these discussions have not resulted in service agreements...that would ensure ExxonMobil guaranteed continuity and stability of service on the West Hugoton system. Nor has Northern guaranteed continuity and stability of service for ExxonMobil," the energy marketer told FERC.

Even if it can reach an agreement with WTG for service, ExxonMobil said it " adversely impacted if it chooses to deliver gas to its point [at Bushton, KS], which would entail the use of WTG and Northern capacity. Under this scenario...ExxonMobil would incur an additional 24 cents plus 1.18% fuel to move its gas the same distance it can move today on Northern's system."

Anadarko Petroleum Corp. and Anadarko Energy Services Co. echoed ExxonMobil's sentiment, asking FERC to reject Northern Natural's proposed abandonment of the West Hugoton facilities or, in the alternative, to require WTG Hugoton to revise the rates, terms and conditions of service in its proposed tariff.

The Kansas Corporation Commission (KCC), which regulates rates for the sale of natural gas and electricity within the state, said the "public convenience and necessity [are] not served, and therefore abandonment authorization should not be granted, if the transfer of the ownership of, and operational responsibilities for, the subject facilities has the effect of putting nearly $24 million in cash into Northern's pockets at the expense of Kansas ratepayers being required to pay WTG higher rates than they are currently charged by Northern."

FERC approval of the proposed sale, at the very least, should be conditioned on WTG agreeing initially to "not exceed the rates, including negotiated rates, currently in effect for comparable service by Northern," the KCC said.

If the Commission should clear the sale of the West Hugoton facilities, the Northern Municipal Distributors Group and the Midwest Region Gas Task Force Association, municipal-distributors that are customers of Northern Natural, asked FERC to confirm that its approval would not apply to "any proposed rates, for ratemaking purposes at this time."

By doing so, "the appropriate treatment of any gain or loss associated with the sale of these facilities would be left to a future base rate proceeding, as would all other ratemaking issues," the municipal groups said.

Houston-based producer OXY USA Inc. disagreed with the critics and pledged its support for the sale. However, it asked FERC to make "five limited changes" to WTG Hugoton LP's proposed FERC gas tariff, including:

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ISSN © 2577-9877 | ISSN © 1532-1266
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