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FERC Approves Sale of Columbia Gulf Pipe Facilities to Tennessee

FERC last Thursday gave Columbia Gulf Transmission the green light to sell approximately 530 miles of pipeline located onshore and offshore Louisiana to Tennessee Gas Pipeline.

The facilities include most of Columbia Gulf's ownership interest in the Blue Water System and all of its ownership interests in the South Timbalier system and the South Pass 77 System. The pipe systems were jointly built by Columbia Gulf and Tennessee in the 1970s and 1980s.

The horseshoe-shaped Blue Water System consists of approximately 426 miles of six-inch to 36-inch diameter pipeline and associated laterals, located primarily in offshore Louisiana. The system includes two segments -- the Western Shore Line, which terminates at Egan, LA, and the Eastern Shore Line, which ends at Cocodrie, LA.

As part of the transaction Columbia Gulf will retain its ownership interest in five miles of 16-inch diameter pipeline in the Southwest Extension of the Blue Water System and associated facilities.

The South Timbalier System consists of about 37.55 miles of up to 24-inch diameter pipeline and associated laterals in the offshore. The South Pass 77 System entails approximately 64 miles of pipeline ranging from eight-inch to 36-inch diameter, as well as contiguous laterals, also offshore Louisiana. The pipeline system extends from South Pass Block 77 in the Gulf of Mexico to Tennessee's onshore system in Plaquemines Parish, LA.

Columbia Gulf wants to divest its offshore facilities and focus on its onshore system due to declining reserves and revenues from production in the Gulf of Mexico and increasing expenses from the transportation of offshore gas, the order said [CP08-54].

In addition to the pipeline facilities, the facilities to be divested include Columbia Gulf's ownership interests in six compressor units with a total of 56,000 horsepower, a liquids separation and gas dehydration plant, 28 measuring stations and associated rights of way.

Moreover, the Federal Energy Regulatory Commission (FERC) approved Columbia Gulf's request to abandon services currently provided through the facilities, certain transportation/exchange agreements with Tennessee and Columbia Gulf's lease to Tennessee of a portion of Columbia Gulf's South Pass 77 System capacity.

The Commission also approved Tennessee's request for a predetermination supporting a presumption of rolled-in rate treatment for the costs of acquiring and operating the facilities in its next Section 4 rate case. Tennessee has agreed to pay approximately $7.3 million in cash and to assume Columbia Gulf's unquantified contingent liabilities related to the operation of the facilities.

In addition, the two parties have agreed that approval of the sale will settle a pending complaint filed at FERC [RP04-413] and two proceedings in a Texas state court. In the Commission case Columbia Gulf filed a complaint alleging that Tennessee breached its Reciprocal Operating Lease Agreement by imposing additional charges on Columbia's Gulf shippers for allegedly transporting their gas to a third-party-owned processing plant on Tennessee's system. An administrative law judge (ALJ) ruled that Tennessee had, in fact, breached the lease and ordered Tennessee to refund any such charges. In August 2006 FERC affirmed the ALJ decision. Tennessee has appealed FERC's decision.

Crosstex Gas Processing LLC was the only party to oppose the sale of the Columbia Gulf facilities to Tennessee, arguing that the transaction could make its Blue Water Gas Plant uneconomic. "Crosstex points out that the Blue Water System is its processing plant's only source of unprocessed gas and that if Tennessee significantly reduces the volume of gas into or reroutes the flow of gas away from the plant...Crosstex may have to shut down its processing plant," the FERC order said.

It asked FERC to deny the applications or hold a technical conference or full evidentiary hearing to explore alternatives to keep its Blue Water Gas plant operating, but the Commission rejected the request.

"Crosstex fails to point us to any contractual, regulatory or legal authority that would require us to direct Tennessee to guarantee a continued or unaltered gas flow into Crosstex's processing plant. Although Crosstex is concerned that gas supplies may be diverted to another plant for processing, it does not allege that any type of undue preference would be involved," the FERC order noted.

"In view of these considerations, we find no basis for imposing a condition that would require Tennessee to ensure gas flows to Crosstex's processing plant are not affected. Since there are not material issues of fact that need to be resolved to reach our decision, we will deny Crosstex's request for an informal technical conference or a full evidentiary hearing to consider alternatives to keep its processing plant operating."

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