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FERC Denies Northern Natural Bid to Sell West Hugoton Facilities

In a key victory for Northern Natural Gas shippers, FERC has denied the interstate natural gas pipeline's request to sell its West Hugoton gas pipeline facilities in Kansas and Oklahoma to a Midland, TX-based energy company.

The MidAmerican Energy pipeline subsidiary proposed the sale of 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.

"Our analysis indicates that the proposed abandonment would more than likely result in shippers with primary receipt and delivery points on Northern's West Hugoton facilities paying higher transportation rates to move the same volumes of gas over the same pipeline," the FERC order said.

Even if Northern Natural's shippers would benefit from cost savings and rate base reductions, as the pipeline claims, "these cost savings would only occur after Northern files another rate case," the order noted. "However, Northern is currently under a rate case moratorium and is under no obligation to file a rate case in the future...Therefore, we find that the claimed future benefits for Northern's customers are, at best, speculative."

Moreover, Northern and WTG have not reached agreement for continued service with the shippers who hold the vast majority of firm capacity rights on the West Hugoton facilities, it said. "The applicants have not shown that those shippers will ultimately receive continued service on WTG's facilities under conditions that are comparable to what they currently receive from Northern," the order said.

Natural gas producers, marketers, municipal utilities and Kansas regulators attacked Northern Natural's proposal to sell its West Hugoton gas pipeline facilities in Kansas and Oklahoma to WTG Hugoton.

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 Hugoton, 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.

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, 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."

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