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Rehearing Sought of Order Denying Sale of West Hugoton Facilities

WTG Hugoton LP, a Midland, TX-based energy company, is seeking rehearing of an October order in which FERC denied Northern Natural Gas pipeline's request to sell its West Hugoton gas pipe facilities in Kansas and Oklahoma to WTG Hugoton.

The company said a key agency objection to the proposed sale -- the failure of Northern Natural and WTG Hugoton to reach agreements with the vast majority of West Hugoton shippers for continued service -- has since been resolved and most shippers either have withdrawn or soon will withdraw their protests to the sale.

Northern Natural, a MidAmerican Energy pipeline subsidiary, wants to sell 264 miles of pipeline, ranging in diameter from three to 26 inches, and associated facilities to WTG Hugoton, 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 $24 million for the pipe assets located in seven counties in southwestern Kansas and in Texas County, OK, according to the two companies.

In an Oct. 26 order, the Federal Energy Regulatory Commission denied the proposed sale on two grounds (see Daily GPI, Oct. 30). It said the sale would likely have no economic benefit for existing shippers on Northern Natural's West Hugoton facilities FERC also noted that Northern Natural and WTG Hugoton had not reached agreements for continued service with shippers who hold the vast majority of firm capacity rights on the West Hugoton facilities.

The Commission's latter concern has been largely dealt with since the October order, according to WTG Hugoton. "Negotiations have now been successfully concluded with shippers holding the vast majority of firm capacity on the system, and the related protests have been or will be withdrawn," the company told FERC. It noted that the only existing shipper still protesting the proposed sale is ONEOK Field Services Co.

WTG Hugoton said it has entered into a precedent agreement with ExxonMobil Corp., which initially objected to the sale, and has made offers for continued service at rates comparable to ones previously charged by Northern Natural to Duke Energy Field Services and Aquila. "Together, the firm shippers that have executed precedent agreements with WTG, withdrawn protests or failed to protest [the sale]...represent the vast majority of the firm throughput on the system," the company said.

Northern Natural and WTG have made repeated offers to ONEOK for continued service, but it still continues to protest the sale, according to WTG Hugoton. "It would be a mistake for the Commission to let a single firm shipper's protest frustrate the agreement of the vast majority of a pipeline's firm shippers...ONEOK's protest is a sham. Its real interest here is simply to delay Northern's proposal while it constructs nonjurisdictional facilities to bypass the West Hugoton facilities, and its arguments should be rejected by the Commission."

As to the economic benefits of the proposed sale, Northern Natural's largest shippers contend that the transaction would be good for the pipeline's existing shippers. "The Commission should find on rehearing that the benefits of a substantial reduction in Northern's operating costs and rate base associated with the proposed [sale] are not speculative but real, and those benefits must be taken into account in considering the economic effect on shippers of this proposed [sale]," said Northern States Power Co. (Wisconsin), Northern States Power (Minnesota) and CenterPoint Energy Resources Corp. in a joint request for rehearing.

With the exception of the Northern Natural sale, the Northern States Power utilities and CenterPoint said they were not away of any other instance in which the Commission has dismissed a proposed sale's prospective impact on rates as speculative simply because there was no date certain as to when the pipeline would file a rate case. "Indeed, the Commission has previously found that a reduction in operating and maintenance expenses resulting from a proposed [sale] was relevant to the Commission's decisionmaking notwithstanding that the reduction was much smaller than is at issue here and where the pipeline appeared to be under no obligation to file a rate case in the future and had made no commitment as to when it would file."

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