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Ozark Sale Final, Owner Fighting FERC Over Rates

Ozark Sale Final, Owner Fighting FERC Over Rates

The sale of Ozark Gas Transmission to an Enogex affiliate has been completed, but it remains to be seen whether the FERC will bless Enogex with the rates it seeks for an interstate pipeline composed of the combination of Ozark and its currently non-jurisdictional NOARK Pipeline.

Ozark seller Dynegy said it expects a $27 million pretax gain on the sale of Ozark for $55 million. Dynegy acquired Ozark in 1995. "The sale of the Ozark Gas Transmission System is consistent with our plans to redeploy capital from the sale of non-strategic assets to our wholesale gas and power business," said Dynegy CEO Chuck Watson.

Enogex plans to combine Ozark with its NOARK Pipeline to create a new interstate system, Enogex Interstate. However, the company is wrangling with the Federal Energy Regulatory Commission over the transportation rates it will be allowed to charge. The Commission generally approved Enogex Interstate's two-stage plan to acquire Ozark and combine it with NOARK. Enogex Interstate proposed to use Ozark's existing rates for the combined system and sought rolled-in treatment of the costs of the combination. However, the Commission established initial rates "that are substantially lower than Ozark's existing rates for the services Enogex Interstate has been authorized to continue." Enogex complains in a request for rehearing that the FERC derived initial rates using the aggregate maximum capacity of the combined Ozark-NOARK system and selected elements of cost data submitted by Enogex to justify roll-in of the NOARK system and integration facilities.

Enogex maintains the FERC ignored precedent in not authorizing Enogex Interstate to continue using Ozark's existing Commission-approved rates. Also, even if the Commission had basis for requiring adoption of new rates, it erred in their calculation. "By treating Enogex Interstate as a 'new interstate pipeline' for some purposes, but not for others, the Order attributes overstated billing determinants and an understated return on equity to Enogex Interstate."

The Commission authorized Enogex Interstate to charge a maximum base reservation rate of $6.3412/Dth and a maximum/minimum base usage rate of $0.0125/Dth for firm service. Because the FERC chose to establish initial rates, it dismissed the pipeline's request for advanced determination of rolled-in rate treatment of the costs for dedicating NOARK to interstate service and constructing facilities to integrate Ozark and NOARK.

Enogex is seeking FTS rates of $7.3087/Dth for the maximum base reservation rate, $0.0134/Dth for the maximum/minimum base usage rate; and ITS rates of $0.2537/Dth for the maximum base rate, and $0.0134/Dth for the minimum. Should the Commission continue to derive initial rates for Enogex Interstate, the pipeline wants it to use a return on equity of 13.5% and a utilization factor of 90%, "which approximates the effect of combining the utilization factor embedded in Ozark's existing rates with a capacity factor relating to the NOARK 'expansion' facilities of 95%."

Joe Fisher, Houston

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