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Probe Sought of Southern LNG's Open Season

Probe Sought of Southern LNG's Open Season

FERC has been asked to place an immediate hold on Southern LNG Inc.'s applications to reactivate and upgrade its mothballed liquefied natural gas (LNG) storage and send-out facility on Elba Island in Georgia, pending the outcome of a probe being requested into the company's open-season procedures.

Enron Americas LNG Co. urged the Commission to conduct an investigation into allegations that Southern LNG showed preferential treatment by awarding the terminal's entire 4 Bcf capacity to marketing affiliate Sonat Energy Services (SES), following a brief open season in early June. The Enron company petitioned FERC to carry out the probe after informal talks between it and Southern LNG broke down [CP99-582].

If its allegations are confirmed by the investigation, Southern LNG at a minimum should be required to allocate delivery capacity at the Elba Island terminal on a pro rata basis among all shippers that had submitted open-season bids at maximum rates for terms of at least 15 years; or it should have to conduct a new open season, according to Enron Americas LNG. However, if the investigation should find that Enron Americas' bid had the highest net present value (NPV) - even higher than that of SES - then Southern LNG should be directed to award the terminal's entire capacity to Enron Americas, it said.

The open season, which ran from June 1 to June 15, was launched just days after Southern LNG became aware that SES had concluded commercial arrangements with a consortium led by British Gas Trinidad and Tobago Ltd. to import 80 Bcf/year of LNG from Trinidad to the Elba Island facility, Enron Americas said. Southern LNG and Southern Natural Gas, both affiliates of Sonat Inc., "apparently also participated extensively in discussions with British Gas. Neither the public nor other potential shippers were similarly given advance notice on Southern Natural's electronic bulletin board or otherwise...that an open season was imminent or that it would promptly follow a Sonat/British Gas commercial agreement."

Enron Americas charged the open season was cloaked entirely in secrecy. "There was no mass mailing. No faxes were sent. No press releases. No e-mails. This stands in stark contrast to what the industry has required of other terminal service providers, and to the practices of [Southern LNG's] own affiliates in recent open seasons." Enron Americas said it didn't learn of Southern LNG's open season until June 7th, which gave it only eight days to put together a bid.

Further, "the 14-day duration of the open season was unreasonably short by any industry standard, especially given the exacting bid requirements and the complexities inherent in international LNG transactions, with the result that only parties with advance knowledge of the project and prearranged transactions could have readily submitted a fully responsive and unconditional bid." It reminded FERC that in 1995 - when the company was considering possible reactivation of the Elba Island facility - it had to extend the open season from 3 1/2 months to 6 1/2 months to give shippers sufficient time to participate. It ultimately decided at that time not to recommission the facility, which has been dormant since 1982.

Interested parties this time had only two weeks to bid on the 4 Bcf of available storage capacity, with service beginning in January 2002. Their bids had to be at maximum rates and for a minimum term of 15 years. Bidders also had to show "evidence that LNG tanker ships [would] be available and ready to commence service...as of the in-service date, and [would] interface with Southern LNG's unloading facilities without any modification of the Elba Island Terminal," noted Enron Americas.

Additionally, Enron insisted that structuring the open season around storage capacity made it "virtually impossible" for bidders to bid for anything other than the total capacity, which meant there would be only one winner in the end.

But all of this aside, Enron Americas LNG contends that its bid for the entire capacity of the LNG facility - at maximum rates for a term of 15 years - beat out SES' bid in the open season. It said its bid possessed a higher net present value (NPV) because it had an earlier in-service date - Jan. 1, 2002 as opposed to SES' Oct. 1, 2003 - and wasn't subject to the 7- to 10-year rate moratorium that was offered to SES. If that's not enough, Enron Americas noted it's prepared to match the deal that Southern LNG struck with SES - a 22-year term with a 7- to 10-year rate cap - and still "stand by" the earlier in-service date.

Separately, Atlanta Gas Light (AGL) and Chattanooga Gas believe that they and other historic firm sales customers of Southern Natural Gas - who have been paying a surcharge over the years to maintain the LNG facilities at Elba Island - should get 90% of additional revenues that result from recommissioning the LNG facilities. Recommissioning could result in up to 330 MMcf/d of additional throughput on the Southern Natural system.

But "it is not that simple," responded Southern LNG. "Deliveries of regasified LNG from the Elba Island Terminal also could displace up to 330 MMcf/d of [firm transportation] on Southern" and mean a revenue loss for the pipeline.

Susan Parker

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