FERC has been asked to place an immediate hold on Southern LNGInc.’s applications to reactivate and upgrade its mothballedliquefied natural gas (LNG) storage and send-out facility on ElbaIsland in Georgia, pending the outcome of a probe being requestedinto the company’s open-season procedures.

Enron Americas LNG Co. urged the Commission to conduct aninvestigation into allegations that Southern LNG showedpreferential treatment by awarding the terminal’s entire 4 Bcfcapacity to marketing affiliate Sonat Energy Services (SES),following a brief open season in early June. The Enron companypetitioned FERC to carry out the probe after informal talks betweenit and Southern LNG broke down [CP99-582].

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

The open season, which ran from June 1 to June 15, was launchedjust days after Southern LNG became aware that SES had concludedcommercial arrangements with a consortium led by British GasTrinidad and Tobago Ltd. to import 80 Bcf/year of LNG from Trinidadto the Elba Island facility, Enron Americas said. Southern LNG andSouthern Natural Gas, both affiliates of Sonat Inc., “apparentlyalso participated extensively in discussions with British Gas.Neither the public nor other potential shippers were similarlygiven advance notice on Southern Natural’s electronic bulletinboard or otherwise…that an open season was imminent or that itwould promptly follow a Sonat/British Gas commercial agreement.”

Enron Americas charged the open season was cloaked entirely insecrecy. “There was no mass mailing. No faxes were sent. No pressreleases. No e-mails. This stands in stark contrast to what theindustry has required of other terminal service providers, and tothe practices of [Southern LNG’s] own affiliates in recent openseasons.” Enron Americas said it didn’t learn of Southern LNG’sopen season until June 7th, which gave it only eight days to puttogether a bid.

Further, “the 14-day duration of the open season wasunreasonably short by any industry standard, especially given theexacting bid requirements and the complexities inherent ininternational LNG transactions, with the result that only partieswith advance knowledge of the project and prearranged transactionscould have readily submitted a fully responsive and unconditionalbid.” It reminded FERC that in 1995 – when the company wasconsidering possible reactivation of the Elba Island facility – ithad to extend the open season from 3 1/2 months to 6 1/2 months togive shippers sufficient time to participate. It ultimately decidedat that time not to recommission the facility, which has beendormant since 1982.

Interested parties this time had only two weeks to bid on the 4Bcf of available storage capacity, with service beginning inJanuary 2002. Their bids had to be at maximum rates and for aminimum term of 15 years. Bidders also had to show “evidence thatLNG tanker ships [would] be available and ready to commenceservice…as of the in-service date, and [would] interface withSouthern LNG’s unloading facilities without any modification of theElba Island Terminal,” noted Enron Americas.

Additionally, Enron insisted that structuring the open seasonaround storage capacity made it “virtually impossible” for biddersto bid for anything other than the total capacity, which meantthere would be only one winner in the end.

But all of this aside, Enron Americas LNG contends that its bidfor the entire capacity of the LNG facility – at maximum rates fora term of 15 years – beat out SES’ bid in the open season. It saidits bid possessed a higher net present value (NPV) because it hadan 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 moratoriumthat was offered to SES. If that’s not enough, Enron Americas notedit’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 believethat they and other historic firm sales customers of SouthernNatural Gas – who have been paying a surcharge over the years tomaintain the LNG facilities at Elba Island – should get 90% ofadditional revenues that result from recommissioning the LNGfacilities. Recommissioning could result in up to 330 MMcf/d ofadditional throughput on the Southern Natural system.

But “it is not that simple,” responded Southern LNG. “Deliveriesof regasified LNG from the Elba Island Terminal also could displaceup to 330 MMcf/d of [firm transportation] on Southern” and mean arevenue loss for the pipeline.

Susan Parker

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