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Southern LNG Denies Allegations of Affiliate Preference

Southern LNG Denies Allegations of Affiliate Preference

Southern LNG Inc. last week launched a scathing denial of the allegations that it conducted an open season in secret in order to award to an affiliate all the teminalling capacity in its liquefied natural gas (LNG) facilities on Elba Island in Georgia. The company is seeking to reactivate the facilities, which have been dormant since the early 1980s.

Enron Americas LNG Co. last month accused Southern LNG of not publicizing the open season, which took place in early June, so that it could award the terminal's entire 4 Bcf of capacity to its marketing affiliate, Sonat Energy Services (SES). Enron asked FERC to place an immediate hold on Southern LNG's applications to reactivate and upgrade its mothballed LNG storage and send-out facilities on Elba Island, and to conduct an investigation into the company's open-season procedures.

Enron Americas charged that the open season for the Elba Island capacity, which ran from June 1 to June 15, was cloaked entirely in secrecy. It 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.

But Southern LNG countered that the "open season was the culmination of a year-long reactivation effort, which was known to Enron." It said "Enron failed to respond to a direct solicitation of three senior executives at the commencement of that year-long reactivation effort - and that it was ultimately unable to submit a binding request for firm service." In short, Enron Americas was "a victim of its own inaction."

More importantly, Southern LNG said "it did not give preferential treatment to its marketing affiliate or otherwise engage in improper behavior." The company contends that it accurately calculated the net present value (NPV) of all the bids that were submitted, with the winning bid coming from affiliate SES.

Enron Americas LNG contends that its bid for the entire capacity of the Elba Island 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 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. Moreover, Enron Americas said 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.

Southern LNG argued that SES' 22-year bid was more solid than Enron's bid. It was "backed by an international consortium in Trinidad. The NCMA Developers, led by British Gas, have a real project in Trinidad - one that will entail the expansion of an existing liquefaction facility and the utilization of an existing marine tanker."

In contrast, Enron's 15-year bid "was illusory - nothing more than a placeholder," Southern LNG told FERC. In fact, "if this had been the only bid submitted, [Southern LNG] could not have gone forward with recommissioning of the Elba Island Terminal and, instead, would have reluctantly sought to abandon this unique facility....."

Susan Parker

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