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Sonat Settlement, South Georgia Plan Approved

Sonat Settlement, South Georgia Plan Approved

A settlement agreement that resolves all of the outstanding issues in Southern Natural Gas Co.'s Section 4 rate case was approved by the Federal Energy Regulatory Commission (FERC) last week. It puts in place a cost-of-service reduction of $42 million, a 12% return on equity and allows Sonat to fold the South Georgia Natural Gas pipeline into its own operations.

The settlement gives Sonat customers a $44 million rate cut in exchange for long-term contracts that lock up the majority of Sonat's firm transportation and storage capacity through 2005. The rate cut amounts to an overall 4.5%-5% reduction in systemwide demand charges (see NGI, March 20). The rate reduction includes a $10 million decrease from Sonat accepting a 12% return on equity as opposed to the 13% it sought in August, a $14 million depreciation reduction, a $10 million cut from administrative and general expenses, and another $10 million from operating cost reductions.

The deal includes significant cuts for affiliate South Georgia Natural Gas customers. Southern plans to swallow the separate 910-mile interstate South Georgia pipeline to eliminate rate stacking. Currently customers on South Georgia pay a combined rate of $14.03 (Sonat and South Georgia), but that will go down to $12.85/Dth/month.

The settlement also provides Sonat customers a four-year moratorium on future rate increases by Southern Natural except in certain limited circumstances. It also requires Southern Natural to file a new rate case with the FERC to be effective no later than March 2005.

Through the settlement, Sonat has locked in contracts for a majority of its 2.6 Bcf/d of firm transportation capacity and 60 Bcf of working storage through 2005.

In other action affecting the gas industry last week, FERC approved Transcontinental Gas Pipe Line Corporation's (Transco) plan to reduce nitrogen oxide emissions at a compressor station in Henry County, GA, to comply with clean air rules. The $25.4 million project will modify several of its existing reciprocating engines at the pipeline's Station 120 in order to comply with Georgia's plan to implement the federal Clean Air Act. The modifications will have no effect on gas transportation services.

Rocco Canonica

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