Making good on a promise made to the Federal Trade Commission(FTC) in order to close its merger with Sonat, El Paso Energyannounced the sale of the East Tennessee Natural Gas Co. to DukeEnergy Gas Transmission for $386.3 million in stock yesterday. Thetransaction is expected to close in the first quarter subject toFTC consent.

“The East Tennessee Pipeline is an excellent fit with DukeEnergy’s natural gas transmission system,” said Robert Evans,president of Duke Energy Gas Transmission. “It extends the reach ofour 9,220-mile Tetco pipeline and allows us to access a vibrant gasmarket in a key strategic region of the country for Duke Energy.East Tennessee Natural Gas Co. operates an excellent pipeline withlong-term customer contracts and an established record of year onyear growth.”

The 1,100-mile pipeline crosses the Texas Eastern Transmission(Tetco) pipeline, owned by Duke Energy two times. East Tennesseeowns and operates two mainline systems in central Tennessee thatconverge near Knoxville, TN, extending thereafter to a point nearRoanoke, VA. The pipeline, regulated by FERC, has a design capacityof 700 MMcf/d and provides unbundled, open-access transportationand storage services to 40 local distribution companies and 16industrial customers in the region.

“The purchase makes sense because East Tennessee not onlycrosses Tetco twice, but it also feeds the central Tennessee marketarea, which is an area we think will demonstrate an above-normallevel of both gas and electric demand. And we’re not alone. TheEnergy Information Administration forecast the central Tennesseearea to register a higher gas demand than the rest of the countryas well,” said Gayle Schwindeman, a Duke spokeswoman. She addedthat this move by Duke Energy Gas Transmission is totallyindependent of the recent purchases of Duke Energy Field Services(see separate story).

In addition to the sale of East Tennessee, El Paso also promised tosell its portions of the Sea Robin pipeline and the Destin pipeline(see Daily GPI, Oct. 25). Donato Eassey,an analyst with Merrill Lynch, said he expects to hear news aboutthose moves in the very near future. Sea Robin Pipeline extends 440miles from the western Gulf to the Sabine processing plant in Houma,LA. The mainline has a capacity of 200 MMcf/d. Destin Pipeline, ajoint venture owned by affiliates of Amoco Corp., Sonat and TejasEnergy, an affiliate of Shell Oil, was placed in service lastyear. The $460 million, 250-mile pipeline connects to five interstatepipelines. It has a capacity of close to 1 Bcf/d.

Concerning the deal between Duke and El Paso, Eassey said itmade sense for both companies. “Duke is a smart buyer. For the mostpart, its focus is on the East of the Mississippi. It demonstratedthat when it bought the Panhandle companies, then sold all of themexcept for Texas Eastern. The East Tennessee purchase is clearly inthe corridor of where they want to be.

“Now, El Paso had to sell this asset. It surprises nobody. Ithink the price was fair to both sides. What encourages me is thatthe loss of this asset, as well as the impending sale of the othertwo, won’t impact earnings because of the synergies created in themerger. For El Paso, it’s a push.”

The FTC ordered the divestiture of Sonat’s Sea Robin because itbelieved the offshore system, along with El Paso’s 34.5% interestin Leviathan Gas Pipeline Partners LP, would give the mergedcompany monopoly power over gas gathering in the Gulf of Mexico,according to El Paso. It estimated that Sea Robin and Leviathancombined gather about 70% of the gas in the Gulf.

East Tennessee’s sale was ordered because, when combined withSonat’s pipeline assets, it presented “potential opportunities formonopolies” in Tennessee, Georgia and the Carolinas, the companysaid. The FTC also believed Sonat’s interest in Destin, when joinedwith the Viosca Knoll Gathering System [Leviathan owns 99% and ElPaso Field Services owns 1%], could lead to a monopoly-typesituation in the offshore Mississippi and Louisiana areas.

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