FERC on Thursday gave El Paso Natural Gas the green light to acquire a 37-mile lateral from the Salt River Project Agricultural Improvement and Power District for an estimated $32 million.

The lateral, which has a capacity of 342,500 Dth/d, interconnects with El Paso’s South System Line 2000, and extends northward terminating at Salt River’s Santan power plant in Gilbert, AZ, a suburb of Phoenix. By buying the lateral from Salt River, El Paso said it would avoid the cost of constructing a more expensive alternative and upgrading and maintaining at higher pressures older pipeline facilities in the Phoenix area.

El Paso said it plans to interconnect the northern terminus of the lateral with its Line 2222 and then reverse the direction of flow on Line 2222 toward Phoenix at increased pressure. El Paso noted that the lateral is easily expandable with compression and would enhance the pipeline’s operational ability to provide new hourly and daily delivery services for customers such as Southwest Gas Corp., Arizona Public Service and the city of Mesa, AZ.

El Paso’s purchase is subject to two fully transferable repurchase options for undivided interests in the lateral. The first option would permit Salt River (or its assignee, e.g., Transwestern Pipeline) to repurchase from El Paso an undivided interest in the lateral equal to 203,500 Dth/d of capacity. The second option would permit Salt River to repurchase from El Paso an additional undivided ownership interest equal to 39,000 Dth/d of capacity. The agreement would allow Salt River to exercise these options upon 90 days’ written notice to El Paso, along with the satisfaction of other requirements. The options cannot be exercised earlier than April 1, 2008.

“If, as contemplated, Transwestern acquires one or both interests, Transwestern, not El Paso, would be the provider of transportation service to the Santan power plant. If both options are exercised, El Paso would retain 100,000 Dth/d (or 30%) of the lateral’s capacity to provide transportation service to Salt River and other customers. If neither option is exercised, El Paso would retain ownership of all the lateral’s capacity and facilities,” the FERC order said [CP06-57].

In the event El Paso should wind up sharing ownership of the lateral with Transwestern, El Paso said that the lateral would be treated as two separate lines owned by separate pipeline companies, with each company providing transportation services through their respective ownership interests under the terms and conditions of their FERC gas tariffs.

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