A group of producers and affiliates has filed a protest at FERC objecting to Southern Natural Gas pipeline’s request to sell pipeline, proposed compression and associated facilities to Magnolia Enterprise Holdings Inc. (MEHI), a subsidiary of Atlanta-based AGL Resources Inc., for an estimated $20.3 million.
In October, Southern Natural Gas asked the Federal Energy Regulatory Commission for the green light to sell approximately 275 miles of interstate natural gas facilities to AGL Resources, which would assign the purchase and sales agreement to newly created affiliate MEHI, which would then lease the facilities back to Southern Natural Gas to operate (see NGI, Oct. 29).
The sales facilities include 1) the Twin 30 Pipelines extending from the Elba Island liquefied natural gas (LNG) terminal to Port Wentworth, GA; 2) 10 miles of Southern’s 20-inch diameter Wrens-to-Savannah Second Loop Line from the interconnection with the Twin 30 Pipelines to Effingham County, GA; 3) the Cypress Pipeline from the take-off point on the Wrens-Savannah Lines to the interconnection with AGL’s Brunswick Pipeline; and 4) a portion of Southern’s Brunswick Pipeline. The AGL Brunswick line is a part of the 122-mile segment of the Southern-owned Brunswick Pipeline that FERC authorized Southern to sell to AGL in 1995.
“[Southern’s] application raises numerous questions of potential discrimination, potential rate subsidies, apparent inconsistencies with open-access policy and anticompetitive concerns, which the Commission should thoroughly analyze,” said Indicated Shippers, which included BP America Production Co., BP Energy Co., Chevron USA Inc. and ExxonMobil Gas & Power.
“Indicated Shippers have significant concerns with establishing a precedent under which a portion of an interstate pipeline can be sold and abandoned from open-access service, under terms that appear to provide an unduly discriminatory benefit to the purchaser, without even convening an open season to see if there is other interest in the capacity,” the Indicated Shippers said. “This is especially a concern where the capacity at issue is tied into the Elba Island LNG facilities, which are scheduled to ramp up supplies over the next several years.”
The first and foremost “unanswered question in this application is why AGL did not simply contract for the firm capacity it desired on the relevant facilities, rather than go through this convoluted sale and lease-back structure using a newly formed affiliate, MEHI,” they said. Another key question is “why Southern chose to sell the capacity (and related facilities) without the benefit of an open season.”
Moreover, the transaction raises the question of whether AGL will have “discriminatory access to LNG supplies, especially if the incremental levelized rate [for AGL] is lower than the transportation rates other shippers must pay for similar supply access,” and whether AGL will possess “market power regarding the purchase price of LNG, especially if AGL were permitted to increase even more in the future…its ownership of pipeline facilities to Elba Island,” Indicated Shippers said.
Upon closing of the sale of the facilities, which is scheduled for Dec. 1, 2009, MEHI proposes to lease the facilities back to Southern Natural Gas so the pipeline may operate and maintain the facilities on an integrated basis as part of its interstate pipe system. In addition to the sales facilities, MEHI plans to acquire from AGL and lease back to Southern 107.5 miles of AGL’s Brunswick pipeline for Southern to operate.
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