FERC has been asked to place an immediate hold on Southern LNGInc.’s applications to reactivate and upgrade its mothballedliquefied natural gas (LNG) storage and send-out facility on ElbaIsland in Georgia, pending the outcome of a probe into thecompany’s open-season procedures.

Enron Americas LNG Co. urged the Commission to conduct a formalinvestigation into allegations that Southern LNG showedpreferential treatment by awarding the terminal’s entire 4 Bcfcapacity to marketing affiliate, Sonat Energy Services (SES),following an open season in early June. Enron Americas petitionedFERC to carry out the probe after informal talks between it andSouthern LNG broke down [CP99-582].

If its allegations are confirmed by the investigation, SouthernLNG at a minimum should be required to allocate delivery capacityat the Elba Island terminal on a pro rata basis among all shippersthat had submitted open-season bids at maximum rates for terms ofat least 15 years; or it should have to conduct a new open season,according to Enron Americas LNG. However, if the investigationshould find that Enron Americas’ bid had the highest net presentvalue (NPV) — even higher than that of SES — then Southern LNGshould be directed to award the terminal’s entire capacity to EnronAmericas, it said.

The open season, which ran from June 1 to June 15, was launchedjust days after Southern LNG became aware that SES had concludedcommercial arrangements with a consortium led by British GasTrinidad and Tobago Ltd. to import 80 Bcf/year of LNG from Trinidadto the Elba Island facility, Enron Americas said. Southern LNG andSouthern Natural Gas, both affiliates of Sonat Inc., “apparentlyalso participated extensively in discussions with British Gas.Neither the public nor other potential shippers were similarlygiven advance notice on Southern Natural’s electronic bulletinboard or otherwise…..that an open season was imminent or that itwould promptly follow a Sonat/British Gas commercial agreement.”

Enron Americas charged that the open season was cloaked entirelyin secrecy. “There was no mass mailing. No faxes were sent. Nopress releases. No e-mails. This stands in stark contrast to whatthe industry has required of other terminal service providers, andto the practices of [Southern LNG’s] own affiliates in recent openseasons.”

It further criticized the length of time of the open season.”The 14-day duration of the open season was unreasonably short byany industry standard, especially given the exacting bidrequirements and the complexities inherent in international LNGtransactions, with the result that only parties with advanceknowledge of the project and prearranged transactions could havereadily submitted a fully responsive and unconditional bid.” Itreminded FERC that in 1995 — when the company was consideringpossibly reactivating the Elba Island facility — it had to extendthe open season from 3 1/2 months to 6 1/2 months to give shipperssufficient time to participate. It ultimately decided in 1996against recommissioning the facility, which has been dormant since1982.

Interested parties this time had only two weeks to bid on the 4Bcf of available storage capacity, with service beginning inJanuary 2002. Their bids had to be at maximum rates and for aminimum term of 15 years. Bidders also had to show “evidence thatLNG tanker ships [would] be available and ready to commenceservice…..as of the in-service date, and [would] interface withSouthern LNG’s unloading facilities without any modification of theElba Island Terminal,” noted Enron Americas.

“Simply stated, the notice and length of the open season wasdesigned not to permit any transaction, other than one negotiatedin advanced, to have an opportunity to maximize its value so as tobecome a successful bid. As such, it should come as no surprisethat on June 23, 1999 [Southern LNG] announced that it was awarding100% of the Elba Island Terminal capacity to the prearranged SESproposal.”

Additionally, the Enron company insisted that structuring theopen season around storage capacity worked to the disadvantage ofnon-affiliated bidders. This made it “virtually impossible” forbidders to bid for anything other than all of the facility’scapacity, which meant there would be only one winner in the end, itsaid.

But all of this aside, Enron Americas LNG contends that its bidfor the entire capacity of the LNG facility — at maximum ratesfor a term of 15 years — beat out SES’ bid in the open season. Itsaid its bid possessed a higher net present value (NPV) because ithad an earlier in-service date — Jan. 1, 2002 as opposed to SES’Oct. 1, 2003 — and wasn’t subject to the seven- to 10-year ratemoratorium that was offered to SES. If that’s not enough, EnronAmericas noted it’s prepared to match the deal that Southern LNGstruck with SES — a 22-year term with a seven- to 10-year ratecap — and still “stand by” the earlier in-service date.

By offering these “two additional undue preferences” to SES —the rate moratorium and later in-service date — Southern LNGboosted the value of Enron Americas’ bid in comparison. So “despitethe procedurally flawed open-season process — that is, no advancepublic notice, exacting bid requirements, relatively short openseason, and capacity allocated based on storage rather thanthroughput — Enron LNG appears to have submitted the winning bid,but was denied the capacity,” it told FERC.

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