An affiliate of a Houston-based natural gas marketer has accused Southern Natural Gas pipeline of violating its tariff and FERC policy — which requires capacity to be awarded to the shipper who values it the most — during a recent open season on its system.

In a Section 5 complaint filed at the Federal Energy Regulatory Commission (FERC), Texican N. La. Transport LLC, an affiliate of Texican Natural Gas Co., claimed that after the close of the open season in August, Southern Natural decided to use a procedure for aggregating bids that it had never used in any previous open season and did not inform potential bidders about it.

Texican argued that the new method was a violation of FERC precedent and Southern Natural’s tariff, which requires that the open season notice describe all of the criteria to be used by Southern Natural to determine and evaluate the net present value (NPV) of the bids it receives. A comment could not be immediately obtained from El Paso Corp., which owns Southern Natural.

“Commission precedent has long been clear that aggregation involves the combining of whole bids, not the piecemeal process used by Southern of selecting portions of multiple bids. Southern’s approach undermines the key value to smaller bidders that the Commission perceived would be served by the aggregation of bids, namely the ability of several smaller bidders to obtain capacity when the NPV of the smaller bids exceeded the NPV of a larger bid. Southern’s approach also undermines the Commission’s policy that capacity should be awarded to the shipper that values it most highly,” Texican said.

“Southern’s approach gives the pipeline virtually unlimited discretion in deciding to whom capacity is awarded,” said Texican, which supplies gas to Southeast markets over Southern Natural and Transcontinental Gas Pipe Line.

“It is undisputed that Texican’s bid for 66,000 Mcf/d for 35 years and 7 months at the maximum applicable tariff rate had the highest NPV of any of the bids submitted in the open season, namely $50.7 million. Nevertheless, Southern chose to award Texican only 10,000 Mcf/d while awarding 63,000 Mcf/d to the second place bidder [an affiliate of Royal Dutch Shell plc] that had submitted a bid for 65,000 Mcf/d for 30 years with an NPV of $48.8 million,” the company said.

Texican said a conservative estimate of the impact on the market of Texican not having been awarded all of the capacity that it should have been awarded is $170 million, “a significant portion of which represents lost profits to Texican.”

Texican said it was not asking FERC to invalidate the results of the open season, but only to direct Southern Natural to award capacity in accordance with its tariff and Commission precedent.

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