A new settlement agreement will give Southern Natural Gas customersan overall 4.5%-5% reduction in systemwide demand charges and lock incontracts for the majority of its transportation and storage capacitythrough 2005. The rate cut is in stark contrast to the substantialrate increases Southern Natural proposed last fall, and it includes asignificant cut in rates for affiliate South Georgia Gas customers(see Daily GPI, Oct. 4).

Southern accomplished the move mainly because it is swallowingSouth Georgia’s pipeline operations to eliminate rate stacking.South Georgia, a separate 910-mile interstate pipeline, will bemerged into the Southern Natural system following FERCauthorization.

“The customers on South Georgia wanted lower rates. MergingSouth Georgia into Southern Natural is a way to do that,” said JimCleary, Sonat’s executive vice president. “Currently customers onthe South Georgia segment pay $5.41/Dth/month. That will go down to$4.75. Currently on Southern Natural, they pay $8.62 so they pay$14.03 in combined demand charges currently, but that will go downto $12.85/Dth/month.

“There will be rate reductions for all of the Southern Naturalsystem of about 4.5-5% off current rates (effective March 1). Wehave taken some costs out of the system. We have a depreciationreduction of about $10 million a year. We have some reduced O&Mcosts and we have accepted a slightly thinner equity and a lowerreturn.

“We think all of the active parties to the settlement are inagreement,” said Cleary. “Customers representing over 95% of ourrevenues have told us affirmatively that they would support thesettlement. We may have one small marketer protest it. Thismarketer probably represents probably less than one half of 1% ofour revenues.” He declined to name the marketer, however, saying”We are still in discussions with them so I would prefer not to dothat.”

The $103 million North Alabama Pipeline, which went 50% overbudget, is rolled into rates, but other expansion projects and costreductions led to the systemwide rate improvement. “It’s a verypositive development for Southern and its customers, who will seeimmediate rate reductions and stable rates for the next four yearsat least.” The settlement provides Sonat customers a four-yearmoratorium on future rate increases by Southern Natural except incertain limited circumstances. It also requires Southern Natural tofile a new rate case with the FERC to be effective no later thanMarch 2005.

Through the settlement, Sonat has locked in contracts for amajority of its 2.6 Bcf/d of firm transportation capacity and 60Bcf of working storage through 2005. “We are pleased to have beenable to achieve an acceptable commercial resolution with ourcustomers that settles our rate proceeding and provides forimmediate rate reductions and significant extensions of contracts,”said James C. Yardley, president of Southern Natural.

©Copyright 2000 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.