FERC yesterday approved the settlement agreement that resolvesall of the outstanding issues in Southern Natural Gas Section 4rate case. It puts in place a cost-of-service reduction of $42million, a 12% return on equity and allows Sonat to fold the SouthGeorgia Natural Gas pipeline into its own operations.

The settlement gives Sonat customers a $44 million rate cut inexchange for long-term contracts that lock up the majority of Sonat’sfirm transportation and storage capacity through 2005. The rate cutamounts to an overall 4.5%-5% reduction in systemwide demand charges(see Daily GPI, March 15). The ratereduction includes a $10 million decrease from Sonat accepting a 12%return on equity as opposed to the 13% it sought in August, a $14million depreciation reduction, a $10 million cut from administrativeand general expenses, and another $10 million from operating costreductions.

The deal includes significant cuts for affiliate South GeorgiaNatural Gas customers. Southern plans to swallow the separate910-mile interstate South Georgia pipeline to eliminate ratestacking. Currently customers on South Georgia pay a combined rateof $14.03 (Sonat and South Georgia), but that will go down to$12.85/Dth/month.

The settlement also 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.

In other action affecting the gas industry yesterday, FERCapproved Transcontinental Gas Pipe Line Corporation’s (Transco)plan to reduce nitrogen oxide emissions at a compressor station inHenry County, GA, to comply with clean air rules. The $25.4 millionproject will modify several of its existing reciprocating enginesat the pipeline’s Station 120 in order to comply with Georgia’splan to implement the federal Clean Air Act. The modifications willhave no effect on gas transportation services.

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