Slaughter, La.’s pipeline controversy
3rd March 2014 · 0 Comments
By Mason Harrison
As much of the United States remains in the grip of unprecedented winter temperatures and record snowfall amounts, the price of natural gas has nearly doubled in recent months as suppliers strive to keep pace with increased demand, even in parts of the country not usually prone to cold weather. The increase in U.S. gas prices is affecting everything from the cost of foreign gas exports to the price domestic consumers pay to keep their homes heated until the country thaws.
But a recent change in supplier ownership in Louisiana could send the price of natural gas for Baton Rouge-area customers soaring, according to a statement from U.S. Sen. David Vitter, who is working to beat back rate increases. A natural gas pipeline, known as Midla, that stretches along hundreds of miles of rural areas in northern Louisiana and reaches consumers near Baton Rouge is facing closure and could shut off current customers from accessible gas supplies.
Mayor Robbie Jackson, of Slaughter, La., contacted Vitter’s office to protest the planned closing, which would affect many consumers in Slaughter and the surrounding region. Vitter, in turn, contacted the acting chairman of the Federal Energy Regulatory Commission to ask for an investigation. “This pipeline services a lot of rural residents around the Baton Rouge area, and they deserve affordable energy like everyone else,” Vitter said in a statement. “The threat of abandonment could leave customers literally without energy, which is why we need FERC’s engagement.”
According Dan Campbell, spokesman for American Midstream, the company that owns and operates the Midla pipeline, when the company sent out its “open season” letters, closing the pipeline was one of the options presented along with increasing the rate in order to cover the rising costs of repairs. Campbell says that while the company has offered to provide alternatives, they haven’t yet heard back from the towns affected.
The energy commission regulates the interstate transportation of natural gas and approves pipeline closures. The Milda pipeline transports gas across state lines and, as a result, falls under FERC’s jurisdiction. A spokesperson for the commission, however, declined to comment about the possible Milda closure, but says the agency’s acting commissioner, Cheryl LaFleur, is well aware of American Midstream’s plan to nix the pipeline and is monitoring the impact on consumers.
In a Feb. 24 letter to LaFleur, Vitter wrote, “My understanding is that Midla customers have historically paid higher rates than other pipelines with the expectation that these rates were sufficient to maintain the pipeline’s maintenance costs. However, in addition to the threat of abandonment of Milda, there could be new rate structures for new service that would more than quadruple the present price of delivery.” Vitter and Jackson, who, according to a Vitter spokesperson, asked the senator to contact FERC after city officials in Slaughter were ignored by the agency, are calling on federal authorities to investigate what became of the increased user fees to maintain the pipeline now that American Midstream plans to walk away from the costly infrastructure.
LaFleur responded to Vitter Feb. 26 and indicated proposed pipeline closures must not adversely impact consumers and that cost savings alone for suppliers cannot justify walking away from consumer services. “The burden of proof is on the applicant,” LaFleur wrote her in response letter, “to show that the public convenience or necessity permits abandonment, that is, that the public interest will in no way be disserved by abandonment.” LaFleur also noted that while American Midstream has indicated it will close the pipeline in early April if revenue is not adequate enough to reconstruct it, doing so is not consistent with the company’s obligations under federal law.
LaFleur pointed out firms are only allowed to cut service to consumers under existing contracts in accordance with previously determined rules and that suppliers have an obligation to find alternative ways to provide natural gas in lieu of abandoning pipelines. “Natural gas companies cannot cease offering to provide service to any [municipality] willing and able to comply with the terms and conditions of the company’s [service rate] unless and until it files an application requesting authorization…to abandon its…services and such authorization is granted by the Commission.”
“They knew were weren’t going to accept a new arrangement to pass on the cost of $200 million in upgrades to the pipeline,” Jackson says, who is a member of the Louisiana Municipal Gas Authority. “These small municipalities and parishes don’t have the means to get stuck with this bill, so that means we’d have to pass it on to consumers. Well, I can’t go to folks on fixed incomes and small nursing homes and tell them that their gas bills are going to go up nine times.”
Jackson believes the gas supplier wants to abandon the Midla pipeline to reduce its liabilities, while maintaining newer gas lines in the network servicing areas near Natchez and Woodville, Miss. “This line is a liability and I understand that,” Jackson says, “but I would like to know what happened to all of the money that we’ve been paying in the area to maintain the pipeline. In other parts of the state, cities pay about 61 cents per mBtu, whereas we pay closer to a dollar and have been doing so since 1955 so that the extra 40 cents can be used for repairs.”
According to Campbell, the extra 40 cents has gone toward defraying the costs of repairs to the 87-year-old pipeline over the years. “Someone has to pay for that,” Campbell said. “That’s how economics works.”
Natural gas shipments and sales are measured in British thermal units and are sold by the million. Nationwide, the cost of natural gas in late 2013 hovered around $3.70 per million British thermal units, or mBtu. This year, overall prices in the United States are averaging closer to $6 per mBtu.
Vitter, in his letter to LaFleur, cautioned the agency not to allow American Midstream to abandon the Midla pipeline because doing so could create a precedent for the abandonment of even older pipelines in the state, leaving consumers without reliable, affordable access to natural gas supplies. Jackson agrees and says the move could set not only a statewide trend, but a national one as well. “We have pipelines in Alabama that are 100 years old and pipelines in Mississippi that are 90 years old. What if companies just get to walk away from those as well and leave consumers without affordable options and not be required to fix them,” Jackson says. He believes the Midla pipeline could be repaired by spreading rate increases across the state as opposed to requiring the municipalities and cities along its service route to bear the brunt of the costs.
“Look my philosophy is simple,” Jackson says. “If you have a car that you have to keep fixing up and fixing up, then it’s time for you to get a new car. You don’t give up on having a car, do you? Well, that’s the same approach we should take in business. It’s time to fix the pipeline, not abandon it.”
This article originally published in the March 3, 2014 print edition of The Louisiana Weekly newspaper.