Transco's Momentum Expansion and Elba

As a result of discussions for capacity to serve electric generation sites in
Georgia through Transco's Momentum Expansion, Transco has proposed a rate of
$0.32 plus 2.35% fuel for receipts in Zone 3 (Station 65) and deliveries in
Zone 4. If you assume fuel on a gas cost of $4.00 ($.095 fuel), then the
total rate is $0.415.

Assuming the aforementioned rate, Southern Company can pay Transco $0.415 or
purchase gas from Elba and backhaul on Sonat at a rate of $0.22 which would
netback to Elba at Hub + $0.195. If you assume a basis of $0.01 for gas on
Transco Zone 3, then the netback goes up to Hub plus $0.205.

Transco has also offered a $0.27 Momentum rate for receipts from Station
85/Destin (Zone 4) and deliveries in Georgia. With fuel at 1.9% and $4.00
gas, the total rate is $0.35. However, basis at Station 85 is $0.04 and that
takes the delivered cost up to Hub + $0.39.
This delivered price would yield a backhaul netback to Elba at Hub + $0.17.

Since Southern Company can site generation in Sonat Zone 2 (Alabama) or Zone
3 (Georgia), they are probably unwilling to pay this high a netback price at
Elba. Additionally, most power developers will not commit to a baseload
quantity given that they will be serving a peaking market. One alternative
is to sell to existing firm shippers on the Sonat system that would view Elba
as a savings on variable cost on their FT agreement. The net is a Hub +
$0.10 at Elba assuming a basis of $.04 at Destin.

Through discussions with Phil Demoes, Southern Company has stated that a
price of Hub + $0.20 was out of the question. Phil indicates that we could
probably strike a deal between their bid of Hub + $0.12 and Hub + $0.17.