“I think the public interest is best-served by having a pipeline that’s safe and reliable” PETER esposito, Attorney, American Midstream
A multibillion-dollar hedge fund’s plan to abandon a leaky, money-losing gas pipeline that serves thousands of consumers in Louisiana could force some people to pay up to 15 times as much for natural gas, according to opponents of the proposal.
“It would have a drastic effect on our customers. You could say catastrophic,” said Michael Bradford, superintendent of East Feliciana Parish Gas Utility District No. 2.
The district serves 1,000 customers, but that figure is only the number of meters in the district. The number of people affected could be four times as high.
American Midstream Partners, controlled by ArcLight Capital, of Boston, has asked the Federal Energy Regulatory Commission for permission to abandon the Midla pipeline, which was built in the 1920s.
The pipeline stretches 370 miles from Monroe southeast into Mississippi and down to Baton Rouge. The line serves customers in East Baton Rouge, East and West Feliciana, Catahoula, Ouachita, Richland, Tensas and Concordia parishes.
American Midstream compares the pipeline with an old car that can no longer be repaired. The pipeline has leaked natural gas for decades, but the amount escaping from the line is increasing, and the company cannot be sure the pipeline is safe to operate. American Midstream has proposed closing the Midla line and replacing that gas with a handful of options, including a new $200 million pipeline.
Bradford said the replacement option would force his district’s customers to pay 10 times as much as they do now for natural gas.
There’s no way customers can afford that. “It’s just a bad situation,” he said.
The Louisiana Municipal Gas Authority, which wholesales gas to towns, says 10,514 customers would be affected by the pipeline’s closure.
The association says there are two to four people behind each of those meters, so as many as 42,000 people could be affected. In addition, Louisiana State Penitentiary, and its 6,500 inmates, would need a new source of gas. The penitentiary is one of West Feliciana Parish Gas Utility District No. 1’s 371 customers.
Penitentiary spokesman Gary Young referred calls to Michael Hughes, the district’s LGMA representative. Hughes could not be reached for comment on Monday or Tuesday.
However, the Municipal Gas Authority’s total includes 4,400 meters, or close to 18,000 people, in Zachary.
Mayor David Amrhein said Zachary only buys gas from Midla in the winter, and losing the pipeline won’t hurt the town.
Zachary already buys most of its gas from Florida Gas and is working with the company to increase service to Zachary, he said.
LMGA Executive Director Ken Drone said Zachary’s situation is unique. The other 11 Louisiana towns on Midla don’t have that option. Those towns would have to build their own pipelines and connections to another gas pipeline, and that would be very costly.
State Sen. Robert Adley, R-Benton, has authored a bill, SB525, which will allow the Louisiana Public Service Commission to force pipeline companies to replace the gas supply lost when a line is abandoned.
Adley was skeptical of Midla’s problems. All of those issues arose almost immediately after ArcLight entered the picture, he said.
The hedge fund came in and bought multiple pipelines, put the money money-losing pipelines under American Midstream, threatened to have that company file bankruptcy and now is threatening to cut off the towns serviced by Midla unless the towns pay 10 or 15 times the current rates, Adley said. “It’s just pathetic.”
The opponents of American Midstream’s plan include the LMGA and Atmos, Midla’s largest customer, and among the state’s congressional delegation Sens. Mary Landrieu and David Vitter and Rep. William Cassidy.
Landrieu, D-La., asked FERC to reject ArcLight’s request because of the unacceptable cost to consumers and accused the hedge fund, which has asked FERC to expedite the proceedings, of trying to limit opposition.
Peter Esposito, an attorney for American Midstream, said everybody is entitled to his or her opinion.
“I think the public interest is best-served by having a pipeline that’s safe and reliable,” Esposito said.
The pipeline has averaged 34 leaks per year over the last decade, and that number has been higher the last five or six years, Esposito said.
The fact there are schools, hospitals and a prison served by the pipeline shows that safety should be the top priority.
The pipeline would never be built today, Esposito said. The amount of gas moving through the line today is a fraction of the original capacity.
At the time the line was built, it was capable of moving 300 million cubic feet of gas per day. In 2013, the main line, which serves the small communities in Louisiana, the average daily volume was 72.7 million cubic feet.
Esposito said the pipeline is losing money and has been for several years. Midla posted a $943,295 loss in 2012, according to the most recent report filed with FERC.
Esposito said American Midstream commissioned an engineering study to look at the costs of rebuilding the line or parts of it.
In filings with FERC, the company says that none of its customers were willing to sign the long-term contracts American Midstream needs to finance the projects.
In fact, Atmos apparently urged other customers against responding to American Midstream’s proposals. American Midstream says although its request to FERC focuses on abandoning the pipeline, the company is willing to rebuild all or part of the line, if its customers sign the long-term commitments needed to finance the work. American Midstream will also help customers find an alternative, such as compressed natural gas delivered by truck.
Drone said the LMGA would like to negotiate a solution but trucking in compressed natural gas is neither a workable nor affordable solution.
Right now, the LMGA and the towns the pipeline serves are waiting on FERC to act on American Midstream’s request, Drone said. The agency has not set a date for deciding whether it will expedite American Midstream’s request.