Summary of SNG's Order 637 Proposals

PRIVILEGED AND CONFIDENTIAL - FOR SETTLEMENT DISCUSSIONS ONLY

November 11, 2000

To All Parties in FERC Docket No. RP00-476

Subject: Proposals for Southern's Order No. 637 Meeting

On August 15, 2000, Southern filed proposed changes to its services in
Docket No. RP00-476 in response to the requirements of FERC Order No 637.
As a result of customer comments on its filing, Southern posted a notice of
a meeting with parties that intervened in this proceeding to be held as
follows:

Date: Thursday, November 16, 2000
Time: 10:00 a.m. - 4:30 p.m. (Eastern Time)
Location: Hartsfield Airport in Atlanta, Georgia, in the Executive
Conference Center, Airport Atrium, Suite 300 (see directions below)

We have a few spaces left at the meeting. To RSVP, please call Ms. Lane
Fletcher at 205-325-7109.

Our goal for this meeting is to gain a common understanding of all the
proposals and to reach consensus solutions on the issues that have been
raised. To facilitate discussion and resolution at the meeting, Southern
provides the following summary of customer comments it received and
additional changes Southern is willing to make in the context of a
settlement of all issues. If you have any questions about these proposals,
please do not hesitate to contact me (205) 325-3509 or Patty Francis (205)
325-7696 prior to the meeting.

Janice H. Parker
Director, Customer Services
(205) 325-3509
parkerj@epenergy.com

* * * * * *
* * * *

Directions to the Executive Conference Center, Airport Atrium, Suite 300,
Hartsfield Airport, Atlanta, GA

1. After departing from your plane: Follow the directions to the baggage
claim area. In the baggage claim area, follow the flow of traffic up the
escalator. Turn right for entrance into the Atrium (an area similar to a
shopping mall) located in the center of the airport between the North and
South terminals. Inside the Atrium, catch the elevator to the 3rd floor.
The Executive Conference Center is located beside Houlihan's Restaurant.

2. From ground level: After your arrival at Hartsfield Airport, come to
the second (2nd) level. Pass through Ticketing or Baggage Claim and come
to the area where the Car Rental Agencies are located (between North and
South terminals). Notice signs above for the Atrium (an area similar to a
shopping mall). Inside the Atrium, catch the elevator to the 3rd floor.
The Executive Conference Center is located beside Houlihan's Restaurant.

* * * * * *
* * * *

FOR SETTLEMENT DISCUSSIONS ONLY

Summary of Customer Comments and Southern's Responsive Proposals
Docket No. RP00-476

I. OFOs AND PENALTIES

Comment 1: Provide objective criteria for issuing and lifting OFOs
including information that will help customers better understand operational
situation being addressed

Response: SNG does or will post warnings and forecasts in advance
of OFOs and will work with customers to clarify tariff language on a
mutually agreeable basis

Comment 2: A $15.00 penalty for Type 3 Alert Mode OFO is not reasonable;
$7.50 is more reasonable

Response: In the spirit of compromise, SNG would be willing to
decrease the penalty to $10.00 per dth as part of a settlement package.

Comment 3: The short notice and harsh penalty of the Type 3 Emergency Mode
OFO is unreasonable for the following reasons:
- Customers need more time to make adjustments
o Only implement if a Type 3 Critical Mode OFO
is already in place
o 12 hours notice would be more appropriate
- Limit application to abusive shipper behavior
- Clarify tariff that penalty only applies at start of gas day
and not intraday
- Shorter notice is not justified because if implemented too
late, a firm shipper cannot bump IT on last nomination cycle
- Justify adding the gas price to the penalty
- The increased penalty price is really an increase in
imbalance charges without other benefits
- Use Gas Daily's "Midpoint Louisiana - Onshore South" daily
index price instead of the one proposed

Response: As part of a settlement package, SNG is willing to make
the following changes to its Type 3 Emergency Mode OFO.
- Type 3 Emergency Mode OFO can be implemented at the start of
the gas day on (i) 20 hours prior notice, or (ii) 4 hours prior notice ONLY
if a Type 3 Alert or Critical Mode OFO is in effect for the previous day;
telephone notice will be given when the penalty is upgraded to Emergency.
- Language limiting the application of each OFO is set forth
in Section 41 of the tariff's general terms and conditions. SNG is willing
to repeat this language in this specific OFO section of the tariff, however,
so that customers feel comfortable that implementation of this penalty will
be targeted to the operational problem areas on the system or specific
offenders whenever possible.
- SNG will clarify that penalties only apply at the start of a
gas day and can be cancelled during a gas day if not needed due to a change
in conditions.
- Since advance notice must always be given prior to the start
of a gas day (9:00 a.m. CCT), shippers can adjust nominations on the
Intraday 1 nomination cycle (10:00 a.m. CCT) and bump IT.
- At the meeting, SNG will further discuss the reasons its
penalties (including the higher penalty for Type 3 Emergency Mode) are
needed to preserve the operational integrity of the system.

Comment 4: The change to Type 5 OFOs could result in a shipper in a group
being penalized even if it is within tolerance at a point

Response: At the meeting, SNG will review an example of how the
proposed changes to the Type 5 OFO will actually avoid shipper-specific
penalties at a point when the point or group of receipt points is within
tolerance. This provision will only help, never hurt, a shipper.

II. SEGMENTATION

Comment 1: SNG currently allows firm shippers to segment their capacity by
rate zone. It should be operationally feasible to provide more
segmentation, especially along Southern's two main trunklines.

Response: SNG has reviewed its operational model and has isolated
two "long line" segments of its pipeline along which it could allow
intrazone segmentation in an operationally feasible manner. At the meeting,
SNG will review the physical attributes of its system that led to this
model. To be able to provide this level of intrazone segmentation, the
program would have the following attributes:
- SNG will retain its existing segmentation program, but will
layer on top of that the ability for a shipper to fully segment along
identified long line segments of its north or south system up to the firm
capacity that the customer has on the long line being segmented. For
example, if a customer has north system capacity into zone 2, it can do
intrazone segmentation along the long line portion of the north system
through zone 2 up to its contract quantity on the north system.
- On the long line on which the shipper has firm capacity, the
shipper can nominate to primary or secondary delivery points so long as the
nominations do not overlap along the long line segment.
- The shipper will have to path its receipts and deliveries
for the portion of its nomination where it wishes to do intrazone segments.
This allows SNG to verify that segments do not overlap. The first delivery
point being segmented can be served by an upstream supply pool or storage,
but all downstream segments must be served by physical receipt-to-delivery
combinations.
- Allocated receipts serving an intrazone segmented delivery
would have to meet or exceed the segmented delivery to avoid overlapping
segments and qualify for the FT commodity rate.
- SNG is in the process of determining the programming
requirements to add this new, more complex model and will provide an
estimate at the meeting.

III. CAPACITY RELEASE AND SCHEDULING EQUALITY

Comment 1: SNG should allow customers to offer and bid on capacity release
deals before each of the four nomination cycles. (In its filing, Southern
has offered to enhance its capacity release procedures to allow prearranged,
non-biddable deals to be awarded prior to each nomination cycle, but keep
biddable deals awarded according to the GISB standards prior to the Timely
Nomination Cycle.)

Response: While Southern is not required to offer these additional
options under Order No. 637, it would be willing, as part of a settlement,
to add an offer/bid capacity release opportunity prior to the Evening
Nomination Cycle. GISB is developing standards for intraday capacity
releases, and Southern proposes to wait until the standards are approved to
offer more flexibility due to the programming complexity.

Comment 2: Changes that require programming should be implemented as soon
as possible if ready prior to the time estimated by SNG in its filing.

Response: Southern will implement all changes as soon as the
programming is ready, and it will give 30 days advance notice of the
implementation date.

Comment 3: Southern should allow releases of FT-NN service on a no-notice
basis as soon as possible.

Response: As noted in its filing, Southern is in the process of
programming this functionality and proposes to implement it on March 1,
2001. Southern plans to make its tariff filing in mid-January 2001, and
will host a conference call to discuss the tariff filing in early December
2000.

IV. IMBALANCE MANAGEMENT AND MISCELLANEOUS ITEMS

Comment 1: Customers need more than 3 business days to elect to trade
imbalances because imbalances are not final at the time of the election
deadline.

Response: Effective December 1, 2000, for November imbalances,
Southern has filed to implement the new GISB standard that gives customers
17 business days after the end of the month to elect to trade imbalances and
to complete the trades.

Comment 2: Southern should allow customers to use other customers' CSS/ISS
storage accounts to resolve imbalances at the end of the month.

Response: While Southern is concerned that this may increase the
level of imbalances, in an overall settlement, it would be willing to add
this option, subject to active confirmation by the other customer whose
storage account is used to resolve the imbalance.

Comment 3: Imbalances and overrun penalties should be based on the lesser
of operational or actual data.

Response: Southern calculates both an estimated imbalance
percentage (on the last day of the month) and an actual imbalance percentage
and uses the lesser of the two percentages when cashing out imbalances. On
the overrun comment, Southern bills all volumes actually metered, but fills
up a customer's firm transportation service within a zone prior to billing
IT overrun.

Comment 4: Cash out revenues in excess of the index prices, less expenses
incurred by SNG for cash out gas, should be credited to the SCRM account.

Response: Southern does credit all revenues received for cash out
and will provide an overview of the items that affect the SCRM account at
the meeting.

Comment 5: Southern received comments in support of and in opposition to
the collection of injection or withdrawal fees on the net imbalance resolved
with storage at the end of the month. It was suggested that Southern should
go further and collect the fee on the daily (instead of net) imbalance
resolved through storage.

Response: Southern believes that its proposal is reasonable and
equitable for the reasons given in its filing.

Comment 6: Southern should be required to honor discounts to alternate
delivery points within the capacity path of the point receiving the
discount.

Response: Generally, FT reservation charge discounts continue to
apply even when alternate delivery points are nominated. Any limitations on
the applicability of the discount to specific points will be agreed to as
part of the discount and will be set out in the discount exhibit.

[THIS DOCUMENT IS PRIVILEGED AND CONFIDENTIAL AND INTENDED FOR SETTLEMENT
DISCUSSIONS ONLY. ANY OTHER USE OR PUBLICATION OF THIS DOCUMENT, IN WHOLE
OR IN PART, IS RESTRICTED UNLESS WRITTEN PERMISSION IS RECEIVED FROM
SOUTHERN NATURAL GAS COMPANY.]

******************************************************************
This email and any files transmitted with it from El Paso
Energy Corporation are confidential and intended solely
for the use of the individual or entity to whom they are
addressed. If you have received this email in error
please notify the sender.
******************************************************************