In an effort to capture the rewards and pass along savings madepossible by performance-based rates, NIPSCO Industries and its newaffiliate Bay State Gas are combining gas supply operations. TheMidwest and New England LDCs manage firm loads of about 500 MMcf/dand most of that will be procured on the daily spot market in thefuture, said NIPSCO’s Dan Gavito, vice president of corporate gassupply.

The promise of savings through combining supply managementoperations was one of the major points publicized by theMassachusetts Department of Telecommunications and Energy in itsapproval of NI Inc.’s purchase of Bay State last November. TheNIPSCO parent completed its $780 million purchase of Westborough,MA-based Bay State on Feb. 12. The companies hope to save as muchas $1 million/year through combined portfolio management, accordingto one source.

Gavito said the companies look to take advantage of arbitrageopportunities that are occurring between major hubs where they buymost of their gas. He said as much as 98% of their gas supplieswill be procured on the daily market. “Many of BayState’s gassupply contracts are long-term in nature (four months to a year)and are beginning to roll off. We’re going to start purchasing alot of the gas on a daily basis and avoid some of the reservationcharges that are associated with that,” he said.

“We’ll do a lot of trading at the hubs and potentially eliminatesome long-haul capacity all the way back to the field areas. We’llbe releasing a lot of the capacity that we have and packaging itfor other users. As [long-term pipeline] contract roll-overs occur,we’ll take a hard look at whether that capacity continues to bringvalue to our customers.” Gavito would not say how much long-termcapacity could be turned back, but he did indicate any turn-backslikely would occur on Gulf Coast lines potentially to make room foradditional capacity on PNGTS and Maritimes.

The Portland Natural Gas Transmission system came on line thismonth, bringing about 150 MMcf/d of additional Canadian gas intoNew England, and NI is a part owner. “[PNGTS] enables Bay State totake advantage of additional Canadian supplies and storage inMichigan. NIPSCO also utilizes storage in Michigan, which isanother way we can combine the two portfolios.”

Gavito also noted NIPSCO and Bay State utilize the same supplybasins, many of the same pipelines and hold positions at the MossBluff and Egan salt cavern storage facilities which connect withmajor interstate pipelines in the Gulf Coast region. They plan totake advantage of those similarities in attempting to achieve costsavings in their supply portfolios, he said.

Bay State Gas, which serves 305,000 natural gas customers inMassachusetts, New Hampshire, and Maine. NIPSCO serves 660,000 gascustomers in 30 Indiana counties.

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