FERC shot down one major Midwest-to-Northeast pipeline projectyesterday but gave another competing project a final green light.The $447 million Vector Pipeline emerged victorious, receivingFERC’s final approval and a presidential permit in a draft order,while the $400 million TriState Pipeline was sent back to thedrawing board to redesign the pipeline-lease portion of itsproposal.

With 1 Bcf/d of proposed firm transportation capacity forservice starting in November 2000, Vector is poised to be the firstmajor project in the ground among multiple proposed expansions andgreenfield pipelines designed to relieve the growing supplypressure near Chicago by bringing gas east to markets in easternCanada and the northeastern U.S. Vector will involve constructionof 270 miles of 42-inch diameter pipeline through Indiana andMichigan to the U.S. Canadian border at the St. Clair River and two30,000 hp compressor stations. It also will include a pipelinesection leased from affiliate Michigan Consolidated Gas. Vector’saffiliate, Vector Canada, will continue gas transportation servicefrom Michigan to the Dawn Hub in Ontario on a proposed 15-milepipeline that already has been approved by Canada’s National EnergyBoard.

There were a significant number of comments and protests fromlandowners on the location of the compressor stations, but afterconsidering eight alternative sites, FERC determined the proposedlocations were the most efficient from an engineering standpointand would cause the least environmental harm. Four pipelinealternatives were considered: the ANR/Great Lakes SystemAlternative, the ANR/MichCon Alternative, the ANR/Consumers EnergyAlternative and the TriState System Alternative. “None of thesealternatives [was] found to be environmentally preferable and ableto meet the stated objectives of the proposed action,” theCommission said.

The 20-year lease of a 36-inch diameter pipeline owned byMichCon that runs between Milford and Bell River Mills, MI, helpedthe project significantly on environmental matters because sponsorsavoided substantial construction. However, the lease proposalseemed to be the weak link in the chain because competitors,particularly ANR Pipeline, attacked the plan relentlessly. ANRargued use of the leased Belle River Loop line violated FERC rulesby operating as a “dual-use” pipeline, serving as both aninterstate line for Vector and an intrastate line for MichCon, butFERC disagreed. The Commission said it is convinced the Belle RiverLoop and the Vector system will be operated as a distinctinterstate system separate from MichCon’s intrastate transportationservices. The annual lease payment would be $9 million plus taxes,and the two companies have signed a revenue sharing agreement ifservice exceeds certificated capacity.

Vector will bear the full risk of building the pipeline becauseit filed for an optional certificate (OC), which allows anapplicant to gain Commission authorization for a project withoutdemonstrating market demand for services. Nevertheless, it hassigned precedent agreements with four shippers, two of which areaffiliated marketers, for 828,300 Dth/d of firm transportationcapacity, or 82% of the total capacity of the project. Theaffiliated marketers signed up for the majority (700,000 Dth/d) ofthe proposed space. Vector’s sponsors include Alliance Pipelinepartner IPL Energy and MCN Energy.

TriState Lease Plan Fails

The TriState Pipeline proposal has many of the samecharacteristics as Vector. Both pipelines are designed to transportgas from Chicago to the Dawn Hub. Both traverse the same states andboth eliminate costs, construction and environmental problems byleasing existing pipelines.

However, the two projects differ in one critical way: theirpipeline lease agreements. The 650 MDth/d TriState project -expandable to 1 MMDth/d – which is being sponsored by CMS GasTransmission and Storage (67%) and Westcoast Energy (33%) wouldlease 123 miles of pipeline (saving $179 million in expenses) fromConsumers Energy. But unlike Vector’s leased Belle River Loop,TriState’s leased Consumers Energy line would be operated byConsumers and would perform a “dual-use” role as both an interstateand a state-regulated intrastate transporter, which violates FERCrules.

FERC sent TriState sponsors back to the drawing board because ofthis “jurisdictional obstacle” related to the proposed lease. Inthe Vector project, “the leased loop and the other facilities ofthe Hinshaw pipeline [MichCon] would be ‘operated as two distinct,physically separate systems; (2) the Hinshaw [MichCon] would haveno rights to act as transporter on the leased line; and (3) thelease would not ‘jeopardize the independent operation’ of eitherVector’s system or the Hinshaw’s system. The TriState proposalsatisfies none of these criteria,” the Commission said.

FERC suggested several options for TriState, including havingConsumers construct, own and operate its own FERC-regulated,open-access pipeline in Michigan and provide transportation servicefor TriState and others in that state. Consumers also could file tobecome a fully FERC-regulated pipeline, or TriState could buy therequired Consumers facilities.

All the other aspects of the project seemed to meet FERCrequirements. TriState has signed agreements with six shippers for67% of its total proposed capacity, or 435 MDth/d. The projectwould include construction of 148 miles of new pipeline fromJoliet, IL, to White Pigeon, MI and 66 miles of looping of leasedConsumers and Michigan Gas Storage facilities between White Pigeonand St. Clair. Another 12 miles of pipe would be installed to crossthe international border to additional pipeline that would beinstalled in Ontario by affiliate TriState Canada. One new 30,000hp compressor station would be built at Joliet and 18,570 hp ofcompression would be added at an existing station owned byConsumers at St. Clair.

TriState has filed for zoned rates. Its recourse rate fromJoliet to Dawn is about $0.279/Dth, compared to Vector’s$0.267/Dth.

FERC deferred for 60 days further processing of the TriStateapplications to permit the sponsors to make modifications to theproject. A Vector spokesman said sponsors are “reviewing theiroptions.”

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