Year after year of underutilization, deep discounting and thepromise of continued decontracting forced Trunkline Gas Co. to planthe shut-down a 720-mile portion of its 26-inch diameter mainlinelast week. The pipe, which stretches from Longville, LA, toBourbon, IL., has the capacity to transport up to 255 MDth/d ofgas.

Trunkline filed with the Federal Energy Regulatory Commission(FERC) requesting to spin down the asset to another Duke Energysubsidiary that plans to make better use of the space by convertingit to transport ethane and other hydrocarbon vapors to the GulfCoast from the proposed Aux Sable Liquid Products processing plant,which is expected to be built at the terminus of Alliance Pipeline.Alliance, if approved by FERC, would carry 1.4 Bcf/d of high Btunatural gas from Western Canada to the Chicago area.

Trunkline said the line will be spun down at net book value of$10 million, and in exchange, its Duke affiliate will cover the $10million in proposed conversion costs, contribute another $10million to cover Trunkline’s indemnification against any potentialfuture environmental costs and will pay $2 million for repaircosts. The spindown will reduce Trunkline’s cost of service byabout $3 million/year.

“Trunkline is not getting out of the natural gas transportationbusiness,” said Steve Roverud, chairman of Trunkline. “This issimply a more effective use of one of our assets. Overcapacity inthe Midwest has caused Trunkline to transport gas at deeplydiscounted rates for several years. We will continue to haveadequate capacity to serve our long-term, firm transportationcustomers.”

Trunkline said it has had to sell a substantial portion of itsfirm transportation capacity (two-thirds of its total capacitycurrently) at a 33% discount from maximum rates. “This is not arecent phenomenon. Trunkline’s system continually has operated atlevels well below maximum capacity since 1988, and only hasoperated at close to or at full capacity during the coldest winterheating seasons, i.e., the 1995-1996 winter, or as a result ofTrunkline deeply discounting firm services,” the pipeline toldFERC.

In 1994, Trunkline was forced to discount 75% of its maximumdaily quantity. Since 1995, over 90% of its MDQ has been sold atdiscounted rates. And still its system has had 568 MDth/d of unsoldcapacity annually.

Cheap Canadian gas historically has been favored overhigher-priced Gulf Coast production and that is expected tocontinue as at least 2 Bcf/d of new firm transportation is addedbetween western Canada and the Midwest over the next two years.

Trunkline cited a recent study by the American Gas Associationthat shows pipelines entering the Midwest had only 37% of theirfirm capacity under contract through 2001. “[E]ven though thatamount will change as capacity is remarketed, the potential for ahuge amount of unsubscribed capacity will remain in the Midwestregion.” The average term of Trunkline’s current contracts is fouryears. During an open season for available firm service of itssystem in spring of 1995, the pipeline received “no requests” forlong-term transportation.

Vows to Maintain Service

The abandonment of the 26-inch diameter line will have “noadverse effect on the customers’ service requirements and will notaffect Trunkline’s ability to meet all of its firm serviceobligations,” the pipeline said, adding the line represents onlyabout 1% of the 21,584 MDth/d of interstate pipeline capacityentering the Midwest region.

“[T]here will be more than enough capacity to meet the presentand projected future needs of Trunkline’s customers,” the pipelinetold FERC. “Service to municipalities.where Trunkline is the soletransporter will not be affected, since adequate capacity will beretained. The small customers that are served directly off of the26-inch line will be re-connected to Trunkline’s remainingmainlines during the conversion process.” In addition, the pipelinecompany said it will be reimbursed for the costs of the conversionand re-connection process. Trunkline said “no services, receipt anddelivery point facilities, or compressors required to provide thoseservices are to be abandoned.” Currently, firm commitments on theline amount total 1,242 MDth/d, which is well below the proposedcapacity upon abandonment of 1,555 MDth/d. Rocco Canonica

Producers, Industrials Assail Columbia Negotiated Plan

Natural gas producers and industrial customers insist theyaren’t the least bit interested in the Columbia pipelineaffiliates’ proposals to offer them negotiated terms and conditionsof service, saying that pipelines already have the potential now toprovide them innovative services on a tariffed basis. Utilities, onthe other hand, were mixed in their reaction.

The pro forma proposals of Columbia Gas Transmission andColumbia Gulf Transmission are “premature” and should be rejectedoutright by FERC, Indicated Shippers and the Process Gas ConsumersGroup (PGC) urged the Commission separately. If it chooses not toreject them, they asked FERC to put a hold on the Columbia casepending the outcome of its generic review of the issue ofnegotiated terms and conditions.

Absent a generic finding, “it would be unfair now for theCommission to allow a myriad of separate proceedings to go forwardon these topics, ” the PGC noted. In the event that FERC shouldreject both courses of action, it should “clearly indicate” theColumbia docket will serve as the precedent-setting case in thisarea, and put all other filings with similar proposals on theback-burner, said Indicated Shippers, which includes majorproducers and marketers.

The Columbia proposal – the first specific, comprehensive planof its nature presented by a pipeline – is the latest industryeffort aimed at focusing attention on the negotiated issue at theCommission. FERC already is said to be considering the topic on ageneric basis as part of its review of second-generation Order 636issues; it has set for hearing a Northern Natural Gas proposal thatseeks to negotiate certain terms and conditions as part of a ratefiling; and it has pending a proposal by the American GasAssociation (AGA), and endorsed by the Interstate Natural GasAssociation of America (INGAA), outlining a plan to customizeservices for pipeline customers.

The Columbia proposals are “far more detailed” than any otherpipeline plan so far, including the “sketchy request” of NorthernNatural Gas, said PGC. “Ironically, however, even with a moredetailed proposal like Columbia’s the fundamental issues of unduediscrimination, damage to equality of service, and damage to thehighly competitive gas supply and service markets…remain veryreal and cannot be resolved under the procedures offered byColumbia.” Both PGC and Indicated Shippers insist the issue shouldbe taken up in a hearing rather than at a technical conference, asColumbia has suggested.

The pipelines, contend Indicated Shippers, are the only onesthat are interested in customizing their services. “…[N]oarguments have been presented by any end-use customers that evensuggest the need for or desirability of negotiated terms andconditions of service,” they told the Commission [RP98-249,RP98-250]. The Columbia pipelines, in justifying the need fornegotiated terms and conditions, contend the current regulatorystructure hampers pipeline “creativity.” But, it cautioned,”pipeline ‘creativity’ can be used as a smoke screen for pipelinemischief.”

Indicated Shippers said proposals to negotiate services were”little more than a thinly disguised effort to allow the pipelinesto engage in market-based pricing of [their] services without theappropriate threshold showing that the pipeline lacks marketpower.”

Although fundamentally opposed to negotiated services, PGC saida number of safeguards would have to be in place first for such aprogram to proceed, including 1) the recourse, or standard, servicewould have to be proven as a viable alternative” to negotiatedservice; 2) FERC would have to make it possible for all customersto benefit from any improvement that was negotiated for anindividual customer; 3) the Commission must place the riskassociated with offering negotiated services squarely on thepipeline; and 4) stringent standards for protecting customersagainst undue discrimination would be required.

New York State Electric &amp Gas (NYSEG) was one of a handful ofutilities that cited their support for the Columbia affiliates’proposal, but even it had some concerns. Specifically, Columbia’sproposal to impose hourly flow parameters and limitations atdelivery points for recourse service would “diminish” the value ofrecourse service now enjoyed by customers. Also, the New Yorkutility said Columbia’s list of non-negotiable terms and conditionsshouldn’t be considered exclusive. And, while Columbia is “on theright track” in recognizing that a customized service would bediscriminatory if not offered to a similarly situated, recoursecustomer, its proposal needs to be better defined, NYSEG said.

Baltimore Gas &amp Electric (BG&ampE) said it fully supportedthe Columbia proposals, saying pipeline service flexibility will bea “key to success in addressing retail unbundling and other changesin our market.” Unlike PGC and Indicated Shippers, it believes atechnical conference – rather than a hearing – is the proper venuein which to consider the proposals. “This filing is not part of arate case. It is clearly limited to policy considerations, and nofact finding is necessary.”

In contrast to the other utilities, Public Service Electric andGas (PSE&ampG) protested the Columbia filings. Although a “step inthe right direction,” the pipelines’ effort “falls short ofconforming with the principles articulated in the AGA proposal,”the New Jersey utility said. It urged the Commission not to approvethe Columbia proposals until “two critical threshold issues” areresolved.

First, the definition of “recourse” service must be definitivelyestablished before pipelines are permitted to depart from standardservices. “Some may argue that a recourse service should be astripped-down ‘no-frills’ service, while others may contend that arecourse service should offer even more than is currently provided.Until the components of a recourse service are established…theFERC should not approve Columbia’s…proposal.”

Secondly, an expedited and efficient generic complaint processmust be in place before negotiated terms and conditions can occur,PSE&ampG said, adding it believes the current Section 5 complaintprocedures are “insufficient and unworkable, even for existingservices.” Like producers and industrials customers, it alsobelieves FERC should first address the issue of negotiated termsand conditions on a generic basis before it moves to Columbia’sproposals.

Susan Parker

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