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Sale of Columbia Project Penny System Opposed

Sale of Columbia Project Penny System Opposed

Columbia Gas Transmission's proposed plan to sell its Project Penny transmission system in western New York and northwestern Pennsylvania to Norse Pipeline LLC, which seeks to refunctionalize the facilities as gathering, is a "thinly-veiled attempt to dramatically increase" rates to move gas on the system at the producers' expense, charged an independent producer.

"Norse has agreed to purchase the transmission facilities at far in excess of their current market value, placing [producers] at risk of paying grossly excessive unregulated gathering charges to cure Norse's business mistake," said Lomak Petroleum, the largest producer and transporter on the Project Penny system [CP98-568].

Specifically, Lomak is concerned the 9- to 11-cents/Dth rate that it's now paying to move gas on the Project Penny system will "skyrocket" if the proposed sale and the subsequent refunctioning are approved by FERC. "Producers, like Lomak, with reserves and production tied into the Project Penny transmission facilities are effectively captive customers due to the large cost to duplicate those transmission facilities and the low throughput now in the system. There may now be no realistic competitive alternative to the Project Penny transmission facilities," it noted, adding this could lead to the shut-in of Appalachian Basin production.

The producer has asked FERC to suspend the proceedings until a technical conference can be held for Columbia and Norse to present additional information on the sale of the Project Penny facilities.

Lomak believes the Penny Project should remain as transmission. It noted FERC has repeatedly found that relatively small diameter lines operated at low pressures in the Appalachian Basin and elsewhere still can function as jurisdictional transmission facilities. Further, Lomak noted the fact that the Project Penny system moves across state lines is another sign that it functions primarily as a transmission facilities.

In support of its position, Lomak noted that Columbia currently is petitioning the Commission to refunctionalize its Miley and Trumball gathering systems as transmission - both of which are located near the Project Penny facilities and have similar characteristics such as small outside (10 to 12 inches) diameters and operate at low pressures.

Susan Parker

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