A proposal of Trunkline Gas to spin down one-third of itsmainline gas system – about 720 miles – to an affiliate fortransportation of ethane and other hydrocarbons came under heavyattack at FERC from the pipeline’s shippers last week.

Most argued Trunkline’s system still was considered a key linkin the Midwest gas pipeline grid, even in light of all the newpipeline construction coming into that market. They disputedTrunkline’s claims that firm capacity commitments on this portionof its system (Line 100-1) were expected to fall off sharply overthe next couple of years.

The pipeline insists deep discounting and the prospect of heavydecontracting forced it to seek abandonment of its 26-inch line,but shippers weren’t swayed by those arguments. “This [discounting]is not an unusual practice; indeed, Trunkline is granted adiscounting adjustment which efficiently shifts to its customersthe risk of discounting,” Amoco Production pointed out.

Trunkline seeks to sell this segment of its pipeline, whichspans from Illinois to Louisiana, for $32 million ($10 million inbook value plus $22 million in additional costs) to a newaffiliate, Trunkline A.P. Pipeline Co. The line would be convertedto transport ethane and hydrocarbon vapors to the Gulf Coast fromthe proposed Aux Sable Liquids Products processing plant, which isexpected to be built at the terminus of the planned AlliancePipeline. The sale, if approved by the Commission, would reduceTrunkline’s capacity of about 1,810 MDth/d by 255 MDth/d, or byabout 14%.

Trunkline has predicted firm contract capacity on its systemwill drop sharply by 947 MDth/d. or by 43%, by Nov. 1, 1999. But”Trunkline’s pessimistic firm-contract prediction ignores the factthe demand for firm natural gas transportation on its system hassteadily increased and remains strong,” said Memphis Light, Gas andWater in comments at FERC [CP98-645]. It noted reports filed at theCommission revealed the pipeline’s firm contracts rose 21% from1,812 MDth/d in 1996 to 2,189 MDth/d in early 1998.

Likewise, Amoco disputed the pipeline’s claim that its projectedpost-abandonment capacity of 1,555 MDth/d would be more thansufficient to meet firm commitments for transportation service inNovember 1999. It said Trunkline’s Form 11 reports indicate thatthroughput on the pipeline’s system has been more than 2,000 MDth/din past winter months, which is 455 MDth/d more than would be lefton its system.

The spinoff, if allowed by FERC, would continue the erosion ofthe Trunkline system that began a couple of years ago, said MidlandCogeneration Venture Ltd. Partnership. It pointed to Trunkline’sabandonment in 1997 of 105 miles of pipeline known as the SouthTexas Facilities, and removal from service of mainline transmissionfacilities in Louisiana in 1995 because it considered the line a”nonfunctional facility.” It also has pending at FERC anapplication to abandon gathering facilities in Louisiana.

The proposed abandonment is simply an attempt to improve theeconomic status of Trunkline by “shedding unprofitable capacity” atthe “expense” of contractual arrangements with long-term shippers,Midland noted. In the event the Trunkline request is approved,Midland urged FERC to allow long-term shippers first to participatein an open season prior to the abandonment, which would permit themto reduce the term or volume of their contractual commitments toTrunkline. It also asked that the abandonment be conditioned sothat Trunkline would not be allowed to convert in the future otherparts of its pipeline system into gathering or facilities used forother purposes.

Indicated Shippers argued that Trunkline’s request was notjustified since the transfer of 14% of Trunkline’s capacity wouldreduce the pipeline’s cost-of-service by only $3 million, or byabout 1.8%. “…[A] case for abandonment might be made if it wouldresult in a cost-of-service reduction that was proportionatelylarger than the capacity to be abandoned.”

Susan Parker

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