Over the din of protesters, especially soon-to-be competitorNatural Gas Pipeline Co. of America (NGPL), FERC last week deniedthe majority of rehearing requests and awarded Alliance PipelineL.P. its long-awaited optional certificate to build a majortransportation link between western Canadian production fields andthe U.S. Midwest.

Work on the U.S. portion of the Alliance system, however, hingeson the National Energy Board (NEB) approval of the Canadianupstream segment of the project, which is expected to be handeddown in late October. If all goes well, Alliance officials estimateconstruction will start next May and operation will begin on Oct.1, 2000. “I can say there’s a lot of happy people and smiling faceshere,” said Jay Godfrey, a spokesman for Alliance. But the companydeclined to comment further on the order that, in addition toawarding the final certificate, addressed rehearing of the August1997 ruling that approved the 886-mile Alliance on a preliminarybasis..

In its rehearing petition, Natural argued that the prospect ofthe loss of business (for U.S. pipelines), excess capacity andstranded costs posed by the Alliance project cast doubt on the veryneed for the pipeline that would transport 1.3 Bcf of gas on adaily basis to the Chicago hub. But FERC, which has been a bigproponent of letting markets decide the need for new pipelineprojects, flatly dismissed Natural’s claims last week, saying thatwhile Alliance may be seen as a competitive threat by some U.S.pipelines, it had met the standard for new projects in the UnitedStates – promotion of competition.

Although the U.S. portion of the Alliance project might create”competitive tension” for Natural and other downstream U.S.pipelines, in the end “gas consumers will benefit from a lowerdelivered cost of natural gas,” the order noted [CP97-168]. “Thefact that Alliance’s presence may have an economic impact oncompetitors does not outweigh the competitive benefits of increasedtransportation options…to ultimate consumers in the UnitedStates.”

Natural’s allegations that Alliance would inflict unfaircompetition or future material harm on downstream U.S. pipelinesand customers are “unsubstantiated and do not convince us that ourprior preliminary determination was in error,” FERC concluded.

The Commission also rejected arguments of an “unsatisfied”market demand for the Alliance project in the Midwest. AlthoughFERC’s optional certificate regulations don’t require projects toshow market demand, “Alliance voluntarily filed 40 executedprecedent agreements with 36 shippers who agree to subscribe toabout 93% of system capacity,” the order said. These “shippers havedemonstrated their belief that it is in their interest to transportnatural gas over Alliance instead of transporting their volumesover existing pipelines.”

It further dismissed Natural’s claim that Alliance gas would betrapped in the Midwest due to the lack of downstream capacity.”Alliance has shown that take-away capacity at downstream deliverypoints is substantially greater than the capacity of its proposedpipeline.”

On rate issues, Natural alleged that Alliance’snegotiated/recourse rate proposal, which FERC approved for thepipeline, would diminish the pipeline’s risk for recovery of thecosts associated with the project, and would shift the risk to itsshippers and downstream pipelines. But, the FERC order noted, “newcustomers who would use the new [negotiated] service voluntarilyaccepted the risk associated with the proposed new reservationcharge.” They are not being forced to accept risk against theirwill, it said.

Natural’s bid for Alliance to hold a new open season forcapacity on its proposed system also fell on deaf ears at theCommission. Natural made the request after FERC adjusted downwardAlliance’s initial maximum recourse rate, using increased designcapacity (1.5 Bcf/d), to $12.7598 per Mcf, which exceededAlliance’s initial maximum negotiated reservation charge.

“Natural assumes that Alliance’s shippers would change theirelections if Alliance had offered in its open season to charge amaximum recourse rate of $12.7598 per Mcf instead of $14.5703 perMcf. Alliance’s shippers, however, do not assert that theCommission’s recomputation of Alliance’s maximum recourse rateprejudiced their elections or that they now wish to reconsidertheir elections as negotiated shippers in a new open season,” theFERC order said.

Lastly, the Commission overturned itself on the issue ofcreditworthiness requirements. In response to a request byAlliance, it ruled that shippers on the new pipeline would berequired to post a letter of credit or provide a cash payment equalto 12 months of estimated reservation charges.

Susan Parker

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