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Midwest Pipeline Picture Shaping Up as Vector Takes Checkered Flag

Midwest Pipeline Picture Shaping Up as Vector Takes Checkered Flag

FERC sent one major Midwest-to-Northeast pipeline project back to the drawing board last week but gave another competing project a final green light. The $447 million Vector Pipeline emerged victorious, receiving FERC's final approval and a presidential permit in a draft order, while the $400 million TriState Pipeline was told it must redesign the pipeline-lease portion of its proposal to get FERC's rubber stamp.

With 1 Bcf/d of proposed firm transportation capacity for service between Chicago and the Dawn Hub in Ontario starting in late 2000, Vector is poised to be the first major Midwest project in the ground among multiple proposed expansions and greenfield pipelines designed to relieve the growing supply pressure near Chicago.

"In light of the FERC certificate we're well on track [to making the October 2000 in-service date]," said Juri Otsason, vice president of Vector. "The other positive development, from our perspective, was obviously that our prime competitor on the Chicago-to-Dawn path had at least a set-back or a delay in their project [TriState]. That may bring us some new business.

"It's been a very competitive environment out there between TriState and ourselves plus the incumbent pipelines coming into this part of the world, TransCanada, and indirectly, when your looking at marketers who wish to serve the eastern seaboard, the proposed Independence project," Otsason added.

Vector will involve construction of 270 miles of 42-inch diameter pipeline through Indiana and Michigan to the U.S. Canadian border at the St. Clair River and two 30,000 hp compressor stations. It also will include a pipeline section leased from affiliate Michigan Consolidated Gas. Vector's affiliate, Vector Canada, will continue gas transportation service from Michigan to Dawn on a proposed 15-mile pipeline that already has been approved by Canada's National Energy Board.

There were a significant number of comments and protests from landowners on the location of the compressor stations, but after considering eight alternative sites, FERC determined the proposed locations were the most efficient from an engineering standpoint and would cause the least environmental harm. Four pipeline alternatives were considered: the ANR/Great Lakes System Alternative, the ANR/MichCon Alternative, the ANR/Consumers Energy Alternative and the TriState System Alternative. "None of these alternatives [was] found to be environmentally preferable and able to meet the stated objectives of the proposed action," the Commission said.

The 20-year lease of a 36-inch diameter pipeline owned by MichCon that runs between Milford and Bell River Mills, MI, helped the project significantly on environmental matters because sponsors avoided substantial construction. However, the lease proposal seemed to be the weak link in the chain because competitors, particularly ANR Pipeline, attacked the plan relentlessly. ANR argued use of the leased Belle River Loop line violated FERC rules by operating as a "dual-use" pipeline, serving as both an interstate line for Vector and an intrastate line for MichCon, but FERC disagreed. The Commission said it is convinced the Belle River Loop and the Vector system will be operated as a distinct interstate system separate from MichCon's intrastate transportation services. The annual lease payment would be $9 million plus taxes, and the two companies have signed a revenue sharing agreement if service exceeds certificated capacity.

Vector will bear the full risk of building the pipeline because it filed for an optional certificate (OC), which allows an applicant to gain Commission authorization for a project without demonstrating market demand for services. Nevertheless, it has signed precedent agreements with four shippers, two of which are affiliated marketers, for 828,300 Dth/d of firm transportation capacity, or 82% of the total capacity of the project. The affiliated marketers signed up for the majority (700,000 Dth/d) of the proposed space. Vector's sponsors include Alliance Pipeline partner IPL Energy and MCN Energy.

TriState Lease Plan Fails

The TriState Pipeline proposal has many of the same characteristics as Vector. Both pipelines are designed to transport gas from Chicago to the Dawn Hub. Both traverse the same states, and both eliminate costs, construction and environmental problems by leasing existing pipelines.

However, the two projects differ in one critical way: their pipeline lease agreements. The 650 MDth/d TriState project - expandable to 1 MMDth/d - which is being sponsored by CMS Gas Transmission and Storage (67%) and Westcoast Energy (33%) would lease 123 miles of pipeline (saving $179 million in expenses) from Consumers Energy. But unlike Vector's leased Belle River Loop, TriState's leased Consumers Energy line would be operated by Consumers and would perform a "dual-use" role as both an interstate and a state-regulated intrastate transporter, which violates FERC rules.

FERC shelved the TriState project because of this "jurisdictional obstacle" related to the proposed lease. With Vector, "the leased loop and the other facilities of the Hinshaw pipeline [MichCon] would be 'operated as two distinct, physically separate systems; (2) the Hinshaw [MichCon] would have no rights to act as transporter on the leased line; and (3) the lease would not 'jeopardize the independent operation' of either Vector's system or the Hinshaw's system. The TriState proposal satisfies none of these criteria," the Commission said.

FERC suggested several options for TriState, including having Consumers construct, own and operate its own FERC-regulated, open-access pipeline in Michigan and provide transportation service for TriState and others in that state. Consumers also could file to become a fully FERC-regulated pipeline, or TriState could buy the required Consumers facilities.

All the other aspects of the project seemed to meet FERC requirements. TriState has signed agreements with six shippers for 67% of its total proposed capacity, or 435 MDth/d. The project would include construction of 148 miles of new pipeline from Joliet, IL, to White Pigeon, MI and 66 miles of looping line along the leased Consumers and Michigan Gas Storage pipeline facilities between White Pigeon and St. Clair. Another 12 miles of pipe would be installed to cross the international border to additional pipeline that would be installed in Ontario by affiliate TriState Canada. One new 30,000 hp compressor station would be built at Joliet and 18,570 hp of compression would be added at an existing station owned by Consumers at St. Clair.

TriState has filed for zoned rates. Its recourse rate from Joliet to Dawn is about $0.279/Dth, compared to Vector's negotiated rate of about $0.25/Dth including fuel.

FERC deferred for 60 days further processing of the TriState applications to permit the sponsors to make modifications to the project. A TriState spokesman said sponsors are "reviewing their options."

Rocco Canonica

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