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Questar's Southern Trails Pipe Gets Preliminary Nod

Questar's Southern Trails Pipe Gets Preliminary Nod

FERC last week may very well have given California's natural gas market, which so far has been slow to open up to full competition, a nudge in the right direction when it awarded a preliminary determination to a pipeline that plans that give Southern California Gas (SoCalGas) a run for its money in the southern half of the state.

Southern Trails Pipeline, a Questar Pipeline subsidiary, was granted a PD to acquire/convert a 592-mile former oil pipeline from an affiliate and to construct related pipeline and compression facilities to provide direct gas transportation service from the "Four Corners" area near the borders of New Mexico, Arizona, Utah and Colorado to Southern California.

Questar has envisioned Southern Trails as the last leg of a three-part chain (Questar-TransColorado Gas Transmission-Southern Trails) that would bring in cheaper Rocky Mountain gas supplies to customers in the Southern California market in competition with SoCalGas. Questar owns a 50% interest in TransColorado.

Both SoCalGas and the California Public Utilities Commission (CPUC) are opposed to the $155 million project, saying it would create excess pipeline capacity in the state and could result in a bypass of SoCalGas and other LDCs serving the area.

But the Commission said the concerns about excess pipeline capacity were "misplaced" given that the Southern Trails project was being processed under optional certificate procedures, which means the pipeline will assume all risks. Moreover, FERC said it wasn't required to determine market need for an optional-certificate project.

FERC also rejected the arguments opposing a bypass. "In this case, the Commission recognizes that Southern Trails' proposed pipeline may successfully compete for new services to SoCal's customers. However, the Commission also recognizes that its proposal will bring competition to the natural gas industry in California. Further, there is no evidence that Southern Trails' services will be the result of any anti-competitive or unduly discriminatory behavior. [And] we find speculative the argument that the proposed bypass will result in idle capacity and unrecovered costs on other transporters' systems," the order said [CP99-163].

In the event bypass is permitted, SoCalGas and the CPUC had asked FERC to order the pipeline to collect a surcharge on its deliveries to California to fund the state's public-purposes programs - such as SoCalGas and other LDCs are required to do. But the Commission rejected this outright, saying imposition of such a surcharge on Southern Trails' deliveries "would require end-users in other states to subsidize California's public-purpose programs."

Southern Trails appears to be the first pipeline project to pass muster under the Commission's recently approved policy statement favoring incremental pricing for new construction. "...[W]e believe that since Southern Trails' optional certificate will place it at risk for recovery of its construction and operating costs and because there is no evidence that the proposal will adversely affect landowners or create unfair competition with existing pipelines, the record lacks evidence sufficient to rebut the presumption that Southern Trails' proposed facilities are required by the public convenience and necessity," the order noted.

Under its application, Southern Trails --- in addition to acquiring/converting the crude oil pipeline --- will construct about 75 miles of new pipeline facilities, seven new compressor stations totaling about 18,356 hp, and a number of pipeline extensions. The latter group will include a receipt point to receive gas from El Paso Field Services' Chaco Plant in San Juan County, NM, and six interstate pipeline interconnects --- two with El Paso Natural Gas, two with Transwestern Pipeline, one with TransColorado Gas, and one with Mojave Pipeline. Additionally, the new facilities will interconnect with Southwest Gas, Pacific Gas and Electric and SoCalGas.

The proposed pipeline would be divided into East and West Zones. The East Zone, which would begin in the San Juan Basin in New Mexico and end at the California border, would have 87,500 Dth/d of available capacity. The West Zone would be located wholly within California and would have 120,000 Dth/d of available capacity.

Southern Trails said its affiliate, Questar Energy Trading Co., has contracted for 30,000 Dth/d of firm capacity in the East Zone. It is still negotiating agreements with prospective shippers for the balance of the capacity in both zones.

Firm transportation rates for both zones will be the same, with the maximum reservation rate at $11.46 and the usage rate at 0.967 cent. The interruptible rate will be about 38.65 cents.

Susan Parker

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