Northern Border Pipeline has downgraded its Project 2000extension into Indiana for a second time, but this time its goal isto comply with the “no subsidy” requirement of FERC’s new policystatement on new pipeline construction..

Although the policy statement generally eliminated a presumptionin favor of rolled-in ratemaking for new natural gas pipelineprojects, Northern Border contends rolled-in pricing would beappropriate for the amended Project 2000 since it wouldn’t resultin any increase to the rates of the pipeline’s existing shippers.

Northern Border said firm transportation rates in 2000 afterrolling in the reconfigured facility costs would be 4.40 cents per100 Dth-miles, which it estimates would be about 0.02 cents per 100Dth-miles less than what the rates would be without the proposedfacilities. And in 2002, the firm rate for service after rolling inthe proposed extension’s costs would be the same as the ratewithout the proposed facilities — 4.30 cents per 100 Dth-miles,Northern Border noted.

“The year 2002 transportation cost comparison shows no change inthe rate per 100 Dekatherm-miles and the year 2000 transportationcost comparison shows a slight decrease in the rate perDekatherm-miles. As demonstrated, Project 2000 is financiallyviable without ‘subsidy’ from existing customers,” the pipelinetold FERC [CP99-21-001].

In its latest amendment, Northern Border is seeking to downgradefrom 36 inches to 30 inches its proposed 34-mile lateral, whichwould extend from Manhattan, IL, to North Hayden, IN. With thecompletion of the lateral, Northern Border’s system would extendfrom the U.S.-Canadian border in Montana to the local distributionsystem of Northern Indiana Public Service Co. (NIPSCO). The amendedproject, whose design capacity would remain at 544 MMcf/d, wouldbring competitive Canadian gas supplies into the Indiana market forthe first time. An interconnect also is planned in the future withAlliance Pipeline, which would provide northern Indiana with asecond source of Canadian supplies. This amendment and the onefiled last March, which proposed reducing the project’scompression, have cut its original pricetag of $190 million toabout $94 million.

“Although less than 35 miles in length, Project 2000’s extensioninto North Hayden represents a significant addition to the nationalgrid. By connecting Northern Border’s existing mainline to theNIPSCO distribution system, Project 2000 integrates the northernIndiana markets with the Chicago hub and exponentially increasesthe number of possible delivery iterations available to shippersaccessible to Northern Border,” it said.

Northern Border’s project has been hotly contested by twocompeting pipelines in the Midwest, Natural Gas Pipeline Co. ofAmerica (NGPL) and ANR Pipeline. “Although Natural concedes thesuccess of its recent capacity auctions — where virtually allfirm capacity was subscribed — it nonetheless complains thatapproval of…..Project 2000, and specifically the introduction ofa competing line into North Hayden, IN, poses a ‘potential,negative impact on Natural over time’ — in the sense of losingbusiness to a heavily subsidized new lateral.”

But Northern Border’s showing that Project 2000 “can beconstructed without ‘subsidy’ effectively disposes of Natural’sspeculative concerns about the impact on its market,” it said. ANRPipeline. which is a small-volume shipper on Northern Border, “hasoffered even less specific claims of potential competitive harm.”

Northern Border reminded FERC that it historically has taken a”jaundiced view of unsupported ‘uncompetitive’ claims asserted byincumbent pipelines looking to protect an existing market.” And thenew policy statement, “while recognizing the need to consider theinterests of competing pipelines, does nothing to lend legitimacyto Natural’s [or ANR’s] undocumented allegations,” the Midwestpipeline contends.

Natural has “advanced claims of market loss” that cannot be”quantified or tied” to the impact of the proposed Project 2000,Northern Border noted. As a result, “it follows that any attempt togauge ‘captive customer’ impact would be speculative.”

Northern Border said Project 2000 was fully subscribed underlong-term binding agreements that would be converted to firmservice agreements upon FERC certification of the project. It saidit was difficult to assess how much of the subscribed capacity wasassociated with existing load vs. projected new load. “What isevident, however, is that a group of sophisticated and unaffiliatedshippers, representing a cross-section of the gas industry, haveevidenced their need for additional capacity into Hayden bycommitting to 10-year agreements at a rate that is not subsidizedby existing customers.” Two of the project’s biggest shippersinclude NIPSCO (165 MMcf/d) and Bethlehem Steel (30 MMcf/d).

“There is simply no basis for the Commission to ‘second-guess’the market’s call for Project 2000. Existing customers’ rates willbe unchanged; affiliate contracts are not being relied upon asevidence of market demand; and, because all of the planned capacityis subscribed, the project introduces no cost shifting orrisk-allocation issues. Project 2000, therefore, satisfies the’need’ showing required of certificate applicants under the newpolicy statement,” Northern Border said.

In addition to meeting market need, the amended Project 2000would satisfy landowner concerns, according to Northern Border. Theproject “makes maximum use of existing utility right-of-way,thereby minimizing landowner impact.” It estimated about 85% of theproposed extension lies within existing rights-of-way, while thebalance of the planned route is adjacent to existing pipelinecorridors.

Susan Parker

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