Northern Border Amends Project to Meet FERC Policy
Northern Border Pipeline has downgraded its Project 2000
extension into Indiana for a second time, but this time its goal is
to comply with the "no subsidy" requirement of FERC's new policy
statement on new pipeline construction..
Although the policy statement generally eliminated a presumption
in favor of rolled-in ratemaking for new natural gas pipeline
projects, Northern Border contends rolled-in pricing would be
appropriate for the amended Project 2000 since it wouldn't result
in any increase to the rates of the pipeline's existing shippers.
Northern Border said firm transportation rates in 2000 after
rolling in the reconfigured facility costs would be 4.40 cents per
100 Dth-miles, which it estimates would be about 0.02 cents per 100
Dth-miles less than what the rates would be without the proposed
facilities. And in 2002, the firm rate for service after rolling in
the proposed extension's costs would be the same as the rate
without the proposed facilities --- 4.30 cents per 100 Dth-miles,
Northern Border noted.
"The year 2002 transportation cost comparison shows no change in
the rate per 100 Dekatherm-miles and the year 2000 transportation
cost comparison shows a slight decrease in the rate per
Dekatherm-miles. As demonstrated, Project 2000 is financially
viable without 'subsidy' from existing customers," the pipeline
told FERC [CP99-21-001].
In its latest amendment, Northern Border is seeking to downgrade
from 36 inches to 30 inches its proposed 34-mile lateral, which
would extend from Manhattan, IL, to North Hayden, IN. With the
completion of the lateral, Northern Border's system would extend
from the U.S.-Canadian border in Montana to the local distribution
system of Northern Indiana Public Service Co. (NIPSCO). The amended
project, whose design capacity would remain at 544 MMcf/d, would
bring competitive Canadian gas supplies into the Indiana market for
the first time. An interconnect also is planned in the future with
Alliance Pipeline, which would provide northern Indiana with a
second source of Canadian supplies. This amendment and the one
filed last March, which proposed reducing the project's
compression, have cut its original pricetag of $190 million to
about $94 million.
"Although less than 35 miles in length, Project 2000's extension
into North Hayden represents a significant addition to the national
grid. By connecting Northern Border's existing mainline to the
NIPSCO distribution system, Project 2000 integrates the northern
Indiana markets with the Chicago hub and exponentially increases
the number of possible delivery iterations available to shippers
accessible to Northern Border," it said.
Northern Border's project has been hotly contested by two
competing pipelines in the Midwest, Natural Gas Pipeline Co. of
America (NGPL) and ANR Pipeline. "Although Natural concedes the
success of its recent capacity auctions --- where virtually all
firm capacity was subscribed --- it nonetheless complains that
approval of.....Project 2000, and specifically the introduction of
a competing line into North Hayden, IN, poses a 'potential,
negative impact on Natural over time' --- in the sense of losing
business to a heavily subsidized new lateral."
But Northern Border's showing that Project 2000 "can be
constructed without 'subsidy' effectively disposes of Natural's
speculative concerns about the impact on its market," it said. ANR
Pipeline. which is a small-volume shipper on Northern Border, "has
offered 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 by
incumbent pipelines looking to protect an existing market." And the
new policy statement, "while recognizing the need to consider the
interests of competing pipelines, does nothing to lend legitimacy
to Natural's [or ANR's] undocumented allegations," the Midwest
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 to
gauge 'captive customer' impact would be speculative."
Northern Border said Project 2000 was fully subscribed under
long-term binding agreements that would be converted to firm
service agreements upon FERC certification of the project. It said
it was difficult to assess how much of the subscribed capacity was
associated with existing load vs. projected new load. "What is
evident, however, is that a group of sophisticated and unaffiliated
shippers, representing a cross-section of the gas industry, have
evidenced their need for additional capacity into Hayden by
committing to 10-year agreements at a rate that is not subsidized
by existing customers." Two of the project's biggest shippers
include 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 will
be unchanged; affiliate contracts are not being relied upon as
evidence of market demand; and, because all of the planned capacity
is subscribed, the project introduces no cost shifting or
risk-allocation issues. Project 2000, therefore, satisfies the
'need' showing required of certificate applicants under the new
policy statement," Northern Border said.
In addition to meeting market need, the amended Project 2000
would satisfy landowner concerns, according to Northern Border. The
project "makes maximum use of existing utility right-of-way,
thereby minimizing landowner impact." It estimated about 85% of the
proposed extension lies within existing rights-of-way, while the
balance of the planned route is adjacent to existing pipeline