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Northern Border Amends Project to Meet FERC Policy

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 pipeline 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 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 corridors.

Susan Parker

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