Rolled-In Pricing of Northern Border Project Booed
U.S. and Canadian shippers on Northern Border Pipeline have
lobbed a barrage of protests at the pipeline's latest request to
roll-in the costs of its Project 2000 extension, with some going as
far as to question the need for the Illinois-to-Indiana extension.
Despite its efforts to downsize Project 2000, most agreed
Northern Border's proposed extension still falls short of meeting
FERC's threshold requirement for rolled-in rates of no subsidies by
existing pipeline customers. Its request for rolled-in pricing of
the amended extension has run into especially harsh criticism
because it "stands on the shoulders" of Northern Border's
Canada-to-Chicago project, which was completed in 1998 and
reportedly increased rates to existing customers by 9%.
"Rolling in the costs of Project 2000 on top of the rolled-in
costs of the Chicago project, as Northern Border has proposed, will
serve simply to further increase the subsidized volumes flowing on
Northern Border," said Pan-Alberta Gas Ltd. and Pan-Alberta Gas
Project 2000 is a proposed 34-mile, 544 MMcf/d extension of
Northern Border's system from Manhattan, IL, to North Hayden, IN.
With the completion of the extension, 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. It would
bring competitive Canadian gas supplies into the Indiana market for
the first time.
Northern Border has amended the project twice, each time
proposing to downsize it. In the latest amendment filed last month,
Northern Border sought to reduce the diameter of the pipeline from
36 inches to 30 inches. The cost of the extension, which initially
had a pricetag of $190 million, now is estimated at $94.4 million.
The pipeline contends its twice-amended extension meets the
Commission's new "no subsidy" standard for rolled-in treatment. In
fact, Northern Border calculates that in 2002, the first year the
extension would be in service, the projected rate for firm service
after rolling in the proposed extension's costs would be the same
as the rate without the proposed facilities and related volumes ---
4.30 cents per 100-Dth miles.
But according to a protest filed by Northern Border's nemesis -
Natural Gas Pipeline Co. of America --- Project 2000 would result
in an annual subsidization of $9 million by existing customers if
the rolled-in approach is used. "This circumstance supports the
Commission's imposing an incremental rate [of roughly six cents]
for the extension, to be paid by the shippers using it. This would
be in addition to what some of them would also pay for service on
the Northern Border system upstream/to the west of the extension's
starting point" at Manhattan, IL.
ANR Pipeline estimates the subsidy would be considerably smaller
- about 3.2% of the revised project's incremental annual cost of
service, or approximately $500,000. It conceded, however, "this
subsidy could be even higher based on the cost of service proposed
in Northern Border's pending rate case."
Northern Border filed its first amendment to scale back Project
2000 and win rolled-in rate treatment last March. At the time, ANR
calculated that two shippers would use 64% of the capacity of
Project 2000, yet would bear only 10.3% of the costs of the
facilities. Under the latest amendment, "these two shippers will
bear 16% of the cost of the extension, but ANR believes that this
is still an unreasonable cross-subsidy at the expense of existing
long-haul shippers, such as ANR."
ANR and others called on the Commission to reject Northern
Border's proposal for rolled-in pricing on the extension. At a
minimum, the Coastal Corp. pipeline said FERC should bar Northern
Border from rolling in any cost overruns associated with the