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Spin-down of Trunkline Line Comes Under Fire
Producers and utilities last week registered strong protests to Trunkline Gas Co.'s proposal to spin down 720 miles of its 26-inch diameter natural gas mainline to an affiliate, saying that while this action may be in the pipeline's best interest it's not "in the public interest."
"The basis for Trunkline's application is that there is an excess amount of pipeline capacity serving [its] market areas, and that this excess capacity has forced Trunkline to heavily discount its transportation services," said Indicated Shippers, a group of six major and independent producers. Trunkline contends the situation will only worsen in the years ahead.
The "applicable standard" for whether FERC should approve Trunkline's proposed abandonment is not whether it's "potentially profitable" for Trunkline and its affiliate, CMS Trunkline Pipeline Holdings Inc., but rather whether it's in the public interest, the producers said. "A transfer at less than market value is not in the public interest, particularly given the detriments of abandonment to shippers."
Northern Indiana Public Service Co. and Northern Indiana Fuel and Light Co. agreed, saying Trunkline's proposal was inconsistent with the "public convenience and necessity" standard under Section 7 of the Natural Gas Act [CP00-114]. And Memphis Light, Gas and Water doesn't think the situation on the 26-inch Line is as bad as Trunkline portrays it.
".....[I]nformation provided by Trunkline establishes that its contract levels have been increasing over the last five years and, absent action by Trunkline, there is no indication that these levels will decrease." Also, as a result of its recent rate case, "the need to provide discounts will be significantly decreased," the gas distributor said.
Trunkline proposes to spin down the line to another subsidiary, CMS Trunkline Pipeline Holdings, that plans to use it to transport ethane and other hydrocarbon vapors to the Gulf Coast from the Aux Sable Liquid Products processing plant, which is under construction at the terminus of Alliance Pipeline. The 26-inch line stretches from Longville, LA, to Bourbon, IL.
Trunkline seeks to transfer the 26-inch line to CMS Holdings at net book value, which it estimated at about $10.2 million. A new venture company, which would include CMS Holdings and other entities, would reimburse Trunkline for the costs associated with the abandonment of the line and for reconnecting existing customers to the mainline (an estimated $10 million). The transfer of the line would reduce the mainline market capacity of Trunkline's system by 255 MDth/d, or 14%, to 1,555 MDth/d. Trunkline said it would slice its annual cost of service by about $3.3 million, which some critics believe is an overestimation.
"This means that under the proposed abandonment, ratepayers would be trading a 3.2% reduction in cost responsibility in return for a 14% reduction in pipeline capacity. This arrangement would not serve to alleviate the burden on shippers attributable to deeply discounted or unused capacity. Instead, abandonment would only increase the burden," Indicated Shippers told FERC [CP00-114]. Memphis Light estimates that, if the abandonment is granted, Trunkline customers would face a rate increase of up to 11%.
".....[T]he fact that Trunkline is not able to extract its full tariff rates from shippers is not justification for the pipeline to abandon the capacity --- capacity that has essentially been paid for by Trunkline's shippers --- simply in order for Trunkline's affiliate to benefit economically from a new venture," producers noted.
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