The Federal Energy Regulatory Commission yesterday issued apreliminary determination to a pipeline that could very well giveSouthern California Gas (SoCalGas) a run for its money in theCalifornia natural gas market.

Southern Trails Pipeline, a Questar Pipeline subsidiary, wasgranted a PD to acquire/convert a 592-mile former oil pipeline fromanother Questar company and to construct related pipeline andcompression facilities to provide direct gas transportation servicefrom the “Four Corners” area near the borders of New Mexico,Arizona, Utah and Colorado to Southern California.

Questar has envisioned Southern Trails as the last leg of athree-part chain (TransColorado Gas Transmission-Questar-SouthernTrails) that would ship cheaper gas supplies to customers in theSouthern California market in competition with SoCalGas. Questarowns a 50% interest in TransColorado.

Both SoCalGas and the California Public Utilities Commission(CPUC) opposed the Southern Trails project, saying it would createexcess pipeline capacity in the state and could result in a bypassof SoCalGas and other LDCs serving the area.

But the Commission said the concerns about excess pipelinecapacity were “misplaced” given that the Southern Trails projectwas being processed under optional certificate procedures, whichmeans the pipeline has to assume all the risks. Moreover, FERC saidit wasn’t required to determine market need for an optionalcertificate project.

FERC also rejected the bypass argument. “In this case, theCommission recognizes that Southern Trails’ proposed pipeline maysuccessfully compete for new services to SoCal’s customers.However, the Commission also recognizes that its proposal willbring competition to the natural gas industry in California.Further, there is no evidence that Southern Trails’ services willbe the result of any anti-competitive or unduly discriminatorybehavior. [And] we find speculative the argument that the proposedbypass will result in idle capacity and unrecovered costs on othertransporters’ systems,” the order said [CP99-163].

In the event the bypass was allowed, SoCalGas and the CPUC askedFERC to require the pipeline to collect a surcharge on itsdeliveries to California to fund the state’s public-purposeprograms-such as SoCalGas and other LDCs must do. But theCommission rejected this outright, saying that imposition of such asurcharge on Southern Trails’ deliveries “would require end usersin other states to subsidize California’s public purpose programs.”

Southern Trails was the first pipeline project to pass musterunder the Commission’s recently approved policy statement favoringincremental pricing for new construction. “…[W]e believe thatsince Southern Trails’ optional certificate will place it at riskfor recovery of its construction and operating costs and becausethere is no evidence that the proposal will adversely affectlandowners or create unfair competition with existing pipelines,the record lacks evidence sufficient to rebut the presumption thatSouthern Trails’ proposed facilities are required by the publicconvenience and necessity,” the order noted.

Under its application, Southern Trails-in addition to convertingthe crude oil pipeline-will construct about 75 miles of newpipeline facilities, including pipe replacements near theCalifornia-Arizona border and pipeline realignments in California.It also plans to build seven new compressor stations totaling about18,356 horsepower.

Southern Trails also plans to build 58 miles of pipelineextensions. These will include a receipt point to receive gas fromEl Paso Field Services’ Chaco Plant in San Juan County, NM, and sixinterstate pipeline interconnects-two with El Paso Natural Gas, twowith Transwestern Pipeline, one with TransColorado Gas, and onewith Mojave Pipeline. Additionally, the new facilities willinterconnect with Southwest Gas, Pacific Gas and Electric andSoCalGas.

The proposed pipeline would be divided into East and West Zones.The East Zone, which would begin in the San Juan Basin in NewMexico and end at the California border, would have 87,500 Dth/d ofavailable capacity. The West Zone would be located wholly withinCalifornia and would have 120,000 Dth/d of available capacity.

Southern Trails said its affiliate, Questar Energy Trading Co.,has contracted for 30,000 Dth/d of firm capacity in the East Zone,and it is still negotiating agreements with prospective shippersfor the balance of the capacity in both zones.

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.