KN Energy’s Mark Kissel, director of account services, saidyesterday the major firm transportation deal signed between NaturalGas Pipeline Company of America and Aquila Energy earlier this weekhas a net present value for the pipeline of $31.16 million, which isguaranteed revenue and excludes revenue sharing above that level thatis based on several different pricing strategies. The contract covers150,000 MMBtu/d of firm capacity on NGPL’s Amarillo leg and 350,00MMBtu/d on NGPL’s Gulf leg for two years (see Daily GPI, Sept. 28).

“We sign a lot of deals but not many are like this,” said Kisselin an interview with NGI. “What makes this unique is that it has alot of rates and pricing in it that are market sensitive. There areseveral different pricing strategies that could be used. There’s afinancial base load price and a physical base load price, andthere’s a day-to-day swing price. So this capacity could be put inany of those three categories. It’s how [Aquila wants] to use it.All those strategies will generate different revenue, and anyrevenue above the guarenteed revenue gets shared. As more revenuegets pulled out of the deal, a higher percentage goes to Aquila totry to motivate them to keep the market moving in the rightdirection and generate more revenue.

“I think for the marketers – that customer class – this is thetype of deal they feel very comfortable with because it is usingpricing strategies they are familiar with and use every day.”

The capacity involved in the prearranged deal with Aquila wentthrough an eight-day auction and was awarded to two differentshippers out of the 10 participating in the bidding. Aquila, theparty in the prearranged deal, elected to “trump” the winningshippers and received all the capacity as a result.

The capacity involved in the transaction represents 15% ofNGPL’s 3.3 Bcf/d of capacity to the Chicago market from West Texas,the Midcontinent and the Gulf Coast region. NGPL now is more than99% subscribed. Kissel said NGPL’s average contract term is twoyears. “It puts us back in a sold out position.”

Observers might wonder why Aquila would want to lock itself intoa major capacity contract to a market that is almost certain to beoversupplied within the next year because of the 1.3 Bcf/d AlliancePipeline expansion coming on line in fall of 2000. “If you try tolook at this deal as a stand-alone transaction you might have thatimpression,” said Bob Poehling, senior vice president of the assetservices group of Aquila Energy. “But we’ve got other strategies.This is going to be extremely complementary [to our other assets inthe Midcontinent].”

Aquila spokesman Al Butkis explained that the NGPL contract,which is Aquila’s largest pipeline capacity deal to date, fits intoits bundled energy services program in the Midcontinent/Midwestregion, which includes Aquila Gas Pipeline and storage assets inTexas and sales contracts and markets in Chicago.

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