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FERC OKs Rate Hike on REX-East to Recover Cost Overruns

FERC has approved Rockies Express Pipeline LLC's (REX) request to raise its transportation rates on the REX-East leg of the system to recover more than $1 billion in additional material, labor and engineering costs.

REX projects that total construction-related costs for REX-East will climb by approximately $1.2 billion to $3.3 billion. The original construction estimate was about $2.1 billion. As a result, it asked the Federal Energy Regulatory Commission (FERC) for authorization to increase its firm monthly reservation recourse rate to $26.6651/Dth from $17.7797/Dth and its interruptible transportation rate to $0.8792/Dth from $0.5870/Dth on the 639-mile REX-East portion of the nearly 1,700-mile system.

The FERC order amends a May 2008 order approving the REX-East project, thus allowing REX to revise its incremental firm and interruptible transportation rates for REX-East [CP07-208]. The transportation rates for REX-West and REX-Entrega portions of the pipeline system will remain unchanged.

Shell Energy North America (US) LP and ConocoPhillips asked FERC to confirm that authorizations granted in a 2007 order, which allowed REX shippers to market and release capacity prior to the in-service dates for REX-West and REX-East, would not be impacted by the proposed rate increases. "We find that the proposals herein do not limit Shell Energy's and ConocoPhillips' ability to release their capacity on Rockies Express," the order said.

Shell Energy further urged the Commission to confirm that its capacity-release contract with Sempra Rockies Marketing LLC will be at the reduced rate submitted in its bid -- $1.4863/Dth/d -- rather that the higher recourse rate that the agency approved. In April 2008 Sempra Rockies Marketing released capacity to Shell Energy at the lower rate for a term of July 1 of last year through March 31, 2013.

"This is not the appropriate proceeding to address provisions in Shell Energy's capacity-release contract with Sempra Energy...We will dismiss Shell Energy's protest of this issue, without prejudice of its right to pursue the matter at an appropriate forum," FERC said.

In its March 19 project update, REX affirmed it previous forecast that interim service on the REX-East leg, which will extend from Audrain, MO, to Ohio, will begin within the first half of April (see NGI, March 16).

"Initial REX-East service (or interim service) is projected to commence sometime within the first half of April 2009, with a capacity of 1,600 MDth/d into Zone 3. This will include deliveries to NGPL [Natural Gas Pipeline Company of America] (Moultrie County, IL), Trunkline (Douglas County, IL), Midwestern (Edgar County, IL), and PEPL [Panhandle Eastern Pipe Line] (Putnam County, IN). In addition, REX expects to have the Ameren (Moultrie County, IL) delivery point available for service contemporaneously with the interim service delivery points."

Additionally, service to Lebanon, OH, is projected to commence June 15 with a capacity of 1,600 MDth/d. In-service of the fully powered REX-East pipeline to Clarington, OH, is projected to begin Nov. 1 with a capacity of 1,800 MDth/d.

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