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Trunkline Criticized for Proposal to Cut Michigan Service

Trunkline Gas Co.'s proposal to abandon by sale 770 miles of its system has come under fire at FERC from Michigan customers served by the pipeline because it would reduce Trunkline's service into the state to a single natural gas pipeline from the current two lines.

Consumers Energy, which provides electric and natural gas service to nearly 6.5 million customers in Michigan, has filed a protest against the application along with Michigan Gov. Rick Snyder, the Michigan Public Service Commission (MPSC) and The Association of Business Advocating Tariff Equity (ABATE), which is a group of Michigan industrial users of gas and power [CP12-491].

In its application filed in July, Trunkline asked the Federal Energy Regulatory Commission (FERC) for authorization to abandon close to 770 miles of looped mainline gas transmission pipeline by sale to an affiliate to be designated by its parent, Energy Transfer Equity LP, for the conversion to oil transmission service. Energy Transfer Equity is currently parent of Southern Union Co., which indirectly owns 100% of the equity interest in Trunkline. If Trunkline's request is approved, it would cease gas transportation through one of its two pipelines serving Michigan.

"Trunkline's proposal, if approved, will significantly reduce existing natural gas service flexibility and necessary reliability to Consumers Energy customers and will result in higher costs," said Consumers Energy CEO John Russell.

The impact of the proposal would be an almost 40% reduction in Trunkline's mainline capacity, raising concerns about the pipeline's ability to meet its minimum delivery requirements, Consumers Energy said.

Trunkline told FERC that the proposed abandonment of the facilities "will have no adverse effect on its customers' firm service requirements and will not affect Trunkline's continuing ability to meet all of its existing firm service obligations." It further noted that the capacity it is proposing to abandon "constitutes less than 2% of the total interstate pipeline capacity into the market area of the Midwest region."

Moreover, Trunkline said its capacity continues to be underutilized.

"The customer base that Trunkline was built to serve is no long reliant upon the Trunkline system to meet market demand. This situation is due in part to the recent emergence of supply [shale] nearer to market areas and the construction of new pipeline infrastructure. Only a small fraction of the total capacity of the Trunkline system is under firm service agreements at the maximum rate, and capacity for those service agreements will continue to be provided through Trunkline's larger, parallel line, which will be unaffected by the abandonment."

The MPSC urged FERC to reject Trunkline's application as "premature," or in the alternative to establish a technical conference to consider the market ramifications of the proposal.

"Trunkline has not carried its burden of demonstrating that a permanent cessation of service over the facilities at issue is warranted at this time. The proposed abandonment...raises numerous issues not addressed in Trunkline's application. The MPSC therefore requests that the Commission convene a technical conference to further analyze the extent to which the capacity subject to abandonment is needed to serve the existing and future natural gas demands of the region and to analyze the impact of removing such capacity on the reliability of natural gas service to consumers in Michigan."

In its protest, ABATE said the abandonment of the Trunkline facilities "will put upward pressure on the cost of gas delivered into Michigan, which will increase the economics of the next probable electric generation technology -- gas-fired combined cycle generating facilities -- and will lead to a decrease in reliability.

"The pipeline sought to be abandoned by Trunkline has been in the rate base paid by Michigan utilities and their retail customers for the past 50 years, and, as such, represents a low-cost asset that continues to provide many benefits to Michigan utilities and their customers. The loss of this pipeline will reduce the number of interconnections and delivery options available to consumers, brokers and utilities such that delivery costs into Michigan will rise."

Members of ABATE include Alcoa Inc., Cargill, Chrysler Group LLC, Dow Chemical Co., Enbridge Energy Co., Ford Motor Co., General Motors LLC and U.S. Steel Corp.

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