Southern Trails Moves Forward with Duke Deal

Questar Pipeline Co. said it is moving forward with its Southern Trails pipeline project, following a deal with Duke Energy for the entire 80,000 Dth/d of firm transportation capacity on the eastern segment (east of California) of the 705-mile pipeline, a converted oil line which runs from Blanco, NM, to Long Beach, CA. However, the 120,000 Dth/d of firm capacity on the western segment will go unused until Southern California Gas's tariff is changed, a spokesman said.

"This contract moves us one very large step closer to making the Southern Trails Pipeline a reality," said Questar Pipeline CEO D.N. Rose. "We now expect to be in a position to start construction in the near future."

The compressors are being built, said Questar spokesman Chad Jones. "There are three compressor stations on that section on the Navajo reservation and four total. We're going to ship gas on the eastern segment. Duke is going to take their gas from the four corners area to the California state line. What they do with it from there, we don't know."

A provision in SoCalGas' tariff is quite a disincentive to bypassing the LDC. It requires any shipper using an alternative pipeline to also pay SoCalGas for transportation. "No one is interested in paying Southern California Gas' residual load tariff in addition to taking gas from a third party," noted Jones. "If you take gas on an alternate pipeline, you still have to pay Southern California Gas the full amount as if you were taking gas from them. Everyone recognizes that it has to go away."

An administrative law judge examined the problem last year and agreed it should be resolved. However, the CPUC has not ruled on the alternatives proposed by shippers. "We don't think [SoCalGas' plan] is substantially different than what is already in place," said Jones. "We've put ours forward and expected a decision 120 days ago, but the CPUC has been tied up with other matters this year. We expect a decision [this month]."

Jones said plenty of California customers have expressed interest in the western capacity, but "not as long as the utility demands they pay twice."

"We've had interest in this project from day one. We bought the line from ARCO, and ARCO has a refinery that sits a few miles off the end of the pipeline. I think there are earlier press releases that refer to the refinery as being a prime potential customer for the full capacity of the western segment," said Jones. "It's not that big of a line as far as interstate pipelines go; it's only 16 inches in diameter. The plan is first to get people to take the capacity exists." And then Questar will consider expanding the system.

Questar also is currently seeking customers for the west zone, which runs from the California state line to the Long Beach area. "Southern California badly needs additional intrastate gas transportation capacity to supply proposed new electric power plants," Rose said. "We urge the regulatory authorities in California to act promptly to remove the barriers that are delaying our project."

FERC approved the $155 million oil-to-gas pipeline conversion last summer (see NGI, July 31). Questar envisioned Southern Trails as the last leg of a three-part chain (TransColorado Gas Transmission-Questar-Southern Trails) that would ship cheaper gas supplies to customers in the southern California market in direct competition with LDC SoCal. Questar owns a 50% interest in TransColorado.

Both SoCal and the California Public Utilities Commission initially opposed the Southern Trails project, saying it would create excess pipeline capacity in the state and could result in a bypass of SoCal and other utilities serving the area, creating stranded costs. FERC wasn't convinced, however, and rejected SoCal's request for rehearing of its preliminary determination granted to Southern Trails in October 1999. But SoCal continued to express concerns of excessive capacity. It's doubtful the utility can continued to oppose the project for the same reasons today, given the extreme price increases and pipeline constraints there this winter and the large number of expansions proposed by nearly every other pipeline entering the state.

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