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Bluewater Gets FERC Nod on Michigan Storage

Bluewater Gas Storage received a certificate from FERC on Friday to begin operating its existing Michigan storage operations, which include the recently developed 26.2 Bcf Bluewater storage field and the 3.05 Bcf Kimball 27 storage field in St. Clair County, under market-based rates.

The project is designed to serve demand for "rapid-response, load-following" storage services. Bluewater, which is indirectly owned by Energy Center Investments, a subsidiary of PAA/Vulcan Gas Storage LLC and Vulcan Capital, told the Commission that demand for flexible gas storage service in the Great Lakes region, the Northeast and western Ontario continues to increase, and certification of the Bluewater storage project will "enhance the competitive alternatives available to customers in these regions." It also said declining domestic production and deliverability are driving increases in the need for storage to meet winter demand and seasonal deliverability requirements.

The Bluewater field has a maximum injection rate of 460 MMcf/d and 732 MMcf/d of deliverability. The Kimball 27 field has a maximum injection rate of 48 MMcf/d and deliverability of 94 MMcf/d. Together the two depleted fields will provide 29.25 Bcf of working gas capacity and 826 MMcf/d of deliverability. The 30-mile, 20-inch diameter Bluewater pipeline in Macomb and St. Clair counties provides transportation to interconnections with Great Lakes Gas Transmission, Vector Pipeline, Michigan Consolidated Gas, Consumers Energy and Union Gas in Ontario. The five-mile, 8-inch diameter Kimball 27 pipeline connects to ANR Pipeline.

The storage fields previously were regulated by the Michigan Public Service Commission. Bluewater also operated as a Hinshaw pipeline, exempt from FERC jurisdiction. However, it held a presidential permit to operate border crossing pipeline facilities at the Michigan-Ontario international border. The FERC order also grants BGS Kimball LLC authorization to abandon its limited jurisdiction blanket transportation certificate for the Kimball 27 facilities, which will be operated by Bluewater.

FERC said Bluewater's storage operations will be in a "highly competitive market where numerous storage and interruptible hub service alternatives exist for potential customers." The Commission also said Bluewater's prospective market shares are "low" and that its Herfindahl Hirschman Index, which is used to measure market power, are "below the threshold for further review" for working gas capacity and peak-day deliverability. None of Bluewater's existing customers have protested the application.

FERC will require Bluewater to revise its firm storage service rates to eliminate the option for customers to negotiate ratchets. FERC said in the past it had allowed service flexibility so long as that same flexibility is available to all shippers. That would not be the case with Bluewater's proposal to give customers the option of negotiating individualized limitations on injection and withdrawal rights to correspond with their percentages of gas held in inventory.

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