FERC Wednesday issued a certificate granting Northern Natural Gas pipeline the authority to expand its system in Minnesota and Iowa by approximately 374,000 Dth/d of incremental winter peak-day capacity.

The proposed expansion is the first discrete stand-alone project under the umbrella of the Northern Lights Expansion Project, a multi-year commitment to expand Northern Natural’s market-area capacity to satisfy its customers’ expected future requirements through 2026.

Omaha, NE-based Northern Natural, a pipeline subsidiary of MidAmerican Energy Holdings, proposes to build approximately 67 miles of pipeline extensions and looping, of which about five miles would be additional greenfield pipeline; replace about five miles of three-inch diameter pipeline and two miles of two-inch diameter pipeline with 12-inch and eight-inch diameter pipeline, respectively; modify an existing compressor station; add new facilities at two town border stations; and modify facilities at 23 town border stations. It also plans to abandon in place or remove approximately 16 miles of 16-inch diameter pipeline.

“Northern’s project will not adversely affect other existing pipelines in the market or their captive customers since the purpose of Northern’s proposed expansion project is to serve new gas requirements, not displace loads on other systems,” said the FERC order approving the project [CP06-403]. And, “the proposed facilities will benefit Northern’s existing customers because they will be operated in an integrated manner with Northern’s existing facilities, providing additional pipeline reliability and flexibility for Northern’s existing customers.”

The Northern Natural project is expected to result in incremental peak-day firm service of approximately 374,000 Dth/d serving residential, commercial, industrial, agricultural, electric-power generation and ethanol plant demand growth in the pipeline’s market area for the 2008 heating season. The pipeline already has executed agreements for incremental firm service with 24 market-areas shippers for 374,225 Dth/d. Three of Northern Natural’s market-area customers — CenterPoint Energy Minnesota Gas, Xcel Energy on behalf of Northern States Power-Minnesota, and Flint Hills Resources LP — have subscribed to 68.1% of the proposed capacity, it noted.

It noted that the incremental transportation services will include the transportation of 71,650 Dth/d for use as fuel in new ethanol plants, thus meeting the requirements of the Energy Policy Act of 2005 for increased renewable fuel usage.

Most of the proposed expansion is targeted for completion and in-service by Nov. 1 of this year. However, about five miles of one of the proposed pipe extension in Iowa isn’t expected to be in operation until Nov. 1, 2008. It estimated that the new facilities will cost $129 million. Total pipe remove will cost about $1.53 million less $819,000 of pipe salvage value, for a net cost of $711,000, the company said.

FERC granted Northern Natural’s request for a predetermination supporting rolled-in rate treatment for the costs of the expansion project in its next Section 4 rate case. “Northern has shown that the projected incremental revenues from the additional capacity created by the expansion will exceed the estimated costs of the expansion, notwithstanding that some of the expansion services will be provided at discounted rates,” the order said.

Northern Natural is a 15,900-mile pipeline that provides 4.5 Bcf/d of natural gas to major Midwest markets — Minnesota, Iowa, Nebraska, South Dakota, Wisconsin, Illinois and Michigan.

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