Columbia Gas Transmission’s proposed plan to sell its ProjectPenny transmission system in western New York and northwesternPennsylvania to Norse Pipeline LLC, which seeks to refunctionalizethe facilities as gathering, is a “thinly-veiled attempt todramatically increase” rates to move gas on the system at theproducers’ expense, charged an independent producer.

“Norse has agreed to purchase the transmission facilities at farin excess of their current market value, placing [producers] atrisk of paying grossly excessive unregulated gathering charges tocure Norse’s business mistake,” said Lomak Petroleum, the largestproducer and transporter on the Project Penny system [CP98-568].

Specifically, Lomak is concerned the 9- to 11-cents/Dth ratethat it’s now paying to move gas on the Project Penny system will”skyrocket” if the proposed sale and the subsequent refunctioningare approved by FERC. “Producers, like Lomak, with reserves andproduction tied into the Project Penny transmission facilities areeffectively captive customers due to the large cost to duplicatethose transmission facilities and the low throughput now in thesystem. There may now be no realistic competitive alternative tothe Project Penny transmission facilities,” it noted, adding thiscould lead to the shut-in of Appalachian Basin production.

The producer has asked FERC to suspend the proceedings until atechnical conference can be held for Columbia and Norse to presentadditional information on the sale of the Project Penny facilities.

Lomak believes the Penny Project should remain as transmission.It noted FERC has repeatedly found that relatively small diameterlines operated at low pressures in the Appalachian Basin andelsewhere still can function as jurisdictional transmissionfacilities. Further, Lomak noted the fact that the Project Pennysystem moves across state lines is another sign that it functionsprimarily as a transmission facilities.

In support of its position, Lomak noted that Columbia currentlyis petitioning the Commission to refunctionalize its Miley andTrumball gathering systems as transmission – both of which arelocated near the Project Penny facilities and have similarcharacteristics such as small outside (10 to 12 inches) diametersand operate at low pressures.

Susan Parker

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