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Sale/Conversion of Trunkline Segment Comes Under Fire

Sale/Conversion of Trunkline Segment Comes Under Fire

A proposal of Trunkline Gas to spin down one-third of its mainline gas system - about 720 miles - to an affiliate for transportation of ethane and other hydrocarbons came under heavy attack at FERC from the pipeline's shippers last week.

Most argued Trunkline's system still was considered a key link in the Midwest gas pipeline grid, even in light of all the new pipeline construction coming into that market. They disputed Trunkline's claims that firm capacity commitments on this portion of its system (Line 100-1) were expected to fall off sharply over the next couple of years.

The pipeline insists deep discounting and the prospect of heavy decontracting forced it to seek abandonment of its 26-inch line, but shippers weren't swayed by those arguments. "This [discounting] is not an unusual practice; indeed, Trunkline is granted a discounting adjustment which efficiently shifts to its customers the risk of discounting," Amoco Production pointed out.

Trunkline seeks to sell this segment of its pipeline, which spans from Illinois to Louisiana, for $32 million ($10 million in book value plus $22 million in additional costs) to a new affiliate, Trunkline A.P. Pipeline Co. The line would be converted to transport ethane and hydrocarbon vapors to the Gulf Coast from the proposed Aux Sable Liquids Products processing plant, which is expected to be built at the terminus of the planned Alliance Pipeline. The sale, if approved by the Commission, would reduce Trunkline's capacity of about 1,810 MDth/d by 255 MDth/d, or by about 14%.

Trunkline has predicted firm contract capacity on its system will drop sharply by 947 MDth/d. or by 43%, by Nov. 1, 1999. But "Trunkline's pessimistic firm-contract prediction ignores the fact the demand for firm natural gas transportation on its system has steadily increased and remains strong," said Memphis Light, Gas and Water in comments at FERC [CP98-645]. It noted reports filed at the Commission revealed the pipeline's firm contracts rose 21% from 1,812 MDth/d in 1996 to 2,189 MDth/d in early 1998.

Likewise, Amoco disputed the pipeline's claim that its projected post-abandonment capacity of 1,555 MDth/d would be more than sufficient to meet firm commitments for transportation service in November 1999. It said Trunkline's Form 11 reports indicate that throughput on the pipeline's system has been more than 2,000 MDth/d in past winter months, which is 455 MDth/d more than would be left on its system.

The spinoff, if allowed by FERC, would continue the erosion of the Trunkline system that began a couple of years ago, said Midland Cogeneration Venture Ltd. Partnership. It pointed to Trunkline's abandonment in 1997 of 105 miles of pipeline known as the South Texas Facilities, and removal from service of mainline transmission facilities in Louisiana in 1995 because it considered the line a "nonfunctional facility." It also has pending at FERC an application to abandon gathering facilities in Louisiana.

The proposed abandonment is simply an attempt to improve the economic status of Trunkline by "shedding unprofitable capacity" at the "expense" of contractual arrangements with long-term shippers, Midland noted. In the event the Trunkline request is approved, Midland urged FERC to allow long-term shippers first to participate in an open season prior to the abandonment, which would permit them to reduce the term or volume of their contractual commitments to Trunkline. It also asked that the abandonment be conditioned so that Trunkline would not be allowed to convert in the future other parts of its pipeline system into gathering or facilities used for other purposes.

Indicated Shippers argued that Trunkline's request was not justified since the transfer of 14% of Trunkline's capacity would reduce the pipeline's cost-of-service by only $3 million, or by about 1.8%. "...[A] case for abandonment might be made if it would result in a cost-of-service reduction that was proportionately larger than the capacity to be abandoned."

Susan Parker

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