It's a Go for Alliance In the U.S., FERC Says
Over the din of protesters, especially soon-to-be competitor
Natural Gas Pipeline Co. of America (NGPL), FERC last week denied
the majority of rehearing requests and awarded Alliance Pipeline
L.P. its long-awaited optional certificate to build a major
transportation link between western Canadian production fields and
the U.S. Midwest.
Work on the U.S. portion of the Alliance system, however, hinges
on the National Energy Board (NEB) approval of the Canadian
upstream segment of the project, which is expected to be handed
down in late October. If all goes well, Alliance officials estimate
construction will start next May and operation will begin on Oct.
1, 2000. "I can say there's a lot of happy people and smiling faces
here," said Jay Godfrey, a spokesman for Alliance. But the company
declined to comment further on the order that, in addition to
awarding the final certificate, addressed rehearing of the August
1997 ruling that approved the 886-mile Alliance on a preliminary
In its rehearing petition, Natural argued that the prospect of
the loss of business (for U.S. pipelines), excess capacity and
stranded costs posed by the Alliance project cast doubt on the very
need for the pipeline that would transport 1.3 Bcf of gas on a
daily basis to the Chicago hub. But FERC, which has been a big
proponent of letting markets decide the need for new pipeline
projects, flatly dismissed Natural's claims last week, saying that
while Alliance may be seen as a competitive threat by some U.S.
pipelines, it had met the standard for new projects in the United
States - promotion of competition.
Although the U.S. portion of the Alliance project might create
"competitive tension" for Natural and other downstream U.S.
pipelines, in the end "gas consumers will benefit from a lower
delivered cost of natural gas," the order noted [CP97-168]. "The
fact that Alliance's presence may have an economic impact on
competitors does not outweigh the competitive benefits of increased
transportation options...to ultimate consumers in the United
Natural's allegations that Alliance would inflict unfair
competition or future material harm on downstream U.S. pipelines
and customers are "unsubstantiated and do not convince us that our
prior preliminary determination was in error," FERC concluded.
The Commission also rejected arguments of an "unsatisfied"
market demand for the Alliance project in the Midwest. Although
FERC's optional certificate regulations don't require projects to
show market demand, "Alliance voluntarily filed 40 executed
precedent agreements with 36 shippers who agree to subscribe to
about 93% of system capacity," the order said. These "shippers have
demonstrated their belief that it is in their interest to transport
natural gas over Alliance instead of transporting their volumes
over existing pipelines."
It further dismissed Natural's claim that Alliance gas would be
trapped in the Midwest due to the lack of downstream capacity.
"Alliance has shown that take-away capacity at downstream delivery
points is substantially greater than the capacity of its proposed
On rate issues, Natural alleged that Alliance's
negotiated/recourse rate proposal, which FERC approved for the
pipeline, would diminish the pipeline's risk for recovery of the
costs associated with the project, and would shift the risk to its
shippers and downstream pipelines. But, the FERC order noted, "new
customers who would use the new [negotiated] service voluntarily
accepted the risk associated with the proposed new reservation
charge." They are not being forced to accept risk against their
will, it said.
Natural's bid for Alliance to hold a new open season for
capacity on its proposed system also fell on deaf ears at the
Commission. Natural made the request after FERC adjusted downward
Alliance's initial maximum recourse rate, using increased design
capacity (1.5 Bcf/d), to $12.7598 per Mcf, which exceeded
Alliance's initial maximum negotiated reservation charge.
"Natural assumes that Alliance's shippers would change their
elections if Alliance had offered in its open season to charge a
maximum recourse rate of $12.7598 per Mcf instead of $14.5703 per
Mcf. Alliance's shippers, however, do not assert that the
Commission's recomputation of Alliance's maximum recourse rate
prejudiced their elections or that they now wish to reconsider
their elections as negotiated shippers in a new open season," the
FERC order said.
Lastly, the Commission overturned itself on the issue of
creditworthiness requirements. In response to a request by
Alliance, it ruled that shippers on the new pipeline would be
required to post a letter of credit or provide a cash payment equal
to 12 months of estimated reservation charges.