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It's a Go for Alliance In the U.S., FERC Says

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 basis..

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 ultimate consumers in the United States."

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 pipeline."

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.

Susan Parker

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