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East Tennessee Seeking Interest in Expansion

East Tennessee Seeking Interest in Expansion

East Tennessee Natural Gas, a unit of Houston-based El Paso Energy, is holding an open season for incremental capacity along its mainline in Tennessee and Virginia. The proposed expansion would entail construction of mainline pipeline, compression and related facilities. Service is targeted to begin Nov. 1, 2000.

Since 1996, El Paso has added more than 75,000 Dth/d of capacity to East Tennessee, an increase of more than 10%. All the expansions received rolled-in rate treatment, said Bryan Neskora, manager of business development for El Paso.

"The existing customers are growing. East Tennessee is really a subset of the whole Southeast, which is just growing by leaps and bounds with a lot of industrial growth in the area," Neskora said. East Tennessee is in the middle of a project right now. Called the Virginia expansion, the first phase in Virginia has been completed. Work in Tennessee will take place this summer with completion expected by November. "That's a fairly small expansion. It's a little over 10,000 Dth/d. That's a combination of shippers in Tennessee and Virginia."

This new project will allow shippers to access supply from the Northern Border and Alliance Pipeline projects as well as the Gulf Coast and Texas.

The size of the expansion will be determined by the results of the open season, which closes at the end of April. Interested parties should send a written request for service to Neskora at El Paso Energy, P.O. Box 2511, Houston, TX 77252, Fax: (713) 420-2369, no later than 5 PM CST, April 30. For questions call Neskora at (713) 420-2655, or Bill Wickman at (423) 694-1677. Joe Fisher, Houston

CAPP, Nova Agree to Distance-Based Tolls With Discounts

A lingering sore spot has been healed in the Canadian natural gas community by a deal between producers and TransCanada PipeLines Ltd. for new tolls on the 80% of the nation's gas output that travels on the Nova grid in Alberta.

The agreement cures the original irritant, replacing uniform, "postage-stamp" tolls with distance-based charges, but softens the blow. Northern producers earn savings to the extent that they ship high volumes to spread thin the costs of pipeline facilities. There are also savings for long-term contracts.

Under the old regime, created by the Alberta government in 1980 as an incentive to develop gas no matter where it is found, TransCanada reported the postage-stamp toll would be C27.7 cents (US18.5 cents) per Mcf this year. In the new system, charges will range from C19.9 cents to 35.9 cents (US13.3-24 cents) for shipments bound for out-of-province destinations via Nova connections with long distance pipelines.

Rates for each producer will vary depending on the diameter of pipe they require, as well as the distance between their receipt points on the Nova system and the delivery destinations. In theory, reasonably large Canadian producers with portfolios of production rather than single sources could come out even or even save money because reduced rates for southern fields will offset increases for northern output. In addition to earning savings with high production volumes, shippers can obtain 5% discounts for committing to five-year transportation contracts. Shippers that only take on one-year commitments will pay 5% penalties, while three-year contracts carry the standard rates.

The new system also continues discounted "load retention rates" that Nova began offering before its takeover by TransCanada, chiefly to PanCanadian Petroleum Ltd. in exchange for its agreement to abandon a major bypass project called Palliser in southern Alberta. The load-retention deal was the trigger that set off about two years of wrangling and negotiation which culminated in the new agreement. The deal was not reached easily. Besides igniting hostility towards Nova, the Palliser affair badly divided producers because many in Canada make specialties of regions.

PanCanadian, for instance, as heir to 19th-Century land and minerals grants associated with construction of the Canadian Pacific Railway, has been nicknamed "the sleeping giant" because of its ability to ramp up production almost overnight on its wealth of southern Alberta properties. Palliser was designed as an alternative to postage-stamp Nova rates that included costs of long-distance shipping, with savings of about 40% projected. On the other side stood major producers like Anderson Exploration, which is built on prolific but distant gas fields in the Peace River region of northwestern Alberta and northeastern British Columbia.

The new agreement was only possible because of its discounts for high-volume shipping and long-term service contracts, which took months to negotiate, plus another concession. To close the deal, TransCanada committed to pay 25% of the retention rate's cost rather than try to collect the whole amount by spreading the bills around all shippers' tolls.

The new system avoids increases in the Nova system's overall revenue requirements. There will also be a five-year transition period for phasing in the new tolls, with costs covered by contributions of C$25 million (US$16.7 million) from TransCanada and C$20 million (US$13.3 million) from shippers out of an account created for savings by an earlier incentive-tolling agreement on splitting gains from efficiency improvements.

An application to enact the deal, currently a memorandum of understanding between TransCanada and the Canadian Association of Petroleum Producers, will be filed within weeks at the Alberta Energy and Utilities Board.

Gordon Jaremko, Calgary

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