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NIPSCO, Bay State Combo Will Shave Long-Haul FT

NIPSCO, Bay State Combo Will Shave Long-Haul FT

In an effort to capture the rewards and pass along savings made possible by performance-based rates, NIPSCO Industries and its new affiliate, Bay State Gas, are combining gas supply operations. The two LDCs, which became sister companies when NIPSCO parent NI bought Bay State in February, expect to save as much as $1 million/year through combined portfolio management, according to one source.

The promise of savings through combining supply management operations was one of the major points publicized by the Massachusetts Department of Telecommunications and Energy in justifying its approval of NI Inc.'s purchase of Bay State Gas last November.

The Midwest and New England LDCs manage a total firm load of about 500 MMcf/d, made up of some long- and short-term supply and transportation contracts. In the near future, however, nearly all of their supplies will be procured on the daily spot market, said NIPSCO's Dan Gavito, vice president of corporate gas supply.

"Many of BayState's gas supply contracts are long-term in nature (four months to a year) and are beginning to roll off. We're going to start purchasing a lot of the gas on a daily basis and avoid some of the reservation charges that are associated with that," he said.

"We'll do a lot of trading at the hubs and potentially eliminate some long-haul capacity all the way back to the field areas. We'll be releasing a lot of the capacity that we have and packaging it for other users. As [long-term pipeline] contract roll-overs occur, we'll take a hard look at whether that capacity continues to bring value to our customers," he said without providing any details about the amount of long-haul capacity that could be turned back. He did indicate that any turn-backs likely would occur on Gulf Coast lines potentially to make room for additional capacity on PNGTS and Maritimes. NI became a part owner of the Portland Natural Gas Transmission System when it purchased Westborough, MA-based Bay State for $780 million on Feb. 12. PNGTS came on line last month, adding about 175 MMcf/d of new firm capacity to the New England gas grid.

"[PNGTS] enables Bay State to take advantage of additional Canadian supplies and storage in Michigan. NIPSCO also utilizes storage in Michigan, which is another way we can combine the two portfolios."

Another new tool that will enable the companies to take advantage of price arbitrage between spot points and supply basins is salt cavern storage. NI is in the process of completing its purchase of Houston-based TPC Corp. from PacifiCorp for about $132.5 million. The purchase will give NI about 78% ownership of Market Hub Partners (MHP), the largest independent owner and operator of salt cavern gas storage in North America. MHP's salt caverns, Moss Bluff near Houston and Egan in Acadia Parish, LA, have combined working storage capacity of more than 20 Bcf, with 1,800 MMcf/d of gas deliverability into the Gulf Coast pipeline grid. In addition MHP is planning another salt cavern gas storage facility, NE Hub, in western Pennsylvania. The network of high-deliverability storage will provide significant opportunities for price arbitrage.

Bay State Gas serves 305,000 natural gas customers in Massachusetts, New Hampshire, and Maine. NIPSCO serves 660,000 gas customers in 30 Indiana counties.

Rocco Canonica

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