In an effort to capture the rewards and pass along savings madepossible by performance-based rates, NIPSCO Industries and its newaffiliate, Bay State Gas, are combining gas supply operations. Thetwo LDCs, which became sister companies when NIPSCO parent NIbought Bay State in February, expect to save as much as $1million/year through combined portfolio management, according toone source.

The promise of savings through combining supply managementoperations was one of the major points publicized by theMassachusetts Department of Telecommunications and Energy injustifying its approval of NI Inc.’s purchase of Bay State Gas lastNovember.

The Midwest and New England LDCs manage a total firm load ofabout 500 MMcf/d, made up of some long- and short-termsupply andtransportation contracts. In the near future, however, nearly allof their supplies will be procured on the daily spot market, saidNIPSCO’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 goingto start purchasing a lot of the gas on a daily basis and avoidsome of the reservation charges that are associated with that,” hesaid.

“We’ll do a lot of trading at the hubs and potentially eliminatesome long-haul capacity all the way back to the field areas. We’llbe releasing a lot of the capacity that we have and packaging itfor other users. As [long-term pipeline] contract roll-overs occur,we’ll take a hard look at whether that capacity continues to bringvalue to our customers,” he said without providing any detailsabout the amount of long-haul capacity that could be turned back.He did indicate that any turn-backs likely would occur on GulfCoast lines potentially to make room for additional capacity onPNGTS and Maritimes. NI became a part owner of the Portland NaturalGas Transmission System when it purchased Westborough, MA-based BayState 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 gasgrid.

“[PNGTS] enables Bay State to take advantage of additionalCanadian supplies and storage in Michigan. NIPSCO also utilizesstorage in Michigan, which is another way we can combine the twoportfolios.”

Another new tool that will enable the companies to takeadvantage of price arbitrage between spot points and supply basinsis salt cavern storage. NI is in the process of completing itspurchase of Houston-based TPC Corp. from PacifiCorp for about$132.5 million. The purchase will give NI about 78% ownership ofMarket Hub Partners (MHP), the largest independent owner andoperator of salt cavern gas storage in North America. MHP’s saltcaverns, Moss Bluff near Houston and Egan in Acadia Parish, LA,have combined working storage capacity of more than 20 Bcf, with1,800 MMcf/d of gas deliverability into the Gulf Coast pipelinegrid. In addition MHP is planning another salt cavern gas storagefacility, NE Hub, in western Pennsylvania. The network ofhigh-deliverability storage will provide significant opportunitiesfor price arbitrage.

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

Rocco Canonica

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