FERC sent one major Midwest-to-Northeast pipeline project backto the drawing board last week but gave another competing project afinal green light. The $447 million Vector Pipeline emergedvictorious, receiving FERC’s final approval and a presidentialpermit in a draft order, while the $400 million TriState Pipelinewas told it must redesign the pipeline-lease portion of itsproposal to get FERC’s rubber stamp.

With 1 Bcf/d of proposed firm transportation capacity forservice between Chicago and the Dawn Hub in Ontario starting inlate 2000, Vector is poised to be the first major Midwest projectin the ground among multiple proposed expansions and greenfieldpipelines designed to relieve the growing supply pressure nearChicago.

“In light of the FERC certificate we’re well on track [to makingthe October 2000 in-service date],” said Juri Otsason, vicepresident of Vector. “The other positive development, from ourperspective, was obviously that our prime competitor on theChicago-to-Dawn path had at least a set-back or a delay in theirproject [TriState]. That may bring us some new business.

“It’s been a very competitive environment out there betweenTriState and ourselves plus the incumbent pipelines coming intothis part of the world, TransCanada, and indirectly, when yourlooking at marketers who wish to serve the eastern seaboard, theproposed Independence project,” Otsason added.

Vector will involve construction of 270 miles of 42-inchdiameter pipeline through Indiana and Michigan to the U.S. Canadianborder at the St. Clair River and two 30,000 hp compressorstations. It also will include a pipeline section leased fromaffiliate Michigan Consolidated Gas. Vector’s affiliate, VectorCanada, will continue gas transportation service from Michigan toDawn on a proposed 15-mile pipeline that already has been approvedby Canada’s National Energy Board.

There were a significant number of comments and protests fromlandowners on the location of the compressor stations, but afterconsidering eight alternative sites, FERC determined the proposedlocations were the most efficient from an engineering standpointand would cause the least environmental harm. Four pipelinealternatives were considered: the ANR/Great Lakes SystemAlternative, the ANR/MichCon Alternative, the ANR/Consumers EnergyAlternative and the TriState System Alternative. “None of thesealternatives [was] found to be environmentally preferable and ableto meet the stated objectives of the proposed action,” theCommission said.

The 20-year lease of a 36-inch diameter pipeline owned byMichCon that runs between Milford and Bell River Mills, MI, helpedthe project significantly on environmental matters because sponsorsavoided substantial construction. However, the lease proposalseemed to be the weak link in the chain because competitors,particularly ANR Pipeline, attacked the plan relentlessly. ANRargued use of the leased Belle River Loop line violated FERC rulesby operating as a “dual-use” pipeline, serving as both aninterstate line for Vector and an intrastate line for MichCon, butFERC disagreed. The Commission said it is convinced the Belle RiverLoop and the Vector system will be operated as a distinctinterstate system separate from MichCon’s intrastate transportationservices. The annual lease payment would be $9 million plus taxes,and the two companies have signed a revenue sharing agreement ifservice exceeds certificated capacity.

Vector will bear the full risk of building the pipeline becauseit filed for an optional certificate (OC), which allows anapplicant to gain Commission authorization for a project withoutdemonstrating market demand for services. Nevertheless, it hassigned precedent agreements with four shippers, two of which areaffiliated marketers, for 828,300 Dth/d of firm transportationcapacity, or 82% of the total capacity of the project. Theaffiliated marketers signed up for the majority (700,000 Dth/d) ofthe proposed space. Vector’s sponsors include Alliance Pipelinepartner IPL Energy and MCN Energy.

TriState Lease Plan Fails

The TriState Pipeline proposal has many of the samecharacteristics as Vector. Both pipelines are designed to transportgas from Chicago to the Dawn Hub. Both traverse the same states,and both eliminate costs, construction and environmental problemsby leasing existing pipelines.

However, the two projects differ in one critical way: theirpipeline lease agreements. The 650 MDth/d TriState project -expandable to 1 MMDth/d – which is being sponsored by CMS GasTransmission and Storage (67%) and Westcoast Energy (33%) wouldlease 123 miles of pipeline (saving $179 million in expenses) fromConsumers Energy. But unlike Vector’s leased Belle River Loop,TriState’s leased Consumers Energy line would be operated byConsumers and would perform a “dual-use” role as both an interstateand a state-regulated intrastate transporter, which violates FERCrules.

FERC shelved the TriState project because of this”jurisdictional obstacle” related to the proposed lease. WithVector, “the leased loop and the other facilities of the Hinshawpipeline [MichCon] would be ‘operated as two distinct, physicallyseparate systems; (2) the Hinshaw [MichCon] would have no rights toact as transporter on the leased line; and (3) the lease would not’jeopardize the independent operation’ of either Vector’s system orthe Hinshaw’s system. The TriState proposal satisfies none of thesecriteria,” the Commission said.

FERC suggested several options for TriState, including havingConsumers construct, own and operate its own FERC-regulated,open-access pipeline in Michigan and provide transportation servicefor TriState and others in that state. Consumers also could file tobecome a fully FERC-regulated pipeline, or TriState could buy therequired Consumers facilities.

All the other aspects of the project seemed to meet FERCrequirements. TriState has signed agreements with six shippers for67% of its total proposed capacity, or 435 MDth/d. The projectwould include construction of 148 miles of new pipeline fromJoliet, IL, to White Pigeon, MI and 66 miles of looping line alongthe leased Consumers and Michigan Gas Storage pipeline facilitiesbetween White Pigeon and St. Clair. Another 12 miles of pipe wouldbe installed to cross the international border to additionalpipeline that would be installed in Ontario by affiliate TriStateCanada. One new 30,000 hp compressor station would be built atJoliet and 18,570 hp of compression would be added at an existingstation owned by Consumers at St. Clair.

TriState has filed for zoned rates. Its recourse rate fromJoliet to Dawn is about $0.279/Dth, compared to Vector’s negotiatedrate of about $0.25/Dth including fuel.

FERC deferred for 60 days further processing of the TriStateapplications to permit the sponsors to make modifications to theproject. A TriState spokesman said sponsors are “reviewing theiroptions.”

Rocco Canonica

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