Questar's Southern Trails Pipe Gets Preliminary Nod
FERC last week may very well have given California's natural gas
market, which so far has been slow to open up to full competition,
a nudge in the right direction when it awarded a preliminary
determination to a pipeline that plans that give Southern
California Gas (SoCalGas) a run for its money in the southern half
of the state.
Southern Trails Pipeline, a Questar Pipeline subsidiary, was
granted a PD to acquire/convert a 592-mile former oil pipeline from
an affiliate and to construct related pipeline and compression
facilities to provide direct gas transportation service from the
"Four Corners" area near the borders of New Mexico, Arizona, Utah
and Colorado to Southern California.
Questar has envisioned Southern Trails as the last leg of a
three-part chain (Questar-TransColorado Gas Transmission-Southern
Trails) that would bring in cheaper Rocky Mountain gas supplies to
customers in the Southern California market in competition with
SoCalGas. Questar owns a 50% interest in TransColorado.
Both SoCalGas and the California Public Utilities Commission
(CPUC) are opposed to the $155 million project, saying it would
create excess pipeline capacity in the state and could result in a
bypass of SoCalGas and other LDCs serving the area.
But the Commission said the concerns about excess pipeline
capacity were "misplaced" given that the Southern Trails project
was being processed under optional certificate procedures, which
means the pipeline will assume all risks. Moreover, FERC said it
wasn't required to determine market need for an
FERC also rejected the arguments opposing a bypass. "In this
case, the Commission recognizes that Southern Trails' proposed
pipeline may successfully compete for new services to SoCal's
customers. However, the Commission also recognizes that its
proposal will bring competition to the natural gas industry in
California. Further, there is no evidence that Southern Trails'
services will be the result of any anti-competitive or unduly
discriminatory behavior. [And] we find speculative the argument
that the proposed bypass will result in idle capacity and
unrecovered costs on other transporters' systems," the order said
In the event bypass is permitted, SoCalGas and the CPUC had
asked FERC to order the pipeline to collect a surcharge on its
deliveries to California to fund the state's public-purposes
programs - such as SoCalGas and other LDCs are required to do. But
the Commission rejected this outright, saying imposition of such a
surcharge on Southern Trails' deliveries "would require end-users
in other states to subsidize California's public-purpose programs."
Southern Trails appears to be the first pipeline project to pass
muster under the Commission's recently approved policy statement
favoring incremental pricing for new construction. "...[W]e believe
that since Southern Trails' optional certificate will place it at
risk for recovery of its construction and operating costs and
because there is no evidence that the proposal will adversely
affect landowners or create unfair competition with existing
pipelines, the record lacks evidence sufficient to rebut the
presumption that Southern Trails' proposed facilities are required
by the public convenience and necessity," the order noted.
Under its application, Southern Trails --- in addition to
acquiring/converting the crude oil pipeline --- will construct
about 75 miles of new pipeline facilities, seven new compressor
stations totaling about 18,356 hp, and a number of pipeline
extensions. The latter group will include a receipt point to
receive gas from El Paso Field Services' Chaco Plant in San Juan
County, NM, and six interstate pipeline interconnects --- two with
El Paso Natural Gas, two with Transwestern Pipeline, one with
TransColorado Gas, and one with Mojave Pipeline. Additionally, the
new facilities will interconnect with Southwest Gas, Pacific Gas
and Electric and SoCalGas.
The proposed pipeline would be divided into East and West Zones.
The East Zone, which would begin in the San Juan Basin in New
Mexico and end at the California border, would have 87,500 Dth/d of
available capacity. The West Zone would be located wholly within
California and would have 120,000 Dth/d of available capacity.
Southern Trails said its affiliate, Questar Energy Trading Co.,
has contracted for 30,000 Dth/d of firm capacity in the East Zone.
It is still negotiating agreements with prospective shippers for
the balance of the capacity in both zones.
Firm transportation rates for both zones will be the same, with
the maximum reservation rate at $11.46 and the usage rate at 0.967
cent. The interruptible rate will be about 38.65 cents.