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Northern Border Project Dubbed a Threat to NGPL's Market

November 15, 1999
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Northern Border Project Dubbed a Threat to NGPL's Market

Despite its claims otherwise, Northern Border Pipeline's proposed Project 2000 expansion/extension will have a significant "negative impact" on Natural Gas Pipeline Co. of America (NGPL), both on a system-wide basis and on its deliveries to North Hayden, IN, the Kinder Morgan pipeline said.

Northern Border suggested its project wouldn't cut into Natural's market given that the Lombard, IL-based pipeline recently "contracted virtually all of its capacity" under a two-year deal for 500,000 MMBtu/d with marketer Aquila Energy, and negotiated a three-year contract renewal covering 1 million MMBtu/d with its largest shipper, Nicor Gas.

Northern Border made the comment last month in a letter to FERC staff, which had asked the pipeline to justify its Project 2000 under the Commission's new policy statement for pipeline construction. Among other things, the new policy requires FERC to consider the adverse effects of new projects on existing pipelines and their customers.

"While it is so that Natural was recently able to sell most of its currently available capacity into the Chicago market (at discounted rates), the fact remains that - on Natural's two mainline systems - significant amounts of space come out from under contract, on a continuing basis," NGPL told FERC [CP99-21-001]. "We continually have contracts that [expire] going forward into the future because the bulk of our contracts are relatively short term [1 to 3 years]," said Bruce Newsome, Natural's director of rates.

Natural announced more than a month ago that it "was virtually sold out going into Chicago," but that was "just at a snapshot at a point of time," he told NGI. "Within the next year, we have contracts totalling 860,000 [MMBtu] per day going into our main market area that will be expiring." The expiring capacity contracts, including those subject to right-of-first-refusal and rollover rights, would occur on the "north ends" of Natural's two mainlines, creating unsubscribed capacity ranging from 198,433 MMBtu/d to 494,492 MMBtu/d (Amarillo mainline), and from 129,008 MMBtu/d to 440,431 MMBtu/d (Gulf Coast mainline), according to the pipeline

"It is evident that Natural is faced with a significant, ongoing task of marketing firm capacity on its existing mainline systems. The construction of both the expansion and extension portions of Project 2000 would clearly have a negative impact on Natural in this system-wide effort. Moreover, any such construction would raise the specter of stranded costs on Natural...," the pipeline said. "There is ample existing pipeline capacity serving the Chicago area, and more is being built by Alliance Pipeline."

Project 2000, which would expand Northern Border's existing mainline via new compression and extend its sytem by 34 miles, would enable the pipeline to deliver 548 MMcf/d of natural gas to North Hayden, a market currently served by Natural. Natural delivers about 470 MMcf/d to that part of Indiana. "The potential negative impact on Natural over time - in the sense of losing business to a heavily subsidized new lateral - would be significant," it contends.

Natural also took issue with Northern Border's incremental rate for 2001. Northern Border estimated the incremental rate for the entire project would be 6.87 cents/Dth per 100 miles. This "represents a type of cross-subsidization that should not be allowed. By combining the costs of the proposed expansion and extension to create a single 100-mile incremental rate for all Project 2000 shippers, Northern Border significantly understates the appropriate pricing for the extension only," Natural contends.

"What we have come up with two incremental rates - one that applies to the extension piece [about 10 cents] and another that applies to the expansion volumes [7.68 cents]," Newsome noted. Of the 548 MMcf/d of project capacity, he estimated that "350 MMcf/d would not have to pay the seven cent rate because they do not flow through those [expansion] facilities. They would pay only the 10 cent rate. The other volumes [that use both the expansion and extension] would have to pay the combined rate."

Susan Parker

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