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
"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 done...is 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."