Despite its claims otherwise, Northern Border Pipeline’sproposed 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 intoNatural’s market given that the Lombard, IL-based pipeline recently”contracted virtually all of its capacity” under a two-year dealfor 500,000 MMBtu/d with marketer Aquila Energy, and negotiated athree-year contract renewal covering 1 million MMBtu/d with itslargest shipper, Nicor Gas.

Northern Border made the comment last month in a letter to FERCstaff, which had asked the pipeline to justify its Project 2000under the Commission’s new policy statement for pipelineconstruction. Among other things, the new policy requires FERC toconsider the adverse effects of new projects on existing pipelinesand their customers.

“While it is so that Natural was recently able to sell most ofits currently available capacity into the Chicago market (atdiscounted rates), the fact remains that – on Natural’s twomainline systems – significant amounts of space come out from undercontract, on a continuing basis,” NGPL told FERC [CP99-21-001]. “Wecontinually have contracts that [expire] going forward into thefuture 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 virtuallysold out going into Chicago,” but that was “just at a snapshot at apoint of time,” he told NGI. “Within the next year, we havecontracts totalling 860,000 [MMBtu] per day going into our mainmarket area that will be expiring.” The expiring capacitycontracts, including those subject to right-of-first-refusal androllover rights, would occur on the “north ends” of Natural’s twomainlines, creating unsubscribed capacity ranging from 198,433MMBtu/d to 494,492 MMBtu/d (Amarillo mainline), and from 129,008MMBtu/d to 440,431 MMBtu/d (Gulf Coast mainline), according to thepipeline

“It is evident that Natural is faced with a significant, ongoingtask of marketing firm capacity on its existing mainline systems.The construction of both the expansion and extension portions ofProject 2000 would clearly have a negative impact on Natural inthis system-wide effort. Moreover, any such construction wouldraise the specter of stranded costs on Natural…,” the pipelinesaid. “There is ample existing pipeline capacity serving theChicago area, and more is being built by Alliance Pipeline.”

Project 2000, which would expand Northern Border’s existingmainline via new compression and extend its sytem by 34 miles,would enable the pipeline to deliver 548 MMcf/d of natural gas toNorth Hayden, a market currently served by Natural. Naturaldelivers about 470 MMcf/d to that part of Indiana. “The potentialnegative impact on Natural over time – in the sense of losingbusiness to a heavily subsidized new lateral – would besignificant,” it contends.

Natural also took issue with Northern Border’s incremental ratefor 2001. Northern Border estimated the incremental rate for theentire project would be 6.87 cents/Dth per 100 miles. This”represents a type of cross-subsidization that should not beallowed. By combining the costs of the proposed expansion andextension to create a single 100-mile incremental rate for allProject 2000 shippers, Northern Border significantly understatesthe appropriate pricing for the extension only,” Natural contends.

“What we have done…is come up with two incremental rates – onethat applies to the extension piece [about 10 cents] and anotherthat applies to the expansion volumes [7.68 cents],” Newsome noted.Of the 548 MMcf/d of project capacity, he estimated that “350MMcf/d would not have to pay the seven cent rate because they donot flow through those [expansion] facilities. They would pay onlythe 10 cent rate. The other volumes [that use both the expansionand extension] would have to pay the combined rate.”

Susan Parker

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