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Rolled-In Pricing of Northern Border Project Booed

Rolled-In Pricing of Northern Border Project Booed

U.S. and Canadian shippers on Northern Border Pipeline have lobbed a barrage of protests at the pipeline's latest request to roll-in the costs of its Project 2000 extension, with some going as far as to question the need for the Illinois-to-Indiana extension.

Despite its efforts to downsize Project 2000, most agreed Northern Border's proposed extension still falls short of meeting FERC's threshold requirement for rolled-in rates of no subsidies by existing pipeline customers. Its request for rolled-in pricing of the amended extension has run into especially harsh criticism because it "stands on the shoulders" of Northern Border's Canada-to-Chicago project, which was completed in 1998 and reportedly increased rates to existing customers by 9%.

"Rolling in the costs of Project 2000 on top of the rolled-in costs of the Chicago project, as Northern Border has proposed, will serve simply to further increase the subsidized volumes flowing on Northern Border," said Pan-Alberta Gas Ltd. and Pan-Alberta Gas (U.S.) Inc.

Project 2000 is a proposed 34-mile, 544 MMcf/d extension of Northern Border's system from Manhattan, IL, to North Hayden, IN. With the completion of the extension, Northern Border's system would extend from the U.S.-Canadian border in Montana to the local distribution system of Northern Indiana Public Service Co. It would bring competitive Canadian gas supplies into the Indiana market for the first time.

Northern Border has amended the project twice, each time proposing to downsize it. In the latest amendment filed last month, Northern Border sought to reduce the diameter of the pipeline from 36 inches to 30 inches. The cost of the extension, which initially had a pricetag of $190 million, now is estimated at $94.4 million.

The pipeline contends its twice-amended extension meets the Commission's new "no subsidy" standard for rolled-in treatment. In fact, Northern Border calculates that in 2002, the first year the extension would be in service, the projected rate for firm service after rolling in the proposed extension's costs would be the same as the rate without the proposed facilities and related volumes --- 4.30 cents per 100-Dth miles.

But according to a protest filed by Northern Border's nemesis - Natural Gas Pipeline Co. of America --- Project 2000 would result in an annual subsidization of $9 million by existing customers if the rolled-in approach is used. "This circumstance supports the Commission's imposing an incremental rate [of roughly six cents] for the extension, to be paid by the shippers using it. This would be in addition to what some of them would also pay for service on the Northern Border system upstream/to the west of the extension's starting point" at Manhattan, IL.

ANR Pipeline estimates the subsidy would be considerably smaller - about 3.2% of the revised project's incremental annual cost of service, or approximately $500,000. It conceded, however, "this subsidy could be even higher based on the cost of service proposed in Northern Border's pending rate case."

Northern Border filed its first amendment to scale back Project 2000 and win rolled-in rate treatment last March. At the time, ANR calculated that two shippers would use 64% of the capacity of Project 2000, yet would bear only 10.3% of the costs of the facilities. Under the latest amendment, "these two shippers will bear 16% of the cost of the extension, but ANR believes that this is still an unreasonable cross-subsidy at the expense of existing long-haul shippers, such as ANR."

ANR and others called on the Commission to reject Northern Border's proposal for rolled-in pricing on the extension. At a minimum, the Coastal Corp. pipeline said FERC should bar Northern Border from rolling in any cost overruns associated with the project.

Susan Parker

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