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

Despite its efforts to downsize Project 2000, most agreedNorthern Border’s proposed extension still falls short of meetingFERC’s threshold requirement for rolled-in rates of no subsidies byexisting pipeline customers. Its request for rolled-in pricing ofthe amended extension has run into especially harsh criticismbecause it “stands on the shoulders” of Northern Border’sCanada-to-Chicago project, which was completed in 1998 andreportedly increased rates to existing customers by 9%.

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

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

Northern Border has amended the project twice, each timeproposing to downsize it. In the latest amendment filed last month,Northern Border sought to reduce the diameter of the pipeline from36 inches to 30 inches. The cost of the extension, which initiallyhad a pricetag of $190 million, now is estimated at $94.4 million.

The pipeline contends its twice-amended extension meets theCommission’s new “no subsidy” standard for rolled-in treatment. Infact, Northern Border calculates that in 2002, the first year theextension would be in service, the projected rate for firm serviceafter rolling in the proposed extension’s costs would be the sameas 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 resultin an annual subsidization of $9 million by existing customers ifthe rolled-in approach is used. “This circumstance supports theCommission’s imposing an incremental rate [of roughly six cents]for the extension, to be paid by the shippers using it. This wouldbe in addition to what some of them would also pay for service onthe Northern Border system upstream/to the west of the extension’sstarting point” at Manhattan, IL.

ANR Pipeline estimates the subsidy would be considerably smaller- about 3.2% of the revised project’s incremental annual cost ofservice, or approximately $500,000. It conceded, however, “thissubsidy could be even higher based on the cost of service proposedin Northern Border’s pending rate case.”

Northern Border filed its first amendment to scale back Project2000 and win rolled-in rate treatment last March. At the time, ANRcalculated that two shippers would use 64% of the capacity ofProject 2000, yet would bear only 10.3% of the costs of thefacilities. Under the latest amendment, “these two shippers willbear 16% of the cost of the extension, but ANR believes that thisis still an unreasonable cross-subsidy at the expense of existinglong-haul shippers, such as ANR.”

ANR and others called on the Commission to reject NorthernBorder’s proposal for rolled-in pricing on the extension. At aminimum, the Coastal Corp. pipeline said FERC should bar NorthernBorder from rolling in any cost overruns associated with theproject.

Susan Parker

©Copyright 2000 Intelligence Press, Inc. All rightsreserved. The preceding news report may not be republished orredistributed in whole or in part without prior written consent ofIntelligence Press, Inc.