FERC on rehearing last week certificated Transcontinental Pipe Line’s Mobile Bay Lateral extension/expansion and awarded it rolled-in rate treatment, but not before Commissioner William Massey urged his colleagues to take “another look at generic questions” related to the pricing of new construction that were brought to the forefront in the case.

For starters, he said arguments by existing Transco customers that the pipeline segmented this expansion into three smaller projects to meet the 5% threshold for rolled-in rates “at least merit[ed] further consideration and curiosity” from the full Commission. Existing customers, Massey noted, pointed out that Transco’s application for the Mobile Bay Lateral came less than one month after it filed its application for its Cherokee expansion, and only four months after it announced its proposed Cumberland project. The two expansions would provide service for customers downstream of the Mobile Bay Lateral.

If Transco succeeds in obtaining rolled-in rates for the projects, “then ultimately its existing customers may be forced to withstand the rate impact of all of these expansion projects without the benefit of…adequate consideration of the cumulative effects of the rate increases,” Massey said.

But the Commission majority disagreed. “The mere fact that the Cherokee and…Cumberland expansion projects may utilize gas available from the Mobile Bay Project does not indicate, or even give rise to concern, that these projects were separately proposed ‘solely to qualify for the 5% test for each project,'” FERC said in its order [CP97-92].

Massey also questioned the premise that access to new supplies would provide system-wide benefits for existing customers since “access to the new gas supplies will be only through one customer,” Williams Energy Supply Co. (WESCO), Transco’s marketing affiliate. WESCO, which has contracted for the entire 350 MMcf/d capacity on the expansion, “has an exclusive life-of-the reserves contract with the producer behind these facilities,” he noted. “Transco’s mainline customers forcefully argue that they will not benefit from this expansion, and that given today’s market and the current supply of gas, they do not desire the access to the gas supplies that will be created by the Mobile Bay project.” He believes FERC should re-evaluate what constitutes a system benefit.

Commissioner Vicky Bailey apparently shared a similar concern on this issue. Although she approved rolled-in rates for the Mobile Bay Lateral project mainly because it complied with the 5% threshold test, she said that in the future she “would look carefully at what benefits are…conferred by access to new supply areas [when] determining whether to roll in the costs of a project…”

Massey also questioned whether Transco satisfactorily met the Commission’s “need test” for the project since the 15-year precedent agreement for 100% of the capacity was with its affiliate, WESCO.

Chairman James Hoecker, in contrast, fully supported the rolled-in rates, saying that “on balance, this project falls clearly within our pricing policy statement…” But, “I do think that we have heard…some concerns that will become increasingly important as we review our natural gas regulation comprehensively.”

Phase I of the Mobile Bay Lateral project calls for the construction of about 72 miles of 24-inch and 30-inch pipeline, extending from an offshore platform being installed at East Main Pass, Block 261, to a proposed separation and processing plant owned by Williams Field Services Co. in Mobile County, AL; about four miles of 30-inch pipeline to connect the offshore extension to the separation/processing plant; less than a mile of 36-inch pipe that will connect the plant to Transco’s mainline; and a 15,000 hp compression addition. Phase II will include a new compressor station in Mobile County at the Mobile Bay Lateral. The cost of the new facilities will be about $120 million.

Susan Parker

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