Although they support FERC certification of the proposed Cheyenne Plains Gas pipeline because it would give Midwest customers access to additional lower-priced natural gas from the Rocky Mountains, Kansas regulators said they believe the overall rate of return being sought by the El Paso-affiliated project is much too steep.

Cheyenne Plains has proposed a debt-equity ratio of 60-40%, a 9% cost of debt and a 15% rate of return on equity, which would yield an overall rate of return of 11.4%, according to the Kansas Corporation Commission (KCC). “This proposed overall rate of return is excessive, is not supported by current Commission practices and recent Commission precedents, and…has not been justified by Cheyenne Plains.”

Cheyenne Plains cited FERC decisions in three recent pipeline projects — Gulfstream Natural Gas System, North Baja Pipeline and Greenbrier Pipeline Co. — as the basis for its request for a 15% rate of return on equity and 11.4% overall rate of return. “But none of these cases, nor any of the cases on…which these cases were in turn decided, supports Cheyenne Plains’ proposal,” the KCC said.

The overall rate of return was 9.8% for Gulfstream, 10.15% for North Baja and 9.8% for Greenbrier, according to the Kansas regulators. “Cheyenne Plains’ proposed overall rate of return of 11.4% is 1.65 percentage points greater than the average overall rate of return approved in recent Commission decisions,” they noted.

The KCC called on FERC to approve an overall rate of return for Cheyenne Plains that is consistent with the 9.78% average that the agency has allowed for recent pipeline projects.

The state commission also asked FERC to limit the rate of return on equity for the pipeline project to no more than 14%; a debt-equity capital structure to 70-30%; and cost of debt to no more than 8.5%.

The proposal for the Cheyenne Plains pipeline, which was filed at FERC in May, calls for the construction of a 380-mile, 30-inch diameter pipe from the Cheyenne Hub eastward to connections with Midcontinent pipelines in Kansas. It would deliver as much as 560 MMcf/d of gas supplies. The $338 million line is tentatively expected to be in service by mid-summer 2005. FERC has not taken any action on the pipeline project yet [CP03-304].

Cheyenne Plains would provide a new direct route to Midcontinent markets for rapidly growing Powder River Basin coalbed methane production, gas supply from the Jonah Field in the Green River Basin and other gas production from Wyoming. The proposed pipeline would terminate in Greensburg, KS, where several pipelines meet, including ANR Pipeline, Kinder Morgan Interstate Pipeline, Northern Natural Gas, Panhandle Eastern Pipe Line and Williams. The pipelines provide more than 6 Bcf/d of takeaway capacity in the area.

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