A new merchant natural gas storage field in a depleted gas fieldnortheast of Denver has obtained all of its state approvals and itsbackers anticipate construction will start early next year, withinitial start-up of the 9 Bcf working capacity to begin in thefourth quarter 2001. Backers have no signed contracts and arecurrently looking for customers, according to Mike Wright, one ofthe principals in Dallas-based Brant Energy, which is putting theproject together.

Final tariffs for the proposed facility are expected to be filedtoday with Colorado regulators. Called Totem Gas Storage, LLC, theproject will be located on part of a depleted gas production fieldthat has access to two major transmission pipelines — oneoperated by Public Service of Colorado, the state’s majorinvestor-owned utility, and the other by Colorado Interstate GasPipeline (CIG), which has the option before construction to take a37% interest in the project. CIG initially opposed the storageproject, but the Totem backers have reached a state-approvedsettlement with the pipeline.

“I don’t know whether they (CIG) will exercise their option ornot,” Brant’s Wright said. “They’ll have to pay their proportionalshare of all the costs. I don’t know what will happen because theyare supposed to be merged with El Paso (CIG is part of Coastal).We felt like they could have tied us up and fought us. In fact,when the state land board issued us a land lease, CIG filed incourt to have that overturned. I could see we were going have lotof problems. So we’re glad we were able to work out a deal withthem.”

One of the other principals in the Totem deal speculated that ElPaso will want the interest in the storage field to complement theadded storage it is getting from ANR, which the source estimatedwill make El Paso the nation’s largest gas storage operator.

The Totem project has been developed over 18 months by someprivate developers that have been involved with several merchantstorage projects in their early stages, including the Wild Gooseproject in California.Beside Brant Energy, the partners are:Thermo Ecotek Corp., Waltham, MA; Renegade Oil & Gas, Aurora,CO, operator of the depleted gas field; and Fairchild & Wells,Houston, TX, reservoir engineers.

With the advent of about 2,000 MW of new gas-fired electricitygeneration scheduled to come online in the area, the backers arebetting a field with maximum delivery capacity and market-basedrates will draw marketers, utilities, energy service providers andlarge industrial customers among others.

Totem Storage has obtained an okay from Colorado regulators formarket-based rates with a cap (that Wright said the facility wouldnever reach because it is above what the storage market wouldbear). It is essentially $1.11/Mcf on an annual basis, proratedmonthly. The market-based rates would be in the range of 80 to 90cents/Mcf, with two cents/Mcf in and out of the facility, Wrightsaid. Some customers may provide their own cushion gas, which wouldlower the charges for them.

“This gave Colorado regulators a lot of heartburn because theyhave never done anything other than cost-based rates,” Wright said.”After lengthy negotiation with the staff, we got the rates wewanted along with a cap. We got the cap set high enough that youcouldn’t sell storage at that level. We feel pretty comfortable weare going to market our products (including standard firm storage;and supplemental short-term, high deliverability, such asbalancing, supply security, intra-week balancing, intra-day swingservices and parking.).”

One of Wright’s partners Geoff Mitchell, a long-time developerof independent gas storage projects throughout the U.S. and Canada,said Denver is a “hot area” for projects because of thegeographical restrictions on getting power in and our of the RockyMountain location.

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