In a move that has similarities to the El Paso NaturalGas-Dynegy contract, KN Energy has overcome a seriousdecontracting/underutilization problem on Natural Gas PipelineCompany of America by awarding a two-year contract for 500,000MMBtu/d of firm transportation capacity to Chicago to AquilaEnergy.

An argument could be made that the underutilization problem on NGPLwas one of the main stumbling blocks leading to the failure of KN’s $6billion merger with Sempra Energy and the dramatic transformation thatleft Richard Kinder and William Morgan of Kinder Morgan on top at thenew KN Energy, soon to be renamed Kinder Morgan (see Daily GPI, June 22).

Prior to the cancellation of the Sempra merger, KN officialssaid about 14% of NGPL’s firm capacity was not under contract inthe first quarter and 12% was not under contract in the secondquarter. KN forecast a $20 million income decline during the secondquarter from the uncontracted capacity and noted a significantnumber of contracts are terminating in 2000. This is occuring asthe new Alliance prepares to feed up to 1.3 Bcf/d of Canadian gasinto the Chicago area Oct. 1, 2000.

With the Aquila deal, however, the pipeline is now more than 99%subscribed. “This contract dramatically improves the capacitysituation on NGPL,” said interim KN Chairman and CEO Stewart Bliss.”With the winter heating season approaching, this is a significanttransaction that will benefit our financial performance.”

The 500,000 MMBtu/d of capacity accounts for about 15% of thecapacity that NGPL provides to the Chicago area. The pipeline hasthe capability of moving 3.3 Bcf/d of gas into Chicago.

KN said Aquila was awarded the contract through a pre-arranged,negotiated-rate capacity auction, but provided no details on theterms of the deal other than to say it includes minimum paymentsand upside sharing. The deal commenced Sept. 25. KN said itreceived bids for three times the available capacity during theauction posting, which closed on Sept. 22.

El Paso completed a similar transaction with Dynegy (formerlyNatural Gas Clearinghouse) in January 1998 when a long-term firmtransportation agreement with PG&E was canceled. But Dynegy boughta much larger package, 1.3 Bcf/d of firm access to the SouthernCalifornia border, and negotiated some unique terms that caused aheated regulatory debate. The El Paso Dynegy contract eventuallyreceived Commission approval with some minor modifications (see DailyGPI, Feb. 27, 1998; March 25, 1998; April 13 and 22, 1998; June 11, 1998; and June 22, 1999).

©Copyright 1999 Intelligence Press Inc. All rights reserved. Thepreceding news report may not be republished or redistributed, inwhole or in part, in any form, without prior written consent ofIntelligence Press, Inc.