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 efforts to downsize Project 2000, most agreed NorthernBorder’s proposed extension still falls short of meeting FERC’sthreshold 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, eachtime proposing to downsize it. In the latest amendment filed lastmonth, Northern Border sought to reduce the diameter of thepipeline from 36 inches to 30 inches. The cost of the extension,which initially had a pricetag of $190 million, now is estimated at$94.4 million.

Northern Border proposed scaling back its Project 2000 for asecond time in order to comply with the “no subsidy” requirement ofFERC’s new policy statement on new pipeline construction. Thepipeline contends rolled-in treatment for the amended extensionwouldn’t lead to a rate increase for existing shippers.

In fact, Northern Border calculates that in 2002, the first yearthe extension would be in service, the projected rate for firmservice after rolling in the proposed extension’s costs would bethe same as the rate without the proposed facilities and relatedvolumes — 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 wouldresult in an annual subsidization of $9 million by existingcustomers if the rolled-in approach is used. “This circumstancesupports the Commission’s imposing an incremental rate [of roughlysix cents] for the extension, to be paid by the shippers using it.This would be in addition to what some of them would also pay forservice on the Northern Border system upstream/to the west of theextension’s starting 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 about $500,000. It conceded, however, “this subsidycould be even higher based on the cost of service proposed inNorthern 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 cost 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 FERC to reject Northern Border’sproposal for rolled-in pricing on the extension. At a minimum, theCoastal pipeline said FERC should bar Northern Border from rollingin any cost overruns associated with the project.

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