FERC staff has begun sending out letters to pipelines askingthem to explain how their proposed projects will square with thenew policy statement that favors incremental pricing. NorthernBorder Pipeline Co. — the first pipe to receive such a letter —made clear its disdain for the pricing policy in its response.

The policy statement was voted out last month, with threeCommission members stipulating that it would apply only to projectsfiled after July 29, 1998. The new policy eliminates a presumptionin favor of rolled-in ratemaking for projects that would raiseexisting customers’ rates by no more than 5%. It also calls forsponsors to demonstrate that the benefits of their projects aregreater than any potential adverse effects to existing customers,affected landowners, and competing pipelines and their captivecustomers.

In letters forwarded to Northern Border and ANR Pipeline, FERCstaff asked the pipelines to weigh the public benefits of theirproposed projects, to explain how their project proposals satisfythe “threshold requirement of no subsidies” for their existingcustomers, to indicate their willingness to charge incrementalrates for their expansion services, and posed questions withrespect to rights-of-way. More letters to pipes are expected, asstaff is reviewing all proposals filed after the July 1998 cut-offdate.

FERC staff’s questions were directed at Northern Border’sProject 2000, a proposed expansion of the pipeline’s mainline fromChicago to northern Indiana [CP99-21-001]. The expansion wassubmitted in October 1998 — after the trigger date — and wasamended last March.

In its Oct. 6 response, Northern Border said rolled-in ratetreatment for its Project 2000 would boost rates for its existingcustomers by roughly 2%. As such, it acknowledged that its projectwould fall short of the “no subsidies” requirement of the newpolicy statement. “Arguably…..the ‘threshold requirement of nosubsidies’ is not satisfied where a facility proposal results in’any’ rate increase to existing customers. Northern Border’sProject 2000 would, therefore, not appear to meet thisstandard…..”

The Enron pipeline asked to “expressly [reserve] all rights tochallenge the validity of the new policy statement, as it may beapplied to Northern Border’s Project 2000.”

Northern Border noted its Project 2000 application has beenstrongly contested by two rival pipelines — ANR and Natural GasPipeline Co. of America — in the Midwest. In their objections,the two pipelines have cited “generalized claims of competitivedisadvantage, with no evidence of potential market loss.” Giventhis sentiment, Northern Border contends that “according heighteneddeference to the claims of competing pipelines [during thecertification process] may be incompatible with Commissioninitiatives promoting competition and increased transportationoptions.”

Affording “deference” to rival pipelines, combined with theno-subsidies standard, “will result in stifling competition and newconstruction, at a time when demand for natural gas is expected toexpand by 30 Bcf/d by 2020,” Northern Border warned. It “wouldappear to simply solidify existing franchises, deny customersfuture access to lower cost pipeline/supply alternatives, anddiscourage timely grid expansions to meet market demand.”

Northern Border estimated an incremental rate for its project in2001 would be 6.87 cents/Dth per 100 miles. This contrasts to arolled-in rate of about 4.52 cents/Dth per 100 miles. NorthernBorder said it “is examining whether an incremental ratedesign…..could be developed that would be viable” for itsproject. It expects to make a decision on this by Nov. 15.

The pipeline believes the project will provide sufficient publicbenefits, including introduction of a competitive alternative intonorthern Indiana, enhanced system flexibility through the creationof additional downstream capacity, and greater options for existingshippers to assign or release capacity on more favorable terms.Moreover, it said the Project 2000 shippers, none of which areaffiliated with Northern Border, have executed binding precedentagreements for the full amount of the planned capacity.

The pipeline further contends the project’s impact on landownerswill be minimal. It “was designed to utilize, to the maximum extentpossible, existing utility right-of-way so as to minimize landownerimpact. In fact, approximately 85% of the project’s new pipelineextension is within existing utility right-of-way and the balanceis adjacent to existing pipeline corridors.”

In response to staff questions on ANR’s Wisconsin 2000expansion, the Coastal Corp. pipeline said the proposed project”passes muster” on all counts. “First, ANR’s existing rates willnot be increased as a result of this project, and there will be nodegradation of service to existing customers. Second, ANR is notproposing to serve load that is currently served by anotherexisting pipeline, and thus there will be no impact on any existingpipeline. Third, this project involves mainly compression additionswith relatively minor new pipeline facilities, and ANR has soughtto minimize any impacts on the interests of landowners andcommunities surrounding the new facilities,” it said in its Oct.13th reply to staff.

Given these factors, ANR asked that its Wisconsin expansion be”expeditiously approved” to meet a projected in-service date ofNov. 1, 2000.

Susan Parker

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