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 a letter – madeclear its disdain for the pricing policy in its response last week.

The policy statement was voted out by FERC last month, withthree Commissioners saying they would apply it only to thoseprojects filed after July 29, 1998. The new policy eliminates apresumption in favor of rolled-in ratemaking for projects thatwould raise existing customers’ rates by no more than 5%, and itcalls for sponsors to show that the benefits of their projectsoutweigh any adverse effects to existing customers, affectedlandowners, and competing pipelines and their captive customers.

In the letters forwarded to Northern Border and ANR so far, FERCstaff asked the pipelines to balanced the public benefits of theirprojects against any adverse consequences, to explain how theirproject proposals satisfy the “threshold requirement of nosubsidies” for their existing customers, to indicate theirwillingness to charge incremental rates for their expansionservices, and posed questions with respect to rights-of-way.

FERC staff’s questions were directed at Northern Border’sProject 2000, a proposed expansion of the pipeline’s mainline fromChicago to North Hayden, IN [CP99-21-001]. The expansion wassubmitted in October 1998, and was amended last March.

In response, Northern Border noted that rolled-in rate treatmentfor its Project 2000 would increase the rates for existingcustomers by a “negligible” 2%. As such, the project would exceedthe “no subsidies” requirement of the new policy statement.”Arguably…..the ‘threshold requirement of no subsidies’ is notsatisfied where a facility proposal results in ‘any’ rate increaseto existing customers. Northern Border’s Project 2000 would,therefore, not appear to meet this standard…”

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 opposed by two competing pipelines – ANR Pipeline andNatural Gas Pipeline Co. of America. In objecting to Project 2000,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 may be incompatiblewith Commission initiatives promoting competition and increasedtransportation options.”

The policy giving “deference” to existing pipelines, combinedwith the no-subsidy decree, “will result in stifling competitionand new construction, at a time when demand for natural gas isexpected to expand [to] 30 Bcf/d by 2020,” Northern Border warned.It “would appear to simply solidify existing franchises, denycustomers future access to lower cost pipeline/supply alternatives,and discourage 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 4.52 cents/Dth per 100 miles, and an existingrate of 4.41 cents/Dth. Northern Border said it “is examiningwhether an incremental rate design…..could be developed thatwould be viable.” It expects to make a decision on this by Nov. 15.

Northern Border believes its project will provide sufficientpublic benefits, including introduction of a competitivealternative into northern Indiana, enhanced system flexibilitythrough the creation of additional downstream capacity, and greateroptions for existing shippers to assign or release capacity on morefavorable terms. Moreover, it said the Project 2000 shippers, noneof which are affiliated with Northern Border, have executed bindingprecedent agreements 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 FERC questions on ANR’s looping expansion inWisconsin, a spokesman for the pipeline said “preliminarily webelieve our expansion does comply with the new [pricing] policy,and we will be advising FERC accordingly.”

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