FERC last week may very well have given California’s natural gasmarket, which so far has been slow to open up to full competition,a nudge in the right direction when it awarded a preliminarydetermination to a pipeline that plans that give SouthernCalifornia Gas (SoCalGas) a run for its money in the southern halfof the state.

Southern Trails Pipeline, a Questar Pipeline subsidiary, wasgranted a PD to acquire/convert a 592-mile former oil pipeline froman affiliate and to construct related pipeline and compressionfacilities to provide direct gas transportation service from the”Four Corners” area near the borders of New Mexico, Arizona, Utahand Colorado to Southern California.

Questar has envisioned Southern Trails as the last leg of athree-part chain (Questar-TransColorado Gas Transmission-SouthernTrails) that would bring in cheaper Rocky Mountain gas supplies tocustomers in the Southern California market in competition withSoCalGas. Questar owns a 50% interest in TransColorado.

Both SoCalGas and the California Public Utilities Commission(CPUC) are opposed to the $155 million project, saying it wouldcreate excess pipeline capacity in the state and could result in abypass of SoCalGas and other LDCs serving the area.

But the Commission said the concerns about excess pipelinecapacity were “misplaced” given that the Southern Trails projectwas being processed under optional certificate procedures, whichmeans the pipeline will assume all risks. Moreover, FERC said itwasn’t required to determine market need for anoptional-certificate project.

FERC also rejected the arguments opposing a bypass. “In thiscase, the Commission recognizes that Southern Trails’ proposedpipeline may successfully compete for new services to SoCal’scustomers. However, the Commission also recognizes that itsproposal will bring competition to the natural gas industry inCalifornia. Further, there is no evidence that Southern Trails’services will be the result of any anti-competitive or undulydiscriminatory behavior. [And] we find speculative the argumentthat the proposed bypass will result in idle capacity andunrecovered costs on other transporters’ systems,” the order said[CP99-163].

In the event bypass is permitted, SoCalGas and the CPUC hadasked FERC to order the pipeline to collect a surcharge on itsdeliveries to California to fund the state’s public-purposesprograms – such as SoCalGas and other LDCs are required to do. Butthe Commission rejected this outright, saying imposition of such asurcharge on Southern Trails’ deliveries “would require end-usersin other states to subsidize California’s public-purpose programs.”

Southern Trails appears to be the first pipeline project to passmuster under the Commission’s recently approved policy statementfavoring incremental pricing for new construction. “…[W]e believethat since Southern Trails’ optional certificate will place it atrisk for recovery of its construction and operating costs andbecause there is no evidence that the proposal will adverselyaffect landowners or create unfair competition with existingpipelines, the record lacks evidence sufficient to rebut thepresumption that Southern Trails’ proposed facilities are requiredby the public convenience and necessity,” the order noted.

Under its application, Southern Trails — in addition toacquiring/converting the crude oil pipeline — will constructabout 75 miles of new pipeline facilities, seven new compressorstations totaling about 18,356 hp, and a number of pipelineextensions. The latter group will include a receipt point toreceive gas from El Paso Field Services’ Chaco Plant in San JuanCounty, NM, and six interstate pipeline interconnects — two withEl Paso Natural Gas, two with Transwestern Pipeline, one withTransColorado Gas, and one with Mojave Pipeline. Additionally, thenew facilities will interconnect with Southwest Gas, Pacific Gasand Electric and SoCalGas.

The proposed pipeline would be divided into East and West Zones.The East Zone, which would begin in the San Juan Basin in NewMexico and end at the California border, would have 87,500 Dth/d ofavailable capacity. The West Zone would be located wholly withinCalifornia and would have 120,000 Dth/d of available capacity.

Southern Trails said its affiliate, Questar Energy Trading Co.,has contracted for 30,000 Dth/d of firm capacity in the East Zone.It is still negotiating agreements with prospective shippers forthe balance of the capacity in both zones.

Firm transportation rates for both zones will be the same, withthe maximum reservation rate at $11.46 and the usage rate at 0.967cent. The interruptible rate will be about 38.65 cents.

Susan Parker

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