Columbia Gas Transmission’s proposal to sell its Project Pennytransmission system in western New York and northwesternPennsylvania to Norse Pipeline LLC, which seeks to refunctionalizethe facilities as gathering, is a “thinly-veiled attempt todramatically increase” rates to move gas on the system atproducers’ expense, charged an independent producer.

“Norse has agreed to purchase the transmission facilities at farin excess of their current market value, placing [producers] atrisk of paying grossly excessive unregulated gathering charges tocure Norse’s business mistake,” said Lomak Petroleum, the largestproducer and transporter on the Project Penny system [CP98-568].

Specifically, Lomak’s concerned that the 9 to 11 cents/Dth ratethat it’s now paying to move gas on the Project Penny system will”skyrocket” as a result of Columbia’s proposed sale to Norse.”Producers, like Lomak, with reserves and production tied into theProject Penny transmission facilities are effectively captivecustomers due to the large cost to duplicate those transmissionfacilities and the low throughput now in the system. There may nowbe no realistic competitive alternative to the Project Pennytransmission facilities,” abd this could lead to the shut-in ofAppalachian Basin production.

The producer has asked FERC to suspend the proceedings until atechnical conference can be held for Columbia and Norse to presentadditional information on the sale of the Project Penny facilities.

Lomak believes the Penny Project should remain as transmission.It noted FERC has repeatedly found that relatively small diameterlines operated at low pressures in the Appalachian Basin andelsewhere still can function as jurisdictional transmissionfacilities. Further, Lomak said the fact the Project Penny systemmoves across state lines is another sign that it functionsprimarily as a transmission facility.

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