Westcoast Energy dealt the 650 MMcf/d TriState Pipeline project a potentially fatal blow last week by exiting the project partnership, which now includes only CMS Energy, and signing on with TriState’s main competitor, the 1 Bcf/d Vector Pipeline. Westcoast dropped its 33% stake in TriState and purchased a 30% equity stake in Vector from project operator Enbridge Inc. It also committed to take 240 MMcf/d of firm capacity in the $500 million Vector project.

Michael Stewart, Westcoast’s executive vice president of business development, said the company switched from TriState because Vector is the less risky project. “I don’t think you can assume [TriState will not go forward],” he said. “But with our withdrawal, CMS will be the sole partner in the [TriState] project and they will have to decide what to do with the project. They still remain hopeful that they can get regulatory approval, but my own view is there is not room for two pipelines and Vector is going ahead.”

Both pipeline projects are similar in that they would cross the same states – Illinois, Indiana, Michigan and Ontario – and are designed as outlets for some of the excess gas expected to be delivered to Chicago in fall of 2000 by the 1.3 Bcf/d Alliance Pipeline. Both would deliver the gas to markets in Michigan and Ontario and to other downstream pipelines at Westcoast subsidiary Union Gas’ Dawn Hub in Ontario.

But the projects have not had similar regulatory experiences. While Vector sailed through FERC and Canada’s National Energy Board, TriState was tripped up at FERC by a pipeline lease with Consumers Energy. The 123-mile leased line in Michigan became a stumbling block because of its apparent dual-use role (see NGI May 31). Consumers was willing to lease TriState the line for interstate transportation but was not willing to part with its operational control. In a May 27 order, FERC rejected the project based on its finding that the leased line as proposed would have to be subject to Natural Gas Act jurisdiction.

The Commission put the TriState project on hold, suggesting TriState either buy the Consumers line or have Consumers file with FERC for jurisdictional authority to operate the system. In June, TriState asked FERC to reconsider and instead got a technical conference on the matter. According to TriState spokesman Jack Barnett, none of the FERC-recommended changes has been adopted by the pipeline so far. The Commission is expected to make a decision on TriState at its next meeting on Wednesday.

CMS said despite the loss of its only partner and the continuing regulatory struggle it is not ready to throw in the towel just yet. The project did get some good news recently, said Barnett, in the form of a favorable draft environmental impact statement from FERC. The Commission’s staff concluded that with the recommended mitigation the project would have limited adverse environmental impact.

However, a closer review of the analysis reveals that the Commission staff also noted that “solely from an environmental standpoint the Vector System Alternative is preferable as it would eliminate impacts associated with TriState’s 1.5-mile Alliance Interconnect, 1.3-mile Northern Border Interconnect, and 146.8 mile Joliet to White Pigeon [MI] pipeline.”

Meanwhile, Vector is forging ahead with plans to break ground during the fourth quarter. Westcoast’s entry into Vector makes it “the only viable Chicago-to-Dawn, ON, project, and the stage is now completely set for us to proceed with construction,” said Enbridge’s Richard Bird, senior vice president of corporate development.

“Acquisition of this interest in the Vector Pipeline completes another piece of Westcoast’s North American footprint strategy in natural gas transmission,” said Westcoast CEO Michael E. J. Phelps. “It connects with and complements our 24% interest in Alliance Pipeline. These pipelines will provide a new source of natural gas to consumers in Ontario, increase utilization of the Union Gas Dawn hub, and would serve to provide more natural gas supply for the proposed Millennium Pipeline Project from Dawn to New York, in which Westcoast is a participant.”

The addition of Westcoast means that Vector now has three sponsors who also own three major gas distribution companies in the region the pipeline will serve. Westcoast has Union Gas. Enbridge has Consumers Gas, and MCN has Michigan Consolidated Gas.

A total of 700 MMcf/d of Vector’s capacity is now under contract with its equity partners and another 130 MMcf/d is under contract with third parties, making the project 83% subscribed compared to TriState, which is 67% subscribed.

Enbridge Inc., Vector’s lead sponsor, sold Westcoast the 30% stake, but will retain a 45% interest in the project and a capacity commitment of 260 MMcf/d, while the other project partner, MCN Energy, will hold a 25% interest with a capacity commitment of 200 MMcf/d.

“This transaction brings a strong partner to the project with substantial capacity commitments corresponding to downstream requirements,” Bird added. “Westcoast, Enbridge and MCN all have complementary strategic objectives in terms of linking the Chicago and Dawn hubs and utilizing storage facilities in the region.”

Enbridge said it already has ordered all the needed compression and pipe to build the 344-mile 42-inch diameter pipeline. Construction on some difficult river crossings is expected to begin soon and the project is expected to be in service next fall.

Rocco Canonica

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