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FERC rate decision could hurt all pipe expansions, Spectra unit says

FERC has made a mistake that could favor new-build natural gas transportation projects at the expense of pipeline expansions, Spectra Energy Corp's Texas Eastern Transmission LP said in asking FERC to rehear part of an approval order that covered usage charges for the Access South, Adair Southwest and Lebanon Extension projects.

"Adding system costs, as the December 21 order does, to an expansion project already subject to incremental pricing ultimately will hinder development of needed natural gas infrastructure by effectively increasing the cost of bringing such infrastructure to the market," Texas Eastern wrote.

Texas Eastern said FERC erred by requiring the pipeline company to establish a usage rate for each of the projects that was equal to the system usage rate. The company said the commission had in effect required that a portion of each project be rolled into the systemwide cost of service, which burdened the projects with added costs unrelated to their costs of service. Texas Eastern said the commission's reasoning, that it is appropriate to use the system charge when an an incremental charge for a pipeline expansion is lower than the system charge, was not an adequate explanation. The company also said the order defied commission policy that requires expansion shippers to pay the full cost of the new transportation capacity.

"The December 21 order thus arbitrarily places Texas Eastern and future expansion projects at a competitive disadvantage because these projects will face greater economic hurdles due to the commission's decision to allocate costs to expansion projects that exceed the incremental cost of service attributable to the projects," Texas Eastern told FERC.

"By saddling projects that expand existing pipelines with these additional costs, the commission is disfavoring expansion projects in the market," the company said. "Increasing the effective cost of expansion projects thus makes these expansions less viable even when an expansion is often the most efficient and beneficial option to shippers and more readily poised to serve growing market demand."

Texas Eastern asked for the rehearing of FERC's Dec. 21, 2016, certificate order in a letter posted to the commission library Jan. 23. In addition to asking the commission to review the order's treatment of usage charges for all three projects, the company asked the commission to review how it treated the applicable shrinkage adjustment percentage on the Lebanon Extension project.

On Jan. 19, FERC authorized Texas Eastern to begin construction of the three projects, which together are expected to cost about $442 million and provide 622,000 Dth/d of gas transportation capacity from the Appalachian production zone to the Midwest and Southeast. (FERC docket CP16-3)