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Groups Urge FERC to Deny Hackberry Exemption for Cove Point LNG Expansion

A consumer advocacy group and environmental organization last Monday urged FERC to deny a request by Dominion Cove Point LNG to exempt a 800 MMcf/d sendout capacity expansion of the company's liquefied natural gas (LNG) terminal in eastern Maryland from the agency's open-season and cost-of-service regulations.

Applying the so-called Hackberry exemption to the Cove Point LNG expansion is unwarranted because: 1) Dominion has not demonstrated that the Cove Point expansion would not have been constructed but for the suspension of open-access requirements; 2) waiving market transparency rules and suspending cost-of-service regulations would harm consumers; and 3) Dominion's strong financial health precludes the necessity of the Hackberry subsidy, said Washington, DC-based Public Citizen and Green Delaware in a protest. Also, current record-high prices for natural gas provide adequate LNG investment incentives, and Congress has not yet sanctioned suspending these market transparency rules, they noted [CP05-130].

The Federal Energy Regulatory Commission issued the Hackberry decision in December 2002 (see NGI, Dec. 23, 2002). The agency granted a significant concession to the industry by agreeing to remove open-access-regulation downstream of all LNG import terminals to plant tailgates where gas is delivered into interstate pipeline systems.

The joint protest of Public Citizen and Green Delaware primarily focused on Dominion Cove Point's relationship with Statoil. In June 2004, Dominion and Statoil signed a 20-year agreement giving Statoil access to the increased capacity at the Cove Point LNG plant on the Chesapeake Bay. The Norwegian oil company currently owns 250 MMcf/d of terminal sendout capacity at Cove Point. The transaction that would take effect in 2008-2009 would give it an additional 800 MMcf/d of plant sendout capacity when Dominion completes its planned expansion of the LNG terminal (see NGI, June 21, 2004).

"The relationship...invites collusive, anticompetitive behavior that open-access rules were designed to prevent...Statoil cuts a deal [with] Dominion to deliver the LNG to Cove Point, in return for having exclusive rights over firm natural gas transportation and storage from Cove Point...While this arrangement will result in spectacular financial returns for the two companies, consumers will be guaranteed to be price-gouged," the two groups charged.

"Perhaps FERC will believe that Dominion needs this collusive contract, or else there would be no incentive to expand LNG capacity," Public Citizen and Green Delaware said. But in its filing, Dominion failed to show that the Cove Point expansion would not have been constructed absent the benefits of the Hackberry decision, they noted.

"In fact, Dominion's strong financials indicate that the company has no need for the windfall profit subsidy that Hackberry provides."

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