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Court Vacates Order Approving Cove Point LNG Expansion

A federal appeals court in Washington, DC, Friday vacated a FERC order approving an expansion of Dominion Cove Point LP's liquefied natural gas (LNG) import terminal in Lusby, MD, ruling that the evidence did not support the agency's conclusion that a DC-based utility can fix widespread leaks on its system before the expansion goes into operation.

"We find that substantial evidence supports FERC's [Federal Energy Regulatory Commission] conclusion that any threat of increased leakage is due to defects in [Washington Gas Light's] system, but we grant WGL's petition because substantial evidence does not support FERC's conclusion that WGL can address safety concerns before the project's in-service date," ruled a three-judge panel for the U.S. Court of Appeals for the District of Columbia Circuit. The project is targeted for completion in November.

WGL petitioned the court after FERC in 2006 gave the green light for construction of the Dominion Cove Point project, which would increase the sendout capacity of the terminal on the eastern shore of Maryland to 1.8 Bcf/d from 1 Bcf/d, and would boost storage capacity to 14.6 Bcf from 7.8 Bcf (see NGI, Aug. 28, 2006). The utility challenged the order on the grounds that an influx of LNG would aggravate leaks on its distribution system.

In 2005, Washington Gas said it discovered more than 1,000 leaks concentrated in Prince George's County, MD, an area primarily supplied by vaporized LNG from Cove Point. The utility blamed the leaks on the chemical composition of the LNG from Cove Point (see NGI, July 11, 2005).

The Federal Energy Regulatory Commission, however, had found that the influx of blended LNG "would not have adversely affected WGL's system [in Prince George's County] if a subset of the compression couplings had not been compromised during the installation process" decades ago, the court ruling said. The agency concluded that the leaks occurred because WGL applied hot tar to system couplings when they were installed.

"We conclude substantial evidence supports FERC's conclusion that the unblended LNG would not have caused the leaks if the couplings had not been damaged by the hot tar," the court said. "We do not dispute that WGL operated its system for decades after applying the hot tar and only experienced the high leak rates after it began receiving LNG in PG County. But at the same time, the PG County facilities received LNG for months without experiencing increased leakage, and only suffered those leaks when the weather became cold."

These facts are consistent with FERC's finding -- that "WGL's couplings were so damaged by the hot tar that its distribution system became susceptible to the confluence of multiple leak-inducing factors, such as LNG and cold weather," the court said.

"Having found WGL's system is defective, FERC had to explain why the expansion could nevertheless proceed consistent with the public interest requirements of Sections 3 and 7 of the [Natural Gas Act]. FERC attempted to carry this burden by concluding WGL will be able to fix its facilities before the expansion's in-service date, but [it] did not support this finding with substantial evidence. Accordingly, we conclude FERC failed to carry out its obligation of ensuring the expansion can go forward consistent with the public interest."

Because of this, "we grant WGL's petition for review, vacate the orders to the extent they approve the expansion, and remand the case so FERC can more fully address whether the expansion can go forward without causing unsafe leakage."

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