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Downsized Maritimes Project, New Laterals Get FERC Nod

Downsized Maritimes Project, New Laterals Get FERC Nod

FERC tied up all the loose ends in the Maritimes & Northeast Pipeline project in a draft order released yesterday, clearing the way for the pipeline to begin delivering about 350 MMcf/d of Sable Island gas to power plants, paper mills and new markets in Maine and other New England states this fall.

The Commission granted Maritimes & Northeast Pipeline's request to construct and operate two lateral lines to deliver about 270,000 MMBtu of gas to the proposed Casco Bay (a Duke Energy affiliate) and Gorham Energy power plants in Maine. Over several protests, including one from Maritimes shipper Boston Gas, FERC also approved an amended certificate application for the project that lowers its firm capacity by 18%, defers construction of five other laterals and raises its firm reservation rates 22% to $0.715/Dth.

The project changes were prompted by the loss or delay of numerous markets in the state and by a $90 million increase in costs. The Maritimes Phase II project now will cost $390 million, rather than the $300 million originally expected at the time of its July 1998 certificate primarily because of unexpected increases in labor costs, engineering, overhead and other expenses, FERC noted.

However, the Commission said the rate increase is justified, and the project still has substantial markets to serve, contrary to the claims of protesters Boston Gas and Pittston. ".Maritimes has appropriately downsized its facilities to reflect the level of current firm subscriptions on the system," the draft order stated. "Thus we find that there is no merit to Boston Gas' contentions that Maritimes' market is in 'free fall,' that there has been a reduced level of support of the project, or that the project is oversized for the current level of subscriptions."

Maritimes has "overwhelmingly demonstrated market demand for the project as 82% of the pipeline's capacity is subscribed under long-term firm contracts," said Commissioner William L. Massey. "In short, this is a sound project. It will provide a competitive source of new gas supplies, and it poses very little risk to shippers other than to Mobil and the Sable Offshore producers, who have so heavily invested in Maritimes' success."

FERC granted a waiver of its rules to allow the pipeline to provide market information to its affiliate Mobil, a Sable Offshore Energy Project producer, because of Mobil's willingness to sign an unusual backstop agreement that shields the pipeline and the other Maritimes shippers from the risk of unsubscribed capacity. FERC agreed that because Mobil is paying for capacity under its backstop agreement to cover unexpected costs, Maritimes will be able to notify Mobil of any request for capacity the pipeline receives so that Mobil can negotiate a prearranged deal for its backstop capacity. "The circumstances that would trigger the need for the waiver are extremely limited," said Massey. "For this reason, I don't believe the capacity rights of other shippers will be denigrated. I'm convinced the waivers we are granting today will be of limited impact and are necessary to allow this project to go forward," he added.

"One aspect of Maritimes' application that is interesting to me is its request to reduce the pipeline certificated capacity by about 20%," said Massey. "I'm not sure what the reduction in the capacity of this project means. It may be a reflection of the fact that the market has not matured to the degree that Maritimes originally anticipated... Perhaps this is an anomaly in an otherwise robust market. Perhaps it's a timing issue. In any event, I find it interesting and somewhat counter intuitive in the Northeast market. I'm please to support this order."

Maritimes has firm service agreements for 358,775 Dth/d of mainline capacity with four shippers: Salmon Resources (15 years/100,000 Dth/d), a subsidiary of Shell Canada; Canada Limited (10 years/30,240 Dth/d), a subsidiary of Nova Scotia Resources; Mobil Natural Gas (20 years/185,335 Dth/d); and Boston Gas (three years/43,200 Dth/d). The customers being served by the two new laterals evidently will be utilizing up to 270,000 Dth/d of capacity subscribed by the other shippers.

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