A new analysis to be delivered under wraps to FERC by ReedConsulting could decide the fate of the proposed NE Hub, a majorsalt cavern storage facility and market hub that would add 500MMcf/d of daily deliverability to the gas grid in northernPennsylvania. But an eleventh-hour motion by CNG Transmission, acompetitor of the project, could influence and delay the outcome.

Reed is scheduled to decide the amount and terms of insurance orindemnity NE Hub Partners, the developer and owner of the project,must buy to address potential damages to CNG’s and Penn Fuel’sexisting Tioga storage field, under which the NE Hub salt cavernsare to be leached. CNG and Penn Fuels for years have argued NEHub’s plan to drill ten 28-inch diameter wells through theirstorage field could result in the loss of 10% (2.7 Bcf) of theworking gas in the existing field and do irreparable damage.

The Commission issued a certificate to NE Hub in April over theopposition but conditioned the certificate on more than 20environmental and operational changes. FERC also requested ReedConsulting’s evaluation of the potential damage to the assets ofCNG and Penn Fuel, including their surface facilities, gas instorage and contractual obligations. NE Hub already has agreed topurchase $110 million in insurance. But CNG and Penn Fuels arguepotential damages could exceed $600 million.

CNG and Penn Fuel now believe the risk is even greater in lightof data submitted by NE Hub last month. NE Hub informed FERC andReed that the greatest risk to its storage project and to CNG’sexisting storage operations is related to the presence of shallowgas, or gas migrating upward from the existing storage facility.CNG has worked with the State of Pennsylvania for more than adecade to correct the migrating gas problem, which likely is theresult of historic production activities in the Oriskany formation.But CNG claims NE Hub’s admission that the existing “dangerouscondition” could be exacerbated by the development of its newstorage facility is not new, has not been adequately considered bythe Commission and could change the outcome of the case.

“[T]his is a remarkable chutzpah, even for NE Hub,” CNG said inits motion. “NE Hub remains resolute to site its project at Tiogaand thereby, in NE Hub’s words, risk ‘accidents, explosions, fires,or other events’. If this alleged factual scenario is considered bythe Commission for any purpose at all, it would not establish whatNE Hub claims, namely, some sort of countervailing risk to offsetinsurance it should procure, but rather it impeaches any soundevidentiary basis by which NE Hub could have continued to locateits site at Tioga rather than an alternative site. It also woulddestroy any evidentiary basis under which the Commission could havegranted NE its certificate.” CNG has called on the Commission toreopen the record to consider the “important new evidence.”

Andrea Hilliard, an attorney for Market Hub Partners, a partnerin the NE Hub, noted CNG has known about the migrating gas allalong and is just bringing it up now to influence Reed’s decisionand further delay development of the salt cavern. “That’s why thisis so cynical,” she said. “If we take all 15 days to respond and ifReed decides it wants to read our response, that’s another twoweeks. And this has been the plot all along. We can’t even clearthe site until the insurance issues have been resolved.” Hilliardindicated the migrating gas poses no significant danger to thedevelopment of the new storage facility, but CNG and Penn Fuel willuse all potential risks to reverse the Commission’s decision.

“I think they honestly believe that life on this planet is goingto cease to exist, and the earth will start rotating the otherdirection on its axis if this project is built,” said Hilliard.”They honestly believe that our science is bad and theirs is good.And they will do anything to prevent development, despite the factthat we have a lot of experience in drilling big holes – we do itall the time. The record at FERC is replete with examples like thisone – [storage facilities] that are operating under otherproduction and storage fields. It’s not an unusual thing. Obviouslycompetitive issues also are involved.”

Hilliard indicated the 6 Bcf storage facility, which is expectedto be in service in late 2000, could be jeopardized if Reedrecommends “excess insurance.” MHP clearly is frustrated with theregulatory process. “We filed this three years ago, and all we haveare a couple of Osprey nests, which the Corps. of Engineersrequired. That’s the only construction we have done.”

Rocco Canonica

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