FERC Plans 'Discussion Only' for New Pipes
The Federal Energy Regulatory Commission is expected to go on
the record this Wednesday with thoughts, but not votes, on the
competing Independence and Millennium pipeline projects which are
vying to be the last link in the new path for western Canadian gas
delivered to the U.S. Northeast.
The two main projects, plus ancillary connections, have been
scheduled "for discussion only" at the Commission's regular open
meeting, offering an airing of the controversy surrounding them, an
indication of why FERC has taken so long to act on them and
possibly a re-examination of the bi-furcated process the Commission
has used in recent years to dodge environmental delays.
Up for debate are the fate of the Millennium, Independence,
SupplyLink and MarketLink pipeline expansion projects (CP98-150,
CP97-315 and others), which together represent about 1.7 Bcf/d of
new pipeline capacity designed to pick up Canadian gas coming into
the Midwest through the now under-construction Alliance Pipeline.
The pipelines have asked for preliminary determinations (PDs) so
they can keep the projects on track for completion by the end of
Chairman James Hoecker's office and other FERC staff members
refused to comment on the topic of the Commission's planned
discussion. FERC's Dick O'Neill, director of the Office of Economic
Policy, noted however, "We don't usually put things on the agenda
that are just for discussion so it's obviously important that there
be a discussion so that people can understand how the Commission is
thinking or where their thinking is."
Given the record to date on these projects the outlook is not
very good, according to some observers. On several occasions
Commission staff has expressed concern over the record number of
environmental and landowner interventions (more than 6,500) in the
Independence docket, over "contract out" provisions in pipeline
contracts with multiple shippers on both pipelines, and over the
heavy reliance on marketing affiliate contracts for market support
(see NGI, Feb. 15, March 1 issues). Some of the agreements allow
prospective shippers to opt out in mid-March if there is no FERC
Project sponsors, however, are looking optimistically toward the
Wednesday discussion to clear the air. "We think this represents a
step in the right direction," said Millennium spokesman Karl Brock.
"We have invested significantly in the project and we welcome the
opportunity to receive feedback on it in a public forum such as
The 422-mile Millennium project would extend from Lake Erie into
New York City with a capacity of 700,000 Dth/d. Sponsors include
Columbia, TransCanada, Westcoast and MCN. The 1 Bcf/d Independence
project and related Supply Link and MarketLink projects would
extend from the Joliet Hub in Illinois to New York City. Sponsors
of those projects include Coastal Williams and National Fuel.
Coastal's ANR Pipeline is building SupplyLink. Williams' Transco is
building MarketLink and all three are partners in Independence.
In an interview with NGI last week, O'Neill noted "there isn't a
rush of people to fill up these pipelines with contracts, and there
are plenty of people out there saying that these pipes aren't
"If you look at the gas and electric industries over the last 10
years, [you see] we spent a lot of time dealing with stranded costs
of facilities that were built that really didn't need to be built
or gas contracts that were signed and really didn't need to be
signed. These days you don't have to create stranded costs; you can
do it in such a way that everybody understands the risk they are
taking and later on they won't have the story that allows them to
come back to the Commission to say 'you made me do this.'"
Others at FERC have suggested off the record that because
environmentalists and landowners have become a much stronger force
in recent years, the use of the PD on non-environmental grounds may
become more selective. The PD is a fairly recent procedural
development that was instituted to speed things up when there was a
great crush of projects. It passes on almost all the items of a
project, including estimated costs and rates, leaving only the
environmental review up in the air.
Former Chair Betsy Moler, who was a commissioner when PDs were
instituted, told NGI they were "invented" by the Office of
Pipelines and Producers staff "to give applicants some kind of
feedback to enable them to have a good idea of what the rate
structure is likely to be. This would allow them to get contracts
signed and financing lined up." They "did not pre-judge
environmental terms & conditions." Moler said the PDs were
instituted "very informally" and were "a valuable tool." The
Commission is under no requirement to issue a PD. She declined to
comment on the current debate. Since they were instituted, no
project has ever received a PD approval and then been turned down
on environmental grounds.
Increasingly, however, projects are being severely altered by
environmental mitigation measures, and there is some question as to
whether bankers might be committing financing on some shifting
sands if the environmental study requires extensive changes in the
pipeline length, route and other mitigation measures. Those changes
could involve greater costs, higher rates and in the end fewer
customers, especially if the contracts signed by those customers
were nothing more than letters of intent because of the "outs"
"What part of a PD is firm? The name of the sponsor, the name of
the pipeline, and a general regional route. That's about all.
Anything else can change," pointed out one source who suggested
that the bank officers financing projects based on these
credentials "must have had lobotomies. They're banking millions of
dollars on nothing."
'Discussion Only' Rare
While there haven't been many discussion-only items on FERC's
agenda in recent years, they were more frequent in the early years
of decontrol and when there were major differences among
commissioners. As one source explained "it's very hard to work out
very complex projects without getting all the commissioners in the
same room for discussion. Because of the Sunshine Act no more than
two commissioners can discuss an item unless it's in a public
meeting. It's almost impossible to get a handle on this with
two-by-two-by-two-by-two discussions between commissioners or with
their positions relayed by staff assistants."
And there's no question these projects are complicated or that
the environmental pressure is on the Commission to come up with
fully justifiable positions.
Only one of the pipelines, Independence, has extensive
environmental complaints against it. Veteran environmentalist "Anne
Marie Mueser has been hard at work on this one." Also, the route of
Independence is particularly NIMBY-prone. And while Millennium
doesn't carry as much environmental baggage, it doesn't connect
with the northeast hub at Leidy, which also is a concern to some.
Sources say FERC would like to see some compromises and is not
likely to issue a PD for one project and not the other. Because the
environmental lobby, which has brought congressional pressure to
bear (see NGI, Feb. 15 issue), is so strong, it will take the
strongest, most defensible project to prevail.
One possible outcome of Wednesday's discussion is that the
projects will be bundled off to an administrative law
judge/mediator to get the parties to settle on a single or
complementary routes as was done with the multitude of major
Northeast projects nearly ten years ago. That resulted in Iroquois
Gas Transmission being built with 13 sponsors. Another possibility
is that the commissioners may simply decide not to decide and wait
for the environmental studies before acting. One source said the
commissioners appear to be split and any action would be on a 3-2
Of course, things might be different if the parties came in with
a new proposal for an Independent Millennium with Anne Marie on
board and a later in-service date. The word is there even may be
some FERC engineers with some ideas about how it might be done.
Ellen Beswick, Rocco Canonica