The Federal Energy Regulatory Commission is expected to go onthe record this Wednesday with thoughts, but not votes, on thecompeting Independence and Millennium pipeline projects which arevying to be the last link in the new path for western Canadian gasdelivered to the U.S. Northeast.

The two main projects, plus ancillary connections, have beenscheduled “for discussion only” at the Commission’s regular openmeeting, offering an airing of the controversy surrounding them, anindication of why FERC has taken so long to act on them andpossibly a re-examination of the bi-furcated process the Commissionhas 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 ofnew pipeline capacity designed to pick up Canadian gas coming intothe Midwest through the now under-construction Alliance Pipeline.The pipelines have asked for preliminary determinations (PDs) sothey can keep the projects on track for completion by the end of2000.

Chairman James Hoecker’s office and other FERC staff membersrefused to comment on the topic of the Commission’s planneddiscussion. FERC’s Dick O’Neill, director of the Office of EconomicPolicy, noted however, “We don’t usually put things on the agendathat are just for discussion so it’s obviously important that therebe a discussion so that people can understand how the Commission isthinking or where their thinking is.”

Given the record to date on these projects the outlook is notvery good, according to some observers. On several occasionsCommission staff has expressed concern over the record number ofenvironmental and landowner interventions (more than 6,500) in theIndependence docket, over “contract out” provisions in pipelinecontracts with multiple shippers on both pipelines, and over theheavy reliance on marketing affiliate contracts for market support(see NGI, Feb. 15, March 1 issues). Some of the agreements allowprospective shippers to opt out in mid-March if there is no FERCdecision.

Project sponsors, however, are looking optimistically toward theWednesday discussion to clear the air. “We think this represents astep in the right direction,” said Millennium spokesman Karl Brock.”We have invested significantly in the project and we welcome theopportunity to receive feedback on it in a public forum such asthis.”

The 422-mile Millennium project would extend from Lake Erie intoNew York City with a capacity of 700,000 Dth/d. Sponsors includeColumbia, TransCanada, Westcoast and MCN. The 1 Bcf/d Independenceproject and related Supply Link and MarketLink projects wouldextend from the Joliet Hub in Illinois to New York City. Sponsorsof those projects include Coastal Williams and National Fuel.Coastal’s ANR Pipeline is building SupplyLink. Williams’ Transco isbuilding MarketLink and all three are partners in Independence.

In an interview with NGI last week, O’Neill noted “there isn’t arush of people to fill up these pipelines with contracts, and thereare plenty of people out there saying that these pipes aren’tneeded.

“If you look at the gas and electric industries over the last 10years, [you see] we spent a lot of time dealing with stranded costsof facilities that were built that really didn’t need to be builtor gas contracts that were signed and really didn’t need to besigned. These days you don’t have to create stranded costs; you cando it in such a way that everybody understands the risk they aretaking and later on they won’t have the story that allows them tocome back to the Commission to say ‘you made me do this.'”

Others at FERC have suggested off the record that becauseenvironmentalists and landowners have become a much stronger forcein recent years, the use of the PD on non-environmental grounds maybecome more selective. The PD is a fairly recent proceduraldevelopment that was instituted to speed things up when there was agreat crush of projects. It passes on almost all the items of aproject, including estimated costs and rates, leaving only theenvironmental review up in the air.

Former Chair Betsy Moler, who was a commissioner when PDs wereinstituted, told NGI they were “invented” by the Office ofPipelines and Producers staff “to give applicants some kind offeedback to enable them to have a good idea of what the ratestructure is likely to be. This would allow them to get contractssigned and financing lined up.” They “did not pre-judgeenvironmental terms &amp conditions.” Moler said the PDs wereinstituted “very informally” and were “a valuable tool.” TheCommission is under no requirement to issue a PD. She declined tocomment on the current debate. Since they were instituted, noproject has ever received a PD approval and then been turned downon environmental grounds.

Increasingly, however, projects are being severely altered byenvironmental mitigation measures, and there is some question as towhether bankers might be committing financing on some shiftingsands if the environmental study requires extensive changes in thepipeline length, route and other mitigation measures. Those changescould involve greater costs, higher rates and in the end fewercustomers, especially if the contracts signed by those customerswere nothing more than letters of intent because of the “outs”included.

“What part of a PD is firm? The name of the sponsor, the name ofthe pipeline, and a general regional route. That’s about all.Anything else can change,” pointed out one source who suggestedthat the bank officers financing projects based on thesecredentials “must have had lobotomies. They’re banking millions ofdollars on nothing.”

‘Discussion Only’ Rare

While there haven’t been many discussion-only items on FERC’sagenda in recent years, they were more frequent in the early yearsof decontrol and when there were major differences amongcommissioners. As one source explained “it’s very hard to work outvery complex projects without getting all the commissioners in thesame room for discussion. Because of the Sunshine Act no more thantwo commissioners can discuss an item unless it’s in a publicmeeting. It’s almost impossible to get a handle on this withtwo-by-two-by-two-by-two discussions between commissioners or withtheir positions relayed by staff assistants.”

And there’s no question these projects are complicated or thatthe environmental pressure is on the Commission to come up withfully justifiable positions.

Only one of the pipelines, Independence, has extensiveenvironmental complaints against it. Veteran environmentalist “AnneMarie Mueser has been hard at work on this one.” Also, the route ofIndependence is particularly NIMBY-prone. And while Millenniumdoesn’t carry as much environmental baggage, it doesn’t connectwith the northeast hub at Leidy, which also is a concern to some.Sources say FERC would like to see some compromises and is notlikely to issue a PD for one project and not the other. Because theenvironmental lobby, which has brought congressional pressure tobear (see NGI, Feb. 15 issue), is so strong, it will take thestrongest, most defensible project to prevail.

One possible outcome of Wednesday’s discussion is that theprojects will be bundled off to an administrative lawjudge/mediator to get the parties to settle on a single orcomplementary routes as was done with the multitude of majorNortheast projects nearly ten years ago. That resulted in IroquoisGas Transmission being built with 13 sponsors. Another possibilityis that the commissioners may simply decide not to decide and waitfor the environmental studies before acting. One source said thecommissioners appear to be split and any action would be on a 3-2vote.

Of course, things might be different if the parties came in witha new proposal for an Independent Millennium with Anne Marie onboard and a later in-service date. The word is there even may besome FERC engineers with some ideas about how it might be done.

Ellen Beswick, Rocco Canonica

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