FERC Knocks Northeast Projects for A Loop
A very divided FERC last week dealt a potentially crippling blow
to the controversial Independence Pipeline and associated
SupplyLink and MarketLink expansion projects, requiring them to
show documented proof of binding, long-term contracts for more than
two-thirds of their project's firm capacity before they can begin
construction, as well as to satisfy more than 100 environmental
conditions. The Commission dismissed a major affiliate contract,
casting doubt on the market support for the eastward-bound
Independence and SupplyLink projects.
Surprisingly, the Commission wasn't as critical of the hotly
contested MarketLink expansion through Pennsylvania and New Jersey;
in fact, Commissioner William Massey had kind words for it. But
FERC said the project couldn't start digging until Independence and
SupplyLink complied with the "threshold" conditions. FERC has taken
an all-or-none attitude toward the projects. However, if neither
Independence nor SupplyLink should meet the terms, Massey said the
proposed MarketLink expansion - which "appears to have strong
market support" - would be given the chance to amend its
application "to construct and operate a reduced project, if
Transcontinental Gas Pipe Line, the sole sponsor of MarketLink,
has contended all along that its proposed expansion was not
interdependent on the upstream Independence Pipeline and the
SupplyLink parts of the multi-state transportation project. In
fact, Cuba Wadlington, executive vice president and COO of Williams
Gas Pipeline, said last week that "MarketLink would be built" even
if greenfield Independence line and SupplyLink project are blocked.
Instead of the Independence line, of which it's a co-sponsor,
Transco's MarketLink could receive Canadian and Gulf Coast gas
supplies from pipelines that tie into the Leidy hub in
Although Transco would have hoped for a "clean order,"
Wadlington said he wasn't disappointed with the decision because it
"has defined the requirements for moving forward to construct the
pipelines." He was "quite confident" that all three projects would
be able to turn their precedent agreements into binding contracts.
ANR Pipeline, sponsor of SupplyLink and a co-sponsor of
Independence, expressed "cautious optimism" in the wake of the FERC
order, saying it remained "firmly committed" to the projects.
Wadlington didn't think FERC's action was out of the ordinary,
but others believe the level of market support that the Commission
required for the three pipeline projects was unprecedented in the
By a vote of 3-2, with Commissioners Vicky Bailey and Curt
Hebert Jr. dissenting, the Commission majority approved an interim
order that will withhold all certificates until Independence and
SupplyLink execute and file long-term contracts with non-affiliates
for at least 35% of the firm capacity of their respective projects.
The affiliates under contract must have been "actively engaged" in
business prior to March 31, 1997, the date the Independence and
SupplyLink projects were filed at FERC.
But the order further specifies the three-pronged, multi-state
projects cannot begin actual construction until the sponsors have
executed contracts for firm capacity equal to the amounts
represented in their applications to FERC; for SupplyLink that is
71% of firm capacity; 68% for Independence and 100% for MarketLink.
The Commission is requiring a "more concrete demonstration" of
market support, Massey said.
He believes the show of market support will be less of a strain
for MarketLink, an expansion of Transco's existing 50-year-old
facilities in Pennsylvania and New Jersey. "MarketLink has entered
into eight precedent agreements [with] seven shippers for all of
its firm capacity. While it is true that 60% of this capacity is
with marketing affiliates of one of the applicants, the other 40%
are with non-affiliated companies, such as Enron and Dynegy
Marketing," Massey said.
The interim order, which a FERC staff member likened to a
preliminary determination (PD), also imposes a number of "specially
crafted" environmental conditions on the projects. For example,
some of the conditions require: 1) Transco and Independence to
designate an ombudsmen to address landowner complaints; 2) project
sponsors to fund a $3 million bond to be held in trust until
restoration of disturbed areas is completed; and 3) sponsors to
obtain access to all property not previously surveyed before they
can begin construction.
Commissioner Bailey believes the stiff contractual and
environmental conditions may delay indefinitely or limit the scope
of the $1.3 billion SupplyLink-Independence-MarketLink project,
which was conceived as three links of a 622-mile pipeline chain
that would transport up to 1 Bcf/d of Canadian gas from the Chicago
market to New York. Partners for the largest segment, Independence,
are ANR, Transco and National Fuel Gas Supply.
Last week's decision "[was] not a caving into people who say
'Not in my backyard," stressed Chairman James Hoecker. But to many,
even to Bailey, that's exactly how it seemed. The order was a big
win for affected landowners in Ohio, Pennsylvania and New Jersey -
whose protests reached Congress and the White House - and a
setback for the projects and their sponsors. How serious a setback
remains to be seen. It especially assuaged the concerns of New
Jersey Gov. Christine Todd Whitman, who had threatened to file a
lawsuit if MarketLink was approved.
Whitman last week applauded the Commission's decision to
postpone certification of the MarketLink expansion, saying it was a
"major initial victory for public safety, for the environment and
for all of New Jersey."
For Hoecker, Massey and Commissioner Linda Breathitt, the case
turned on a single contract -Independence's contract with affiliate
DirectLink Gas Marketing Co. All three indicated they were troubled
by the fact that DirectLink was created just when Kevin Madden,
director of FERC's Office of Pipeline Regulation, threatened to
dismiss the Independence proposal if evidence of market support
wasn't provided. FERC last week rejected the DirectLink contract,
which was for 55% of the capacity of Independence.
"It is our judgment that a quickly executed contract essentially
with oneself is not enough to give this Commission confidence there
is support for such a major undertaking," Hoecker said. "This is
not an indication that this Commission either dislikes affiliate
contracts generically or will insist on particular kinds of
shippers in the future.....But in this case, the facts say that
there are troublesome factors that lead us to require non-affiliate
contracts. This case is not, I emphasize, the beginning of a
Commission approach to go behind contracts to determine the
efficacy of commercial arrangements," he noted. Nor, he said, does
FERC anticipate making a habit of issuing interim orders prior to
granting certificates. "Certificate orders that convey eminent
domain authorization will be the rule in the future....."
Bailey said she was hard-pressed to understand why the
Commission majority ignored the DirectLink contract. "I support all
components of this project, and would have voted for an order that
would have issued appropriate certificate authorization based on
the existing record." The majority's interim order "will do nothing
but contribute to delay and possibly result in the project not
moving forward as proposed," she said.
Breathitt said there wasn't "enough credible market support for
me to hang my hat on in order to certificate a long-line greenfield
pipeline project, such as Independence." She noted she didn't
generally oppose the use of affiliate contracts, but the DirectLink
affiliate "was created virtually overnight apparently to avoid
rejection of the application for lack of market support. Despite
Independence's many promises of additional evidence of market
support, none has been forthcoming." She hoped the case signaled a
"heightened recognition that individuals who are affected by our
actions are welcomed at the table." The order "takes extraordinary
[steps] to meet many of the serious [landowner] concerns."