FERC Yanks Destin's Blanket Certificate Authority
FERC has suspended Destin Pipeline Co. L.L.C.'s
blanket-certificate authority for six months for grossly exceeding
the $19.5 million cost cap earmarked for construction of an
offshore lateral, and for dragging its feet in reporting the cost
overrun to the Commission.
"Destin's patent disregard of our blanket-certificate cost cap
warrants a response from this Commission that will underline the
seriousness of Destin's conduct and serve as notice that we will
not tolerate such conduct in the future," the FERC order said
[CP98-238]. The cost cap for blanket-certificate projects is $19.6
million; Destin projected the cost for its lateral would be $19.5
million. "Destin left itself only a narrow margin for error to
remain under that cost limit."
In the end, Destin spent a total of $35.1 million, well above
the allowed cap, to build the lateral to transport gas from two
production platform in the Gulf of Mexico to an offshore connection
with its mainline system at its Main Pass 260 platform, and did not
notify FERC of the overruns until two months after the lateral was
placed in service in December 1999.
Without Part 157 blanket certificate authority, Destin will have
to seek Section 7 approval under the Natural Gas Act (NGA) for any
project that it proposes during the six-month suspension. Blanket
authority permits pipelines to build small-scale projects without
having to endure a lengthy certificate process.
Destin "continues to insist that it acted in good faith and that
its long delay in reporting the huge cost overrun was the result of
its desire to present the Commission with detailed and accurate
final construction figures," the order noted. But it doesn't
"address what is, in fact, our primary concern - that, knowing
before it began construction that costs would exceed the prior
notice limit, Destin had no authority even to begin construction."
Even though it's a relatively new pipeline, "Destin is beginning
to develop a history of submitting construction cost estimates that
prove to be well below the actual costs of the construction." FERC
said. It noted the final construction costs for Destin's mainline
were $78 million beyond the estimate in its application - a 25%
Destin has presented a plan to prevent more violations in the
future, which FERC called a "good first step." But it suggested
some changes. For one, it said that once cost overruns come within
5%, the project construction manager should be required to provide
weekly cost updates to the management committee. Also, it wants
Destin to postpone construction that it hasn't yet begun when it
realizes that its costs will exceed the blanket-certificate cap.
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