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FERC Yanks Destin's Blanket Certificate Authority

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% overrun.

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.

Susan Parker

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