FERC has suspended Destin Pipeline Co. L.L.C.’sblanket-certificate authority for six months for grossly exceedingthe $19.5 million cost cap earmarked for construction of anoffshore lateral, and for dragging its feet in reporting the costoverrun to the Commission.

“Destin’s patent disregard of our blanket-certificate cost capwarrants a response from this Commission that will underline theseriousness of Destin’s conduct and serve as notice that we willnot tolerate such conduct in the future,” the FERC order said[CP98-238]. The cost cap for blanket-certificate projects is $19.6million; Destin projected the cost for its lateral would be $19.5million. “Destin left itself only a narrow margin for error toremain under that cost limit.”

In the end, Destin spent a total of $35.1 million, well abovethe allowed cap, to build the lateral to transport gas from twoproduction platform in the Gulf of Mexico to an offshore connectionwith its mainline system at its Main Pass 260 platform, and did notnotify FERC of the overruns until two months after the lateral wasplaced in service in December 1999.

Without Part 157 blanket certificate authority, Destin will haveto seek Section 7 approval under the Natural Gas Act (NGA) for anyproject that it proposes during the six-month suspension. Blanketauthority permits pipelines to build small-scale projects withouthaving to endure a lengthy certificate process.

Destin “continues to insist that it acted in good faith and thatits long delay in reporting the huge cost overrun was the result ofits desire to present the Commission with detailed and accuratefinal construction figures,” the order noted. But it doesn’t”address what is, in fact, our primary concern – that, knowingbefore it began construction that costs would exceed the priornotice limit, Destin had no authority even to begin construction.”

Even though it’s a relatively new pipeline, “Destin is beginningto develop a history of submitting construction cost estimates thatprove to be well below the actual costs of the construction.” FERCsaid. It noted the final construction costs for Destin’s mainlinewere $78 million beyond the estimate in its application – a 25%overrun.

Destin has presented a plan to prevent more violations in thefuture, which FERC called a “good first step.” But it suggestedsome changes. For one, it said that once cost overruns come within5%, the project construction manager should be required to provideweekly cost updates to the management committee. Also, it wantsDestin to postpone construction that it hasn’t yet begun when itrealizes that its costs will exceed the blanket-certificate cap.

Susan Parker

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