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NJ, Capitol Hill Knock FERC's Pipe Ruling
The fallout from FERC's unpopular decision on the SupplyLink-Independence-MarketLink gas pipeline projects continued throughout most of last week, first with New Jersey pledging to take the Commission to court over MarketLink and then with the most powerful energy lawmaker on Capitol Hill publicly accusing the Commissioners of trying to undermine the construction of the proposed $678 million Independence Pipeline to the Northeast.
New Jersey's attorney general (AG), acting on the directions of Gov. Christine Whitman, vowed on Wednesday to seek a court appeal of FERC's rehearing order conditionally awarding a certificate for Transcontinental Gas Pipe Line to proceed with the construction of its MarketLink expansion through the northern part of the state. The state has up to 60 days to petition the U.S. Court of Appeals for the D.C. Circuit to review the FERC order.
In rejecting New Jersey's petition for rehearing at FERC last week, the Commission "overlooked the impact such construction would have on the residents and the environment," said AG John J. Farmer Jr. in a prepared statement. The Garden State intends to argue that FERC failed to properly address the safety of the proposed expansion, protect New Jersey's environment and to properly consider a proposed alternative to the expansion.
The MarketLink project, which would expand the capacity of Transco's existing 154-mile system in Pennsylvania and northern New Jersey by 700 MMcf/d, has been hotly contested by landowners in both states and by New Jersey lawmakers (see NGI Dec. 20, 1999)
Rep. Williams J. Pascrell Jr., through whose district MarketLink would run, also may seek an appeal or stay of the MarketLink decision in either the D.C. Circuit or the Third Circuit Court of Appeals in New Jersey, said Joe Waks, press aide and legal counsel. Or, he may join New Jersey's planned legal action, he noted.
"By no means is this a done deal," Waks said. "They [Transco] need firm iron-clad, no-back-out contracts, which they haven't gotten so far. They're a long way from putting the shovels in the ground."
FERC approved the MarketLink expansion in December, but withheld its certificate until it could produce evidence of further market support for the project. The Commission acknowledged last week that Transco, a Williams pipeline, had adequately demonstrated market need.
Nevertheless, FERC conditioned MarketLink's expansion certificate on Transco first submitting executed contracts for 100% of the project's capacity, ridding its project contracts of market-out clauses and showing that its contracts will not be based on the availability of upstream transportation on the proposed Independence line [CP97-315-003]. Cuba Wadlington, president and CEO of Williams Gas Pipeline, said Transco "absolutely" would be able to satisfy the contract restrictions. He expects MarketLink to be up and running by 2001.
But Rep. Pascrell has his doubts. "I am still not convinced that they [Transco] can meet this heavy burden," he said. In addition to the contract requirements, he pointed out the FERC order also maintained the "stringent" environmental standards, and requires Transco to put up a $1 million bond for any environmental damages and hire an ombudsman and environmental monitors to address complaints by affected residents.
While New Jersey and Pascrell want to stop a project, Chairman Frank Murkowski (R-AK) of the Senate Energy and Natural Resources Committee read the riot act to the Commissioners for not looking favorably upon the proposed greenfield Independence line and the associated SupplyLink expansion. FERC was in a no-win situation last week.
He took the Commissioners to task for issuing an unprecedented ultimatum to the sponsors of the two projects --- to either produce long-term, non-affiliate contracts for 35% of the 1 Bcf/d capacity of the projects within 60 days or face dismissal of the projects. Many believe the decision, which was supported by the FERC majority (Commissioner Curt Hebert Jr. dissented), is a kiss of death for the associated gas pipeline projects.
"He was pretty rough" on the FERC Commissioners, who came to a Senate hearing last Thursday expecting to answer questions on electricity restructuring, a committee spokeswoman said. Murkowski demanded an explanation from each as to "why you are not doing everything you can to get this pipeline built as fast and as cheaply as possible" to alleviate the Northeast's dependence on high-priced oil. It also would help lower the cost of electricity which Murkowski sees as doubling this summer if oil prices remain between $22 and $28 a barrel. "The Commission's actions in the Independence pipeline case seem to indicate that you really don't want this pipeline built."
In imposing the deadline, FERC said sponsors had ignored its request four months ago for further proof of market support. "By providing the project sponsors with a drop-dead date 60 days hence, the Commission intends to send an unmistakable signal that we want to see a demonstration of market support" for Independence and SupplyLink, said Commissioner William Massey. SupplyLink is sponsored by ANR Pipeline, while the financial backers for Independence are ANR, Transco and National Fuel Gas Supply. Both projects have been pending at FERC for three years. Wadlington said Transco continues to be "very much behind" the Independence project.
Likewise, the Commission hasn't given up on the Independence and SupplyLink projects yet, Massey noted. "I must point out that despite the myth to the contrary we have never said 'no' to these projects, and we're not rejecting them today." And while MarketLink achieved a triumph last week, it is by no means out of the woods. If New Jersey and Rep. Pascrell have their way, it could be tied up in the courts for awhile.
MarketLink initially was conceived as the last link to a 622-mile pipeline chain that was to transport up to 1 Bcf/d of Canadian gas from the Chicago market to the East Coast. Based on a relay-race concept, the gas was to be shipped from Joliet, IL, to Defiance, OH, over an expanded ANR system (SupplyLink project), picked up at Defiance by the proposed 400-mile Independence line and delivered to the Leidy Hub in Pennsylvania, where it then was to be shipped to East Coast markets over an expanded Transco system (MarketLink). But MarketLink now says it's not dependent on the upstream portions of the project (SupplyLink and Independence) for its survival. Rather, it can receive Canadian and Gulf Coast gas supplies from existing pipelines that tie into the Leidy Hub in Pennsylvania.
On rehearing, the Commission last week upheld the bulk of its December interim order in which its approved SupplyLink, Independence and MarketLink, but withheld their certificates until further market support could be shown for their respective projects. In the interim order, it had rejected as questionable a contract with a brand new affiliate for 55% of the Independence capacity, which cast serious doubt on the market demand for both Independence and SupplyLink.
This order "does not register a generic distaste for affiliate contracts. [Nor does it] set down a policy of going behind contracts" to assess the adequacy of market demand for a pipeline project, said Chairman James Hoecker. "It's our job to distinguish between sound applications and questionable applications. And [all] we ask in these cases is if the market exists, 'show us.'"
Hoecker believes FERC's decision to certificate the MarketLink project "is ample indication that this Commission is not about to stifle the legitimate growth in the natural gas markets in the Northeast or anywhere else. So, I'd just say in both of these cases the sky is not falling."
Hebert denounced the rehearing order, accusing the FERC majority of trying to "strangle vitally needed pipeline expansion in the Northeast. When and if there are rolling brownouts and blackouts [of electric power], I hope this agency will take its share of the blame for not fostering adequate [pipeline] infrastructure....."
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