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Independence Ruling Upheld; Transco, ANR Projects Advance

Independence Ruling Upheld; Transco, ANR Projects Advance

FERC last week held firm to its July order in which it awarded a much-sought-after certificate to the controversial Independence Pipeline, rejecting numerous requests to reconsider whether the project's precedent agreements were binding and its market need justified. Federal regulators also gave the go-ahead for Phase II of ANR Pipeline's Wisconsin expansion, a Reliant Energy Gas Transmission looping expansion in Arkansas, and accorded a preliminary determination to Transcontinental Gas Pipe Line for its proposed Sundance expansion in the Southeast.

The rehearing decision on the Midwest-to-East Coast Independence was a dose of good news for the project's sponsors, which include ANR, Transco and National Fuel Gas Co. But it now makes the case, which has been entangled in a regulatory maze at FERC since March 1997, ripe for the courts, where --- given the decibel level of opposition to the project --- it's likely to wind up next.

In the July order, the Commission awarded Independence a certificate after it had negotiated precedent agreements with Dynegy Marketing and Trade for 38% of the proposed capacity of the pipeline, which met a condition previously imposed by FERC. However, protesters continued to argue that the Dynegy precedent agreements were not binding because they contained board of directors' out-clauses.

Although FERC's policy on what constitutes a binding commitment "has never been clearly articulated," the order said the Commission "generally [has] accepted" precedent agreements subject to board of directors' approval, but has rejected agreements that contain "market out" clauses.

"We find the Dynegy contracts are sufficient to satisfy the Commission's contract requirement" imposed by FERC in a decision last December, according to the order [CP97-315-004]. "Dynegy is an established, existing, non-affiliated marketing company, with worldwide wholesale natural gas sales of more than 10 Bcf/d. We find the fact that Dynegy is willing to commit to 38% of the capacity for this project.....is sufficient to support our finding that there is a need for the Independence project."

But Independence cannot begin construction of the project until it files with FERC binding executed contracts (with no out clauses) for 68.2% of firm capacity of its proposed project. The Commission rejected requests to condition its order on Independence producing the needed contracts within 12 months or face termination.

"Independence is already under a requirement to complete construction of its authorized facilities and place them into service within three years. Thus, there is a de facto limit on the time it has to execute contracts and commence construction. We do not believe it is necessary to establish additional limits," the order noted.

Moreover, it dismissed challenges to the need for the Independence project. FERC "finds that there is sufficient evidence.....to demonstrate market need and support a finding that the pipeline is required by public convenience and necessity."

The proposed Independence line, combined with ANR's associated SupplyLink expansion, would transport 1 Bcf of Canadian natural gas from Chicago to the Leidy Hub in Pennsylvania, where it could be picked up by other pipelines and shipped to East Coast markets. Landowners in both Ohio and Pennsylvania have been opposed to the project from the start, and have filed numerous protests at FERC to try to stop construction.

ANR/Wisconsin Phase II

The Commission also awarded a certificate to ANR for the construction of the second phase of its system expansion from the Joliet, IL, hub to southwestern Wisconsin, which would add 84,950 Dth/d of firm transportation capacity. The action comes less than a year after FERC approved the first phase of the project that will add 109,000 Dth/d of system capacity into the state.

The FERC decision gives ANR a leg-up over the much larger Guardian Pipeline project in providing expanded service to the southern Wisconsin market. The 149-mile Guardian line received a preliminary determination from the Commission in June.

ANR initially proposed its Wisconsin expansion as one project, but it later decided to phase it into two parts when the Commission deferred action on its upstream SupplyLink project. While phase one could be acted on independently, the construction of phase two, ANR told FERC at the time, hinged on SupplyLink being certified, which it was in July.

ANR's second-phase project includes minor looping of its existing Michigan Leg South system in Kendall County, IL; a new 1,500 horsepower (hp) turbine compressor unit at its existing Weyauwega Compressor Station in Waupaca Country, WI; a 1,500 hp reciprocating compressor unit at its existing Janesville Compressor Station in Rock County, WI; and minor related facilities. The certificate requires the second phase, which will cost about $13.7 million, to be constructed and in operation within two years.

The Commission said the ANR project complied with its policy statement on pipeline construction, which requires that new projects not adversely affect existing shippers, landowners and competing pipelines.

"ANR is proposing to serve new and projected near-term demand load not currently served by another pipeline. Thus, the project will not impact any existing pipeline or its customers," the order said [CP00-241]. "In addition, since the project mainly consists of compression additions to existing stations and only approximately 3.11 miles of new pipeline facilities, the impact on landowners from taking of land by eminent domain will be minimal."

Moreover, it rejected the claims of Wisconsin Fuel & Light, Wisconsin Gas Co. and the Wisconsin Public Service Corp. that the costs of the ANR project might be shifted to existing customers.

ANR has not negotiated any precedent agreements yet for the second half of the project, but the Commission agreed the presently uncommitted capacity is needed to meet the projected near-term market demand growth in Wisconsin. For the first phase, ANR has executed firm contracts with non-affiliated shippers for about 55,000 Dth/d of new firm service to begin Nov. 1 of this year, and an additional 28,950 Dth/d to start Nov. 1, 2001.

Transco Sundance

The fully-subscribed Transco Sundance expansion cleared the first step of the regulatory process, receiving a preliminary determination on non-environmental issues. The 38-mile pipeline project is an incremental expansion (236,383 Dth/d) of Transco's existing system in North Carolina, Georgia, Alabama and Mississippi, and seeks to cash in on the growing gas-fired generation demand in the Southeast.

The $134 million expansion consists of 42- and 48-inch looping of Transco's mainline in Mississippi, Alabama and North Carolina; a new 18,975 horsepower compressor unit, plus upgrading two existing compressor units, at Transco's existing Compressor Station No. 115 in Coweta County, GA; a new 15,000 hp compressor unit, plus an upgrade of an existing compressor unit, at Transco's existing Compressor Station No. 125 in Walton County, GA; and gas coolers at Compressor Station No. 150 in Iredell County, NC.

Transco has negotiated precedent agreements with 12 shippers for 100% of the proposed new capacity on its Sundance expansion, with the lion's share going to Southern Company Services Inc. (140,000 Dth/d) and Carolina Power & Light (75,000 Dth/d). The agreements are for firm service for 15 years.

"The Sundance project will serve growth requirements of new electric generating plants to be constructed or the expansion of existing plants." Consequently, "there is no evidence that other pipelines or their captive customers will be adversely affected by this project," the FERC order said [CP00-165].

Also, given that 96% of the Sundance project's route will be in or adjacent to existing right-of-way, the order said "no landowners will be permanently affected and any adverse effects on landowners will be minimized."

Transco proposed maximum recourse rates of $9.1897/Dth for firm service on the Sundance expansion project, but FERC adjusted the rates downward to $9.1769/Dth. However, the Commission agreed with the proposed rate for expanded firm capacity on Transco's North Georgia extension --- $3.7323/Dth.

Reliant Looping

Lastly, the Commission awarded a certificate to Reliant Energy Gas Transmission to construct minor looping facilities so it can provide 40,000 Dth/d (or more) of firm transportation capacity to a new cogeneration plant being built by Pine Bluff Energy LLC in Jefferson County, AR. Pine Bluff also has executed a lease agreement with a nearby plant of International Paper Co., which plans to extend its lateral to connect with the Pine Bluff cogeneration facility.

Susan Parker

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