FERC last week directed the Cross Bay Pipeline Co. L.L.C. torespond to a series of questions mostly focusing on the East Coastproject’s byzantine financial and capacity-lease arrangements thathave prompted protests from customers.

In a letter containing nine pages of detailed questions, DanielM. Adamson, director of the FERC Office of Energy Projects, askedthe sponsors last Tuesday to address the “complex issues andproblems” raised by several current customers of Williams’Transcontinental Gas Pipe Line, a sponsor of the Cross Bay projectthat seeks to boost natural gas deliveries in the New York Citymetropolitan areas by 125,000 Dth/d. The other partners includeDuke’s Texas Eastern Transmission and KeySpan Energy Development.

“Because of the complexities of natural gas deliveries in theNew York area, it is not clear to us, or these parties, that yourproposal holds Transco’s current customers harmless,” he said. “Ifyou can show us that this latter point is substantially true, thenwe will be in a position to balance any remaining adverse affectsof your proposal with its likely public benefits.”

A number of Transco shippers contend the existing applicationfor Cross Bay – which involves the construction of new facilitiesand the acquisition of existing pipeline from Transco, as well asthe leasing of capacity to and from Transco – outlines anunnecessarily complicated financial and legal structure for theproject.

Specifically, Adamson asked the sponsors to provide FERC with an”illustrative proposal” in which Transco would be the sole sponsorof Cross Bay and alone would create the 125,000 Dth/d of additionalcapacity; explain the “financial, accounting or tax benefits” ofTransco providing 37 miles of existing pipeline to Cross Bay; offera “detailed qualitative and quantitative explanation of the publicand private economic or financial benefits” of the proposedupstream lease arrangement between Transco and Cross Bay, anddiscuss the “interdependency, or lack thereof, between [Transco’s]Cross Bay and MarketLink projects.” Replies to the Commissionstaff’s questions are due within a month.

Cross Bay proposes to build new facilities and acquire 37 milesof existing pipeline from Transco to form a new interstate pipelinesystem that would extend from Middlesex County, NJ, across thelower New York Bay, all the way to Nassau County, NY. Cross Baywould have total firm transportation capacity of 614,628 Dth/d, ofwhich 125,000 Dth/d would be available for new shippers and 489,628Dth/d would be leased to Transco. The capacity lease agreementwould cost Transco about $61,483/month, and would enable theWilliams pipeline to continue serving the customers who arecurrently receiving service on the facilities that it seeks totransfer to Cross Bay. As part of the deal, Cross Bay would acquirethe 125,000 Dth/d under an “upstream pipeline lease” agreement thatwould cost $31,878/month.

This upstream lease agreement of Cross Bay’s has been at the eyeof the storm. Existing Transco shippers say it would provide thenew shippers on Cross Bay with a “very large, unjustified ratediscount” at their expense. They argue it violates the “no subsidy”standard established in FERC’s certificate policy statement on newpipeline construction.

Adamson suggested that the Commission staff “could host atechnical conference to assist you and your customers in discussingthese issues and problems after you have responded to ourquestions.”

Staff believes it can “bring a final certificate recommendationbefore the Commission in the time frame that you request,” he toldthe Cross Bay sponsors, but it’s “unlikely” a preliminarydetermination will be issued in the near term due to the”unresolved issues and problems raised by parties.”

Susan Parker

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