Although other FERC members were noticeably mum on the issue,Commissioner Curt Hebert Jr. said he was alarmed by FERC’s actionin a Granite State Gas Transmission case last week because itsignaled a “radical departure” in its current certificate policyfor evaluating whether new projects have adequate market support.

Since Order 636, the Commission has required pipelines and othercompanies to show that most, if not all, of a project’s capacitywas under long-term contracts to gain regular certificate approval.This showing was viewed as key to winning certification. “All ofthat changed [last week],” Hebert told NGI in an interview. “Youhad a majority of the Commission who stood up and said, ‘You canhave five settlement conferences, you can be heard before the ChiefALJ, you can have a full Commission hearing, you can meet all thestandards of the current market policy for need, and we’re stillgoing to put [your project] off because we’re going to try todecide what’s best for your future as opposed to letting youdecide.'”

The three senior members of FERC were reluctant to concede thata policy shift had occurred, but Hebert was outspoken on the issue.At last week’s bi-monthly meeting, Hebert subjected staff to aseries of questions that specifically were meant to show that a”substantive change” in certificate policy had taken place. “Ithink it certainly would be naive for anyone to suggest that [theGranite State] case does not represent change in current policy.You can try to hide from it, but the facts speak for themselves.And when people look at this case, pipelines specifically, theyhave got to get real nervous about whether or not they’re going tomove forward with projects,” Hebert noted. The Granite Statedecision, he said, should not be viewed as an isolated occurrence.”I can tell you it’s not a one-time thing for me.” In fact, hepredicted that “in any case that comes before us now, if someonedoesn’t want the pipes or they don’t want tanks in the ground,they’re going to [cite] this case” as precedent.

Sources outside the Commission also questioned whether thetreatment of the Granite State LNG case was a return to an earlierpolicy of comparative hearings to pick which projects are built. Itwould have an impact on the multiple competing projects now comingbefore FERC for moving gas from western Canada to the East Coast tomeet the growing demand for natural gas. The comparative hearingsof earlier years had been discarded because nothing was gettingbuilt. Delaying a comparative hearing had become a legal art formpracticed by whichever party was losing.

The issue of a policy change surfaced last week when FERC, by a3-2 vote, set for hearing for the umpteenth time Granite State’sproposal to build a controversial liquefied natural gas (LNG) tankin the Maine community of Wells. Specifically, it set for hearingthe issue of whether two pipeline projects, Portland Natural GasTransmission System (PNGTS) and Maritimes &amp Northeast, could actas viable supply alternatives to meet the peak-shaving needs ofNorthern Utilities (NU), an LDC affiliate of Granite State thatwould be served by the LNG project [CP96-610]. Although the issueof alternatives to the LNG project was raised at the Commissionoral argument on the case in January, the senior FERC members lastweek insisted it wasn’t resolved. Both Hebert and CommissionerLinda K. Breathitt dissented.

“The FERC record [in Granite State] doesn’t get any better thanthis. We discussed supply alternatives at the oral argument. Why dowe need to discuss it again? They’re just putting it off, trying tosee if someone else is going to come in there [Maine] and put inmore pipes. And that’s not our role,” Hebert said. “What kind ofsignal is this sending to the industry? This case has been going onsince July of ’96. It’s probably not going to be resolved best-casescenario until July ’98, which means the project’s probably notgoing to be completed, if at all, until 2001. That’s horrible leadtime. Who can plan a project based on that type of lead time?”

Impact on Multiple Projects

The Granite State decision is bound to send shock waves throughthe pipeline industry, said a pipeline source. “Before this, havingcontracts would have been sufficient to establish that there was aneed for a project. Now they have to have a hearing to establishthat there’s a need for a project…, even though they have 20-yearcontracts,” she said. “Apparently people now can come in, protestyour project and drag you into what amounts to a comparativehearing. I think that the Commission could be putting itself backin the role of determining which project wins,” which FERC didprior to switching to the market test in the early 1990s.

Hebert said he could see how the Granite State order would makethe pipelines uneasy. “Why should pipelines be excited aboutputting new pipes in the ground if, in fact, they’re not sure theycan [obtain certification] once they prove need? The proof requiredfor need right now is a contract. And you’ve got a Commission thatsays ‘Well, that’s not enough right now. We’re going to look behindthe contract.'”

He doesn’t think it’s FERC job to look behind the contracts.Indeed, he raised the very same issue in an order last month thatresolved a transportation dispute between Texas EasternTransmission (Tetco) and Public Service Electric and Gas. In thatdissent Hebert called FERC’s action “cannibalistic regulation,” aprime example of the Commission being “too meddlesome” in industryaffairs.

Chairman James Hoecker does not believe FERC’s decision to setthe LNG project for hearing signaled a marked shift in policy.”There are always considerations of [project] alternatives in thisCommission’s decision-making,” as is required by the NationalEnvironmental Policy Act. “We do not automatically defer to marketdemand” as the sole factor when determining whether or not tocertificate a new project.

“Yes, it’s been the policy of this Commission to look primarilyto contracts and to demand for facilities, but we have otherobligations as well,” Hoecker said, indicating that FERC may givegreater weight to environmental and local concerns in the future.The Commission is “sensitive to the local impacts of energyprojects,” he noted. “And where those sensitivities have beenraised,” as they have been by the residents of Wells, ME, “I forone don’t mind going the extra mile” by holding another hearing.The residents of Wells, a resort town, have stridently objected tothe LNG project on both environmental and market grounds.

Hoecker Sees FERC Choosing Projects

This case “presents rather obliquely, I think, a preview offorthcoming dilemmas for this Commission as companies propose newand expanded transportation systems that potentially serve the samemarket,” Hoecker remarked. He foresees it sharpening the debateover the issues of “excess capacity [and] unnecessary environmentaldisturbances vs. the need for additional capacity in the interstatepipeline market to meet burgeoning gas demand” in the years ahead.FERC’s task will be to balance these competing concerns whendeciding whether to certificate projects in the future, thechairman said.

In her dissent, Commissioner Breathitt agreed with Hebert thatGranite State had met FERC’s need test for its LNG facility, andthat another hearing was unnecessary. “I believe that where therehas been a showing of need; it is our responsibility to ensure areliable supply of energy,” she said. “It is clear to me thatGranite State’s [long-term] precedent agreement with NorthernUtilities fully satisfies the Commission’s policy on ademonstration of market need.” NU has contracted for half of thecapacity of the 2 Bcf LNG plant, which would provide vaporizationand peak-shaving storage services. Gas Metropolitain, an LDC inMontreal, would lease the remaining LNG capacity.

Breathitt said she doubted that PNGTS or the Maritimes’ projectswould be viable alternatives to Granite State’s LNG project becauseneither would provide no-notice service. “This would be the kind ofservice that would be necessary to meet the peak demand…” Even ifthe pipelines could provide peaking service, “you are still leftwith [the fact that] the capacity on these two projects is fullysubscribed on a firm basis.”

In supporting the need for further hearing, Commissioner WilliamMassey said the case lacked “persuasive evidence” from either sideon whether the LNG facility alone was “uniquely” suited to meetNU’s peak-shaving needs. In addition, the FERC “record does notcontain evidence that the construction of the facilities will havea significant impact on the environment in and around the town ofWells.”

The hearing will provide “one more opportunity” to havecross-examination on an issue that has “not yet [been] brought toclosure in my mind,” said Commissioner Vicky Bailey. She pointedout FERC has ordered the presiding administrative law judge tocertify the record to the Commission by May 1 so that it can issuean order by early June.

Susan Parker

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