FERC Gives Thumbs Up to Tetco Expansion

FERC last week gave Texas Eastern Transmission Corp. the go-ahead to build a lateral in western Pennsylvania to provide direct natural gas service to a new generation plant that is under construction by Liberty Electric Power LLC, which is owned by Orion Power Holdings Inc. in Baltimore.

Texas Eastern, a subsidiary of Duke Energy, plans to begin construction on the 84,000 Dth/d Liberty Lateral and associated metering facilities this month and complete the project in September. The 12-inch diameter lateral, which has a projected cost of $21.5 million, will connect Tetco's existing Philadelphia lateral to the $300 million, 568 MW gas-fired generation plant that Liberty Electric is building in Delaware Country, PA. The plant is targeted for operation in early 2002.

Liberty Electric will own and operate the generation plant, while PG&E Energy Trading L.P. will purchase the facility's electric output. It will be among the first independent power projects built to operate in the deregulated generation market in the Pennsylvania-New Jersey-Maryland (PJM) power pool, which encompasses much of the heavily populated Mid-Atlantic region. The facility will serve the power needs of 250,000 customers.

In awarding the Duke Energy pipeline a certificate, FERC said the project would not be subsidized by existing shippers since Tetco proposes to charge the Liberty Lateral shippers the same incremental rate negotiated by PG&E Energy and Liberty Electric for all of the additional capacity. "In addition, the recourse rates we are approving...are designed to recover the cost of service associated with the project in its first year," the order said [CP00-404]. The maximum recourse rate for firm lateral service will be $4.461/Dth/month.

Texas Eastern projects a three-year cost of service totaling $13.7 million, and-based on the approved recourse rate-a three-year revenue stream of $13.49 million. The pipeline says it will be at-risk for costs not recovered from PG&E Energy and Liberty Electric. The Commission refused to place an at-risk condition on the Tetco project, saying this wasn't necessary since its policy already makes pipelines responsible for the costs associated with new capacity.

Also, the Commission noted that Tetco had adequately demonstrated market demand for the project. It has negotiated a 25-year agreement with Liberty Electric for the entire 84,000 Dth/d of firm service to be provided by the new lateral. FERC rejected arguments that the new lateral would adversely affect service to existing firm shippers on the Philadelphia Lateral. Moreover, "we are not persuaded" by Consolidated Edison of New York's and Orange and Rockville's "contention that the FT-1 contract for the lateral service will degrade other customers' firm service rights in Texas Eastern's production Access Area," the order noted.

FERC, however, shared the concerns of existing Tetco mainline shippers over the lack of primary point capacity rights on the mainline held by both PG&E Energy and Liberty Electric. "This lack of primary points means that no capacity is specifically reserved to provide this service and that the service is never guaranteed on any day," the order said, adding that this was a change in the "fundamental terms and conditions of Texas Eastern's FT-1 service and firm service under Part 284 of our regulations."

Consequently, the Commission rejected this aspect of the proposal and directed both PG&E Trading and Liberty Electric to either contract for firm mainline capacity in Tetco's Zone M-3 that includes the rights to secondary receipt and delivery points or rely on released or interruptible capacity to meet their needs at the Liberty power plant.

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