NE Hub Hangs on Consultant's Recommendations

A new analysis to be delivered under wraps to FERC by Reed Consulting could decide the fate of the proposed NE Hub, a major salt cavern storage facility and market hub that would add 500 MMcf/d of daily deliverability to the gas grid in northern Pennsylvania. But an eleventh-hour motion by CNG Transmission, a competitor of the project, could influence and delay the outcome.

Reed is scheduled to decide the amount and terms of insurance or indemnity NE Hub Partners, the developer and owner of the project, must buy to address potential damages to CNG's and Penn Fuel's existing Tioga storage field, under which the NE Hub salt caverns are to be leached. CNG and Penn Fuels for years have argued NE Hub's plan to drill ten 28-inch diameter wells through their storage field could result in the loss of 10% (2.7 Bcf) of the working gas in the existing field and do irreparable damage.

The Commission issued a certificate to NE Hub in April over the opposition but conditioned the certificate on more than 20 environmental and operational changes. FERC also requested Reed Consulting's evaluation of the potential damage to the assets of CNG and Penn Fuel, including their surface facilities, gas in storage and contractual obligations. NE Hub already has agreed to purchase $110 million in insurance. But CNG and Penn Fuels argue potential damages could exceed $600 million.

CNG and Penn Fuel now believe the risk is even greater in light of data submitted by NE Hub last month. NE Hub informed FERC and Reed that the greatest risk to its storage project and to CNG's existing storage operations is related to the presence of shallow gas, or gas migrating upward from the existing storage facility. CNG has worked with the State of Pennsylvania for more than a decade to correct the migrating gas problem, which likely is the result of historic production activities in the Oriskany formation. But CNG claims NE Hub's admission that the existing "dangerous condition" could be exacerbated by the development of its new storage facility is not new, has not been adequately considered by the Commission and could change the outcome of the case.

"[T]his is a remarkable chutzpah, even for NE Hub," CNG said in its motion. "NE Hub remains resolute to site its project at Tioga and thereby, in NE Hub's words, risk 'accidents, explosions, fires, or other events'. If this alleged factual scenario is considered by the Commission for any purpose at all, it would not establish what NE Hub claims, namely, some sort of countervailing risk to offset insurance it should procure, but rather it impeaches any sound evidentiary basis by which NE Hub could have continued to locate its site at Tioga rather than an alternative site. It also would destroy any evidentiary basis under which the Commission could have granted NE its certificate." CNG has called on the Commission to reopen the record to consider the "important new evidence."

Andrea Hilliard, an attorney for Market Hub Partners, a partner in the NE Hub, noted CNG has known about the migrating gas all along and is just bringing it up now to influence Reed's decision and further delay development of the salt cavern. "That's why this is so cynical," she said. "If we take all 15 days to respond and if Reed decides it wants to read our response, that's another two weeks. And this has been the plot all along. We can't even clear the site until the insurance issues have been resolved." Hilliard indicated the migrating gas poses no significant danger to the development of the new storage facility, but CNG and Penn Fuel will use all potential risks to reverse the Commission's decision.

"I think they honestly believe that life on this planet is going to cease to exist, and the earth will start rotating the other direction on its axis if this project is built," said Hilliard. "They honestly believe that our science is bad and theirs is good. And they will do anything to prevent development, despite the fact that we have a lot of experience in drilling big holes - we do it all the time. The record at FERC is replete with examples like this one - [storage facilities] that are operating under other production and storage fields. It's not an unusual thing. Obviously competitive issues also are involved."

Hilliard indicated the 6 Bcf storage facility, which is expected to be in service in late 2000, could be jeopardized if Reed recommends "excess insurance." MHP clearly is frustrated with the regulatory process. "We filed this three years ago, and all we have are a couple of Osprey nests, which the Corps. of Engineers required. That's the only construction we have done."

Rocco Canonica

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