CNG Transmission Corp. last week called on FERC to dismiss thepending application of potential competitor Independence Pipeline,claiming that the 400-mile project was based on out-dated andfaulty demand projections for the Northeast gas market and lackedbinding precedent agreements. In addition, it said Independence hasdrawn “substantial opposition” from affected landowners andenvironmental groups.

In a major protest, CNG Transmission, which serves many of thenortheastern markets that Independence seeks to enter, said theCommission “[would] set the bar for certification very low” if itapproved the proposed Independence line despite the project’s”extremely speculative market showing.” Approving Independencewould hasten the movement at FERC towards a “policy of easycertification,” which the Clarksburg, WV-based pipeline thinks willlead to problems with turned-back capacity in the Northeast market- similar to those already facing California and Chicago.

CNG Transmission’s protest was in response to a Jan. 7th requestby Independence – and the sponsors of the MarketLink and SupplyLinkprojects – for FERC to promptly issue preliminary determinations(PDs) on the non-environmental aspects of their interrelatedprojects. Its application has been stalled at the Commission fornearly two years, while competing projects are moving through thecertificate process, Independence told regulators. Separately, thesponsors wrote Chairman James Hoecker asking that the PDs be issuedat this week’s Commission meeting, but the projects were not placedon the agenda.

Independence wants FERC to issue a PD for its project “so thatit can use that approval to market its capacity to the disadvantageof other projects,” CNG Transmission said. “This approach puts thecart before the horse. Preliminary certification must follow acredible demonstration of market demand; it should not be used tomanufacture demand.”

The Independence project, if given the go-ahead at theCommission, would extend from Defiance, OH, to the Leidy, PA, hub,where it would intersect with up to six different pipelines capableof delivering gas along the entire Eastern Seaboard. The $678million pipeline, which would have a winter capacity of about 1Bcf/d, would provide gas producers in Canada, the Rocky Mountainand Mid-Continent regions with a much-needed link to markets in theEast and Mid-Atlantic, according to the pipeline’s partners. Theyinclude ANR Pipeline, Williams’ Transcontinental Pipeline andNational Fuel Gas Supply. ANR spokesman Joe Martucci declinedFriday to comment on CNG’s protest, saying the company hadn’t had achance to review it yet.

CNG Transmission insists the Independence line lacks the marketsupport to justify certification. Presently only two non-affiliatedshippers – Statoil Energy Inc. and Enron Capital and TradeResources – have signed precedent agreements for about a total of129,000 Dth/d. The agreements, both of which are non-binding,represent about 13-14% of the project’s capacity, according to CNGTransmission. Independence initially gave Statoil and Enron untilNovember 1998 and June 1998, respectively, to unilaterallyterminate their agreements due to lack of market commitments. Thecontract “outs” were extended to March of this year. They also haveuntil then to get their boards of directors’ approvals for thecontracts.

“The implications of this…are unmistakable. The marketers arenot prepared to commit to Independence. If they had marketcommitments (and their board of directors were willing to approvethe agreements), the contractual ‘outs’ could have expired with noneed for extensions,” CNG Transmission told FERC.

But the sponsors of Independence contend that the fate of theproject shouldn’t turn on the “termination provisions” in theStatoil and Enron agreements. They noted they also have a bindingprecedent agreement with affiliate DirectLink Gas Marketing for500,000 Dth/d, which represents 55% of the proposed pipeline’scapacity.

CNG Transmission contends DirectLink, the marketing affiliate ofIndependence, was formed when FERC staff demanded in September 1997that the pipeline either show market support for the project in 20days or face dismissal of its application. The DirectLink contractwas signed on the same day Independence had to meet FERC’smarket-support requirement, it said.

“To the best of CNG’s knowledge, DirectLink not only had notconducted any marketing business prior to signing its agreementwith Independence, it has not conducted any business in the morethan fifteen months since that time,” it said. “There is noindication that the marketer has located any customers ordetermined any specific use to make of its Independence capacity.DirectLink appears to be no more than a temporary placeholdercreated in an attempt to satisfy the Commission’s market demandrequirement, while Independence continues to seek a real market. Ifthis sort of affiliated agreement suffices to demonstrate marketsupport, the Commission’s market-demand requirement is illusory.”

Moreover, CNG Transmission contends that Independence relied on”high, outdated projections of demand growth” for its target marketto justify its project at FERC. Independence cited Gas ResearchInstitute’s (GRI) projection that the eastern market would grow by1.4 Tcf by the year 2005, it noted. That figure, however, has sincebeen cut to 0.7 Tcf, according to CNG. Overall, projected gasconsumption in the East by 2005 has dropped from 6,664 trillionBtus to about 5,900 trillion Btus. And most of the projected growthfor the East Coast, according to GRI, isn’t expected to occur untilthe latter part of the 1997-2005 period.

“…[T]he smaller amount of market growth occurring further inthe future…will not require a new pipeline of the magnitude ofIndependence,” CNG Transmission said. “Existing and certificatedfirm and interruptible pipeline transportation capacity, storagecapacity and LNG peaking services should be sufficient to meet theexpected growth until several years into the next millennium.”

CNG also believes FERC should be concerned about the rates thathave been proposed by Independence and related projects, SupplyLinkand MarketLink. It estimated that the total transportation costfrom Chicago to New York City on the three interrelated projectswould be about 86 cents for 10-year contracts. But GRI hasestimated that the basis differential between Chicago and NewEngland citygates will be only 45 cents by 2005. “Thus, the ratesfor Independence and its related projects appear to besubstantially more than the market would bear.”

Susan Parker

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