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FERC Plans 'Discussion Only' for New Pipes

FERC Plans 'Discussion Only' for New Pipes

The Federal Energy Regulatory Commission is expected to go on the record this Wednesday with thoughts, but not votes, on the competing Independence and Millennium pipeline projects which are vying to be the last link in the new path for western Canadian gas delivered to the U.S. Northeast.

The two main projects, plus ancillary connections, have been scheduled "for discussion only" at the Commission's regular open meeting, offering an airing of the controversy surrounding them, an indication of why FERC has taken so long to act on them and possibly a re-examination of the bi-furcated process the Commission has used in recent years to dodge environmental delays.

Up for debate are the fate of the Millennium, Independence, SupplyLink and MarketLink pipeline expansion projects (CP98-150, CP97-315 and others), which together represent about 1.7 Bcf/d of new pipeline capacity designed to pick up Canadian gas coming into the Midwest through the now under-construction Alliance Pipeline. The pipelines have asked for preliminary determinations (PDs) so they can keep the projects on track for completion by the end of 2000.

Chairman James Hoecker's office and other FERC staff members refused to comment on the topic of the Commission's planned discussion. FERC's Dick O'Neill, director of the Office of Economic Policy, noted however, "We don't usually put things on the agenda that are just for discussion so it's obviously important that there be a discussion so that people can understand how the Commission is thinking or where their thinking is."

Given the record to date on these projects the outlook is not very good, according to some observers. On several occasions Commission staff has expressed concern over the record number of environmental and landowner interventions (more than 6,500) in the Independence docket, over "contract out" provisions in pipeline contracts with multiple shippers on both pipelines, and over the heavy reliance on marketing affiliate contracts for market support (see NGI, Feb. 15, March 1 issues). Some of the agreements allow prospective shippers to opt out in mid-March if there is no FERC decision.

Project sponsors, however, are looking optimistically toward the Wednesday discussion to clear the air. "We think this represents a step in the right direction," said Millennium spokesman Karl Brock. "We have invested significantly in the project and we welcome the opportunity to receive feedback on it in a public forum such as this."

The 422-mile Millennium project would extend from Lake Erie into New York City with a capacity of 700,000 Dth/d. Sponsors include Columbia, TransCanada, Westcoast and MCN. The 1 Bcf/d Independence project and related Supply Link and MarketLink projects would extend from the Joliet Hub in Illinois to New York City. Sponsors of those projects include Coastal Williams and National Fuel. Coastal's ANR Pipeline is building SupplyLink. Williams' Transco is building MarketLink and all three are partners in Independence.

In an interview with NGI last week, O'Neill noted "there isn't a rush of people to fill up these pipelines with contracts, and there are plenty of people out there saying that these pipes aren't needed.

"If you look at the gas and electric industries over the last 10 years, [you see] we spent a lot of time dealing with stranded costs of facilities that were built that really didn't need to be built or gas contracts that were signed and really didn't need to be signed. These days you don't have to create stranded costs; you can do it in such a way that everybody understands the risk they are taking and later on they won't have the story that allows them to come back to the Commission to say 'you made me do this.'"

Others at FERC have suggested off the record that because environmentalists and landowners have become a much stronger force in recent years, the use of the PD on non-environmental grounds may become more selective. The PD is a fairly recent procedural development that was instituted to speed things up when there was a great crush of projects. It passes on almost all the items of a project, including estimated costs and rates, leaving only the environmental review up in the air.

Former Chair Betsy Moler, who was a commissioner when PDs were instituted, told NGI they were "invented" by the Office of Pipelines and Producers staff "to give applicants some kind of feedback to enable them to have a good idea of what the rate structure is likely to be. This would allow them to get contracts signed and financing lined up." They "did not pre-judge environmental terms &amp conditions." Moler said the PDs were instituted "very informally" and were "a valuable tool." The Commission is under no requirement to issue a PD. She declined to comment on the current debate. Since they were instituted, no project has ever received a PD approval and then been turned down on environmental grounds.

Increasingly, however, projects are being severely altered by environmental mitigation measures, and there is some question as to whether bankers might be committing financing on some shifting sands if the environmental study requires extensive changes in the pipeline length, route and other mitigation measures. Those changes could involve greater costs, higher rates and in the end fewer customers, especially if the contracts signed by those customers were nothing more than letters of intent because of the "outs" included.

"What part of a PD is firm? The name of the sponsor, the name of the pipeline, and a general regional route. That's about all. Anything else can change," pointed out one source who suggested that the bank officers financing projects based on these credentials "must have had lobotomies. They're banking millions of dollars on nothing."

'Discussion Only' Rare

While there haven't been many discussion-only items on FERC's agenda in recent years, they were more frequent in the early years of decontrol and when there were major differences among commissioners. As one source explained "it's very hard to work out very complex projects without getting all the commissioners in the same room for discussion. Because of the Sunshine Act no more than two commissioners can discuss an item unless it's in a public meeting. It's almost impossible to get a handle on this with two-by-two-by-two-by-two discussions between commissioners or with their positions relayed by staff assistants."

And there's no question these projects are complicated or that the environmental pressure is on the Commission to come up with fully justifiable positions.

Only one of the pipelines, Independence, has extensive environmental complaints against it. Veteran environmentalist "Anne Marie Mueser has been hard at work on this one." Also, the route of Independence is particularly NIMBY-prone. And while Millennium doesn't carry as much environmental baggage, it doesn't connect with the northeast hub at Leidy, which also is a concern to some. Sources say FERC would like to see some compromises and is not likely to issue a PD for one project and not the other. Because the environmental lobby, which has brought congressional pressure to bear (see NGI, Feb. 15 issue), is so strong, it will take the strongest, most defensible project to prevail.

One possible outcome of Wednesday's discussion is that the projects will be bundled off to an administrative law judge/mediator to get the parties to settle on a single or complementary routes as was done with the multitude of major Northeast projects nearly ten years ago. That resulted in Iroquois Gas Transmission being built with 13 sponsors. Another possibility is that the commissioners may simply decide not to decide and wait for the environmental studies before acting. One source said the commissioners appear to be split and any action would be on a 3-2 vote.

Of course, things might be different if the parties came in with a new proposal for an Independent Millennium with Anne Marie on board and a later in-service date. The word is there even may be some FERC engineers with some ideas about how it might be done.

Ellen Beswick, Rocco Canonica

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