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FERC Bypasses PDs for Northeast Pipeline Projects

FERC Bypasses PDs for Northeast Pipeline Projects

A very divided FERC last week broke with a decade-old procedure by leapfrogging the preliminary determination (PD) step in four controversial pipeline projects intended to carry Canadian gas from the U.S. Midwest to the Northeast gas market. Instead, it deferred action on the fate of the projects until all of the environmental reviews are completed - "hopefully" by early next fall. Project sponsors had mixed reactions: they were disappointed by the break with PD procedure, but they also were encouraged by FERC's assurance of a final vote by fall. And all said - at least publicly - they still planned to move forward with their separate projects, but sources said privately sponsors were re-evaluating whether it was "worthwhile to go ahead."

In a 3-2 split, the Commission majority indicated the wide range of issues and concerns raised by the projects - specifically, the unparalleled level of landowner opposition, questions about the "need" for the proposed pipelines and "significant and difficult" environmental concerns - warranted a break from its PD procedure, if only in these cases. The majority stressed that its action, although unusual, didn't necessarily portend doom for the high-profile projects.

The "confluence" of the issues in the two main projects, Independence and Millennium, and the connecting links, SupplyLinkand MarketLink, calls for "decision-making that affords us the ability [to consider] the whole record at one time," said Chairman James Hoecker. FERC needs to be able to "balance all the interests and concerns" - public interest, economic, landowner and environmental - in one fell swoop, he noted, saying the current bifurcated certificate process doesn't permit this.

Hoecker stressed the Commission's action wouldn't stop it from issuing PDs for more routine pipeline projects in the future. "I don't contemplate any precedental effect from this decision." He said he was not opposed to PD orders, which address the non-environmental and rate aspects of projects. "I recognize that the industry has come to rely on them and I recognize that they have some benefits that are very important." Typically, PDs provide "some assurance" that projects will go forward, enabling pipelines to obtain financing and firm up shipper commitments, Hoecker said. But he noted he had "some questions about whether a PD...would promote these particular goals in these cases."

Despite Hoecker's assurances, Commissioner Curt Hebert Jr. still had doubts as to whether the majority's end-run around the PD procedure was a one-time thing or whether it was the beginning of the end of PDs altogether. "...[I]s the recommendation on the table that the preliminary determination be abandoned in total?" he asked. Some project sponsors expressed similar concerns. "It's difficult for me to see how it couldn't set a precedent" for other projects as well, said Frank Ferazzi of Williams Gas Pipeline/Transco, adding he didn't see any factors or circumstances that distinguished these four projects from others out there. Transco is the sole sponsor of MarketLink.

Some thought Hoecker was "tap dancing all around" the issue of the future of PDs. They interpreted his comments to mean that the Commission will only award PDs to non-controversial projects in the future. But these projects don't really need preliminary rulings, they said. Rather, it's the projects where significant issues of "need" are raised that require the PDs so sponsors can know whether to put their "money and cash on the line."

Commissioner Vicky Bailey said she was at odds with the Commission majority on this issue. Her "first and fundamental concern" was that FERC was causing regulatory delay by not awarding the PDs. She allowed that the four projects were "hard cases, difficult cases," but she added "I think that in the end all parties are served better by a fair and reasonable decision in a timely fashion..."

Eschewing PDs for these projects "puts pressure on us I believe not to issue PDs in future cases," Bailey said. "This is a process that the industry has come to depend on," even though it's not formalized in FERC rules or in the Natural Gas Act (NGA).

Bailey suggested the FERC majority was putting too much stock in the meaning of its PDs. "A PD is just that - a preliminary decision. It's not irretrievable; it's not irresponsible. It's an indication of our initial assessment up or down. It lets everyone know what to expect and to make business and financial decisions," she said.

She hinted the Commission was holding the four projects "hostage" to the outcome of the mega-notice of proposed rulemaking (NOPR) and notice of inquiry (NOI), which address the PD procedure and whether it should be changed. Hoecker flatly denied this charge. "In fact, I don't think that a final certificate order in these cases will occur in any different point in time than they would otherwise have."

The Commission has been under pressure to fully justify the "need" for the projects. Part of the argument against the projects has been that most of the capacity contracts either have "outs" that would allow customers to be released or they are with affiliates of the sponsors, one of which was hastily created when FERC asked to see contracts. Hebert said he wasn't convinced the apparent rise in the use of affiliate contracts underlying the projects cast enough doubt on the "need" for the projects to warrant skipping the PD process. He questioned whether "need" determination at FERC now included "environmental analysis or a landowner analysis," as opposed to a straight "market analysis." He also found it "troubling" that FERC appeared to be basing its PD procedural change on the "number of landowner concerns" rather than on the "quality or the content of those concerns."

Under questioning from Bailey, Hoecker said the "best case scenario" calls for the Commission to issue final orders on the projects "hopefully" early next fall, but he added that a lot depends on whether the environmental reviews are completed in time. A number of scoping meetings are scheduled for both Independence and Millennium between now and then.

Although a "little disappointed that FERC didn't follow its normal procedure," Transco's Ferazzi said he was encouraged by Hoecker's assurance the projects would have top priority in the certificate area, and that final decisions were promised in the fall. Based on these assurances, he said Transco will continue to move forward with its MarketLink expansion from the Leidy, PA, hub to the New York area [CP98-540].

Projects Still on Track

Transco also is one of three partners in the controversial Independence greenfield project, which would extend 400 miles from Defiance, OH, to Leidy [CP97-315]. Asked if Independence might consider merging with the competing Millennium project in the wake of FERC's move, Ferazzi said it's "hard to rule anything out," but he added no "serious discussions" have been held about it lately.

Joe Martucci, a spokesman for Independence sponsor ANR Pipeline, said he "was not aware of any discussions" about possibly combining the two projects. "We're continuing to move forward with the [Independence] project. And we are convinced the market support is more than adequate to justify its construction as planned," he told NGI. "The need for Independence was further underscored...when it was announced that the Alliance Pipeline would soon begin construction," he said, adding it will be the "critical link" to transporting Canadian gas to East Coast markets. ANR also is sole sponsor of SupplyLink, which would provide an upstream reinforcement of ANR's existing system to Independence [CP97-319]

In a prepared statement, Millennium sponsor, Columbia Gas Transmission, said it was firmly committed to its project as well, and that hoped it "[would] not be tarred with the brush of the highly vocal landowner objections to our competitor's project," namely Independence. The 417-mile Millennium line would run from Lake Erie to Westchester County in New York [CP98-154].

Both Commissioners Linda Breathitt and William Massey backed the chairman's position. Breathitt said she was "not comfortable" with sending an early message to the financial markets or others about the outcome of the cases. She expressed concern that the PD over time has evolved into a "form of entitlement" that guarantees certification.

Massey emphasized the need for FERC to weigh local interests. Closely "intertwined" with landowner concerns is the issue of "need" for the pipeline projects, he said. "If we are going to ask property owners to give up their land, it must only be because we have determined that a project is necessary." He pointed out that 55% of the proposed capacity for Independence was subscribed by a marketing affiliate.

But Bailey countered that affiliate shippers were "legitimate players" in a competitive market. The days of LDCs as the only pipeline customers are long over, she said. Hoecker agreed there was nothing to indicate that affiliate contracts were "unacceptable."

Susan Parker

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