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
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
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 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
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
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