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Hebert, Transco Lobby for Northeast Pipe Projects

Hebert, Transco Lobby for Northeast Pipe Projects

In the wake of spiraling heating oil prices, Commissioner Curt Hebert Jr. last week challenged his FERC colleagues to follow in the Clinton administration's footsteps to help reduce the Northeast's dependence on the higher-priced fuel. A Transcontinental Gas Pipe Line official made a similar pitch to remove regulatory roadblocks to new natural gas pipeline construction last week at a Senate hearing.

Hebert said several of the measures taken by the Clinton administration in recent weeks to address the high heating oil prices were "consistent with my own [views], and [I] suggest that my colleagues step forward in the same manner." But while Hebert commended the administration, Senate Energy Committee Chairman Frank Murkowski (R-AK) last week blamed its lack of a "coherent energy policy" for the heating-oil price spikes.

In response to the rising prices, President Clinton announced that approximately $130 million in federal aid would be available for qualified homeowners in the Northeast to meet their winter heating bills, and he proposed that Congress provide $600 million in aid as well, according to Hebert. Clinton also recommended a "split" from heating oil to natural gas dependence in the Northeast, as well as an improvement in energy transportation. But Murkowski saw these as only short-term fixes to a much larger energy problem.

"...[T]he cost of this aid, $730 million, almost equals the cost of building the ANR SupplyLink project and the Independence Pipeline project at $803 million," Hebert said during the Commission's regular meeting last Wednesday. FERC has conditionally approved the two Northeast pipeline projects, but is withholding their certificates until greater demand can be demonstrated.

While the Commission struggles with the issue of the need for more pipeline deliverability to the Northeast, Hebert said the region's heating-oil customers are paying the price. "...[S]hould this Commission continue to...[hold] captive the consumers of the Northeast and force them to pay excessive prices to heat their homes and businesses? Or, should this Commission foster and enhance the alternatives available to the consumers? We all know the answer."

Even gas customers paid the price when New York citygate prices soared to high levels in mid to late January, while prices at the Henry Hub languished in the cellar. Many pinned the reason for the higher gas prices on the severe cold weather in the Northeast then, which put a strain on existing pipeline deliverability.

Although this was a relatively mild winter overall, "a review of operational and pricing data from this winter shows that the existing pipeline infrastructure was clearly challenged to meet gas demand in the Northeast," said Gary D. Lauderdale, Transco's senior vice president and general manager, at a Senate hearing into the heating-oil price spikes last Thursday.

Transco was able to meet its firm contractual commitments this winter in the Northeast, but it wasn't able to supply gas to interruptible customers, many of whom were forced to switch to fuel oil, he told the Senate Energy and Natural Resources Committee. Several other pipelines serving the Northeast had to restrict their deliveries of gas for "limited periods of time." Lauderdale said Transco proposed a 700,000 Dth/d expansion of its existing line in Pennsylvania and New Jersey to serve the growing demand in the region, but the project (MarketLink) has been caught in an "extremely slow regulatory approval process."

The "scarcity of pipeline capacity" into the region was reflected in the higher increases in delivered gas prices in the Northeast during January. While the average delivered gas price on Transco's system for Zone 6 (non-New York) rose 106% in January to $4.89 from $2.37 a year ago, the increase on Transco's system into New York in January rose 129% to $5.87 from $2.56 a year ago, he noted. The price increases in February were even "more dramatic."

"In January and February 2000, customers in the Northeast experienced record high daily gas prices of $15.34 for deliveries into New York and $12.31 for other Zone 6 deliveries," Lauderdale testified. In comparison, the average delivered gas prices at the Henry Hub rose only 29% to $2.39 in January from $1.84 a year ago, and in February prices increased 55% to $2.75 from $1.77 in February 1999.

"If the existing pipeline infrastructure is currently taxed, what will happen when the projected growth in natural gas demand occurs?" he asked. The Energy Information Administration (EIA) projects that gas demand in New England, Mid-Atlantic states and South Atlantic states will rise by a total of 3.3 Bcf/d by 2005. Transco's MarketLink expansion project has been pending at FERC since May 1998.

Commissioner Linda Breathitt defended FERC's action, saying "it's hard for me to make the leap that a price spike [in heating oil] translates to an immediate demand for natural gas" in the Northeast. "There's a conversion process that would have to take place over a period of time," she noted. "I do not believe that the demand for gas in the Northeast requires the Commission to issue carte blanche authority to construct pipelines facilities."

Susan Parker

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