The gas industry seems more than eager to pipe as much methaneas possible into Florida to satisfy the state’s gluttonous appetitefor gas-fired power generation. Two major Gulf of Mexico pipelinestargeting the state were granted preliminary approval by FERC lastweek, and another two projects were announced, including amid-sized greenfield pipeline planned by El Paso and Enron.

The new pipe, called Cypress Natural Gas, would extend fromSouthern Natural’s recommissioned LNG terminal at Elba Island, GA,near Savannah about 160 miles southwest to Jacksonville, FL. Andwith the ink barely dry on incumbent Florida Gas Transmission’s(FGT) Phase V mainline expansion, FGT owners Enron and El Paso saidthey are examining plans for a phase VI to go with Cypress.

The Cypress project is expected to be filed with the FederalEnergy Regulatory Commission (FERC) in January 2001. Constructionis scheduled to begin in the third quarter of 2002, and thepipeline’s projected in-service date is April 2003. Cost andcapacity have not been determined.

Jim Yardley, president of El Paso subsidiary Southern NaturalGas, told NGI there are some limitations that narrow down thepossibilities on the size of the new pipe. “We’re somewhat limitedby what Elba Island can do itself, and there the vaporizationcapacity currently is about 330 MMcf/d. We’re going to be doingsome work with the vaporization that will take that up probablyclose to 500 MMcf/d,” he said. “If I had to guess — remember wehaven’t even had an open season on the pipeline yet — I wouldtend to think that it might initially be sized for about 300MMcf/d, which would probably be a 24-inch pipeline.”

That’s “bite sized” when the entire booming Florida powergeneration market is considered, said Yardley, noting that Floridautility officials project they will add significant amounts of newgas-fired power generation over the next decade.

The most recent report by the Florida Reliability CoordinatingCouncil shows utility operated gas-fired power generation on thepeninsula will reach 38% of the total generating capacity in thestate by 2008 from only 17% this year. Utility operated gas-firedpower generation is expected to increase to 86,072 GWh in 2008 fromabout 31,922 GWh this year, a 170% increase. And gas use forutility-operated power generation on the peninsula is expected toincrease by about 1 Bcf/d to 1.7 Bcf/d in 2008 from 0.7 Bcf/d in2000.

That’s just the beginning, however. The Florida Public ServiceCommission recently told the state’s largest electric utilities toincrease their power reserve margin, or the amount of generationavailable in excess of peak-day needs, to 20% from 15%, and most ifnot all of that increase will be achieved through the addition ofgas-fired power.

In addition, these estimates do not include the 18 merchantpower plants that have been announced. Although, a Florida StateSupreme Court decision last month blocks their development (seeNGI, April 24), many observers believe it will be only a matter oftime before the state legislature passes electric restructuringlegislation requiring the deregulation of power generation in thestate. In the meantime, the regulated utilities probably will pickup most of the slack.

“The megawatts — gas-fired megawatts — are still going to beneeded in Florida whether it’s the incumbent [utilities] ormerchant facility [developers],” said Robert Evans, president ofDuke Energy Gas Transmission, a sponsor in the Buccaneer pipelineproject and an affiliate of Duke Energy, whose $160 million 514 MWpower plant at New Smyrna Beach was rejected by the state SupremeCourt.

“The type of plants that the customers might build” may changebecause of the court decision, he said. “They may go tosingle-cycle instead of combined-cycle and some peaking plants maybe built instead, which would give us a different type of businessthan the merchant plants, but the incumbents now are probably goingto build some of that new capacity.

“But it’s only a matter of time until they open the state up, Iwould guess,” said Evans. “There are certainly things going on inthe legislature now that would indicate that at some point therewill be some [electric restructuring] legislation passed,” he said.With the current legislative session ending this week, however,electric restructuring isn’t likely to be revisited until next yearat the earliest.

Most of the proposed merchant plants are located in central andsouthern Florida. Yardley noted that the Cypress pipeline wouldserve southeastern Georgia and northern Florida, particularly theJacksonville area, which is north of most of the proposed plants;whereas, the other much larger proposed pipelines, namely Guardianand Buccaneer, will serve the central and southern part of thestate.

Buccaneer, Gulfstream Pass Go

Although probably only one of the two major pipelines, Buccaneeror Gulfstream, will end up being built, they are neck in theirregulatory race. Both received preliminary approvals onnon-environmental grounds from FERC last week.

FERC granted both projects favorable preliminary determinationsover the protests of incumbent pipeline FGT and several residentiallandowners and businesses. The routing issues bought up bylandowners and business will be dealt with during the environmentalreview process, which will be the key factor deciding the fate ofthese projects, the Commission noted.

FGT, which is planning several pipeline expansions of its own,including the one announced last week in conjunction with Cypress,had claimed there was insufficient evidence to show that Gulfstreamand Buccaneer are in the public interest. It said both should berequired to show specific market need.

However, the Commission said that argument was misplaced becausethe two pipelines were filed under its optional certificate (OC)regulations and prior to its February decision to phase outoptional certificates. As a result, they are not required to showmarket need, FERC said. Both pipelines will assume the financialrisks of construction and any unused capacity, it noted.

They both would extend from Mobile, AL, across the Gulf ofMexico to the west coast of Florida and to markets across theFlorida peninsula. Both projects would go into service in 2002:Buccaneer in April, and Gulfstream in June.

The $1.5 billion Buccaneer project would consist of 533 miles of36-inch diameter mainline, 142 miles of various diameter laterals,75,000 hp of compression and a liquids separation facility nearwhere it would make landfall in Florida in Pasco County. Buccaneerwould transport a maximum of 900,000 Dth/d.

The $1.7 billion Gulfstream project would transport 1.13 Bcf/d(1,130,000 Dth/d) of gas through about 740 miles of mainline andlaterals. It would require 120,000 hp of compression and wouldcollect gas from points in Mississippi and Alabama.

The two major pipelines would traverse similar territory andwould serve similar needs in the state of Florida. Most observersagree they are mutually exclusive projects. The first one to lineup a market for capacity and avoid major environmental andlandowner pitfalls will end up the winner, said Duke Energy’sRobert Evans.

Cuba Wadlington, CEO of Williams’ gas pipeline division, said,”I don’t think there’s room for two new pipelines built into thatmarket, just one and the current incumbent. We need one othersignificant pipeline into that area: Buccaneer.”

But both of the pipelines have crossed all of their regulatoryhurdles so far. The only hitch in last week’s orders came in FERC’sreview of Gulfstream’s rate design. In contrast to Buccaneer’ssimple firm transportation recourse rate of $24.6/Dth and itsinterruptible and parking and lending rates of $0.8074/Dth,Gulfstream has proposed hourly firm transportation rates, entitlingshippers to elect a maximum hourly quantity (between 4.2 and 8% oftheir maximum daily quantity) for delivery to a primary deliverypoint. The Gulfstream rates are specifically designed to servicethe fluctuating needs of power generators, and Buccaneer claims itintends to offer similar negotiated rates.

FERC had no problem with the hourly rates. However, it mademultiple other changes to Gulfstream’s rate design. It requiredGulfstream to reduce its rate base by a whopping $157 million,reflecting the elimination of $2 million Gulfstream wanted setaside for cash working capital, the $150 million Gulfstream wantedset aside as “contribution in aid of construction” for customerswanting to build laterals and other facilities, and $4.8 millionthat was the result of a miscalculation in Gulfstream’s proposedallowance for funds used during construction (AFUDC). Gulfstream isrequired to revise its cost of service to reflect the eliminationof $157 million from its rate base, reducing the filed rate base of$1.63 billion to the Commission’s adjusted amount of $1.47 billion.Gulfstream has to adjust all the cost-of-service items affected,including return on equity, interest expense, depreciation, AFUDCcalculation, etc., and must recalculate its rates based on therevised cost of service.

The other apparent hurdle, which has yet to be crossed, is areconciliation of Gulfstream’s relationship with its futureaffiliate, incumbent FGT. Gulfstream parent Coastal Corp. is beingpurchased by FGT parent El Paso. With FGT continually attempting tomeet Florida’s growing needs through a series of expansions, it’sunclear what impact the merger will have on the proposed Gulfstreampipeline project. For now, Yardley said, all these projects stillare operating independently of each other.

Rocco Canonica

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