Gulfstream, Buccaneer Get FERC Nod as FL Gets 2 More Pipe Projects

The gas industry seems more than eager to pipe as much methane as possible into Florida to satisfy the state's gluttonous appetite for gas-fired power generation. Two major Gulf of Mexico pipelines targeting the state were granted preliminary approval by FERC last week, and another two projects were announced, including a mid-sized greenfield pipeline planned by El Paso and Enron.

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

The Cypress project is expected to be filed with the Federal Energy Regulatory Commission (FERC) in January 2001. Construction is scheduled to begin in the third quarter of 2002, and the pipeline's projected in-service date is April 2003. Cost and capacity have not been determined.

Jim Yardley, president of El Paso subsidiary Southern Natural Gas, told NGI there are some limitations that narrow down the possibilities on the size of the new pipe. "We're somewhat limited by what Elba Island can do itself, and there the vaporization capacity currently is about 330 MMcf/d. We're going to be doing some work with the vaporization that will take that up probably close to 500 MMcf/d," he said. "If I had to guess --- remember we haven't even had an open season on the pipeline yet --- I would tend to think that it might initially be sized for about 300 MMcf/d, which would probably be a 24-inch pipeline."

That's "bite sized" when the entire booming Florida power generation market is considered, said Yardley, noting that Florida utility officials project they will add significant amounts of new gas-fired power generation over the next decade.

The most recent report by the Florida Reliability Coordinating Council shows utility operated gas-fired power generation on the peninsula will reach 38% of the total generating capacity in the state by 2008 from only 17% this year. Utility operated gas-fired power generation is expected to increase to 86,072 GWh in 2008 from about 31,922 GWh this year, a 170% increase. And gas use for utility-operated power generation on the peninsula is expected to increase by about 1 Bcf/d to 1.7 Bcf/d in 2008 from 0.7 Bcf/d in 2000.

That's just the beginning, however. The Florida Public Service Commission recently told the state's largest electric utilities to increase their power reserve margin, or the amount of generation available in excess of peak-day needs, to 20% from 15%, and most if not all of that increase will be achieved through the addition of gas-fired power.

In addition, these estimates do not include the 18 merchant power plants that have been announced. Although, a Florida State Supreme Court decision last month blocks their development (see NGI, April 24), many observers believe it will be only a matter of time before the state legislature passes electric restructuring legislation requiring the deregulation of power generation in the state. In the meantime, the regulated utilities probably will pick up most of the slack.

"The megawatts --- gas-fired megawatts --- are still going to be needed in Florida whether it's the incumbent [utilities] or merchant facility [developers]," said Robert Evans, president of Duke Energy Gas Transmission, a sponsor in the Buccaneer pipeline project and an affiliate of Duke Energy, whose $160 million 514 MW power plant at New Smyrna Beach was rejected by the state Supreme Court.

"The type of plants that the customers might build" may change because of the court decision, he said. "They may go to single-cycle instead of combined-cycle and some peaking plants may be built instead, which would give us a different type of business than the merchant plants, but the incumbents now are probably going to build some of that new capacity.

"But it's only a matter of time until they open the state up, I would guess," said Evans. "There are certainly things going on in the legislature now that would indicate that at some point there will 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 year at the earliest.

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

Buccaneer, Gulfstream Pass Go

Although probably only one of the two major pipelines, Buccaneer or Gulfstream, will end up being built, they are neck in their regulatory race. Both received preliminary approvals on non-environmental grounds from FERC last week.

FERC granted both projects favorable preliminary determinations over the protests of incumbent pipeline FGT and several residential landowners and businesses. The routing issues bought up by landowners and business will be dealt with during the environmental review process, which will be the key factor deciding the fate of these 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 Gulfstream and Buccaneer are in the public interest. It said both should be required to show specific market need.

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

They both would extend from Mobile, AL, across the Gulf of Mexico to the west coast of Florida and to markets across the Florida 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 of 36-inch diameter mainline, 142 miles of various diameter laterals, 75,000 hp of compression and a liquids separation facility near where it would make landfall in Florida in Pasco County. Buccaneer would 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 and laterals. It would require 120,000 hp of compression and would collect gas from points in Mississippi and Alabama.

The two major pipelines would traverse similar territory and would serve similar needs in the state of Florida. Most observers agree they are mutually exclusive projects. The first one to line up a market for capacity and avoid major environmental and landowner pitfalls will end up the winner, said Duke Energy's Robert Evans.

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

But both of the pipelines have crossed all of their regulatory hurdles so far. The only hitch in last week's orders came in FERC's review of Gulfstream's rate design. In contrast to Buccaneer's simple firm transportation recourse rate of $24.6/Dth and its interruptible and parking and lending rates of $0.8074/Dth, Gulfstream has proposed hourly firm transportation rates, entitling shippers to elect a maximum hourly quantity (between 4.2 and 8% of their maximum daily quantity) for delivery to a primary delivery point. The Gulfstream rates are specifically designed to service the fluctuating needs of power generators, and Buccaneer claims it intends to offer similar negotiated rates.

FERC had no problem with the hourly rates. However, it made multiple other changes to Gulfstream's rate design. It required Gulfstream to reduce its rate base by a whopping $157 million, reflecting the elimination of $2 million Gulfstream wanted set aside for cash working capital, the $150 million Gulfstream wanted set aside as "contribution in aid of construction" for customers wanting to build laterals and other facilities, and $4.8 million that was the result of a miscalculation in Gulfstream's proposed allowance for funds used during construction (AFUDC). Gulfstream is required to revise its cost of service to reflect the elimination of $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, AFUDC calculation, etc., and must recalculate its rates based on the revised cost of service.

The other apparent hurdle, which has yet to be crossed, is a reconciliation of Gulfstream's relationship with its future affiliate, incumbent FGT. Gulfstream parent Coastal Corp. is being purchased by FGT parent El Paso. With FGT continually attempting to meet Florida's growing needs through a series of expansions, it's unclear what impact the merger will have on the proposed Gulfstream pipeline project. For now, Yardley said, all these projects still are operating independently of each other.

Rocco Canonica

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