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Cross Bay Sponsors Asked to Defend Pipe Project

Cross Bay Sponsors Asked to Defend Pipe Project

FERC last week directed the Cross Bay Pipeline Co. L.L.C. to respond to a series of questions mostly focusing on the East Coast project's byzantine financial and capacity-lease arrangements that have prompted protests from customers.

In a letter containing nine pages of detailed questions, Daniel M. Adamson, director of the FERC Office of Energy Projects, asked the sponsors last Tuesday to address the "complex issues and problems" raised by several current customers of Williams' Transcontinental Gas Pipe Line, a sponsor of the Cross Bay project that seeks to boost natural gas deliveries in the New York City metropolitan areas by 125,000 Dth/d. The other partners include Duke's Texas Eastern Transmission and KeySpan Energy Development.

"Because of the complexities of natural gas deliveries in the New York area, it is not clear to us, or these parties, that your proposal holds Transco's current customers harmless," he said. "If you can show us that this latter point is substantially true, then we will be in a position to balance any remaining adverse affects of your proposal with its likely public benefits."

A number of Transco shippers contend the existing application for Cross Bay - which involves the construction of new facilities and the acquisition of existing pipeline from Transco, as well as the leasing of capacity to and from Transco - outlines an unnecessarily complicated financial and legal structure for the project.

Specifically, Adamson asked the sponsors to provide FERC with an "illustrative proposal" in which Transco would be the sole sponsor of Cross Bay and alone would create the 125,000 Dth/d of additional capacity; explain the "financial, accounting or tax benefits" of Transco providing 37 miles of existing pipeline to Cross Bay; offer a "detailed qualitative and quantitative explanation of the public and private economic or financial benefits" of the proposed upstream lease arrangement between Transco and Cross Bay, and discuss the "interdependency, or lack thereof, between [Transco's] Cross Bay and MarketLink projects." Replies to the Commission staff's questions are due within a month.

Cross Bay proposes to build new facilities and acquire 37 miles of existing pipeline from Transco to form a new interstate pipeline system that would extend from Middlesex County, NJ, across the lower New York Bay, all the way to Nassau County, NY. Cross Bay would have total firm transportation capacity of 614,628 Dth/d, of which 125,000 Dth/d would be available for new shippers and 489,628 Dth/d would be leased to Transco. The capacity lease agreement would cost Transco about $61,483/month, and would enable the Williams pipeline to continue serving the customers who are currently receiving service on the facilities that it seeks to transfer to Cross Bay. As part of the deal, Cross Bay would acquire the 125,000 Dth/d under an "upstream pipeline lease" agreement that would cost $31,878/month.

This upstream lease agreement of Cross Bay's has been at the eye of the storm. Existing Transco shippers say it would provide the new shippers on Cross Bay with a "very large, unjustified rate discount" at their expense. They argue it violates the "no subsidy" standard established in FERC's certificate policy statement on new pipeline construction.

Adamson suggested that the Commission staff "could host a technical conference to assist you and your customers in discussing these issues and problems after you have responded to our questions."

Staff believes it can "bring a final certificate recommendation before the Commission in the time frame that you request," he told the Cross Bay sponsors, but it's "unlikely" a preliminary determination will be issued in the near term due to the "unresolved issues and problems raised by parties."

Susan Parker

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