The gas pipeline industry won a key battle last week when Commerce Secretary Donald Evans overruled the Coastal Zone Management Act (CZMA) consistency determination by the State of Connecticut, removing a major roadblock to the 50-mile, 260 MMcf/d Islander East pipeline.

Despite being approved by the Federal Energy Regulatory Commission more than a year and a half ago, the project, which would bring much needed natural gas to Long Island, had been blocked through the use of a little known federal law that gives states the right to halt projects deemed detrimental to their coastal areas.

The pipeline, which is sponsored by KeySpan and Duke Energy, would extend from a connection with Algonquin Gas Transmission in New Haven, CT, across Long Island Sound to Suffolk County (Long Island) near Yaphank, NY, ultimately delivering up to 400 MMcf/d. Additionally, Algonquin would loop about 13.7 miles of existing pipeline in Connecticut and add a new compressor station in Cheshire, CT. Islander East’s portion of the project would cost about $150 million while Algonquin’s upgrades will cost about $30 million.

Connecticut blocked the pipeline using the CZMA after determining that it would damage shellfish beds and water quality in Long Island Sound, while providing no benefit to the state. Connecticut said an alternative using the Iroquois Pipeline system would be less damaging. But according to the Commerce Department, the state never clearly identified the preferable alternative.

Evans said Islander East’s adverse coastal effects would be “largely temporary in nature and limited in scope.”

“Islander East is found to be consistent with the objectives of the [CZMA],” he said. “It furthers the national interest in a significant and substantial manner; the national interest furthered by the project outweighs the project’s adverse coastal effects (considered separately or cumulatively); and there is no reasonable alternative available for the project. Therefore, federal agencies may issue licenses or permits for Islander East’s project.”

The ruling came in stark contrast to an earlier decision by Evans to uphold the State of New York’s objections to the 442-mile, 700 MMcf/d Millennium Pipeline project (see NGI, Dec. 22, 2003; Aug. 4, 2003). In the Millennium case, Commerce favored rerouting the pipeline across the Hudson River north of the environmentally sensitive Haverstraw Bay and avoiding New York City’s water supply.

Some observers believe increasing political pressure may have played a role in Evans’s Islander East decision. The pipeline industry has been up in arms over the use of the CZMA to block Millennium. Producers also want to see CZMA reforms because the law has been used to block offshore exploration and production in North Carolina and other locations.

Provisions in the comprehensive energy bill on Capitol Hill would restrict the amount of time Commerce could take in deciding an appeal of a state CZMA consistency determination. It also would require the Commerce Department to use the record compiled by FERC in a certificate proceeding as the “exclusive record” when deciding an appeal.

Last month, Rep. Richard Pombo (R-CA) asked FERC to identify any examples in which the CZMA has interfered with boosting supplies of natural gas to the Northeast. “Americans have been demanding the benefits of greater amounts of electricity increasingly generated by natural gas-fired power plants,” Pombo said. “If laws under my jurisdiction are driving up costs to consumers, threatening electrical reliability and costing Americans jobs and energy security, I need to know about it.

“As chairman of the House Resources Committee and co-chair of the Speaker’s Task Force on Affordable Natural Gas, I am interested in your investigation as it relates to the availability of natural gas supplies in the Northeast,” wrote Pombo in a letter to FERC Chairman Pat Wood. He said that he is “further concerned that certain aspects of my Committee’s jurisdiction, including the implementation of the CZMA, may in fact, be increasing pressure on natural gas availability and price. I am concerned that interpretations of the Act may be stopping the construction of pipelines that could alleviate natural gas shortages and price spikes to consumers.”

While the Islander East decision by Commerce is seen by the pipeline industry as a step in the right direction, pipeline officials say still more needs to be done regarding the CZMA process.

“While we are heartened by this decision, [the Interstate Natural Gas Association of America (INGAA)] still believes that there are serious systemic problems with the coastal zone management process that need to be addressed by legislation and regulation so that this federal statute cannot be wielded as a sword by parochial interests opposed to energy infrastructure projects that bring regional benefits,” said INGAA President Donald F. Santa. INGAA represents the nation’s interstate gas pipelines.

“Even with the project sponsors’ victory, the point remains that it has taken more than months after FERC issued a certificate of public convenience and necessity to litigate this matter,” Santa noted. “This delay in the date that the Islander East pipeline ultimately enters service comes with an unmistakable price, because the economic benefits from more plentiful natural gas supplies for homeowners, businesses and generating electricity will be postponed that much longer.”

Islander East would bring much-needed gas supply to about 600,000 gas customers on Long Island from its connection with Algonquin. Natural gas prices in New York this winter reached record highs of more than $70/MMBtu. Prices at the Algonquin citygate soared to an average of $64.22 on Jan. 14 and prices at Iroquois Zone 2 averaged $55.38 and hit a new spot market record high of $76/MMBtu. Transco Zone 6-New York averaged $44.81 on Jan. 14 and reached a high of $72.

Evans said that through the use of a relatively small area of Connecticut’s coastal resources in Long Island Sound, the Islander East pipeline would “enable regional growth and expanded electric generation capacity, providing benefits to hundreds of thousands of people.” He said the project would “enhance reliability of energy supplies to Long Island consumers by adding a second pipeline serving eastern Long Island, providing greater access to gas supply sources in Canada and promoting price competition.”

Evans also noted that the project furthers the national interest by “developing the coastal zone and its resources” rather than damaging the coastal zone. Its construction adds a resource to the coastal zone that previously was not available, he said.

However, Arthur J. Rocque Jr., commissioner of the state Department of Environmental Protection, said Commerce’s decision was “based on either erroneous assumptions or false promises or a combination of both.

“There should not be a coastal state that sleeps well tonight after this decision,” said Rocque.

Connecticut Attorney General Richard Blumenthal said he plans to appeal the ruling to U.S. District Court. “There’s a basic bedrock principle that a less damaging alternative must be sought if available,” he said.

Nevertheless, construction on the project probably will not begin very soon. Connecticut officials still have a few other blocking tactics at their disposal. In fact the state Department of Environmental Protection (DEP) already has denied the project a water quality permit, which is required to gain approval from the Army Corps of Engineers. Islander East has asked the DEP to reconsider, but in light of Rocque’s comments that seems unlikely.

Blumenthal already has concluded that denial of the water quality permit is a “death knell for Islander East — definitive, final, and well-deserved… Approval by the Corps of Engineers — a prerequisite for this project — now is impossible. In short, game over.”

Duke Energy spokesman John Sheridan said the project sponsors see it differently. “We intend to stick in there and continue to move forward with the project.”

©Copyright 2004 Intelligence Press Inc. Allrights reserved. The preceding news report may not be republishedor redistributed, in whole or in part, in any form, without priorwritten consent of Intelligence Press, Inc.