Connecticut Attorney General Richard Blumenthal released a statement on Friday declaring the proposed Islander East pipeline project officially dead even before the Commerce Department issues its final decision on the project. Blumenthal said that the state Department of Environmental Protection’s (DEP) denial of a water quality certification essentially prevents the Army Corps of Engineers from issuing a dredging permit to Islander East.

“This decision is a death knell for Islander East — definitive, final, and well-deserved,” Blumenthal said. “The only regret about Islander East’s demise is that it took so long, at such expense, creating anxiety and fear among neighbors and environmentalists. Approval by the Corps of Engineers — a prerequisite for this project — now is impossible. In short, game over.”

Pipeline sponsors Duke Energy and KeySpan have appealed to Commerce to overturn the state’s prior rejection of the project under the Coastal Zone Management Act (CZMA). The state of New York last year also used the CZMA to block the proposed 442-mile, 700 MMcf/d Millennium pipeline, and Commerce upheld the state’s decision in December (see Daily GPI, Dec. 17, 2003), proving that the CZMA is an effective way for states to block federally approved interstate pipelines. Both Islander East and Millennium have FERC certificates authorizing their construction.

But Blumenthal believes that in the water quality certification process the state has found yet another weapon to defend against unwanted interstate pipelines.

Duke Energy disagrees, however, stating that it is moving forward with its CZMA appeal regardless of what the DEP has ruled. Islander East even told Commerce the DEP’s decision was a foregone conclusion. “We plan to pursue any and all administration and judicial remedies available to us,” Duke Energy Gas Transmission spokeswoman Marylee Hanley said on Monday.

A source in the Connecticut government said the attorney general is convinced that in order for the Army Corps to issue a dredging permit, which Islander East needs, DEP has to give it’s certification. “All of this was under assault in the version of the energy bill that never got through,” the source noted. “Generally these things that states can resort to, [Congress] wants to get rid of all this so the states have no say at all.”

FERC issued a final certificate to Islander East in September 2002. The pipeline would extend 50 miles from New Haven, CT, across Long Island Sound to Suffolk County (Long Island) near Yaphank, NY, delivering 285,000 Dth/d of gas initially and ultimately 400,000 Dth/d. Additionally, Algonquin Gas Transmission, a subsidiary of Duke Energy, would loop about 13.7 miles of existing pipeline in Connecticut and add a new compressor station in Cheshire, CT. Approximately 90% of the Islander East pipeline land route will be located along existing corridors.

Connecticut doesn’t like the project primarily because it would see no direct benefit from it; all of the gas would go to Long Island. The attorney general also charges that FERC and Islander East did not fully consider a viable and less environmentally harmful alternative that would utilize Iroquois’s existing pipeline from Milford, CT, to Northport in Long Island.

Islander East would cross Long Island Sound through the scenic Thimble Islands and would have to dredge several miles through shellfish beds and other wildlife habitat.

FERC Chairman Pat Wood, however, has told the Commerce Department to override objections from the state and okay the construction of Islander East. “The Commission conducted an exhaustive review of the environmental impacts of the project,” he said late last year. “This included an analysis that focused in particular on the impact…on Long Island Sound. We concluded after imposing numerous environmental conditions to the certificate authorization that the Islander East Project would have acceptable environmental impacts.”

Secondly, he said, the project is necessary to meet growing demand in eastern Long Island and would provide the area with an additional source of supply. “[T]here is no reasonable alternative available which would permit the Islander East Project to be constructed consistent with the enforceable policies of Connecticut’s Coastal Management Plan that will fulfill the Commission’s statutory mandates under the Natural Gas Act,” he said.

Meanwhile, natural gas prices in New York this winter reached record highs over $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 and reached a high of $72 that day. New York-Henry Hub basis averaged $39.07 compared to normal basis during most months of about 50 cents.

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