New Jersey’s Public Service Electric and Gas Co. (PSE&G) hascalled on FERC to order the sponsors of the Cross Bay Pipelineproject to return to the drawing board and come up with anapplication that has a “more conventional structure,”

It contends the existing application for Cross Bay — whichinvolves the construction of new facilities and the acquisition ofexisting pipeline from sponsor Transcontinental Gas Pipe Line, aswell as the leasing of capacity to and from Transco — outlines an”unnecessarily complicated financial and legal structure” for theproject, and should be rejected by the Commission [CP00-414].

Cross Bay’s three sponsors — subsidiaries of Transco, TexasEastern Transmission (Tetco) and KeySpan — should be required tofile a “greatly simplified structure…..to construct the necessarynew facilities and offer them as an incrementally-priced rateschedule. This would avoid the difficult issues associated with the[Transco] abandonment/lease-back arrangement, and place the matterin a more familiar arena of cost-allocation issues,” saidPSE&G.

In its July application, Cross Bay proposed to build newfacilities and acquire 37 miles of existing pipeline [from Transco]to form a new interstate pipeline system that would extend fromMiddlesex County, NJ, across the lower New York Bay, all the way toNassau County, NY. Cross Bay would have total firm transportationcapacity of 614,628 Dth/d, of which 125,000 Dth/d would beavailable for new shippers and 489,628 Dth/d would be leased toTransco. This “capacity lease agreement,” which would cost Transcoabout $61,483/month, would allow Transco to continue serving thecustomers who are currently receiving service on the facilitiesthat it seeks to transfer to Cross Bay.

The application also calls for Transco to lease to Cross Bay upto 125,000 Dth/d of capacity under an “upstream pipeline lease”agreement. This agreement covers capacity from Transco’s meterstation at Linden, NJ, which interconnects with Tetco’s system, toan interconnection of Transco’s system with the proposed Cross Baypipeline at the Cross Bay compressor station to be built near OldBridge, NJ. The cost of the lease is $31,878 per month.

Although PSE&G, a New Jersey dual utility, said itapplauded the “creative efforts” of Transco, Tetco and KeySpan todesign the Cross Bay project, it noted it was “very concerned”about the financial and legal structure of the project on existingTransco customers.

“One of the most serious [concerns] is that theabandonment/lease-back structure appears to confer a significantsubsidy on Cross Bay at the expense of Transco’s existingshippers,” the utility told FERC in its protest.

“Notably, the Transco demand rate that underlies the calculationof the lease payments made by Cross Bay under the upstream pipelinelease for the haul from Linden to the new compressor at Old[Bridge] has been significantly discounted even though nocompetitive justification for a discount is provided. The leasepayment thus confers what is, in effect, a very large, unjustifiedrate discount on Cross Bay which inures to the benefit” of Transco,PSE&G noted. This is a violation of the “no subsidy” standardestablished in FERC’s certificate policy statement on new pipelineconstruction, it argued.

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