Although it cited several concerns, FERC gave certificate authorization to Cross Bay Pipeline Co. LLC of Houston Wednesday to assume ownership of a 37-mile portion of Transcontinental Gas Pipe Line’s Lower New York Bay Extension and add 16,000 hp of compression in Middlesex County, NY, in order to boost gas deliveries into New York City by about 125,000 Dth/d. The Cross Bay project, first announced in January 1998, is estimated to cost $59.5 million.

Once completed, the compressor station and pipeline would form a new interstate pipeline system that would extend from Middlesex County across the lower New York Bay, all the way to Nassau County, NY. The pipeline’s capacity would be more than 614,628 Dth/d. Of that amount, Cross Bay would have 125,000 Dth/d of incremental firm capacity available for service to the expanding Long Island and New York City markets, while it would lease the remaining 489,628 Dth/d to Transco on a firm basis.

The Commission approved the Cross Bay project and leasing agreements even though none of the pipeline project’s proposed capacity has been subscribed yet. Cross Bay “is confident that there is a market for the 125,000 Dth/d…to be created by this project,” the order said [CP00-412]. But if that isn’t so, Cross Bay will be held fully at risk for the $11 million cost of service of the new facilities, it noted.

FERC, however, did express some concern about the financial manner in which Transco proposes to reflect the transfer of its Lower New York Bay facilities to Cross Bay. Transco has proposed to reduce its gross plant-in-service by the net book value of the facilities at the time of the transfer to Cross Bay, but it seeks to continue charging its existing rates, which would include the costs of the facilities, until it files its next rate case, which FERC noted “will likely not be for several years.”

Although the Commission “normally allows pipeline facilities to be abandoned in between rate cases without requiring the pipeline to re-justify or re-state its base rate…we find that the particular circumstances of this proceeding require a different approach” in light of the fact that the facilities are being transferred to a jurisdictional affiliate of the abandoning pipeline, the order noted.

“We are concerned that Transco and its newly-formed affiliate would be collecting for the same costs for an undetermined, but probably lengthy time period. We believe that this could be an unjust and unreasonable practice. Accordingly, we will direct Transco to show cause why the Commission should not find this to be an unjust and unreasonable practice under Section 5 of the [Natural Gas Act], and why the Commission should not order Transco to remove the costs associated with the Lower New York Bay facilities from its rates at the time of transfer rather than in its next rate case.”

FERC also ordered a safeguard to protect existing Transco shippers from the potential effects of Transco’s $1.4 million leasing arrangement with Cross Bay. To “insure that there will be no adverse economic impact on Transco’s existing customers as a result of the transfer of facilities or from the terms of the lease, we will require Transco to include in its tariff a provision that will guarantee Transco’s customers that they will be no worse off as a result of the Cross Bay project.”

Despite these concerns, the Commission found that the Cross Bay project “should provide substantial benefits without significant adverse impacts.”

Cross Bay Pipeline, according to its sponsors, “will…create an important gas transportation alternative for New Jersey and New York markets in an economical, efficient manner with minimal impact on the environment.” Williams and Duke Energy each have a 37.5% ownership stake in the limited liability company, while KeySpan, which came on as a third partner in August 1998, owns 25% of Cross Bay (see Daily GPI, July 24, 2000).

Since its inception three years ago, the Cross Bay project has undergone some changes in size, cost and design. It originally was scheduled to go into operation in November 2000.

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