FERC disregarded the objections of Viosca Knoll Gathering andwaived guaranteed future revenue regulations to let a DestinPipeline expansion go forward last week. Destin plans to construct31 miles of pipeline from a platform at Viosca Knoll Block 900 to atie-in with a Destin lateral in Main Pass Block 279.

In a draft order, FERC waived regulations and accepted anobligation payment provision in agreements between Destin andshippers Chevron and Texaco, which are partners in the offshoreGemini Prospect. The contract provision relating to the FT-2 rateschedule says if over an eight-year period, starting with firstproduction from Gemini, aggregate transportation revenue fromGemini Partners is less than $41.2 million, the partners will makeup the difference in a lump-sum payment to Destin.

“Even though the Obligation Payment does guarantee futurerevenue, the Gemini Partners would nevertheless pay no more thanwhat they would pay under Destin’s FT-1 firm rates, which include areservation charge,” the Commission wrote. “Under thecircumstances, we find that the Obligation Payment is anappropriate method of assuring the shippers the flexibility theydesire, and the pipeline the revenues it needs to make the projectviable.”

Viosca Knoll Gathering said the proposed facilities wouldduplicate its existing gathering system and argued against grantingDestin rolled-in rate treatment. The Commission said Viosca Knolldid not show Destin’s request for rolled-in rates was unfair ordiscriminatory against gathering companies. “The mere fact thatnonjurisdictional gathering facilities are located near theproposed jurisdictional facilities, and will interconnect with theterminus of Destin’s mainline, does not require that Destin’sproposed jurisdictional service be treated differently from otherjurisdictional services.” Viosca Knoll had maintained allowingDestin rolled-in rates would allow Destin to unfairly shift costsof the new facilities upstream of Main Pass Block 260 to othershippers, including Viosca Knoll customers that use only themainline downstream of Main Pass Block 260. Destin had said itneeded FERC approval by last Friday to meet a projected Marchin-service date.

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