While Wall Street was kicking the natural gas and electric sector in the teeth, the Federal Energy Regulatory Commission played Santa Claus last week and gave most of the regulated energy companies — with the exception of El Paso Corp. — exactly what they wanted for Christmas.

At its last meeting of 2001, FERC last Wednesday handed out certificates for several key natural gas pipelines in the Northeast, most notably the long-standing Millennium Pipeline project; decided not to rescind a certificate order for a key liquefied natural gas (LNG) import facility; approved the nation’s first regional power organization (RTO); put smiles on industry and Wall Street faces when it came out with a “clean-up” rather than a “sweeping” proposed rule for changes in the Commission’s financial accounting; and generally reaffirmed all of its prior orders on price mitigation in the California power market.

But FERC seemed to run out of its bag of toys when it came to El Paso Corp. In a major setback for the company, the Commission re-opened the ongoing complaint case against El Paso Natural Gas and its merchant energy affiliates. It remanded the proceeding to Chief ALJ Curtis Wagner Jr. to conduct a “supplemental” hearing into the “limited” issue of whether the pipeline withheld interruptible transportation service to customers from November 2000 through March 2001. So, the industry can look forward to another round of hearings on El Paso and its operations in 2002, as if there weren’t enough in 2001. Maybe, the Commission will issue a final decision in the continuing El Paso saga by next Christmas.

The Commission last week was in a very giving mood when it came to new pipeline projects for the Northeast. Probably the biggest surprise was the conditional approval for the U.S. leg of the embattled Millennium Pipeline project, which has been languishing at FERC since December 1997. But the FERC elves were a bit devilish — the certificate gives Millennium the go-ahead to build all but the last two miles of the pipeline that would run through the city of Mount Vernon, NY. It seems the agency also wanted to give the Mount Vernon community, which opposes the routing for the line through it city, something to cheer about this holiday season. It’s only fair.

The regulatory agency dipped further into its bag to come out with certificates last week for Maritimes & Northeast Pipeline’s Phase III expansion project and the related HubLine expansion of Algonquin Gas Transmission. The integrated expansions will increase transportation of Atlantic Canadian gas to the Boston, MA, area. The projects are designed to supply up to 230,500 Dth/d to the gas-starved New England area and are expected to be in service by November 2002.

The FERC Santa also handed out a certificate to Iroquois Gas Transmission for its Eastchester project, which will add 230,000 Dth/d to the Iroquois system to boost deliveries mainly to New York City power generators, and it delivered a preliminary determination to Islander East Pipeline Co. LLC to build a 40-mile pipeline from Connecticut to Long Island, NY.

The Commission elves were especially good to Williams Companies last week, allowing it to retain its certificate to re-open and expand its Cove Point LNG import terminal in Lusby, MD. The company was in danger of losing its certificate after Sen. Barbara Mikulksi (D-MD) said re-opening the facility posed a “nightmare scenario” because it would permit “flammable” LNG to be imported to a site within four miles of a nuclear facility at Calvert Cliffs, MD. The Commission reviewed its original Oct. 12 decision, and convened a technical conference to discuss the national security implications of re-opening Cove Point. But it came to the same conclusion last week — that the Cove Point import operations would not pose any significant threat to the nuclear facility.

On the electric side, FERC was in the holiday spirit as well. It approved the Midwest ISO as the first RTO in the country, with Chairman Pat Wood declaring it was the Commission’s “Christmas gift to the nation.” The new RTO covers basically half of the nation from North Carolina to North Dakota and as far south as Texas and Arkansas. It will be created by the Midwest Independent System Operator and, if constructed as intended by FERC, will include the transmission systems of 20 states and Manitoba, Canada.

A collective sigh of relief was heard from the power industry last week when the Commission simply sought comments on whether it should require approximately 1,200 power marketers to file financial reports on their derivative and hedging positions. Many had expected FERC to order marketers to submit the financial reports. The move came in a notice of proposed rulemaking (NOPR) primarily designed to update the Commission’s financial accounting format for regulated utilities.

The changes proposed for FERC’s uniform system of accounts for utilities would reflect changes made since 1993 by the Financial Accounting Standards Board (FASB). Its proposed changes for utilities would set a regular method for reporting hedging and derivative positions on an annual basis, and also would permit utilities to use mark-to-market accounting for these transactions and report other financial positions on a fair market value basis.

Lastly, the Commission elves wrapped up all the California price mitigation into a single box, and, yes, it had a bow. FERC reaffirmed each of its policy calls putting in place price mitigation measures during the emergency periods to tame the runaway California power market, and then extending the price caps 24/7 across California and the Western Systems Coordinating Council. The “large book” order issued by the Commission last Wednesday disposed or rehearing orders and clarifications in a series of case dating back to August 2000.

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