The fate of the Millennium, Independence, SupplyLink andMarketLink pipeline expansion projects, which together representabout 1.7 Bcf/d of new pipeline capacity directed at northeasternmarkets from the Midwest, have been scheduled for discussion onlyat FERC’s next regular meeting March 10. That move has sparked aconsiderable degree of speculation among FERC observers andpipeline representatives.

Chairman James Hoecker’s office and other FERC staff membersrefused to comment on the meeting agenda or the topic of theCommission’s planned discussion. FERC’s Dick O’Neill, director ofthe Office of Economic Policy, noted, “We don’t usually put thingson the agenda that are just for discussion so it’s obviouslyimportant that there be a discussion so that people can understandhow the Commission is thinking or where their thinking is.”

The variously-connected projects boil down to two long-distancesystems designed to bring primarily western Canadian gas tonortheastern markets (CP98-150, CP97-315 and others). Given therecord to date on these projects the outlook is not very good,according to some observers. On several occasions Commission staffhas expressed concern over the record number of environmental andlandowner interventions in the Independence docket, over “contractout” provisions in pipeline contracts with multiple shippers onIndependence and Millennium, and over the heavy reliance onmarketing affiliate contracts for market support. Some of theagreements allow shippers to opt out in mid-March if there is noFERC decision.

In an interview with NGI yesterday, O’Neill noted “there isn’t arush of people to fill up these pipelines with contracts, and thereare plenty of people out there saying that these pipes aren’tneeded.

“If you look at the gas and electric industries over the last 10years, [you see] we spent a lot of time dealing with stranded costsof facilities that were built that really didn’t need to be builtor gas contracts that were signed and really didn’t need to besigned. These days you don’t have to create stranded costs; you cando it in such a way that everybody understands the risk they aretaking and later on they won’t have the story that allows them tocome back to the Commission to say ‘you made me do this.'”

“We think this represents a step in the right direction,” saidMillennium spokesman Karl Brock. “We have invested significantly inthe project and we welcome the opportunity to receive feedback onit in a public forum such as this. We believe we have demonstratedstrong market underpinnings for the project.” He noted the projectis fully subscribed with agreements with 10 shippers. However, FERChas questioned whether those agreements are binding. Brock alsosaid the project is “very sound from an environmental standpointwith 86% of the route using existing utility corridors for thepipeline facilities.”

The Independence project, if given the go-ahead at theCommission, would extend from a connection with SupplyLink nearDefiance, OH, to the Leidy, PA, hub, where it would intersect withup to six different pipelines — including the proposed MarketLinkproject — capable of delivering gas along the entire EasternSeaboard. The $678 million Independence pipeline, which would havea winter capacity of about 1 Bcf/d, would provide gas producers inCanada, the Rocky Mountain and Mid-Continent regions with amuch-needed link to markets in the East and Mid-Atlantic, accordingto the pipeline’s partners. They include ANR Pipeline, Williams’Transcontinental Pipeline and National Fuel Gas Supply.

The 422-mile Millennium project would extend from Lake Erie intoNew York City with a capacity of 700,000 Dth/d. Sponsors includeColumbia, TransCanada, Westcoast and MCN. Both projects areexpected to be in service in November 2000.

“I at least take solace in the fact that there will be adiscussion and I’m hopeful that our arguments will be wellreceived,” said an attorney for an opponent for the Millenniumproject who was somewhat dejected that there will not be a vote.

While there haven’t been many discussion-only items on FERC’sagenda in recent years, they were more frequent in the early yearsof decontrol and when there were major differences amongcommissioners. As one source explained “it’s very hard to work outvery complex projects without getting all the commissioners in thesame room for discussion. Because of the Sunshine Act no more thantwo commissioners can discuss an item unless it’s in a publicmeeting. It’s almost impossible to get a handle on this withtwo-by-two-by-two-by-two discussions between commissioners or withtheir positions relayed by staff.”

And there’s no question these projects are complicated or thatthe environmental pressure is on the Commission to come up withfully justifiable positions. It has been suggested that becauseenvironmental concerns have become more important, the days of thepreliminary determination on non-environmental grounds (PD) may beover. The PD is a fairly recent procedural development that wasinstituted to speed things up when there was a great crush ofprojects. The PD passes on all the items of a project except theenvironmental aspects. This allows sponsors, pushing for adecision, to go out and get financing and order pipe before themore lengthy environmental studies are completed. Since PD’s wereinstituted, no project has ever received a PD approval and thenbeen turned down on environmental grounds.

Projects, however, have been severely altered by environmentalmitigation measures, and there is some question as to whetherbankers might be committing financing on some shifting sands if theenvironmental study requires extensive changes in the pipelinelength, route and other mitigation measures. Those changes couldinvolve greater costs, higher rates and in the end fewer customers,especially if the contracts signed by those customers were nothingmore than letters of intent because of the “outs” included. “Whatpart of a PD is firm? The name of the sponsor, the name of thepipeline, and a general regional route. That’s about all. Anythingelse can change,” pointed out one source who suggested that thebank officers financing projects based on these credentials “musthave had lobotomies. They’re banking millions of dollars onnothing.”

Only one of the pipelines, Independence, has extensiveenvironmental complaints against it – over 6,000. Veteranenvironmentalist “Anne Marie Mueser has been hard at work on thisone.” Also, the route of Independence is particularly NIMBY-prone.And while Millennium doesn’t carry as much environmental baggage,it doesn’t connect with the northeast hub at Leidy, which also is aconcern. Sources say FERC would like to see some compromises and isnot likely to issue a PD for one project and not the other.

One possible outcome of Wednesday’s discussion is that theprojects will be bundled off to an administrative law judge to getthe parties to settle on a single or complementary routes as wasdone with the multitude of major Northeast projects nearly tenyears ago. That resulted in Iroquois Gas Transmission being builtwith 13 sponsors. Another possibility is that the commissioners maysimply decide not to decide and wait for the environmental studiesbefore acting. One source said the commissioners appear to be splitand any action would be on a 3-2 vote. Of course, things couldalways be speeded up if the parties came in with a new proposal foran Independent Millennium with Anne Marie’s backing. The word isthere even may be some FERC engineers with some ideas about how itmight be done.

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