FERC last week held firm to its July order in which it awarded amuch-sought-after certificate to the controversial IndependencePipeline, rejecting numerous requests to reconsider whether theproject’s precedent agreements were binding and its market needjustified. Federal regulators also gave the go-ahead for Phase IIof ANR Pipeline’s Wisconsin expansion, a Reliant Energy GasTransmission looping expansion in Arkansas, and accorded apreliminary determination to Transcontinental Gas Pipe Line for itsproposed Sundance expansion in the Southeast.

The rehearing decision on the Midwest-to-East Coast Independencewas a dose of good news for the project’s sponsors, which includeANR, Transco and National Fuel Gas Co. But it now makes the case,which has been entangled in a regulatory maze at FERC since March1997, ripe for the courts, where — given the decibel level ofopposition to the project — it’s likely to wind up next.

In the July order, the Commission awarded Independence acertificate after it had negotiated precedent agreements withDynegy Marketing and Trade for 38% of the proposed capacity of thepipeline, which met a condition previously imposed by FERC.However, protesters continued to argue that the Dynegy precedentagreements were not binding because they contained board ofdirectors’ out-clauses.

Although FERC’s policy on what constitutes a binding commitment”has never been clearly articulated,” the order said the Commission”generally [has] accepted” precedent agreements subject to board ofdirectors’ approval, but has rejected agreements that contain”market out” clauses.

“We find the Dynegy contracts are sufficient to satisfy theCommission’s contract requirement” imposed by FERC in a decisionlast December, according to the order [CP97-315-004]. “Dynegy is anestablished, existing, non-affiliated marketing company, withworldwide wholesale natural gas sales of more than 10 Bcf/d. Wefind the fact that Dynegy is willing to commit to 38% of thecapacity for this project…..is sufficient to support our findingthat there is a need for the Independence project.”

But Independence cannot begin construction of the project untilit files with FERC binding executed contracts (with no out clauses)for 68.2% of firm capacity of its proposed project. The Commissionrejected requests to condition its order on Independence producingthe needed contracts within 12 months or face termination.

“Independence is already under a requirement to completeconstruction of its authorized facilities and place them intoservice within three years. Thus, there is a de facto limit on thetime it has to execute contracts and commence construction. We donot believe it is necessary to establish additional limits,” theorder noted.

Moreover, it dismissed challenges to the need for theIndependence project. FERC “finds that there is sufficientevidence…..to demonstrate market need and support a finding thatthe pipeline is required by public convenience and necessity.”

The proposed Independence line, combined with ANR’s associatedSupplyLink expansion, would transport 1 Bcf of Canadian natural gasfrom Chicago to the Leidy Hub in Pennsylvania, where it could bepicked up by other pipelines and shipped to East Coast markets.Landowners in both Ohio and Pennsylvania have been opposed to theproject from the start, and have filed numerous protests at FERC totry to stop construction.

ANR/Wisconsin Phase II

The Commission also awarded a certificate to ANR for theconstruction of the second phase of its system expansion from theJoliet, IL, hub to southwestern Wisconsin, which would add 84,950Dth/d of firm transportation capacity. The action comes less than ayear after FERC approved the first phase of the project that willadd 109,000 Dth/d of system capacity into the state.

The FERC decision gives ANR a leg-up over the much largerGuardian Pipeline project in providing expanded service to thesouthern Wisconsin market. The 149-mile Guardian line received apreliminary determination from the Commission in June.

ANR initially proposed its Wisconsin expansion as one project,but it later decided to phase it into two parts when the Commissiondeferred action on its upstream SupplyLink project. While phase onecould be acted on independently, the construction of phase two, ANRtold FERC at the time, hinged on SupplyLink being certified, whichit was in July.

ANR’s second-phase project includes minor looping of itsexisting Michigan Leg South system in Kendall County, IL; a new1,500 horsepower (hp) turbine compressor unit at its existingWeyauwega Compressor Station in Waupaca Country, WI; a 1,500 hpreciprocating compressor unit at its existing Janesville CompressorStation in Rock County, WI; and minor related facilities. Thecertificate requires the second phase, which will cost about $13.7million, to be constructed and in operation within two years.

The Commission said the ANR project complied with its policystatement on pipeline construction, which requires that newprojects not adversely affect existing shippers, landowners andcompeting pipelines.

“ANR is proposing to serve new and projected near-term demandload not currently served by another pipeline. Thus, the projectwill not impact any existing pipeline or its customers,” the ordersaid [CP00-241]. “In addition, since the project mainly consists ofcompression additions to existing stations and only approximately3.11 miles of new pipeline facilities, the impact on landownersfrom taking of land by eminent domain will be minimal.”

Moreover, it rejected the claims of Wisconsin Fuel & Light,Wisconsin Gas Co. and the Wisconsin Public Service Corp. that thecosts of the ANR project might be shifted to existing customers.

ANR has not negotiated any precedent agreements yet for thesecond half of the project, but the Commission agreed the presentlyuncommitted capacity is needed to meet the projected near-termmarket demand growth in Wisconsin. For the first phase, ANR hasexecuted firm contracts with non-affiliated shippers for about55,000 Dth/d of new firm service to begin Nov. 1 of this year, andan additional 28,950 Dth/d to start Nov. 1, 2001.

Transco Sundance

The fully-subscribed Transco Sundance expansion cleared thefirst step of the regulatory process, receiving a preliminarydetermination on non-environmental issues. The 38-mile pipelineproject is an incremental expansion (236,383 Dth/d) of Transco’sexisting system in North Carolina, Georgia, Alabama andMississippi, and seeks to cash in on the growing gas-firedgeneration demand in the Southeast.

The $134 million expansion consists of 42- and 48-inch loopingof Transco’s mainline in Mississippi, Alabama and North Carolina; anew 18,975 horsepower compressor unit, plus upgrading two existingcompressor units, at Transco’s existing Compressor Station No. 115in Coweta County, GA; a new 15,000 hp compressor unit, plus anupgrade of an existing compressor unit, at Transco’s existingCompressor Station No. 125 in Walton County, GA; and gas coolers atCompressor Station No. 150 in Iredell County, NC.

Transco has negotiated precedent agreements with 12 shippers for100% of the proposed new capacity on its Sundance expansion, withthe lion’s share going to Southern Company Services Inc. (140,000Dth/d) and Carolina Power & Light (75,000 Dth/d). Theagreements are for firm service for 15 years.

“The Sundance project will serve growth requirements of newelectric generating plants to be constructed or the expansion ofexisting plants.” Consequently, “there is no evidence that otherpipelines or their captive customers will be adversely affected bythis project,” the FERC order said [CP00-165].

Also, given that 96% of the Sundance project’s route will be inor adjacent to existing right-of-way, the order said “no landownerswill be permanently affected and any adverse effects on landownerswill be minimized.”

Transco proposed maximum recourse rates of $9.1897/Dth for firmservice on the Sundance expansion project, but FERC adjusted therates downward to $9.1769/Dth. However, the Commission agreed withthe proposed rate for expanded firm capacity on Transco’s NorthGeorgia extension — $3.7323/Dth.

Reliant Looping

Lastly, the Commission awarded a certificate to Reliant EnergyGas Transmission to construct minor looping facilities so it canprovide 40,000 Dth/d (or more) of firm transportation capacity to anew cogeneration plant being built by Pine Bluff Energy LLC inJefferson County, AR. Pine Bluff also has executed a leaseagreement with a nearby plant of International Paper Co., whichplans to extend its lateral to connect with the Pine Bluffcogeneration facility.

Susan Parker

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