FERC had a very busy day yesterday on the natural gas side.First, it upheld its July order in which it awarded a certificateto the Midwest-to-East Coast Independence Pipeline, fending offcontinuing questions about the binding nature of the project’sprecedent agreements and its market need. Federal regulators alsogave the go-ahead for Phase II of ANR Pipeline’s Wisconsinexpansion, a Reliant Energy Gas Transmission expansion in Arkansas,and awarded a preliminary determination to Transcontinental GasPipe Line for its proposed Sundance expansion in the Southeast.

The decision on Independence was a dose of good news for theproject’s sponsors, which include ANR, Transco and National FuelGas Co. But it now makes the case, which has been entangled in aregulatory maze at FERC since March 1997, ripe for the courts,where — given the decibel level of opposition 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 Decemberdecision, 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.

It also dismissed challenges to the need for the Independenceproject. FERC “finds that there is sufficient evidence…..todemonstrate market need and support a finding that the pipeline isrequired by public convenience and necessity.”

The Commission also awarded a certificate to ANR forconstruction 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’s second-phase project includes minor looping of itsexisting Michigan Leg South system in Kendall County, IL; a new1,500 horsepower turbine compressor unit at its existing WeyauwegaCompressor Station in Waupaca Country, WI; a 1,500 hp reciprocatingcompressor unit at its existing Janesville Compressor Station inRock County, WI; and minor related facilities. The certificaterequires that the second phase, which will cost about $13.7million, 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”presently uncommitted capacity in the entire project is needed tomeet the projected near-term market demand growth in Wisconsin…”For the first phase, ANR has executed firm contracts withnon-affiliated shippers for about 55,000 Dth/d of new firm serviceto begin Nov. 1 of this year, and an additional 28,950 Dth/d tostart Nov. 1, 2001.

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, plusupgrading 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 twelve shippersfor 100% of its Sundance expansion, with the lion’s share of theproposed new capacity going to Southern Company Services Inc.(140,000 Dth/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 otherpipeline 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 itdownwards to $9.1769/Dth. However, the Commission agreed with theproposed rate for expanded firm capacity on Transco’s North Georgiaextension – $3.7323/Dth.

Lastly, the Commission awarded a certificate to Reliant EnergyGas Transmission to construct minor looping facilities so it canprovide gas transportation service to a new cogeneration plantbeing built by Pine Bluff Energy LLC in Jefferson County, AR.

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