Duke Energy and Williams got a final certificate from FERCyesterday to proceed with their newly acquired Gulfstream NaturalGas System project, a proposed 744-mile pipeline that would supplygas to the ever-expanding power generation market in Florida.

The certificate comes only weeks after the two companiespurchased the $1.7 billion Gulfstream project from Coastal Corp.,which had to shed the assets as part of its merger with El PasoEnergy. The Federal Trade Commission ordered the sale of Gulfstreambecause El Paso already is joint owner in Florida Gas Transmission(FGT), the only pipeline system currently serving the SunshineState.

When completed, the Gulfstream system will offer Florida gascustomers pipeline-on-pipeline competition for the first time ever.The pipeline has a targeted in-service date of June 1, 2002.

After having awarded Gulfstream a preliminary determination (PD)in April and conducted an environmental review of the project, “wefind that the public convenience and necessity require the grantingof the requested authorization,” the order said [CP00-6].

In Wednesday’s decision, the Commission denied Gulfstream’srequest for rehearing on two issues: 1) the project’s calculationof its allowance for funds used during construction (AFUDC); and 2)the amount Gulfstream included in its rate base for contributionsin aid of construction (CIAC).

The April order, which was upheld, ordered Gulfstream to use anAFUDC rate for the entire construction period equal to the overallrate of return on a rate base approved for the project’s recourserates (70% debt at an interest rate of 8%, and 30% equity at 14%rate of return). Gulfstream argued that this financing approach wasinconsistent with the treatment given to other large-scalepipelines, such as Alliance, Independence and Mojave.

The Commission further stood by its earlier decision orderingGulfstream to reduce its rate base by $150 million, which was theamount that it allotted in its rate base for CIACs. FERC said ittook this action because the pipeline project wasn’t able toidentify the actual legitimate costs of facilities that would bebuilt using CIACs. “To be included in the rate base, a cost must beknown and measurable,” it said.

However, if Gulfstream makes CIACs that are “measurable andreasonable and prudent,” it may amend its certificate later torevise its rate base for its initial recourse rates or establishincremental rates, FERC said.

The Gulfstream pipeline would run from Mobile Bay, AL, under theGulf of Mexico and come ashore on the west coast of Florida nearTampa, where it would supply 1.13 Bcf/d of natural gas to thegrowing generation market in the state. The pipeline, of which morethan half will be underwater (400 miles), is nearly 100%subscribed, according to the sponsors.

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