Sponsors of the proposed Independence Pipeline and SupplyLinkexpansion probably popped a few champagne corks yesterday as FERCfinally awarded the Midwest-to-East Coast projects theircertificates after being ensnared in heated controversy for morethan three years.

The Commission overwhelmingly gave the two associated pipelineprojects the green light despite last-ditch attempts by landownersin Ohio and Pennsylvania and potential competitor MillenniumPipeline to hold them up.

The victory, however, could be short-lived if the landowners andlawmakers, who represent the states through which Independencewould criss-cross, go to court to try to stop construction of thepipeline. The sponsors declined to comment on this prospect. “Wecan’t speculate on what other parties are going to do,” said JoeMartucci, a spokesman for ANR Pipeline, one of three partners inIndependence and sole sponsor of the SupplyLink expansion.

Based on the precedent agreements filed June 26, “we find thatit is in the public convenience and necessity to issue [thesponsors] authorization to construct their respective projects,”Wednesday’s order said [CP97-315, CP97-319]. In addition to ANR,other investors in Independence are Transcontinental Gas Pipe Lineand National Fuel Gas Co.

But before any dirt can be turned, both Independence andSupplyLink must file with FERC executed contracts that equal thefirm capacity commitments reflected in their initial projectapplications (68.2% for Independence and 71.7% for ANR), accordingto the Commission. They also must comply with the stringentenvironmental conditions that FERC imposed in earlier orders.

The Commission gave sponsors three years to build Independenceand place it in service, and two years for SupplyLink. Whencompleted SupplyLink, a 73-mile looping of ANR’s existing system,and the 400-mile, 36-inch Independence line will be able to ship toEast Coast markets about 1 Bcf/d of natural gas that will flow intothe Midwest over Alliance Pipeline and Northern Border Pipeline’salready-completed extension/expansion. Martucci said constructionon both projects is expected to begin in spring 2002 and befinished in November 2002.

The projects have been entangled in a regulatory maze since theywere first filed in March 1997, with landowners, state officials,congressional lawmakers and FERC questioning whether there wasenough market support to justify them. Independence and SupplyLinkfinally satisfied the Commission last month when they submittedbinding, 10-year precedent agreements for 38% and 78% of theirprojects’ total firm capacity, respectively. Much of the capacitywas subscribed to by gas marketers — Dynegy Marketing and Tradeand Enron. Duke Energy Trading and Marketing LLC also had signed upfor capacity on both projects but backed out soon afterwards, withDynegy stepping in and picking it up.

Two landowner groups — the Ohio-Pennsylvania LandownersAssociation and the Wayne Country (OH) Landowners Association —claimed the precedent agreements still failed to justify marketsupport for the projects because they didn’t include anyinformation on the negotiated rates offered to shippers or aboutthe markets to be served by the gas marketers. Specifically, theyargued that if the Independence project’s “marginal demonstrationof market need” (38%) was based on rates that were “significantlydiscounted,” then there was no “real evidence” of project need.

But FERC disagreed. “Generally, the contracted rate has nobearing on the issue of the market-need requirement,” the ordersaid. Nevertheless, it directed the projects to file at FERC theirnegotiated-rate contracts or tariff sheets reflecting the”essential elements” of those contracts prior to going intoservice.

The order also rejected the landowners’ request for theCommission to “look behind” the Independence precedent agreementsto determine whether enough market support existed for the project.Moreover, it said Independence wasn’t required to provide evidenceabout the end-use markets to be served by the gas marketers thatsigned up for capacity on its system, or about the availability ofgas supply for its system.

“There is no requirement under the Commission’s current policythat [pipeline] shippers must be end-use consumers of natural gas.Shippers may be marketers, local distribution customers, producersor end-users. The fact that the majority or even all of thecapacity of a proposed pipeline is subscribed by marketers does notrender a project speculative,” the order noted. “Nor is theup-front designation of a predetermined gas supply necessarilydesirable in today’s competitive environment.”

Millennium Pipeline argued the “board of directors out” clausesin the precedent agreements undermined a clear showing of need forIndependence. But FERC noted it had approved pipeline projects inthe past whose precedent agreements included such clauses, andproceeded to do the same for Independence. It conceded, however,that its policy on what constitutes a “binding commitment” has notbeen “clearly articulated” with respect to these contract clauses.

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