KeySpan Corp., through its KeySpan Energy Development Corp. unit, last week picked up a 21% equity interest in the stalled Millennium Pipeline project, which hopes to deliver new natural gas supplies to New York and the Northeast by the winter of 2006-2007.

KeySpan acquired the interest in the proposed pipeline from Westcoast Energy, a company that Duke Energy purchased in 2002. Other partners in the Millennium project include DTE Energy and NiSource’s Columbia Gas Transmission. TransCanada PipeLines exited as a partner earlier this year.

Millennium proposes to build the pipeline in two phases. Phase one would transport up to 500,000 Dth/d of gas 186 miles from Corning to Ramapo, NY, and would run along an existing right-of-way and replace and upgrade a Columbia Gas Transmission pipeline. In Ramapo, Millennium would connect with the existing Algonquin Gas Transmission pipeline, which delivers gas to Northeast markets. Upstream supply would come from several sources, including a 250,000 Dth/d expansion of National Fuel Gas’ Empire State Pipeline system that includes an 83-mile extension from Rochester, NY, to Corning.

The second phase of the project would extend the proposed Millennium line from Ramapo to New York City, and would include the controversial Hudson River crossing.

“We are actively pursuing both Phase I and II” of the project, said Columbia spokesman Karl Brack. He noted Millennium plans to file an amendment to its certificate to build the project in two phases with FERC in early 2005. With FERC’s approval, construction could begin as early as the third quarter of 2005, KeySpan said in a press statement.

By phasing the construction, Millennium officials are trying to ease the concerns of New York regulators who are holding up the project due to the potential environmental impact of the pipeline’s Hudson River crossing, which would go through the sensitive Haverstraw Bay area. In taking this action, New York regulators exercised their authority under the Coastal Zone Management Act (CZMA).

The Commerce Department in December 2003 rejected Millennium’s appeal of New York’s CZMA decision. The pipeline appealed the ruling to the U.S. District Court for the District of Columbia last February, and still is awaiting a decision.

Despite the court battle, KeySpan is optimistic that the project will be built. “Millennium will strengthen our position in the Northeast gas transportation market and provide KeySpan with new, competitively priced supplies of clean natural gas from Canada,” said KeySpan CEO Robert B. Catell. “In addition, it will increase access to gas storage of the Great Lakes region as well as allow us to access supplies from the Mid-Continent and Rocky Mountain basins, which will add substantial flexibility in our supply and should help to mitigate the overall price volatility of our gas costs.”

KeySpan’s Energy Delivery unit has agreed to purchase up to 150,000 Dth/d of gas transportation capacity on the Millennium system, representing about 12.5% of New York City’s peak-day requirements.

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