The fallout from FERC’s unpopular decision on theSupplyLink-Independence-MarketLink gas pipeline projects continuedthroughout most of last week, first with New Jersey pledging totake the Commission to court over MarketLink and then with the mostpowerful energy lawmaker on Capitol Hill publicly accusing theCommissioners of trying to undermine the construction of theproposed $678 million Independence Pipeline to the Northeast.
New Jersey’s attorney general (AG), acting on the directions ofGov. Christine Whitman, vowed on Wednesday to seek a court appealof FERC’s rehearing order conditionally awarding a certificate forTranscontinental Gas Pipe Line to proceed with the construction ofits MarketLink expansion through the northern part of the state.The state has up to 60 days to petition the U.S. Court of Appealsfor the D.C. Circuit to review the FERC order.
In rejecting New Jersey’s petition for rehearing at FERC lastweek, the Commission “overlooked the impact such construction wouldhave on the residents and the environment,” said AG John J. FarmerJr. in a prepared statement. The Garden State intends to argue thatFERC failed to properly address the safety of the proposedexpansion, protect New Jersey’s environment and to properlyconsider a proposed alternative to the expansion.
The MarketLink project, which would expand the capacity ofTransco’s existing 154-mile system in Pennsylvania and northern NewJersey by 700 MMcf/d, has been hotly contested by landowners inboth states and by New Jersey lawmakers (see NGI Dec. 20, 1999)
Rep. Williams J. Pascrell Jr., through whose district MarketLinkwould run, also may seek an appeal or stay of the MarketLinkdecision in either the D.C. Circuit or the Third Circuit Court ofAppeals in New Jersey, said Joe Waks, press aide and legal counsel.Or, he may join New Jersey’s planned legal action, he noted.
“By no means is this a done deal,” Waks said. “They [Transco]need firm iron-clad, no-back-out contracts, which they haven’tgotten so far. They’re a long way from putting the shovels in theground.”
FERC approved the MarketLink expansion in December, but withheldits certificate until it could produce evidence of further marketsupport for the project. The Commission acknowledged last week thatTransco, a Williams pipeline, had adequately demonstrated marketneed.
Nevertheless, FERC conditioned MarketLink’s expansioncertificate on Transco first submitting executed contracts for 100%of the project’s capacity, ridding its project contracts ofmarket-out clauses and showing that its contracts will not be basedon the availability of upstream transportation on the proposedIndependence line [CP97-315-003]. Cuba Wadlington, president andCEO of Williams Gas Pipeline, said Transco “absolutely” would beable to satisfy the contract restrictions. He expects MarketLink tobe up and running by 2001.
But Rep. Pascrell has his doubts. “I am still not convinced thatthey [Transco] can meet this heavy burden,” he said. In addition tothe contract requirements, he pointed out the FERC order alsomaintained the “stringent” environmental standards, and requiresTransco to put up a $1 million bond for any environmental damagesand hire an ombudsman and environmental monitors to addresscomplaints by affected residents.
While New Jersey and Pascrell want to stop a project, ChairmanFrank Murkowski (R-AK) of the Senate Energy and Natural ResourcesCommittee read the riot act to the Commissioners for not lookingfavorably upon the proposed greenfield Independence line and theassociated SupplyLink expansion. FERC was in ano-win situationlast week.
He took the Commissioners to task for issuing an unprecedentedultimatum to the sponsors of the two projects — to either producelong-term, non-affiliate contracts for 35% of the 1 Bcf/d capacityof the projects within 60 days or face dismissal of the projects.Many believe the decision, which was supported by the FERC majority(Commissioner Curt Hebert Jr. dissented), is a kiss of death forthe associated gas pipeline projects.
“He was pretty rough” on the FERC Commissioners, who came to aSenate hearing last Thursday expecting to answer questions onelectricity restructuring, a committee spokeswoman said. Murkowskidemanded an explanation from each as to “why you are not doingeverything you can to get this pipeline built as fast and ascheaply as possible” to alleviate the Northeast’s dependence onhigh-priced oil. It also would help lower the cost of electricitywhich Murkowski sees as doubling this summer if oil prices remainbetween $22 and $28 a barrel. “The Commission’s actions in theIndependence pipeline case seem to indicate that you really don’twant this pipeline built.”
In imposing the deadline, FERC said sponsors had ignored itsrequest four months ago for further proof of market support. “Byproviding the project sponsors with a drop-dead date 60 days hence,the Commission intends to send an unmistakable signal that we wantto see a demonstration of market support” for Independence andSupplyLink, said Commissioner William Massey. SupplyLink issponsored by ANR Pipeline, while the financial backers forIndependence are ANR, Transco and National Fuel Gas Supply. Bothprojects have been pending at FERC for three years. Wadlington saidTransco continues to be “very much behind” the Independenceproject.
Likewise, the Commission hasn’t given up on the Independence andSupplyLink projects yet, Massey noted. “I must point out thatdespite the myth to the contrary we have never said ‘no’ to theseprojects, and we’re not rejecting them today.” And while MarketLinkachieved a triumph last week, it is by no means out of the woods.If New Jersey and Rep. Pascrell have their way, it could be tied upin the courts for awhile.
MarketLink initially was conceived as the last link to a622-mile pipeline chain that was to transport up to 1 Bcf/d ofCanadian gas from the Chicago market to the East Coast. Based on arelay-race concept, the gas was to be shipped from Joliet, IL, toDefiance, OH, over an expanded ANR system (SupplyLink project),picked up at Defiance by the proposed 400-mile Independence lineand delivered to the Leidy Hub in Pennsylvania, where it then wasto be shipped to East Coast markets over an expanded Transco system(MarketLink). But MarketLink now says it’s not dependent on theupstream portions of the project (SupplyLink and Independence) forits survival. Rather, it can receive Canadian and Gulf Coast gassupplies from existing pipelines that tie into the Leidy Hub inPennsylvania.
On rehearing, the Commission last week upheld the bulk of itsDecember interim order in which its approved SupplyLink,Independence and MarketLink, but withheld their certificates untilfurther market support could be shown for their respectiveprojects. In the interim order, it had rejected as questionable acontract with a brand new affiliate for 55% of the Independencecapacity, which cast serious doubt on the market demand for bothIndependence and SupplyLink.
This order “does not register a generic distaste for affiliatecontracts. [Nor does it] set down a policy of going behindcontracts” to assess the adequacy of market demand for a pipelineproject, said Chairman James Hoecker. “It’s our job to distinguishbetween sound applications and questionable applications. And [all]we ask in these cases is if the market exists, ‘show us.'”
Hoecker believes FERC’s decision to certificate the MarketLinkproject “is ample indication that this Commission is not about tostifle the legitimate growth in the natural gas markets in theNortheast or anywhere else. So, I’d just say in both of these casesthe sky is not falling.”
Hebert denounced the rehearing order, accusing the FERC majorityof trying to “strangle vitally needed pipeline expansion in theNortheast. When and if there are rolling brownouts and blackouts[of electric power], I hope this agency will take its share of theblame for not fostering adequate [pipeline] infrastructure…..”
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