Controversial

A very divided FERC last week dealt a potentially crippling blowto the controversial Independence Pipeline and associatedSupplyLink and MarketLink expansion projects, requiring them toshow documented proof of binding, long-term contracts for more thantwo-thirds of their project’s firm capacity before they can beginconstruction, as well as to satisfy more than 100 environmentalconditions. The Commission dismissed a major affiliate contract,casting doubt on the market support for the eastward-boundIndependence and SupplyLink projects.

A very divided FERC yesterday dealt a major blow to thecontroversial Independence Pipeline and associated SupplyLinkexpansion projects, requiring each to submit long-term firmcontracts for about 70% of capacity before they can beginconstruction, as well as to satisfy more than 100 environmentalconditions.

The controversial two-year period in which Dynegy Marketing andTrade held a huge chunk of El Paso’s firm capacity to the SouthernCalifornia border is coming to an end, but if western gas tradersare looking for a new market regime in the new millennium they maybe sorely disappointed. El Paso announced Friday that it has foundanother buyer willing to hold on to 1.2 Bcf/d of firm space to theCalifornia border.

The controversial two-year period in which Dynegy Marketing andTrade held a huge chunk of El Paso’s firm capacity to the SouthernCalifornia border is coming to an end, and western gas traders arelooking for a new market regime in the new millennium. Unless thepipeline manages to negotiate a deal for most if not all of thecapacity expiring at the end of 1999, traders are expecting theabundance of transportation space from Southwest basins to theborder to lower regional prices next year.

The proposed Independence Pipeline and MarketLink expansion -the two most controversial pipeline projects pending before FERC -have won final environmental clearance, which virtually cinchestheir approval at the Commission. Last March FERC assured sponsorsit would act on these two projects, as well as the proposedMillennium Pipeline, during its fall session. Both Independence andMarketLink are on the docket for FERC’s regular meeting next week.

Not only did FERC yesterday find that El Paso Natural Gas’controversial methods for allocating capacity at delivery points”may be unjust and unreasonable,” but it expanded the scope of thereview to include the pipeline’s allocation methods and poolingprocedures at all of its receipt points.

FERC last week clarified that the controversial “rate reductionmechanism” (RRM) in the capacity contract between Dynegy Marketingand Trade and El Paso Natural Gas is “not an unlawful practice orcontract” under the Natural Gas Act. Commissioner William Massey,however, issued a blistering attack not only against the RRM, butthe entire El Paso-Dynegy transaction.

The war of words over the controversial Southwest GasCorp.-Oneok Inc. union escalated last week. It began with ChairmanCarl J. Kunasek of the Arizona Corporation Commission (ACC) firingoff letters to the two merger partners asking them to agree to letSouthern Union (SU), the unsuccessful suitor for Southwest Gas,intervene in the ACC proceedings involving the proposed merger.Both Southwest Gas and Oneok not only objected to the chairman’srequest, but also challenged Southern Union to prove “once and forall” its allegations that ACC officials – at the request of Oneok -illegally influenced Southwest’s choice of merger partner.

Major gas producers have called for FERC to stay theeffectiveness of its controversial remand decision on Sea RobinPipeline pending rehearing, citing the “enormous impact” that itcould have on offshore production and transportation activities ifit’s implemented prior to being reviewed by the Commission.