The future of Transcontinental Gas Pipe Line’s MarketLinkexpansion got a lot brighter yesterday when FERC issued acertificate for the Northeast-bound project after severing it fromthe distressed Independence Pipeline and SupplyLink expansion. Theoutlook for the associated Independence and SupplyLink pipelineprojects, on the other hand, turned decidedly bleaker as both wereplaced on Death Row.

By a 3-1 vote, with Commissioner Curt Hebert Jr. dissenting,FERC approved the certificate for theMarketLink expansion, butconditioned it on Transco first submitting executed contracts for100% of the expansion 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.

At the same time, FERC ordered the sponsors of SupplyLink, anexpansion of ANR Pipeline’s system, and the Independence Pipelineto file the “required” market showing for their projects within 60days or face dismissal of their applications, which have beenpending at the Commission since 1997. FERC imposed the deadlineafter the project sponsors failed to provide evidence of furthermarket support that was requested four months ago.

Transco, as well as the other project sponsors, declined tocomment yesterday, saying they still were reviewing the nearly70-page rehearing order. Independence sponsors include ANR, Transcoand National Fuel Gas Supply.

“By providing the project sponsors with a drop-dead date 60 dayshence, the Commission intends to send an unmistakable signal thatwe want to see a demonstration of market support,” saidCommissioner William Massey.

The rehearing order requires ANR’s SupplyLink and Independenceto produce long-term contracts with non-affiliates for at least 35%of the firm capacity of each project in order to receivecertification. Any affiliates under contract must have been”actively engaged” in business prior to March 31, 1997, the datethe Independence and SupplyLink projects were filed at theCommission. The requirement before project construction can beginis a bit stiffer — ANR’s SupplyLink must provide bindingcontracts for 71% of its project capacity, and Independence mustshow binding contracts for 68% of its capacity.

Although it has imposed a deadline, Massey said the Commissionhasn’t given up on the Independence and SupplyLink projects. “Imust point out that despite the myth to the contrary, we have neversaid ‘no’ to these projects, and we’re not rejecting them today.”

While the hotly contested MarketLink project scaled a majorhurdle at FERC, the project still faces considerable oppositionfrom landowners in Pennsylvania and northern New Jersey — wherethe MarketLink expansion of Transco’s existing system would occur— and from the New Jersey delegation on Capitol Hill and stateGov. Christine Todd Whitman. Whitman has vowed to go to court toblock the construction of the 700 MMcf/d expansion in the GardenState.

MarketLink initially was conceived as the last link to a622-mile pipeline chain (includes SupplyLink and Independence) thatwas to transport up to 1 Bcf/d of Canadian gas from the Chicagomarket to the East Coast. But MarketLink now says it’s notdependent on the upstream portion of the project for its survival.Rather, it can receive Canadian and Gulf Coast gas supplies fromexisting pipelines that tie into the Leidy Hub in Pennsylvania.

In Tuesday’s order, the Commission on rehearing upheld themajority of its findings in the December interim order in which itapproved the SupplyLink, Independence and MarketLink projects, butwithheld their certificates until they could provide evidence ofmore market support. The biggest change on rehearing was FERC’sdecision to sever MarketLink, which has precedent agreements fornearly all of its proposed capacity, from the other two, whosesupport primarily comes from affiliates.

The Commission began to question the market support for theproposed Independence line when affiliates of Independence’ssponsors created a new marketing affiliate, DirectLink GasMarketing, for the express purpose of aquiring 55% ofIndependence’s proposed capacity. The DirectLink affiliate wasformed shortly after FERC staff threatened to dismiss theIndependence application for lack of market demand. Because of thecircumstances, FERC in the interim order rejected the DirectLinkcontract, which threw the Independence and the associatedSupplyLink projects into a tailspin. It upheld this ruling onrehearing Tuesday.

This order “does not register a generic distaste for affiliatecontracts. [Nor does it] set down a policy of going behindcontracts” to determine whether adequate market demand exists for apipeline project, said Chairman James Hoecker. Although he conceded”we’ve had to do some unusual things” with these cases, he said”it’s our job to distinguish between sound applications andquestionable applications. And [all] we ask in these cases is ifthe 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 was far from happy with the rehearing order, accusing theCommission majority of trying to “strangle vitally needed pipelineexpansion in the Northeast.”

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