Transcontinental Gas Pipe Line apparently could not stomach the rate implications of FERC’s recent order approving the $60 million Cross Bay Pipeline. The company, along with partners Duke and KeySpan, told the Commission the project is being canceled because of the rate changes proposed in the order and the lack of market interest.

Cross Bay would have provided 125,000 Dth/d of incremental firm gas transportation into the New York City marketplace using a portion of Transco?s pipeline system along with new compression.

The order by the Federal Energy Regulatory Commission “contains significant tariff and rate provisions that will carry long-term economic uncertainty for one member of Cross Bay, Transco in particular,” the pipeline said to the Commission. Transco’s parent company, Williams, and Duke Energy each have a 37.5% ownership stake in the limited liability company, while KeySpan, which came on as a third partner in August 1998, owns 25% of Cross Bay (see NGI, July 24, 2000). “Additionally, the market targeted by the Cross Bay project has not materialized in the time frame anticipated, resulting in additional economic risk for all members. The members are unable to accept the risks identified herein, and as a result, Cross Bay and Transco hereby formally notify the Commission that they will not proceed with the Cross Bay Project.”

FERC gave certificate authorization to Cross Bay Pipeline Co. LLC on Nov. 8 to assume ownership of a 37-mile portion of Transcontinental Gas Pipe Line’s Lower New York Bay Extension and add 16,000 hp of compression in Middlesex County, NY, in order to boost gas deliveries into New York City. Once completed, the compressor station and pipeline would form a new interstate pipeline system that would extend from Middlesex County across the lower New York Bay, all the way to Nassau County, NY. The pipeline’s capacity would be more than 614,628 Dth/d. Of that amount, Cross Bay would have 125,000 Dth/d of incremental firm capacity available for service to the expanding Long Island and New York City markets, while it would lease the remaining 489,628 Dth/d to Transco on a firm basis.

The Commission approved the Cross Bay project and leasing agreements even though none of the pipeline project’s proposed capacity had been subscribed yet. Cross Bay “is confident that there is a market for the 125,000 Dth/d…to be created by this project,” the order said [CP00-412]. But if that isn’t so, Cross Bay will be held fully at risk for the $11 million cost of service of the new facilities, it noted.

FERC, however, did express some concern about the financial manner in which Transco proposed to reflect the transfer of its Lower New York Bay facilities to Cross Bay. Transco proposed to reduce its gross plant-in-service by the net book value of the facilities at the time of the transfer to Cross Bay, but it sought to continue charging its existing rates, which would include the costs of the facilities, until it filed its next rate case, which FERC noted “will likely not be for several years.”

Although the Commission “normally allows pipeline facilities to be abandoned in between rate cases without requiring the pipeline to re-justify or re-state its base rate…we find that the particular circumstances of this proceeding require a different approach” in light of the fact that the facilities are being transferred to a jurisdictional affiliate of the abandoning pipeline, the order noted. “We are concerned that Transco and its newly-formed affiliate would be collecting for the same costs for an undetermined, but probably lengthy time period. We believe that this could be an unjust and unreasonable practice. Accordingly, we will direct Transco to show cause why the Commission should not find this to be an unjust and unreasonable practice under Section 5 of the [Natural Gas Act], and why the Commission should not order Transco to remove the costs associated with the Lower New York Bay facilities from its rates at the time of transfer rather than in its next rate case.” FERC also ordered a safeguard to protect existing Transco shippers from the potential effects of Transco’s $1.4 million leasing arrangement with Cross Bay.

These regulatory requirements along with a market that wasn’t growing as fast as expected apparently were too much for project planners. Since its inception three years ago, the Cross Bay project underwent some changes in size, cost and design. It originally was scheduled to go into operation in November 2000.

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