September 18, 2008

US Court Overturns FERC OK of Cove Point LNG Expansion

By Snow, Nick

A federal district court on July 18 overturned the Federal Energy Regulatory Commission's approval of a proposed expansion of Dominion Resources' Cove Point LNG installation on the Chesapeake Bay in Cove Point, Md., just south of Baltimore. The US District Court of Appeals for the District of Columbia granted Washington Gas Light Co.'s petition for review despite finding that "substantial evidence supports FERC's conclusion that any threat of increased leakage is due to defects in WGL's system."

The court overturned the approval because it did not accept FERC's conclusion that the local distribution company, which serves Northern Virginia and Suburban Maryland as well as Washington, DC, can address safety concerns before the project's scheduled November in-service date. The commission did not support the conclusion with sufficient evidence, the court said.

WGL said in its petition that the project, which would significantly increase Cove Point's LNG output, would introduce more LNG into the utility's system. It said that for 2 years after it began receiving a limited amount of unblended LNG from Cove Point at WGL's facilities in Prince George's County, Md., leaks at the facilities increased 16-fold.

WGL also submitted a report to FERC finding the LNG's low- hydrocarbon content caused seals inside its pipe couplings to leak, the decision said. FERC concluded that the leaks occurred because WGL applied hot tar when it installed the pipes decades before.

"We do not dispute that WGL operated its system for decades after applying the hot tar and only experienced high leak rates after it began receiving LNG in PG County. But at the same time, the PG County facilities received LNG for months without experiencing significant leakage, and only suffered those leaks when the weather became cold," the decision said.

WGL said the coupling conditions that exist in PG County also exist in the other 86% of its system and that it would be a decade or longer to install replacements. While reinjecting he avy hydrocarbons into the LNG could stop some leaks, the efficacy of such measures was uncertain, it added.

FERC's finding that WGL had time to correct any remaining problems was not sufficient because it was based only on repairs in PG County and did not consider how the utility might repair the rest of the system once the expansion begins operations in a few more months, the court said.

Dominion is proceeding with the Cove Point expansion, a spokesman said on July 21. "In key respects, the court affirmed FERC's ruling and agreed with its decision, including finding that the leaks were results of defects in WGL's system, and Dominion should not have to pay repairs. We're confident that the expansion is safe and in the public interest. We also expect that FERC will act expeditiously so that the Cove Point expansion will proceed on schedule," he told OGJ.

Dominion Cove Point LNG LP's Cove Point LNG installation. Photo from Dominion.

Nick Snow

Washington Editor

Copyright PennWell Corporation Aug 18, 2008

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