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NY denial 'potentially fatal' for Constitution gas line, analyst says

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NY denial 'potentially fatal' for Constitution gas line, analyst says

NewYork's refusal to issue a key water permit for Constitution Pipeline Co. LLCcould signal the end for the proposed interstate natural gas pipeline,according to an energy analyst who follows such projects.

"Fromour perspective, Constitution is significant because it's such a rare thing fora pipeline to be denied a water quality certification," Rob Rains, ananalyst with the policy and financial research firm Washington Analysis LLC,said in a recent interview. "This is potentially fatal for the project."

Rainsobserved that the Constitution developers can appeal the decision, as they haveindicated they will, but "that is probably a fruitless effort." Evenif the developers are successful, the federal appeals court would likely sendthe case back for a second determination by the New York State Department ofEnvironmental Conservation, and Rains said he does not see the agency changingits finding. He noted that in the April22 decision denying a Clean Water Act Section 401 certificate forthe 124-mile pipeline project, the agency did not appear to want to helpConstitution strengthen its application.

"IslanderEast went through this exercise a decade ago, and it never got built,"Rains said, referring to a joint venture of KeySpan Corp. and Spectra Energy Corp that had its water certificatedenied by Connecticut and found no relief despite intervention by the U.S.Court of Appeals for the 2nd Circuit.

Areport by ClearView Energy Partners LLC called the New York decision asubstantial hurdle for the Constitution project. Getting across it could takemore than a year, the report said.

Rainswas aware that some industry observers see the New York decision as atest of FERCauthority that the courts will eventually hand to the commission, but hisforecast for this project did not change.

Still,Rains said a halt in the Constitution project would not be devastating to thedevelopers, as they prepared for problems with New York and can write down thecosts of development and permitting. The backers of the estimated $683 millionpipeline are Williams PartnersLP, Cabot Oil &Gas Corp., PiedmontNatural Gas Co. Inc. and WGL Holdings Inc.

"Themore important project is Atlantic Sunrise," Rains said. "It's a biggerproject for Williams, Cabot and [Southwestern Energy Co.]"

AFERC spokeswoman said the commission is neither commenting on New York's actionnor speculating on what the commission might do.

Ripples from NY decision

Rainssaid the New York decision on the Constitution pipeline could be a cautionarytale for other developers of pipelines in the Northeast.

"Obviouslyfor Northeastern projects, it becomes much dicier terrain," Rains said."You have to start thinking realistically about expansions of existingpipes, like Millennium or others like that."

Rainssaid the PennEastpipeline and other projects will face significant opposition."There has been some cross-pollination with , which is theorganization that was leveraging Pace University Law School to push backagainst the water quality certification [for Constitution]," Rains said.

Itis not just the pipeline companies that will have to be careful, Rains added.Shutting down pipeline expansions into the Northeast poses risks to NewEngland, a region at the end of the U.S. pipeline grid that increasingly usesgas for heating and power generation as nuclear and coal-fired power plants fade away, and NewYork itself.

"NewYork's decision to set a higher bar to clear for new gas infrastructure is notonly a challenge for New England energy consumers but also likely a challengefor the Empire State, particularly as it relates to some of their morevulnerable nuclear generation, which is being replaced by natural gas,"Rains said. "It also doesn't necessarily jibe with their efforts to createa retail side, what they call mini-RTOs or ISOs, through their []docket."