STATE of NEW YORK PUBLIC SERVICE COMMISSION at a Session of the Public Service Commission Held in the City of Albany on June 21, 2002

STATE OF NEW YORK PUBLIC SERVICE COMMISSION At a session of the Public Service Commission held in the City of Albany on June 21, 2002

COMMISSIONER PRESENT: Maureen O. Helmer, Chairman

CASE 02-T-0521 - Application of Arthur Kill Power, LLC New Transmission Company for a Certificate of Environmental Compatibility and Public Need for the Construction of a Natural Gas Pipeline, Approximately 2.3 Miles of 20” pipeline to be located in the Borough of Staten Island, Richmond County.

ORDER GRANTING CERTIFICATE OF ENVIRONMENTAL COMPATIBILITY AND PUBLIC NEED

(Issued and Effective June 21, 2002)

INTRODUCTION On April 23, 2002, Arthur Kill Power, LLC (Arthur Kill or Company), a wholly-owned subsidiary of NRG Energy, Inc., filed an application to construct approximately 2.3 miles of 20-inch steel natural gas transmission line in the Borough of Staten Island, Richmond County. The application was filed pursuant to §121-a(3) of the Public Service Law (PSL) and 16 NYCRR §85-1.3. The Company states that the pipeline is needed to enhance gas supply to the Arthur Kill Power Plant, which currently receives delivery of its gas supply via KeySpan Energy Delivery New York (KeySpan). The Company claims that the pipeline will allow it to obtain firm service, more economic and suitable supply, and balancing and cash- out provisions that better suit the needs of the plant. Arthur Kill states that construction of the proposed pipeline would provide access to upstream capacity on Duke Energy Corporation’s (Duke Energy) system and the ability to avoid constraints on KeySpan’s transportation system. According to Arthur Kill, these constraints prevent it from obtaining from KeySpan the contractual CASE 02-T-0521 conditions for gas delivery that it needs. The improved access to gas supplies would permit greater utilization of the power plant and support any future expansion of generation at the Arthur Kill site. The Company may also use the proposed pipeline to interconnect through the Duke Energy system to Transcontinental Gas Pipe Line Corp. (Transco) and obtain access to additional capacity.

PROJECT DESCRIPTION The project will originate at Duke Energy’s existing 30- inch diameter main located approximately one mile south of the Goethals Bridge in an open field adjacent to a “tank farm.” After turning southeast, the line will cross 0.2 miles of open field while following the alignment of an adjacent Transco pipeline. At a point immediately north of the Staten Island Rapid Transit Railroad (Travis Spur), the Company will construct a sales and meter station. The meter station will consist of a prefabricated concrete building 12 feet wide, 52 feet long and 10 feet high. After exiting the meter station, the pipeline will cross under the Travis Spur and proceed approximately 1.7 miles in a southerly direction adjacent to either the east or west side of the railroad right-of-way (ROW). After crossing Neck Creek, the pipeline will proceed along the west side of the Travis Spur for another 0.3 miles before turning southwest across open lands for a distance of 0.1 miles. The project will then terminate at a proposed gas regulation and conditioning facility adjacent to the Arthur Kill Power Plant. The new gas regulation building will measure 12 feet in width, 60 feet in length and stand 10 feet high. Housing for the gas fired heaters will measure 12 feet wide by 50 feet long by 10 feet high. The project will be built on a 75-foot wide temporary construction ROW with a final permanent ROW of 30 feet. Temporary extra workspace of 150 feet by 300 feet is required at all entry and exit holes for directional drilling operations. Exit points will also require extra workspace for pipeline fabrication and pullback operations. All currently anticipated extra workspace is indicated in drawings and photographs attached to the application.

- 2 - CASE 02-T-0521 The Company’s application indicates that the pipeline is to be designed, constructed and tested to transport natural gas in accordance with 16 NYCRR Part 255 at a maximum allowable operating pressure of 860 psig. The pipeline will traverse and be designed for a Class 3 location. The pipeline will have cathodic protection designed to industry standards. The entire pipeline is to be installed with a minimum of 36 inches of cover over the pipe. This depth will be increased at all road and stream crossings to a minimum of 5 feet of cover. The Company plans to commence construction as soon as the project is certified and all other applicable state and local approvals are obtained.

ENVIRONMENTAL IMPACTS

Woodlands & Vegetation The vast majority of the project is adjacent to either road or utility ROW. Some clearing of brush may be required in the open fields crossed at either end of the proposed pipeline route. The New York State Department of Environmental Conservation (NYSDEC) was contacted and the New York State Registry of Big Trees was consulted. No unique old-growth forests, active sugarbushes, productive timber stands or trees listed in the Registry of Big Trees are located within the project area.

Agricultural Land Use Richmond County advised the Company that there are no agricultural districts in proximity to the project. Staff contacted the New York State Department of Agriculture and Markets; agency personnel stated that they are satisfied with Staff's review and believe that the project, as proposed, will have no impact on agricultural resources.

Streams As proposed, the pipeline crosses three perennial streams: Merrill’s Creek, Saw Mill Creek and Neck Creek. Arthur Kill contacted the NYSDEC concerning the classification of these

- 3 - CASE 02-T-0521 waterbodies. Saw Mill Creek and Neck Creek are both classified as “SD” (saline surface waters). Merrill’s Creek has no assigned classification. Because it flows into the Arthur Kill, classified as a “SD” waterbody, it is likely that Merrill’s Creek would have a similar “SD” classification. Because streams will be crossed by horizontal directional drill (HDD), minimal impacts are expected.

Wetlands Freshwater and tidal wetland data developed by NYSDEC and National Wetlands Inventory (NWI) maps prepared by the U.S. Fish and Wildlife Service (FWS) indicate that the project, as proposed, will cross approximately 7,440 feet of tidal marsh and wetlands. The Company will use HDD techniques to cross approximately 4,675 feet, or 63%, of this distance, thus reducing and/or eliminating impacts to these resources. The remainder will be crossed utilizing techniques contained in Environmental Management and Construction Standards and Practices (EM&CS&Ps) approved by the Commission in Case 70100. The combination of directional drilling with other mitigation techniques will reduce adverse impacts to these resources to the maximum extent practicable.

Floodplains, Springs and Wells Due to its proximity to the Arthur Kill and its numerous tributaries, almost the entire project is located within either a 100 or 500 year floodplain. Under provisions of federal law delegating floodplain protection to municipalities, Arthur Kill is required to apply to New York City or the Borough of Staten Island for a floodplain permit. Because the Company will use proper construction and restoration techniques and other similar facilities have been constructed in this area, the imposition of special provisions other than those contained in the EM&CS&Ps is not required. The Company consulted the Richmond County Department of Health Services and all affected landowners and determined that no springs or wells exist on or parallel to the project route. Potable water for the project area is obtained from the New York

- 4 - CASE 02-T-0521 City Municipal water supply. As proposed, the facility will have no impacts on groundwater resources in the area.

Rare or Endangered Species and Habitats The Company consulted with the National Marine Fisheries Service and the Federal Wildlife Service (FWS) and was informed that, except for occasional transients, no federally listed or proposed endangered or threatened species exist in the project area. The FWS did suggest contacting NYSDEC for a determination of the project’s potential impacts on the peregrine falcon. NYSDEC believes “it is unlikely that the peregrine falcon population would be affected by the proposed project.” Arthur Kill consulted with the NYSDEC New York Natural Heritage Program (NYNHP) in August 2000 and December 2001 regarding the presence of State-listed threatened or endangered species within the project area. A NYNHP database search identified ten State endangered or threatened species and one game species that may exist in the project area. These include: · Seven plants (five endangered and two threatened) · Two birds (State threatened) · One amphibian (State game species and species of special concern); and · One reptile (State endangered). Additional information from NYSDEC and NYNHP staff indicates that the proposed pipeline will not adversely affect the amphibian, reptile or seven plant species. The two State-listed bird species could potentially inhabit tidal wetlands adjacent to Pralls Creek. The Company plans to use horizontal directional drilling to cross this area to avoid direct impacts on these species. The Commission concurs with this plan.

Officially Designated Visual Resources The Company contacted the State Historic Preservation Office (SHPO), the New York State Department of Transportation (NYSDOT) and the New York City Landmarks Preservation Commission (LPC) regarding the presence of designated visual resources within the project area. Based upon their responses, Arthur Kill informs

- 5 - CASE 02-T-0521 us that no known scenic areas, views, vistas or overlooks exist within the project area or will be affected by its construction.

Cultural, Archaeological and Historic Resources Arthur Kill contracted with an archaeological service. The service completed a “Phase 1A” literature search and survey of the project area. A copy of the Phase 1A report was provided to the New York State Office of Parks, Recreation and Historic Preservation (OPRHP) and the New York City LPC for their review. A Phase 1B survey will be conducted in areas revealed in the 1A report “to have potentially significant cultural resources along the project route.” When completed, the report will be submitted to the DPS, OPRHP and the LPC for review and possible recommendations. Until this report is finished and the appropriate recommendations or determinations are made by the agencies mentioned above, Arthur Kill is precluded from beginning construction in the subject areas. Arthur Kill is also bound by recommendations that implement this certification. In the event that the Company finds that such recommendations are not consistent with the conditions in this Certificate, it may file a petition with us requesting resolution of the matter.

OTHER IMPACTS

Roads and Existing Underground Utilities Arthur Kill shall apply for all necessary road crossing permits and submit copies to Staff prior to the initiation of construction. All roadwork shall be in compliance with conditions contained in any road-crossing permit. The Company made a commitment to comply with the provisions of 16 NYCRR Part 753, Protection of Underground Facilities. Arthur Kill certified that it agreed to construct its proposed gas pipeline in accordance with the EM&CS&P and identified the site-specific measures and techniques to be employed in

- 6 - CASE 02-T-0521 connection with this project as required in PSL §121-a(1).

Remedial Action Plan at the Arthur Kill Power Plant The portion of the project that crosses the grounds of the Arthur Kill Power Plant is subject to provisions of any NYSDEC “Remedial Action Plan” (RAP), relating to remediation of in-ground pollutants. The Company is required to ensure that construction of the pipeline in this area is consistent with provisions of the RAP and properly coordinated with any ongoing activities at the power plant.

APPLICABLE STATE AND LOCAL LAWS

Federal and State Permits Arthur Kill stated it will apply to the U.S. Army Corps of Engineers (ACOE) for any necessary authorization under §10 of the Rivers and Harbor Act and §404 of the Clean Water Act, relating to construction of pipeline in coastal areas. Pursuant to §130 of the PSL, the Company asked that we incorporate the following permit requirements in the Certificate: Freshwater Wetlands Permit, Tidal Wetlands Permit, Protection of Waters Permit, State Pollutant Discharge Elimination System (SPDES), 401 Water Quality Certification and Part 201 Air Permit. In a letter dated June 19, 2002, NYSDEC stated that, after a review of the application and subsequent discussions with the Company and DPS Staff, that Arthur Kill need not seek a SPDES Permit, a Protection of Waters Permit and a Part 201 Air Permit. In light of the Company’s intention to discharge all hydrostatic test water into the New York City Municipal wasterwater system, no SPDES permit is necessary. Arthur Kill’s plans to directionally drill all affected resources obviates the need for a Protection of Waters Permit. An analysis of Environmental Conservation Law (ECL) Article 19, relating to Part 201 Air Permits, indicates to NYSDEC’s satisfaction that the law does not apply to the proposed pipeline.

- 7 - CASE 02-T-0521 The Certificate, modified by NYSDEC comments and recommendations, shall include Freshwater and Tidal Wetland Permits, required by ECL Articles 24 and 25. Regarding the §401 water quality certification, NYSDEC concurs with its issuance. We authorize issuance of the Certificates as part of this Order and direct our designee, the Director of the Office of Electricity and Environment, to provide the §401 Water Quality Certificate to Arthur Kill for the proposed pipeline.

Local Laws and Permits The Company determined that provisions of the following local laws apply to portions of the project: New York City Zoning Resolution, New York City Charter, New York City Administrative Code, and New York City Rules and Regulations. The Company did not request that the Commission refuse to apply any local laws and regulations as unreasonably restrictive. The Company identified eight separate provisions of the Zoning Resolution that it believes apply to its project. These primarily relate to construction and location of the metering station. Arthur Kill indicated that its metering station will comply with all applicable provisions of the New York City Zoning Resolution. Arthur Kill indicated that five provisions of the New York City Charter are applicable to its project. These provisions apply to Revocable Consents relating to property rights and the powers of various City Commissioners with respect to real property rights. In each instance, Arthur Kill states that its project will comply with all substantive requirements of each section of the Charter. Arthur Kill believes that five sections of the New York City Administrative Code apply to the project. They primarily relate to issuance of permits for construction, pavement removal and in-street excavation, pipe laying and handling, and storage and use of all compressed gases. The Company stated that it will comply with all substantive requirements in these codes.

- 8 - CASE 02-T-0521 Section 24-404 of the Administrative Code states that it is unlawful for any person to “take up pavement or any street, or to excavate for the purpose of laying any gas distribution lines, without written permission from the Commissioner of the Department of Transportation” (NYCDOT). Arthur Kill states that it will comply with substantive NYDOT requirements. It requests that the Certificate incorporate the procedural requirements for obtaining the permit. Arthur Kill is directed to comply with such procedural requirements. In the event it is unable to do so, it may petition us for relief. Arthur Kill identified six Titles and eight subsections of the New York City Rules and Regulations that it says apply to aspects of this project’s construction. These Rules and Regulations establish a wide variety of requirements, including electrical codes, sprinkler system requirements, spill prevention, community liaison requirements and revocable consents. The Company states that it will comply with the applicable portions of these Rules and Regulations.

COMMENTS Written comments were received from the NYSDEC, KeySpan and Visy Paper (NY), Inc. (Visy Paper). In a letter dated June 4, 2002, KeySpan stated that “there is no need for the proposed facility, the proposed facility does not represent the minimum adverse environmental impact, and the public interest, convenience and necessity will not be served by the proposed facility.” KeySpan contends that Arthur Kill is its gas transportation customer and that, informed of the Company’s intent to bypass its gas distribution system, “commenced good faith negotiations with Arthur Kill to prevent the bypass.” KeySpan states that the parties are in active negotiations and it presented Arthur Kill “with a gas transportation package that is viable, secure, and [an] economic alternative to a pipeline bypass.” KeySpan argues that if Arthur Kill accepts KeySpan’s offer, the project, as proposed, would not need to be built and that the project is unnecessary.

- 9 - CASE 02-T-0521 Comments from NYSDEC are included in our review of the proposed pipeline’s impact on aquatic and other resources. Visy Paper expressed an interest in the project because it may require additional gas supply for its cogeneration facility adjacent to the Arthur Kill site.

DISCUSSION Arthur Kill proposes construction of a pipeline to obtain alternative gas delivery service because, it claims, KeySpan is not able to offer service, with the conditions that it requires for operation of its generating facility. These conditions include a reasonable rate, quality of service (firm, interruptible), minimum bill charges, balancing provisions and cash-out terms. KeySpan questions the need for the proposed gas pipeline because it claims that it offered Arthur Kill a viable, secure and economic alternative to constructing its own pipeline. We note that our bypass policy1 requires arms-length negotiation between KeySpan and Arthur Kill, the outcome of which would determine whether KeySpan’s offer meets Arthur Kill’s needs. The lack of a negotiated agreement suggests that, thus far, KeySpan’s offer does not meet Arthur Kill’s needs. We have no reason to believe that Arthur Kill is not negotiating in good faith, consistent with our policy. Construction of the proposed pipeline may provide additional opportunities for competition in the gas transportation market. The pipeline may also permit Arthur Kill to obtain the most reasonable prices and terms for the gas required to supply its generation facility, thus making possible lower prices for electricity. These lower prices may improve its position in the competitive wholesale electric generation market and result in lower average electric prices. The basis of a need determination for a proposed gas pipeline includes the public interest in advancing the competitive electric market to bring

1 Case 90-G-0379 – Proceeding of Policy Regarding Bypass of Local Distribution Companies by Large Volume Users (Bypass Policy) (issued March 6, 1991).

- 10 - CASE 02-T-0521 lower electric prices to ratepayers. In the Empire case2, we determined that, in competitive gas and electric markets, competition may justify a finding of need. In the event that KeySpan and Arthur Kill agree to a gas transportation contract, construction of the proposed pipeline should not proceed and the Certificate would be vacated. The Certificate shall include a condition allowing Arthur Kill to commence construction within one year from the date of its issuance. Contaminated areas on the Arthur Kill Power Plant may be the subject of a RAP, which NYSDEC has not finalized and adopted. If construction at the Arthur Kill site impacts any part of the contaminated areas, Arthur Kill shall comply with the requirements of the RAP adopted by NYSDEC.

CONCLUSION Pursuant to PSL §121-a(7), the Commission finds and determines that: (1) the pipeline is needed to provide transportation of gas to an electric generation facility; (2) as described in this Order, the nature of the probable environmental impact resulting from construction and operation of the pipeline is minimal; (3) the pipeline will not pose an undue hazard to persons or property located along the area traversed by the line, as described herein; (4) the location of the facility, as proposed, conforms to applicable state and local laws and regulations; and (5) the facility will serve the public interest, convenience and necessity, for reasons provided herein.

It is ordered: 1. Arthur Kill Power, LLC (Company) is granted a Certificate of Environmental Compatibility and Public Need, pursuant to Public Service Law §§ 121-a(5)and 121-a(7), to construct the fuel gas transmission line described in its

2 Case 88-T-132, Empire State Pipeline – Certificate of Environmental Compatibility and Public Need, Opinion 91-3 (issued March 1, 1981). - 11 - CASE 02-T-0521 application filed April 23, 2002, and in this Order, subject to the following conditions: (a) the Company shall apply the Commission-approved measures and techniques for environmental management and construction of this project contained in EM&CS&Ps approved in Case 70100 and contained in Appendix B of the application; (b) the Company shall report to Department of Public Service (DPS) Staff any proposed changes to the approved project, including proposed changes to the approved measures and techniques to be applied to the environmental management and construction of this project. Staff shall refer to the Director of Office of Electricity and Environment (OEE) for review, consistent with the terms of this Order, those proposed changes that will not cause substantial adverse environmental impact and shall refer all other proposed changes to the Commission; the Company may not execute the proposed changes until it receives oral or written notification from the Secretary to the Commission or the Director of OEE; (c) the Company shall not commence construction of the project in or adjacent to any aquatic resources until all wetlands along the route of this facility are delineated according to federal and Department of Environmental Conservation (NYSDEC) requirements and the resulting maps and any recommendations for changes, including changes in routing and construction method, are submitted to the DPS and NYSDEC for review and to the Commission for approval, if necessary; (d) the Company shall not commence construction of the project in areas covered by Phase 1B surveys and any by necessary Phase 2 surveys, until archaeological reports are completed and until the DPS and other

- 12 - CASE 02-T-0521 appropriate state and local agencies review relevant documents and make their recommendations. The recommendations are binding, unless the Commission, upon petition of the Company, reaches another determination; (e) the Company shall comply with requirements of any Remedial Action Plan adopted by the NYSDEC applicable to construction on the Arthur Kill Power Plant site and coordinate construction activities relating to the project with activities and operations at the power plant site; (f) the Company shall notify the Secretary prior to construction that all applicable state and local permits sought by the Company are issued and received; (g) the Company shall designate a full-time supervisor with stop-work authority over all aspects of this project; the supervisor shall be on-site during all phases of construction and restoration of the certified project; (h) the Company shall provide copies of the final design drawings at least 30 days prior to commencement of construction to Staff, NYSDEC (Region 1) and any pertinent New York City agencies; (i) the Company shall provide construction contractors with complete copies of the Certificate, the EM&CS&Ps, updated construction drawings and any site-specific plans; (j) any fines, penalties or environmental damage resulting from actions performed by contractor personnel working on this project, from work directly or indirectly associated with this project, shall be the responsibility of the contractor. The Commission may also seek appropriate penalties from the Company as a result of its contractor’s actions;

- 13 - CASE 02-T-0521 (k) the Company shall notify Staff of the proposed commencement date at least ten days prior to the start of construction; (l) prior to the commencement of construction, the Company shall notify the property owners located along the ROW of the estimated starting and ending dates of the construction of the pipeline, the name and telephone number of a Company representative who can provide information in response to any potential property owner inquiries, and the name and telephone number of a DPS contact person who can provide information in response to property owner inquiries; (m) the Company shall submit a long-range ROW management plan for the certified facility in accordance with Section VII of the EM&CS&Ps within one year of completing construction of the facility. This management plan shall take into consideration any management plans that apply to the adjacent railroad ROW; (n) the Company shall, upon completion of the project, conduct an assessment of needs for remedial vegetation plantings. The assessment and any proposals for the addition of new plantings or rearrangements of existing plantings and specifications for plantings shall be submitted to Staff for review and acceptance by the Director of OEE and the Commission no later than six months after the facility is in service; (o) at least one week prior to the start of construction, the Company shall meet with the DPS and NYSDEC staff on-site to review the project. The Company shall complete all flagging and staking prior to the meeting. The Company’s full-time supervisor having stop-work authority and its environmental inspector shall attend the meeting;

- 14 - CASE 02-T-0521 (p) the Company shall confine clearing to the minimum extent necessary for construction, operation and maintenance of the certified facility. During clearing operations, all brush and trees will be felled into the right-of-way to minimize damage to trees and structures on adjacent land; (q) the Company shall exercise all necessary and reasonable precautions to minimize sedimentation and soil erosion in work areas and on the right-of-way. Further, the Company shall take prompt and effective action to control excessive sedimentation and erosion, in the event it does occur; (r) in areas of the right-of-way subject to soil erosion, including stream approaches, the Company shall install temporary erosion control devices as soon as practicable, but in no event later than the end of the work day in which the disturbance occurs; (s) the Company shall mulch and seed the unpaved portions of the right-of-way no more than five days after final grading; (t) the Company shall discharge any hydrostatic test water into a municipal wastewater system, unless plans are submitted and approved to do otherwise; (u) the certified work shall be subject to inspection by authorized representatives of the DPS; (v) within ten days after the right-of-way is completely restored, the Company shall so notify the Commission in writing; (w) The Company shall comply with all applicable provisions of Title 16 NYCRR §255 – Transmission and Distribution of Gas and 16 NYCRR §753 – Protection of Underground Facilities; (x) during normal operation, the maximum pressure of the pipeline shall not exceed the pressure as determined and established by Title 16 NYCRR §255.619;

- 15 - CASE 02-T-0521 (y) as discussed in the body of this Order, the Company shall comply with all applicable provisions of the New York City Zoning Resolutions, the New York City Charter, Administrative Code, and New York City Rules and Regulations; (z) the Company shall promptly notify the Commission in writing should it decide not to complete construction of all or any portion of this project, and serve a copy of such notice upon all parties; and (aa) if construction of the project hereby certified is not commenced within 12 months, or Arthur Kill Power, LLC enters into a contract with and obtains its gas supply from KeySpan Energy Delivery New York, this Certificate is vacated without further notice. (bb) within 30 days after the issuance of this Order, the Company shall file with the Secretary either a statement accepting this Certificate and agreeing to comply with all of its conditions or a Petition for Rehearing. 2. This proceeding is continued.

(SIGNED) ______Commissioner

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