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Consultant to ANR Blasts Guardian

Consultant to ANR Blasts Guardian

ANR Pipeline brought in a big gun this week to mow down the opposition to its proposed Wisconsin expansion project. It hired former Wisconsin Public Service Commission Chairman Charles Cicchetti, now a consultant with the Pacific Economics Group and a business professor at the University of Southern California, to tout its project over others, particularly the competing Guardian Pipeline.

Cicchetti conducted a study of the projects that concluded Guardian would be costly and inefficient because it would be sponsored by regulated monopoly Wisconsin Gas. "An inefficient new pipeline can only be profitable if it has an affiliate that contracts for service and can pass on to its customers the extra cost," the Cicchetti report says. "A new high-cost pipeline that self-deals with a regulated affiliate can increase its profits so long as regulators allow the regulated monopolist affiliate to pass the excessive pipeline transportation costs through to its captive customers. Additionally, this self-dealing is masking the second problem related to unneeded capacity that the Guardian Pipeline would add."

Guardian is backed by WICOR, CMS Energy and Viking Gas. Wisconsin Gas, the state's largest LDC, has signed a long-term contract for 650 MMcf/d of capacity on Guardian. (See Daily GPI March 11, 1999).

Not surprisingly, Wisconsin Gas spokesman David Fantle took issue with the assertion his company was self-dealing in its involvement in Guardian. "The Public Service Commission of Wisconsin regulates Wisconsin Gas. The FERC regulates interstate pipeline projects, such as the proposed Guardian Pipeline. For them to continuously say it's self-dealing is to infer that the regulatory bodies that oversee these parties aren't doing their job, and we don't believe that's the case at all."

Guardian, expected to cost about $230 million, would add between 750 MMcf/d and 1.1 Bcf/d of firm capacity, depending on market need, to the southern Wisconsin and northern Illinois market in November 2002. It would transport gas from proposed interconnections with major pipelines at the Chicago hub near Joliet, IL, to northern Illinois and southeastern Wisconsin, serving new power generation and gas demand growth along the way. Guardian would require 24,000 hp of compression and 147 miles of 36-inch diameter pipe from Joliet to Watertown, WI. Wisconsin Gas plans to build a 35-mile service lateral to connect with Guardian at Watertown.

Cicchetti said he found the ANR expansion will cost less than Guardian. He took published accounts of the cost of the two projects and divided them by the volume of gas expected to be shipped and found ANR's expansion to be less expensive by half, Cicchetti said. The economist said two expansions of the ANR (American Natural Resources) system would cost about $61 million as compared to about $275 million for Guardian, which includes the cost of the Wisconsin Gas service lateral. "However, the deliverable capabilities of the American Natural Resources [expansion] would be just under 400,000 MMcf/d versus the 550,000 MMcf/d that the Guardian line would deliver to Milwaukee.

"Both the existing and proposed pipelines would source natural gas from the same market. All that is accomplished is that the same gas quantities are delivered from the same origin point to the same destination point by two pipelines rather than one pipeline," Cicchetti said.

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