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ANR's Scaled-Back WI Expansion Gets FERC Nod

ANR's Scaled-Back WI Expansion Gets FERC Nod

The Federal Energy Regulatory Commission last week awarded ANR Pipeline a certificate to build a scaled-back expansion of its mainline system between the Joliet, IL, hub and the market areas in southwestern Wisconsin.

The Coastal Corp. pipeline initially had proposed adding 194 MDth/d of expansion capacity in one shot, but decided to downsize it when the Commission placed the certificate for its SupplyLink expansion project on hold, one shipper dropped out of the project and another chose to defer service for a year.

The certificate awarded last Wednesday allows ANR to expand its system by 109 MDth/d by adding two 10,000 horsepower compressor units at its Woodstock Compressor Station in Illinois. This will enable ANR to meet its additional contractual obligations of 59 MDth/d beginning on Nov. 1, as well as to meet the shipper agreement for deferred service and the projected near-term demand growth in Wisconsin, according to the pipeline.

FERC has agreed to defer action on the second half of the expansion (85 MDth/d), which would include looping and more compression, until after it votes on ANR's SupplyLink project. ANR said the looping in this phase of the expansion would be an extension of its SupplyLink project.

In addition to citing the Commission's inaction on SupplyLink, ANR said there no longer was an immediate need for the entire 194 MDth/d. One shipper canceled its precedent agreement for 10 MDth/d, while another said it wouldn't need its 25 MDth/d until November 2001 --- a year later than originally expected. This has left ANR with only three shippers who have contracted for only 59 MDth/d of the expansion capacity for service to start in November 2000.

"ANR's proposal.....demonstrates that the expansion facilities are necessary to meet the increased demand in growing northern Illinois and Wisconsin natural gas markets," the FERC order said [CP99-241]. "My fellow cheese-heads in Wisconsin need those additional gas supplies," said Chairman James Hoecker, who hails from that state.

The Commission tried to allay some of the concerns of Indicated Shippers and Wisconsin LDCs, which feared ANR's project costs would be shifted to existing customers. "Because our certificate policy precludes subsidization of projects, ANR will effectively bear the risk of cost under-recovery for these facilities under its rate proposal, not ANR's existing customers," the order noted.

If ANR should seek to roll in the costs of the expansion in a future rate case, the Commission cautioned that there would have to be a "significant change in the relevant facts and circumstances demonstrating that actual revenues exceed the costs, so that ANR's existing customers will not subsidize the expansion project."

ANR projects it will have a three-year incremental cost of service for the expansion facilities of approximately $11.6 million. If the expansion facilities were operating at a 100% load factor at a rate of 10 cents/Dth, ANR would receive about $12.8 million in incremental revenues during the three-year period. But this won't be the case, according to the order. At least initially, the expansion likely will operate at only a 54-77% load factor based on ANR's commitments. This means it will receive an estimated revenue of $8.9 million, which is a three-year deficit of about $2.7 million.

Susan Parker

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