The northern Illinois and southeastern Wisconsin transportationmarkets, which have long been dominated by ANR Pipeline, moved onestep closer to obtaining pipeline-on-pipeline competition last weekwhen FERC awarded the proposed Guardian Pipeline LLC a favorablepreliminary determination on non-environmental issues.

The decision was a major win for the proposed greenfieldpipeline because not only did it shoot down most of the argumentspresented by ANR to thwart the project, but it found that eventhough the project would “adversely affect” landowner interests,Guardian was making “reasonable efforts” to mitigate the impact onlandowners.

Moreover, FERC ruled that while the $224 million pipeline wouldcompete head-to-head with ANR, it would not have a negative effecton the Coastal pipeline and its customers. If anything, theopposite will be true, the Commission said. Guardian will give ANR,as well as Northern Natural Gas, the “incentive to discipline coststo maintain their customers and, for the first time, price theirservices based on competition,” the order noted [CP00-36].

Further, it pointed out that Guardian’s proposed 140-milepipeline system will represent less than one percent of ANR’sentire system of 10,580 miles, and will occupy less than 25% of thepipeline market now dominated by ANR in Wisconsin.

The Commission also found that sufficient need was establishedfor the 36-inch pipeline that would transport 750,000 Dth/d of gasfrom the Chicago Hub to markets in northern Illinois and southernWisconsin. It would terminate near Ixonia, WI, where it wouldinterconnect with Wisconsin Gas Co.’s distribution system. At theChicago Hub, the pipeline proposes to interconnect to AlliancePipeline, Northern Border Pipeline, Midwestern Gas Pipeline andNatural Gas Pipeline Co. of America.

Guardian has executed 10-year precedent agreements with fourshippers for 702,500 Dth, which equals about 94% of the project’sdesign capacity. The largest shipper by far will be Wisconsin Gas,which has committed itself to 650,000 Dth/d of the capacity on theproposed line. In fact, the Guardian project is an outgrowth ofWisconsin Gas’s request for proposals’ (RFP) process in June 1998,which the LDC initiated in anticipation of the expiration of itsfirm transportation contract with ANR in October 2003. The othershippers on Guardian include Alliant Energy (10,000 Dth/d), WPSEnergy Services Inc. (2,500 Dth/d) and an unnamed shipper (40,000Dth/d). The project has a targeted in-service date of Nov. 1, 2002.

FERC denied ANR’s request to levy exit fees on Wisconsin Gas andother shippers that elect not to renew their contracts with theCoastal pipeline when they expire. “Exit fees apply only toshippers who seek early termination of their pipelinetransportation contracts…..Any costs that ANR may incur as aresult of the proposed Guardian pipeline are costs associated withnew competition,” the order said.

In multiple protests filed at the Commission, ANR argued thatGuardian’s application was “patently deficient” because it didn’tinclude the proposed 8.5-mile, 16-inch lateral that Wisconsin Gasplans to build to interconnect with Guardian. Wisconsin Gascurrently is seeking the approval of state regulators to build thelateral. Furthermore, ANR claimed Wisconsin Gas was using itsmonopoly power over local distribution in southern Wisconsin tohelp its parent, WICOR Inc., gain entry into the interstatepipeline business. It also argued that Guardian would be financedon the backs of Wisconsin gas ratepayers. WICOR is one of thesponsors of Guardian. The other backers are CMS Gas Transmissionand Storage and Viking Gas Transmission.

But FERC rejected these arguments. “The mere fact that theresulting interstate pipeline is partially affiliated with the mainshipper does not in itself demonstrate self dealing….. Further,it is not unusual for an LDC to construct a lateral or otherfacilities to interconnect with a new supply source. We find thatWisconsin Gas has made a reasonable business decision that it is inits best interest to receive service from a pipeline other than ANRwhen its current contracts with ANR expire. [Also] we find noevidence the proposed projects or the Guardian/Wisconsin Gascontract were the product of any illegal leveraging.” the ordersaid.

FERC thoroughly endorsed the Guardian project as an alternativeto ANR. “Currently, Wisconsin Gas, as well as all gas users ineastern Wisconsin, get most of their natural gas requirements fromANR. While previous attempts to inject competition into ANR’smarket in this area have failed, we believe that this area is ripefor competition.”

With respect to rates, Guardian proposes to offer a firmtransportation service under rate schedule FT-1, as well asnegotiated rates or, at the shipper’s option, recourse rates. Itnoted that each of its four shippers selected one of twonegotiated-rate options being offered – a negotiated rate whichdeclines every year or a levelized negotiated rate that remains thesame each year. The proposed pipeline also will offer aninterruptible service under IT-1 and an authorized overrun service.FERC said the tariff sheets that Guardian filed with respect to thenegotiated rates met the requirements of its alternative pricingpolicy.

Susan Parker

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