While ANR Pipeline has maintained all along that competitors to its Wisconsin system expansion – the Guardian and Horizon pipelines – are very bad indeed, it doesn’t hurt to get a second opinion.
ANR 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 study Guardian, and by implication, Horizon. The report was released last week, and the consultant had harsh words for Guardian. Cicchetti did not study Horizon, mainly due to a lack of information available about proposed rates. ANR said most of the consultant’s criticisms of Guardian also apply to Horizon.
Cicchetti 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 NGI March 15, 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.
Installation of the first phase of ANR’s expansion, nearly 12 miles of pipe, is in progress and should be finished by fall. Phase II is still before the FERC, and ANR hopes to receive a decision on it by the end of the year. Phase II would add horsepower to existing compressor stations, one in Illinois and two in Wisconsin, and three miles of looping pipeline in northern Illinois. Together, the two phases would add about 400 MMcf/d of capacity from Joliet, IL, northward.
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.
ANR and Cicchetti said they didn’t overlook KN Energy-sponsored Horizon Pipeline when they did the study. ANR spokesman Joe Martucci said with the exception of self-dealing with an affiliate, the criticisms of Guardian also apply to Horizon. “We believed the conclusions [of a Horizon study] would essentially be the same. The only difference is you don’t have the affiliate relationship with Horizon that you have with Guardian.”
Horizon would be a 36-inch, 129-mile high pressure line from Joliet to Hales, Corners, WI, with capacity of up to 1.2 Bcf/d upon completion, expected in fall 2001. Depending on shipper commitments, the project is expected to cost between $150 and $250 million.
“Horizon Pipeline has received service requests in the form of precedent agreements of more than 800 MMcf/d from shippers representing all segments of the industry, including gas-fired electric generation, marketers and local distribution companies,” said Scott Parker, KN director of Midwest business development, in a recent news release. “These results confirm our belief that the Horizon Pipeline is well-positioned to competitively meet the increasing natural gas demands in this growing region.” Among potential shippers on Horizon is Nicor Gas, which previously signed a precedent agreement to ship 300 MMcf/d. Parker said Horizon’s rates have been publicly available since the project’s open season began nearly two months ago. Horizon is offering fixed, negotiated rates of 9.47 cents/dekatherm in Illinois and 12.2 cents/dekatherm in Wisconsin, Parker said.
Cicchetti said he didn’t look at Horizon because there apparently is no issue of self-dealing with the project, as he alleges is the case with Guardian. He also said there is a dearth of information available about what transportation on Horizon would cost shippers. Martucci criticized Horizon for its secrecy. “Those filings [at FERC by Horizon] have all been done under seal. There have been no public hearings, which we’ve asked for,” Martucci said.
Joe Fisher, Houston
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