Pipeline Projects Getting No Respect in Wisconsin

Two pipeline projects that were to provide takeaway capacity from the Chicago hub to the southern Wisconsin market have been rebuffed by LDC customers there, causing the sponsors to cancel one and place the other on indefinite hold.

Biting the dust was the watered-down 1 Bcf/d Voyageur Pipeline project, which was sponsored by TransCanada Pipelines and Nicor Inc. "We just couldn't get enough contracts to make it financially viable," said Carl Alston, a spokesman for Nicor, parent of Nicor Gas. "Even though we had strong [initial] market indications of support for the project, customers...were not willing to commit to the contracts that were needed" to make it work, he noted.

Likewise, the competing 650 MMcf/d Illinois-Wisconsin Express Project, which is being financed by a coalition of companies, has been relegated to a kind of limbo - put on hold - reportedly until an unnamed Wisconsin utility can commit to the project that would target a region in the state, which primarily is served by Wisconsin Gas and the gas operations of Wisconsin Electric Power. "The utility, I guess, is trying to strike their deal with their gas suppliers, and they just have not been able to come back and give firm commitments on what volumes they need and the type of service," said Paula Delaney, a spokeswoman for one of the coalition members, El Paso Energy. The duration of the hold is "pretty dependent" on that Wisconsin utility, she added.

In the meantime, the coalition between El Paso, Enron, Peoples Energy and Northern Border Pipeline still exists, she noted. "But as long as it's on hold each of the companies has kind of got the right to go out to see if they can generate their own opportunities on that [market]."

The sidelining of the two pipeline projects - whether permanently or temporarily -begs the question: what's going on in Wisconsin? "Apparently each of the projects haven't been attractive to enough customers along the route to make it really work," a Wisconsin utility source told NGI. "For whatever reason, they [the potential LDC customers] have been unable to make the kind of long-term commitments that the pipes need to back themselves. And some of it has to do with the services that are [being] offered, the price of the services."

Specifically, he thinks the Voyageur project lacked appeal to the Wisconsin customers, while the Express Project left something to be desired for northern Illinois customers. He doubted that opposition from ANR Pipeline, the sole existing pipeline between northern Illinois and southern Wisconsin, entered into the picture much. ANR "has been pushing hard to make sure none of these projects get built," but he didn't think ANR was "enough of a factor" or had "enough moxy" to defeat competing projects, especially ones supported by LDC customers.

The inability of customers to commit so far doesn't mean that they don't want a new pipeline project along the Joliet-to-southern Wisconsin route, the utility representative said. However, "they want to commit to the project that is most likely to be built because they don't want to make a commitment and then have it all get snagged up in regulatory approvals."

Sometime, Somehow...

Despite all the uncertainty, he believes "a new steel pipeline" still is in the cards for northern Illinois and southern Wisconsin. "Sooner or later somebody's going to get it right, and they're going to get everybody signed up and bingo they're going to go. But I have no idea who's going to own it. I have no idea when they're going to get it together and get the customers signed up. So far, it's been an excruciatingly slow process." He said he wouldn't be surprised to see a third pipeline proposal surface "because you would think that if any of the existing ones were front-runners they'd be much further down the road" now.

The company that builds the pipeline is "going to have to go like gangbusters to get in service" by the time the Alliance Pipeline starts operation, which would be either in late 2000 or late 2001. "They have a long way to go to get there" because acquiring a right-of-way through congested urban areas in northern Illinois will prove to be a "long, contentious" issue.

In the end, the differing routes of the competing projects won't mean a thing to southern Wisconsin shippers, he noted. "It's going to be the services [and prices] that are offered on there that's going to distinguish one project from another."

The scaled-down Voyageur project had other problems also. "I think that they [Voyageur sponsors] weren't serious about going to Wisconsin. I think that even though it was labeled as a Joliet-to-Wisconsin pipeline, the sponsors of that project were mostly interested in moving gas to northern Illinois," the Wisconsin source said. "...[T]heir generic proposal...had kind of what I call a goofy two-part rate for a 120-mile pipeline," which was "tilted against the Wisconsin customers to benefit Illinois customers. You had to kind of conclude that they were building it for their own systems." He questioned "how serious they [the Voyageur sponsors] were when they started it. It takes a lot of gumption to build one of these things. And I'm not sure they had the staying power."

The Viking Voyageur project - as it was originally called - was conceived as a 773-mile, 1.4 Bcf/d Manitoba-to-Chicago line in 1997, but it lost out to the competing Alliance Pipeline and the Northern Border expansion projects in the western Canada-to-U.S. Midwest race. In an attempt to keep their foot in the door, partners TransCanada and Nicor floated plans last July for a downsized Voyageur project, which would go in the opposite direction with a 1 Bcf/d, 150-mile line from the Chicago hub north toward Milwaukee, WI - an area bypassed by the big incoming pipelines.

That placed the reconfigured TransCanada/Nicor project in competition with the Illinois-Wisconsin Express pipeline project, which would have traversed a similar path. But Nicor's Alston said competition between the pipeline projects played only a minor role in TransCanada's and Nicor's decision to abort the Voyageur project. The "key" reason the sponsors canceled Voyageur was lack of commitments from LDC customers, he said.

Nicor and TransCanada held an open season for their revised Voyageur project in August-September and made the decision in mid-October to abandon the project. They still intend, however, to keep a close eye on the northern Illinois-southern Wisconsin market. "Both companies are going to keep looking at that market just to see what the developments are" as part of the "regular course of daily work," Alston said, but they have no other particular project in mind right now.

ANR Expands

The canceled Voyageur project and the on-hold Illinois-Wisconsin project were intended to offer southern Wisconsin customers alternatives to ANR, which has had a lock on the Chicago hub-to-southern Wisconsin transportation route for years. But ANR did not take the threat to its territory lying down. It is in the process of adding about 116 MMcf/d of capacity to its system in southern Wisconsin, a project which was approved by FERC in September and is expected to be in service in early 1999. Neither the scaled-down Voyageur nor the Express Project ever filed a proposal at FERC.

The expanded ANR capacity will provide the growing Wisconsin market with the means to access the cheaper Canadian gas supplies expected to be available, said ANR spokesman Joseph Martucci. Demand growth in southern part of Wisconsin is being fueled by the addition of new gas-fired power generation plants and the conversion of existing power plants to natural gas.

ANR also is weighing the possibility of a further expansion of its system following the "positive response" it received from customers in an open season that ended Aug. 31. That's "actively under consideration," Martucci told NGI last week.

"I don't have any firm numbers yet. We're still working with customers to determine what level of interest they have, and to work out precedent agreements." When that is completed, Martucci said ANR likely would file another proposal at FERC. If the pipeline decides on the additional expansion, it would be for service in 2000 and beyond.

Susan Parker

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