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FERC Gives High Sign To WI Pipe Competition

FERC Gives High Sign To WI Pipe Competition

The northern Illinois and southeastern Wisconsin transportation markets, which have long been dominated by ANR Pipeline, moved one step closer to obtaining pipeline-on-pipeline competition last week when FERC awarded the proposed Guardian Pipeline LLC a favorable preliminary determination on non-environmental issues.

The decision was a major win for the proposed greenfield pipeline because not only did it shoot down most of the arguments presented by ANR to thwart the project, but it found that even though the project would "adversely affect" landowner interests, Guardian was making "reasonable efforts" to mitigate the impact on landowners.

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

Further, it pointed out that Guardian's proposed 140-mile pipeline system will represent less than one percent of ANR's entire system of 10,580 miles, and will occupy less than 25% of the pipeline market now dominated by ANR in Wisconsin.

The Commission also found that sufficient need was established for the 36-inch pipeline that would transport 750,000 Dth/d of gas from the Chicago Hub to markets in northern Illinois and southern Wisconsin. It would terminate near Ixonia, WI, where it would interconnect with Wisconsin Gas Co.'s distribution system. At the Chicago Hub, the pipeline proposes to interconnect to Alliance Pipeline, Northern Border Pipeline, Midwestern Gas Pipeline and Natural Gas Pipeline Co. of America.

Guardian has executed 10-year precedent agreements with four shippers for 702,500 Dth, which equals about 94% of the project's design capacity. The largest shipper by far will be Wisconsin Gas, which has committed itself to 650,000 Dth/d of the capacity on the proposed line. In fact, the Guardian project is an outgrowth of Wisconsin Gas's request for proposals' (RFP) process in June 1998, which the LDC initiated in anticipation of the expiration of its firm transportation contract with ANR in October 2003. The other shippers on Guardian include Alliant Energy (10,000 Dth/d), WPS Energy Services Inc. (2,500 Dth/d) and an unnamed shipper (40,000 Dth/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 and other shippers that elect not to renew their contracts with the Coastal pipeline when they expire. "Exit fees apply only to shippers who seek early termination of their pipeline transportation contracts.....Any costs that ANR may incur as a result of the proposed Guardian pipeline are costs associated with new competition," the order said.

In multiple protests filed at the Commission, ANR argued that Guardian's application was "patently deficient" because it didn't include the proposed 8.5-mile, 16-inch lateral that Wisconsin Gas plans to build to interconnect with Guardian. Wisconsin Gas currently is seeking the approval of state regulators to build the lateral. Furthermore, ANR claimed Wisconsin Gas was using its monopoly power over local distribution in southern Wisconsin to help its parent, WICOR Inc., gain entry into the interstate pipeline business. It also argued that Guardian would be financed on the backs of Wisconsin gas ratepayers. WICOR is one of the sponsors of Guardian. The other backers are CMS Gas Transmission and Storage and Viking Gas Transmission.

But FERC rejected these arguments. "The mere fact that the resulting interstate pipeline is partially affiliated with the main shipper does not in itself demonstrate self dealing..... Further, it is not unusual for an LDC to construct a lateral or other facilities to interconnect with a new supply source. We find that Wisconsin Gas has made a reasonable business decision that it is in its best interest to receive service from a pipeline other than ANR when its current contracts with ANR expire. [Also] we find no evidence the proposed projects or the Guardian/Wisconsin Gas contract were the product of any illegal leveraging." the order said.

FERC thoroughly endorsed the Guardian project as an alternative to ANR. "Currently, Wisconsin Gas, as well as all gas users in eastern Wisconsin, get most of their natural gas requirements from ANR. While previous attempts to inject competition into ANR's market in this area have failed, we believe that this area is ripe for competition."

With respect to rates, Guardian proposes to offer a firm transportation service under rate schedule FT-1, as well as negotiated rates or, at the shipper's option, recourse rates. It noted that each of its four shippers selected one of two negotiated-rate options being offered - a negotiated rate which declines every year or a levelized negotiated rate that remains the same each year. The proposed pipeline also will offer an interruptible service under IT-1 and an authorized overrun service. FERC said the tariff sheets that Guardian filed with respect to the negotiated rates met the requirements of its alternative pricing policy.

Susan Parker

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