Prodded by Gov. George H. Ryan, the Illinois Commerce Commission(ICC) yesterday voted unanimously to open a Notice of Inquiry (NOI)to investigate the high natural gas prices in the state.

The NOI grew out of consumer complaints, two ICC hearings in asmany weeks, and a call by the governor for an investigation (see DailyGPI, Jan. 12; Jan. 22). In approving it, the commissionalso asked for further investigation of affiliate rules fornon-regulated subsidiaries and their parent companies.

As part of the NOI, the ICC developed the first seven questionspertaining to the high price situation, which were made availableyesterday. An additional 10 questions are expected to be addedsoon. The first seven questions range from inquiries into adequacyof gas supply within the U.S. and Illinois, to whether utilitieshave experienced significant expenses besides the cost of purchasedgas during 2000.

The two hearings helped establish the formal questions that arepresented to the public via the ICC web site, ICC spokesman DavidFarrell said. Farrell emphasized that “anybody and everybody in thewhole world” with interest in the subject is invited to respond,and create a dialogue.

In the ICC’s second hearing, industry experts testified that theCalifornia energy crisis might be partially responsible for thehigh natural gas prices experienced this winter in the Midwest.

Representatives from pipeline companies and analyst firms wereamong those on hand last Wednesday to testify before thecommission. A CMS executive said some of the gas that normallywould be destined for Midwest markets is being sent out westinstead.

“What we are seeing this winter, despite the cold weather, isless throughput on Panhandle Eastern Pipeline into our Midwestmarkets then we have seen in other winters, particularly coldwinters,” said Cynthia Albert, vice president of regulatory affairsand information systems for CMS Panhandle Pipe Line Companies.

“We are estimating about 200 MMcf/d of supply is being divertedto serve California, and what we really are witnessing is lessvolume coming up Panhandle into the Midwest market,” Albert toldDaily GPI. She added that Panhandle has a mainline capacity ofabout 1.5 Bcf/d. “Pipeline capacity serving California iscompletely full, so California is getting as much gas as it canget, and some of that gas may in fact be gas that would haveotherwise come to us,” she said. “Who knows what other pipelines inthe market area are experiencing, such as ANR and NGPL,” she added.

Albert stressed there was no shortage of gas flowing into thestate, but it becomes a question of which gas is going to flowwhere. She emphasized to the commission during the hearing that”gas will flow to the highest priced market, and that will affectmarkets in the rest of the country.”

The first question in the NOI is: who is receiving all the moneyfrom higher gas prices? It is the same question the commission hadalso posed to the state’s utilities the week before.

“Illinois, and generally other Midwest markets, sit in a goodposition in terms of pipeline capacity, because generally there isexcess pipeline capacity serving Midwest markets,” said Albert. “Sohigh prices in the Midwest markets probably are not a result oflimited pipeline capacity. It’s probably a result of other thingshappening in the industry.” She pointed to the addition of theAlliance pipeline and Northern Borders extension — which expandeddeliverability capacity into the state by 2 Bcf — as reasons forthe capacity surplus.

“The other key point is that our transportation rates onpipelines into the Midwest market have continued to decline overtime. We have seen on both of our two pipelines — PanhandleEastern Pipeline and Trunkline Gas Co. — a decline in ourtransportation rates over the last six or seven years.” Albert saidTrunkline — which serves the Chicago market via aninterconnection with Peoples’ system — makes up just 4% of thetotal transportation cost to the Chicago citygate, excluding fuelcosts. “We are a small piece of the overall pie. Certainly thepoint here is that when prices increase like they have been, it isnot the pipeline companies that are able to capture higher rates.We are still getting the same rates that we have been getting.”

Albert told the commission that there might be some increases inrates this winter as the company renegotiates contracts, butoverall she believes the excess capacity and abundant competitionwill tend to keep transportation rates fairly flat, and would notallow CMS to get more money out of the market. “We are aware thatthe Illinois Commission and others are certainly looking to findout who is making all the money in this market.”

Submission of initial comments from interested parties is due onFeb. 16, with the submission of reply comments completed on Feb.26. The commission also has scheduled a public meeting for March 6.A full list of the NOI questions will be made available at the ICCwebsite: https://www.icc.state.il.us/icc/gas/noi.asp.

Farrell said all the information gathered from the NOI willultimately be compiled in the form of a report and submitted to thecommission by April 3 by the commission staff. Soon after, it willbe forwarded to the governor’s energy cabinet, then on to thegovernor and the general assembly. “What I do not know is whetherthat is going to include the findings of ‘X’ problem or ‘Y’ problemwith a corresponding suggestion for a solution,” said Farrell.

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