NGI The Weekly Gas Market Report
Prodded by Gov. George H. Ryan, the Illinois Commerce Commission (ICC) voted late week 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 as many weeks, and a call by the governor for an investigation (see NGI, Jan. 15; Jan. 22). In approving it, the commission also asked for further investigation of affiliate rules for non-regulated subsidiaries and their parent companies.
As part of the NOI, the ICC developed the first seven questions pertaining to the high price situation, which were made available yesterday. An additional 10 questions are expected to be added soon. The first seven questions range from inquiries into adequacy of gas supply within the U.S. and Illinois, to whether utilities have experienced significant expenses besides the cost of purchased gas during 2000.
The two hearings helped establish the formal questions that are presented to the public via the ICC web site, ICC spokesman David Farrell said. Farrell emphasized that “anybody and everybody in the whole world” with interest in the subject is invited to respond, and create a dialogue.
In the ICC’s second hearing, industry experts testified that the California energy crisis might be partially responsible for the high natural gas prices experienced this winter in the Midwest.
Representatives from pipeline companies and analyst firms were among those on hand last Wednesday to testify before the commission. A CMS executive said some of the gas that normally would be destined for Midwest markets is being sent out west instead.
“What we are seeing this winter, despite the cold weather, is less throughput on Panhandle Eastern Pipeline into our Midwest markets then we have seen in other winters, particularly cold winters,” said Cynthia Albert, vice president of regulatory affairs and information systems for CMS Panhandle Pipe Line Companies.
“We are estimating about 200 MMcf/d of supply is being diverted to serve California, and what we really are witnessing is less volume coming up Panhandle into the Midwest market,” Albert told Daily GPI. She added that Panhandle has a mainline capacity of about 1.5 Bcf/d. “Pipeline capacity serving California is completely full, so California is getting as much gas as it can get, and some of that gas may in fact be gas that would have otherwise come to us,” she said. “Who knows what other pipelines in the market area are experiencing, such as ANR and NGPL,” she added.
Albert stressed there was no shortage of gas flowing into the state, but it becomes a question of which gas is going to flow where. She emphasized to the commission during the hearing that “gas will flow to the highest priced market, and that will affect markets in the rest of the country.”
The first question in the NOI is: who is receiving all the money from higher gas prices? It is the same question the commission had also posed to the state’s utilities the week before.
“Illinois, and generally other Midwest markets, sit in a good position in terms of pipeline capacity, because generally there is excess pipeline capacity serving Midwest markets,” said Albert. “So high prices in the Midwest markets probably are not a result of limited pipeline capacity. It’s probably a result of other things happening in the industry.” She pointed to the addition of the Alliance pipeline and Northern Borders extension – which expanded deliverability capacity into the state by 2 Bcf – as reasons for the capacity surplus.
“The other key point is that our transportation rates on pipelines into the Midwest market have continued to decline over time. We have seen on both of our two pipelines – Panhandle Eastern Pipeline and Trunkline Gas Co. – a decline in our transportation rates over the last six or seven years.” Albert said Trunkline – which serves the Chicago market via an interconnection with Peoples’ system – makes up just 4% of the total transportation cost to the Chicago citygate, excluding fuel costs. “We are a small piece of the overall pie. Certainly the point here is that when prices increase like they have been, it is not 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 in rates this winter as the company renegotiates contracts, but overall she believes the excess capacity and abundant competition will tend to keep transportation rates fairly flat, and would not allow CMS to get more money out of the market. “We are aware that the Illinois Commission and others are certainly looking to find out who is making all the money in this market.”
Submission of initial comments from interested parties is due on Feb. 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 ICC website: https://www.icc.state.il.us/icc/gas/noi.asp.
Farrell said all the information gathered from the NOI will ultimately be compiled in the form of a report and submitted to the commission by April 3 by the commission staff. Soon after, it will be forwarded to the governor’s energy cabinet, then on to the governor and the general assembly. “What I do not know is whether that is going to include the findings of ‘X’ problem or ‘Y’ problem with a corresponding suggestion for a solution,” said Farrell.
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