Proposed natural gas pipeline bogged down at IURC: Project would give customers access to lower-priced gas, blunting impact of Katrina and hike in delivery fee

September 12, 2005

A pipeline that would give residential and industrial customers access to cheaper wholesale natural gas from the West and Canada won't be built this winter, when it could have blunted prices whipped skyward by Hurricane Katrina.

The Indiana Utility Regulatory Commission is still reviewing Citizens Gas & Coke Utility's request to construct a nearly 20-mile pipeline that would connect its Greene County gas storage facility with the Midwest Gas Transmission System line in Sullivan County. That line ties into a natural gas hub in Chicago that receives gas from Canada and Western states.

Gas from those regions has been cheaper than that from the Gulf of Mexico, where Katrina knocked out production and transmission facilities. Indianapolis-based Citizens gets its gas from the Louisiana area and from Texas and Oklahoma.

Citizens initially proposed the pipeline with price and supply issues in mind, said Dan Considine, spokesman for the utility.

"We talked about the potential for a catastrophic hurricane interrupting supply," Considine said.

Citizens had hoped to start work on the Heartland pipeline in early November, but "it looks like it's dead for this year," he said. "The calendar just ran out on us."

The IURC, which has seen a turnover in commissioners amid a change in state administrations, confirmed it is still reviewing the pipeline project. Ironically, its review might have been slowed partly by an objection filed earlier this year by industrial customers and the Indiana Office of Utility Consumer Counselor.

While generally in favor of the pipeline, the two groups are wary of Citizens' involving its unregulated subsidiary, Indianapolis-based ProLiance Energy, in certain financing, ownership and management aspects of the proposed $17 million pipeline.

The groups filed objections over how it would be financed and managed. Industrials want Citizens to build the pipeline without ProLiance as a partner, saying the public charitable trust could build the pipeline cheaper with tax-exempt financing and save at least $865,000 a year.

Citizens has countered that the partnership cuts its overall financial commitment by about $4 million.

Industrial customers also have questioned giving ProLiance rights to some of Citizens' underground gas storage holdings.

The stalled Heartland project also comes as the industrial customer group prepares to fight a proposed hike in the gas delivery fees Citizens charges them. That fee, which is separate from the actual price of gas consumed, is a relatively small part of residential bills but amounts to hundreds of thousands-to millions-of dollars annually for large industrial customers.

A consulting firm for industrial customers calculated that its delivery charge, as a group, would rise 107 percent, to $10.3 million, from about $5 million.

"It's very difficult timing from the perspective of large-volume consumers in Marion County and comes on the heels of already-high gas prices," said Todd Richardson, a Lewis & Kappes attorney representing the industrial group that includes General Motors Corp., Reilly Industries and Rolls-Royce Corp. "This comes at a terrible time with everything going on in the energy markets."

Beyond the higher delivery charge and Katrina-related supply interruptions, gas prices have been driven upward partly because electric utilities increasingly have burned gas rather than more-polluting coal. Those utilities face expensive costs to install pollution-control devices on coal-fired plants under new federal pollution mandates.

At the same time, other federal regulations have made it more difficult for gas development, particularly on federal lands, Considine said.
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