Utilities

Plan to let affiliate use gas field sparks opposition: Citizens Gas industrial customers say recent hurricanes show potential for supply disruption, price spikes

November 28, 2005

Big manufacturers have asked regulators to reconsider allowing an unregulated affiliate of Citizens Gas & Coke Utility to use the Indianapolis utility's Greene County gas storage facility.

General Motors Corp., Reilly Industries and Rolls-Royce Corp. warn that Citizens Gas & Coke Utility's supply of gas it buys during warm-weather months could be at risk if gas marketing firm Pro-Liance Energy LLC is allowed to control the underground gas storage field.

ProLiance sells natural gas to utilities and large-volume gas customers around the nation. Industrials argue that Pro-Liance will have a profit incentive to manage the field's inventories so that it has plenty of gas to sell to its customers, with Citizens' needs as a secondary priority.

That poses a supply reliability risk to Citizens customers, said Todd Richardson, a Lewis & Kappes attorney representing Citizens Industrial Group.

"How much they pull out and when right now is a decision driven by the best interests of ratepayers of Citizens Gas," Richardson said. But by giving ProLiance control of the storage field, "you have a physical resource replaced by a promise from ProLiance ... . Now we have a risk that we didn't have before," said Richardson.

Industrials also argue that storage resources paid for by Citizens' ratepayers should not be used to support the unregulated operations of ProLiance.

"The aftermath of Hurricane Katrina graphically illustrates the importance of onsystem storage resources in the face of supply-area disruptions," Citizens Industrial Group said in its filing last month with the Indiana Utility Regulatory Commission.

The request seeks a partial reconsideration of the commission's Oct. 5 ruling that allowed gas marketer ProLiance to team with Citizens to build the 25-mile Heartland Pipeline.

The industrials are not seeking to stop construction of the pipeline, which will connect the Greene County facility with a third interstate pipeline that swings through Sullivan County. It flows with cheaper gas from Canada and the West.

The two existing pipelines serving the field bring gas from the South and Southwest that is more expensive.

ProLiance agreed to help fund construction of the $17 million pipeline in return for use of the Greene County facility. Citizens stores billions of cubic feet of natural gas beneath Greene County, in porous limestone akin to a coral reef.

Citizens and ProLiance say Citizens will continue to own and operate the facility and will have adequate access to meet severe weather requirements.

"We're not going to do anything-never have and never will-that will jeopardize safety and reliability," said Citizens spokesman Dan Considine.

Industrials also complain there was no bidding or public offering "by which to determine a market value for the Citizens Gas on-system storage capacity."

The industrials said Citizens would receive $300,000 in annual compensation from ProLiance for storage rights.

"Storage capacity in central Indiana should not be transferred to unregulated affiliates at unreasonably low prices, especially when the unregulated affiliate seeks to use those resources to support profit opportunities outside the utility's service territory."

Citizens said the Heartland pipeline project is critical and, conservatively, will save the utility $5 million a year in the cost of gas.

ProLiance spokesman Tom Morton said the IURC looked at the pipeline project along with the storage plan as an entire package when it OK'd the pipeline project.

"Citizens has first rights to the gas there. I can't imagine they would sign an agreement that would be otherwise."

Citizens, which has 266,000 customers in Marion and Hamilton counties, estimated that heating bills for customers could rise 27 percent, or about $200, in the November-to-March period. It won regulatory approval too late in the year to begin construction of the Heartland pipeline this winter.

Besides supply disruptions-and subsequent spikes in price-caused by Katrina, prices have soared as electric utilities increasingly use natural gas to generate power and comply with tougher federal pollution laws.
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