Changes sought in Citizens Gas pipeline project: Industrial customers argue that alliance drives up cost

Keywords Government
  • Comments
  • Print

Citizens Gas & Coke Utility should build a new pipeline to reap cheaper wholesale gas from the West and Canada, but it should ditch its unregulated partner on the project, say industrial customers and the state’s utility consumer watchdog.

The Citizens Industrial Group and the Office of Utility Consumer Counselor don’t want Citizens Gas’ ProLiance Energy subsidiary to be involved in certain financing, ownership and management aspects of the proposed $17 million pipeline.

They say the joint venture, known as Heartland Gas Pipeline LLC, could drive up financing and other costs, diminishing the benefits of the pipeline to be built in west-central Indiana.

Both groups have filed testimony with the Indiana Utility Regulatory Commission. It will conduct a hearing April 21 at the Indiana Government Center-South to get more input.

Heartland Gas Pipeline last September sought permission to build and operate the 25-mile pipeline connecting Citizens Gas’ underground gas storage facility in Greene County with the Midwest Gas Transmission System line in Sullivan County. The latter ties into a major interstate pipeline delivery hub in Chicago.

Citizens Gas owns 39 percent of Pro-Liance, an Indianapolis-based gas marketing firm; Evansville-based utility Vectren Corp. owns the rest.

Currently, Citizens buys gas delivered over the Texas Gas Transmission and Panhandle Eastern Pipelines.

Citizens Gas contends that multiple sources can help it find cheaper gas, possibly resulting in lower costs to consumers. On that point, Citizens Gas, its big industrial customers and the OUCC agree. The pipeline “might benefit customers of Citizens Gas by giving the utility more options when purchasing gas on the competitive, national wholesale market,” the OUCC said in a statement.

“Our view is that it’s a project that makes sense,” said Todd Richardson, an attorney at Indianapolis law firm Lewis and Kappes representing the consortium of industrial customers that includes General Motors Corp., Reilly Industries and Rolls-Royce Corp.

But Richardson said ProLiance’s participation raises a number of concerns, among them cost.

Rather than partnering, Citizens Gas could build the pipeline with tax-exempt financing, slashing capital costs $865,000 a year compared with the Heartland plan, he said.

Citizens Gas is eligible for tax-exempt financing because it is a public charitable trust and municipal utility.

But the gas company’s partnership with ProLiance reduces its overall financial commitment about $4 million, countered Dan Considine, spokesman for Citizens Gas.

“We think economically it makes sense to do this as a joint project,” added Pro-Liance spokesman Tom Morton.

Industrial customers and the OUCC also want Citizens to have full ownership of the entire pipeline link. That way Citizens could sell some capacity and use the proceeds “to potentially offset customer rates,” according to the OUCC statement.

Under a sole ownership arrangement, however, Citizens would have to set up a new, unregulated marketing affiliate to sell Heartland’s excess capacity, Considine said.

“Using the marketing expertise of Pro-Liance is certainly a more efficient way to sell the excess capacity,” he said.

Detractors of the Heartland arrangement also want Citizens to keep full control of its Greene County underground storage facility. As proposed under Heartland, ProLiance would get rights to 2 billion of the 6.9 billion cubic feet.

Citizens has two other gas storage facilities-both in the Indianapolis area-but they store gas in liquefied form. Converting it from gaseous to liquid state costs money, Richardson added.

Reducing Greene County storage capacity “could reduce Citizens’ ability to capture the benefits of typically lower gas prices in the summer storage refill months. In turn, this would reduce Citizens’ ability to pass those benefits through to its customers,” the OUCC argued in its testimony.

Citizens Gas countered that Heartland will help it optimize the storage facility by generating cash to be shared with Citizens ratepayers. Citizens Gas said 70 percent of income generated by Heartland Gas Pipeline “will be available to be shared with the beneficiaries of the Citizens Gas Public Charitable Trust.”

Heartland proposed starting construction this spring and using the pipeline by Nov. 1.

Please enable JavaScript to view this content.

Story Continues Below

Editor's note: You can comment on IBJ stories by signing in to your IBJ account. If you have not registered, please sign up for a free account now. Please note our updated comment policy that will govern how comments are moderated.