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January 2010

Vol. 15, No. 3 Week of January 17, 2010

Responses split on RCA storage authority

CINGS request for declaratory ruling draws response: CEA, ML&P say storage should be regulated utility; Aurora, Marathon say not

Kristen Nelson

Petroleum News

There is unanimity on one thing: Third-party natural gas storage is needed in Cook Inlet.

That was a theme running through responses received by the Regulatory Commission of Alaska when it asked for responses to a number of questions about a request by Cook Inlet Natural Gas Storage for a declaratory ruling on whether third-party gas storage would be regulated as a utility.

CINGS is proposing to create third-party natural gas storage at the Cannery Loop field on the Kenai Peninsula. The storage would be available for purchase by entities — expected to be utilities — needing to store gas to meet peak needs in the winter.

RCA asked for responses to a series of questions by Jan. 8; legal briefs on the issues are due Jan. 15.

There is no question RCA would be involved because it would approve gas storage charges utilities paid to CINGS and then included in tariffs to be paid by consumers. The issue is whether RCA has the authority to regulate CINGS directly as a utility under laws governing either utilities or pipelines; the commission heard different opinions.

Enstar urges speed

Enstar Natural Gas Co., the local gas distribution company for Southcentral Alaska, has been working with CINGS on the gas storage project and is expected to be the largest user of the facility. It said gas storage is essential to its continuing ability to serve customers.

Enstar said regardless of whether CINGS is regulated as a utility, it requests that the commission “see that the project is developed quickly and successfully; … establish just and reasonable rates for storage service; and … explicitly find those costs recoverable by Enstar and other utilities from their customers. The RCA’s decision on CINGS’ regulatory status should be guided by these goals,” Enstar said in its comments.

Enstar said it believes RCA should review storage rates for a number of reasons, including: CINGS will be the only entity providing the service to utilities in Alaska; there is no market rate for storage services in Cook Inlet; “utilities should be allowed to recover the reasonable costs of that service”; and the most efficient way for the commission to approve rates is through a consolidated hearing.

CEA, ML&P call for regulation

Chugach Electric Association, supported by Matanuska Electric Association and the City of Seward, said it believes that while the gas storage project could be reviewed either as a new regulated utility service or through requests by public utilities purchasing storage services, it believes regulating CINGS as a utility is the appropriate approach.

CEA also asked for a more detailed description from CINGS of its proposed gas storage facility, and also asked for additional explanation of why Enstar subsidiary Alaska Pipeline Co., rather than CINGS, would own and operate the pipeline to be built between the storage facility and existing gas pipelines.

Municipal Light & Power told the commission it “strongly believes that the development of gas storage in Cook Inlet is needed to ensure the reliable provision of electric service (and gas service by Enstar) in periods of peak demand, supports CINGS’ proposed development of gas storage, and anticipates contracting with CINGS for gas storage and related services,” but believes the CINGS’ facility should be regulated by the commission and believes more detailed information is needed for the commission to make that determination.

Marathon, Aurora oppose regulation

Marathon Alaska Production said it supports CINGS request for a declaratory order and urges RCA to find that it “has no jurisdiction over natural gas storage facilities that provide third party storage.”

Marathon said it agrees with CINGS that neither the Alaska Public Utilities Act nor the Pipeline Act was designed to regulate a standalone natural gas storage service. “The Commission should not employ a strained reading of its jurisdictional statutes, which it would need to do to exert jurisdiction over such natural gas storage,” Marathon said.

Marathon said it has a significant interest in natural gas storage in Alaska and owns a majority interest in and operates the Cannery Loop unit where CINGS proposes to construct and operate its third-party natural gas storage facility.

Marathon said experience has shown that utility-style regulation “is slow, costly, cumbersome and has the effect of discouraging the construction and development of new natural gas facilities.”

And, it told the commission, neither statute was written to be applied to standalone facilities.

Marathon also said that in making its decision on the declaratory judgment sought by CINGS, “the Commission should be careful to confine its decision to the specific factual context proposed by CINGS since no other factual context is before the Commission for evaluation.”

Aurora Gas had a similar concern about a possible broadening of the scope of an RCA decision and requested “that any declaratory ruling by the Commission be limited to CINGS and the specific asserted facts and circumstances of this case.”

Aurora is in the process of establishing gas storage on the west side of Cook Inlet.






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