Setting a storage rate for the CINGSA facility

The Regulatory Commission of Alaska is currently considering whether to approve a new gas storage facility that Cook Inlet Natural Gas Storage Alaska, or CINGSA, wants to build on the Kenai Peninsula. But, although the commission is not going to consider approval of a tariff and associated usage rates for the facility until January, testimony regarding rate setting for the facility did appear in a recent public hearing over facility certification.

With the CINGSA facility being the first regulated gas storage operation in Alaska, commissioners expressed concerns during the hearing about how CINGSA will determine the fees that it charges its gas storage customers. Commissioners questioned a proposal to initially use what CINGSA terms an “inception rate,” where fees are based on estimates of facility construction costs; estimates of the cost of debt incurred to finance the construction; and estimates of facility operation and maintenance costs. CINGSA proposes to revise its initial fees after one complete year of facility operation, using actual construction, debt and operational costs. After five years of operation CINGSA would submit a complete, revised tariff to RCA for approval, using information gleaned from experience of operating the facility.

Key cost components used to determine usage fees will be the rate of return that CINGSA expects on the capital that it invests in the storage project, the manner in which the value of the facility is depreciated and the rate of interest paid on the financing of the storage project. CINGSA has indicated that, as a joint venture between Semco Energy and MidAmerican Holdings, interest on debt will likely be relatively high, reflecting the risks associated with the joint venture and its customers rather than the risk profiles of CINGSA’s parent corporations.

—Alan Bailey