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Vol. 12, No. 24 Week of June 17, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Final chapter in CIGGS regulation?

Following the Regulatory Commission of Alaska's acceptance of the Cook Inlet Gas Gathering System settlement agreement, Marathon and Chevron have applied for a certificate to operate the pipeline system as a common carrier

Alan Bailey

Petroleum News

Itís been three years since Agrium, owner of the Nikiski fertilizer plant on Alaskaís Kenai Peninsula, first filed a complaint with the Regulatory Commission of Alaska regarding the unregulated operation of the Cook Inlet Gas Gathering System, generally known as CIGGS. But a June 7 RCA filing of an application by Marathon and Chevron for a certificate of public convenience and necessity for CIGGS surely marks the final chapter of the saga that started with the Agrium complaint.

Marathon and Unocal (now part of Chevron) built CIGGS in the early 1970s to move gas from their oil and gas fields on the west side of the Cook Inlet to industrial facilities at Nikiski on the east side of the inlet. At Nikiski CIGGS also connects with the gas pipeline infrastructure on the Kenai Peninsula. Marathon and Chevron still own and operate CIGGS.

Under a grandfathering provision in the Alaska Right-of-Way Leasing Act, CIGGS owners had been operating the system as a private, unregulated pipeline. But, in its complaint, Agrium claimed that the continuing private operation of CIGGS was impeding the development of new gas supplies for industrial use at Nikiski and that the pipeline operations contravened the Alaska Public Utilities Regulatory Act. RCA decided to investigate and determined that, in operating CIGGS, Marathon and Unocal were acting as public utilities. Subsequently, CIGGS owners Enstar (the major Southcentral Alaska gas utility), the Cook Inlet gas producers and the state of Alaska became embroiled in intense discussions regarding the terms under which the gathering system should operate.

2005 settlement agreement

In September 2005, following mediated negotiations, the various parties to the dispute filed a settlement agreement, under which CIGGS would come under regulation as a common carrier pipeline, rather than as a utility pipeline. Under that agreement the pipeline owners guaranteed a minimum capacity of 40 million cubic feet per day for the common carriage of gas for third-party shippers, with the owners retaining firm rights to use the remaining capacity (more than 40 mmcf per day might be available for third party use, depending on how much gas the owners are shipping at any particular time).

Reserving only part of the systemís total capacity of about 120 mmcf per day for third party use would preserve the rights of the owners to transport gas from legacy west Cook Inlet oil and gas fields, while also opening the pipeline system to regulated common-carrier operation.

The rate base for the use of CIGGS was valued at the ownerís original investment cost and the remaining life of the system was assumed to be 30 years. The negotiators agreed on a methodology for calculating rates for the use of the system and set an initial tariff rate of $0.152 per mcf of gas shipped, with a provision for possible rate modification after the first year of regulated pipeline service. And, because CIGGS metering and control systems were not designed for common carrier operation, the negotiators devised a self-policing procedure to deal with imbalances between gas volumes delivered into the system and volumes taken out of the system.

On Nov. 1, 2005, CIGGS owners opened the system for the third-party transportation on a temporary, interim basis, pending an RCA decision on whether to accept the settlement agreement.

RCA decision

The RCA decision came on Jan. 26, 2007, when the commission issued an order approving the settlement.

ďAll parties of record have joined in the settlement of issues in these dockets,Ē RCA said. ďAccordingly, we should terminate this proceeding (the complaint against the unregulated operation of CIGGS) unless the public interest requires us to continue it. Ö All current parties have resolved all issues in dispute and wish to end their litigation under the terms and conditions of the settlement agreement.Ē

And, in agreeing that CIGGS should operate as a common-carrier pipeline rather than a utility pipeline, RCA also withdrew its earlier finding that Marathon and Unocal were acting as public utilities.

The June 7 application for the CIGGS certificate of public convenience and necessity represents the next essential step in completing the legal process of making the Cook Inlet gathering system a regulated pipeline, following RCA approval of the settlement agreement. Comments on the application must be filed with RCA by June 22.



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