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Questions raised over CINGSA ‘native gas’ Gas storage utility says it wants to sell some of the gas; attorney general and others argue that gains should go to ratepayers Alan Bailey Petroleum News
In February Cook Inlet Natural Gas Storage Alaska, the operator of a gas storage facility on the Kenai Peninsula, asked approval from the Regulatory Commission of Alaska for the right to sell some gas that it had found in its storage reservoir. CINGSA had encountered the gas, referred to as native gas and amounting to about 14.5 billion cubic feet, when drilling one of the facility’s wells. CINGSA told the commission that, having found the gas by accident in what was supposed to be a depleted gas-field reservoir, the utility would retain much of the gas as an aid to facility operation but that it wanted to sell 2 bcf of excess gas to its storage customers.
AG wants an investigation The state’s attorney general and some of those customers have objected, questioning CINGSA’s rights to any profits to be gained from the sale of the gas and asking the commission to investigate CINGSA’s proposal.
In a March 2 filing with the commission, Chief Assistant Attorney General Steve DeVries, citing legal precedents, said that, because the storage facility’s ratepayers had borne the financial risks associated with developing the facility, the ratepayers are entitled to any gain derived from the development. Essentially, with the facility’s costs being recovered through the rates that CINGSA charges its customers, those customers would incur the cost of any unanticipated problem, such as a storage reservoir failure. Similarly, the customers should share in any unanticipated gain arising from the facility operation, DeVries argued. Moreover, with CINGSA’s approved rates that it charges its customers fully compensating CINGSA for its costs and financial risks, there is no evidence to support CINGSA’s request to acquire any gain from the sale of any excess gas in its reservoir, DeVries wrote.
Some of CINGSA’s customers have echoed the attorney general’s concerns and have supported the request for a commission investigation.
Significant risk Lee Thibert, senior vice president, strategic development and regulatory affairs for Chugach Electric Association, one of those customers, told the commission that the native gas should be viewed as a ratepayer asset. Chugach Electric and other ratepayers took significant risk in signing up for CINGSA’s services, especially since CINGSA had reserved the right to reduce maximum gas injection and withdrawal rates for the storage facility, should the facility not be able to accommodate contracted services, Thibert wrote. Given Chugach Electric’s obligation to underwrite the cost of factors such as reduced gas withdrawal rates, it is “clearly inappropriate” to distinguish between stored gas and native gas found in the storage reservoir, Thibert argued.
John Whitlock, administrative assistant for the Regulatory Affairs Division of Anchorage utility Municipal Light & Power, said that ML&P supports the attorney general’s position. Whitlock made a comparison between the CINGSA native gas situation and the benefits that ML&P enjoys from its working interest in the Beluga gas field, the source of much of ML&P’s gas supplies - those benefits accrue entirely to ML&P’s customers, Whitlock said.
Bradley Janorschke, general manager of Homer Electric Association, questioned how CINGSA would account for its costs in handling native gas in its storage reservoir if some of that gas was now to be earmarked for sale.
Enstar Natural Gas Co., CINGSA’s largest customer and an affiliate of the company operating the facility, has not commented on the native gas controversy.
Royalty questions In response to CINGSA’s proposal for dealing with the native gas in its reservoir, the city of Kenai and Kenai Peninsula Borough both expressed concern about potential rights to royalties from gas sales for individual people or municipal authorities that have had mineral estate interests in sections of the CINGSA storage reservoir.
Kenai Landing Inc., a surface landowner in the area of the CINGSA facility, has questioned whether CINGSA’s native gas proposal might prejudice a continuing lawsuit over ownership of some of the subsurface land that the facility uses. Kenai Landings has also accused CINGSA of knowingly drilling into the native gas, an accusation which CINGSA has vehemently denied.
At the time Petroleum News went to press, the commission had yet to issue a ruling on how it wants to deal with the native gas issue.
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