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Kenai Beluga Pipeline tariff rate reduced Proposed settlement rate 37.05 cents, down from 63.98 cents proposed; other parts of settlement on hold waiting RAPA investigation KRISTEN NELSON Petroleum News
The parties to settlement talks on the tariff for the Kenai Beluga Pipeline submitted a settlement agreement to the Regulatory Commission of Alaska Dec. 13, proposing a rate of 37.05 cents per thousand cubic feet of natural gas for transport on the line, down from the 63.98 cents per mcf proposed by the pipeline in June. The commission is asked to approve only the proposed rate and an effective date, as the Alaska Attorney General, Regulatory Affairs & Public Advocacy Section, RAPA, must complete its investigation prior to taking a position on the settlement.
Parties in the proceeding are Kenai Beluga Pipeline, AIX Energy, Agrium U.S., Tesoro Alaska Co., Chugach Electric Association, Enstar Natural Gas Co., Matanuska Electric Association, Homer Electric Association, Alaska Electric Energy Cooperative, Municipal Light and Power and RAPA.
Some of the parties to the settlement - Agrium, Tesoro and HEA - also reserved specific rights under the settlement.
The 63.98 cents proposed in June, and in place as a temporary rate, was a substantial increase from the existing 29.15 cents per mcf rate. The pipeline, a Hilcorp subsidiary, told RCA the increase was based on increased operating costs combined with a drop in throughput on the system, which connects fields on the southern Kenai Peninsula to Enstar’s gas transmission system, to Cook Inlet Natural Gas Storage Alaska near Kenai and via a line under the inlet to the west side gas transmission network. One element of the increased costs was installation of two additional gas compressors to increase east-to-west carrying capacity under Cook Inlet, approved by RCA in 2014.
Kenai Beluga, which combines four previously separate lines, has a postage stamp rate, which means transportation for any distance on the line costs the same. Because of that, some companies have built, or have discussed building, bypass lines rather than pay the postage stamp rate to use on a small segment of the line, reducing throughput. Throughput has also been reduced because of lack of export from the ConocoPhillips’ LNG plant at Nikiski.
Alternative dispute resolution The commission approved alternative dispute resolution proceedings earlier in the year, with mediation directed to begin Sept. 20. The parties told the commission they have reached an agreement, but it is pending RAPA’s investigation and analysis. RAPA has said it must complete its investigation before it can take a position on the settlement and has said it expects to advise the parties whether it agrees to the settlement by Feb. 1, 2017. The parties told RCA that if RAPA opposes any part of the agreement the agreement terminates, and parties have agreed in that event to re-enter the mediation process to determine whether an agreement can be reached in spite of RAPA’s initial opposition.
Because of the RAPA investigation, the parties have asked RCA to defer any action on the agreement until RAPA completes its investigation.
Effective dates Jan. 1, 2017, is the effective date requested for the new tariff rate.
But the parties requested the commission defer consideration of the agreement until at least Feb. 1, awaiting notification from RAPA of its position.
They told the commission that if the agreement has been accepted by Feb. 1, the rate may change effective Feb. 1 based on a throughput adjustment, but if the agreement has not been accepted or approved by Feb. 1, the same throughput adjustment would occur March 1.
On Aug. 1 and every six months thereafter there can be a rate change based on changes in throughput.
Agrium and HEA, which were not parties to the 2014 settlement which established the postage stamp rate, have reserved the right to challenge the postage stamp rate design and Tesoro has reserved the right to challenge the postage stamp rate in the event a future revenue requirement filing is made.
Enstar and Chugach Electric have agreed to defend the postage stamp rate, and ML&P has agreed not to contest the principle of postage stamp rates for the duration of the agreement.
The agreement notes that Kenai Beluga has the burden to defend the postage stamp rate against any challenge.
Agrium, HEA and Tesoro reserve the right to challenge the cost for moving gas east-to-west and also reserve the right to challenge any additional costs and operating changes for east-to-west shipment.
First rate adjustment If Kenai Beluga throughput differs by more than plus or minus 8 percent from the initial base throughput amount the pipeline is required to file a revised postage stamp rate effective Feb. 1.
The Aug. 1 adjustment will be based on actual throughput delivery for July 1, 2016, through June 30, 2017. The second semi-annual adjustment, if required, will be effective Feb. 1, 2018, based on throughput volumes for Jan. 1, 2017, through Dec. 31, 2017.
Accelerated adjustments are provided in the settlement if there are material changes from a change in operations - excluding planned maintenance - which continues for 20 or more days and which will result in an annualized change of plus or minus 20 percent. “The resumption or suspension of operations by the LNG plant located in Nikiski and the resumption or suspension of operations by the fertilizer plant located in Nikiski are examples of events that would cause a Material Change requiring an Accelerated Adjustment if the criteria described in the preceding sentence are met,” the settlement agreement says.
Once approved by the commission, the agreement says parties to the settlement will not make filings inconsistent with the agreement and will not challenge the rates and terms established for five years.
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