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Managing the risk
RCA hears testimony on CINGSA’s proposed gas storage reliability upgrades
Alan Bailey Petroleum News
During a five-day hearing the week of Oct. 22 the Regulatory Commission of Alaska gathered testimony on proposed upgrades to the Cook Inlet Natural Gas Storage Alaska facility on the Kenai Peninsula. CINGSA has expressed concern about its vulnerability to the failure of single items of equipment in its facility, a failure that the company says could jeopardize its ability to support high rates of gas delivery during periods of high winter utility gas demand in Southcentral Alaska. Natural gas is a vital fuel in Southcentral for heating buildings and generating electricity.
As the Cook Inlet gas industry has matured, gas production capacity has declined. Continuing gas field development has maintained annual gas production volumes at required levels to meet the utilities’ needs. But peak gas deliverability from the gas fields, the rate at which gas can be delivered to the utilities, has dropped below peak winter demand. Hence storage facilities, in particular CINGSA, play a vital role, warehousing summer produced gas that can be used to boost gas deliverability during the winter.
CINGSA wants to drill two new wells, to reduce dependence on a single well that now accounts for about 44 percent of the deliverability of the facility’s five wells. The company also wants to add technology for water management in one existing well, the installation of an additional dehydration train and the installation of a new turbine gas compressor.
Pre-approval of project prudence Worried about obtaining eventual RCA approval of recovering the estimated project cost of $41 million from the rates that it charges customers for storage usage, CINGSA has asked the commission for pre-approval of the prudence of the project - a utility such as CINGSA does not need approval for a project of this type, but the company will require RCA approval of the resulting changes to gas storage rates. If the RCA were then to determine that the project had not been prudent, CINGSA and its parent company would end up saddled with the upgrade costs.
The gas storage fees that CINGSA charges become a factor in the prices that Southcentral residents and businesses pay for gas and electricity.
An RCA pre-authorization request of this type is very unusual. However, there was a somewhat similar case a few years ago when Chugach Electric Association and Municipal Light & Power sought and obtained pre-approval of the prudence of building a major new power generation plant in Anchorage.
Questions of legality There was discussion during the CINGSA hearing about whether it is appropriate or legally necessary for the RCA to adjudicate in a case of this type. It appears that, in its deliberations, the commission could opt to issue a decision, or could simply decide not to make a ruling.
There was also discussion around the scope of any decision that the commission may make. There appeared to be general agreement that the decision needs to relate to the prudence of carrying out the project, and not to the prudence of how the project may be managed and how much it ends up costing. In other words, when the recovery of the cost of the project inevitably appears in a CINGSA rate case, the commission could at that stage decline to allow CINGSA to recover all or part of the project cost from storage rates, on the grounds that the costs are unreasonable. But, if the commission has pre-ruled that the project is prudent, the commission would not be able to reject rate recovery on the basis that the project should not have been carried out.
Importance to Enstar Enstar Natural Gas Co. is CINGSA’s biggest customer and is critically dependent on CINGSA’s services. The two companies are affiliates with shared management. Enstar says that it strongly supports the upgrade project, to ensure the reliability of gas supplies to its customers. During the hearing Lindsay Hobson, Enstar communications manager, cited as an example of the critical importance of the storage facility the gas supply situation on Jan. 19, 2017, when demand for Enstar gas hit an all-time high of 253 million cubic feet for the day. Enstar had made upgrades to its facilities to boost its gas deliverability capabilities. Nevertheless, on that particular day 107 million cubic feet of that 253 million cubic feet total had to come from CINGSA’s facility. And, in the event, Enstar succeeded in maintaining gas supplies to its customers without interruption, Hobson said.
Hobson commented that if there were to be an interruption to gas supplies to Enstar’s customers it would take days and perhaps weeks to restore services, given the need to purge the gas lines and manually restart the gas supply at each impacted home.
Anchorage electricity utilities Chugach Electric Association and Municipal Light & Power both expressed views that they do not object to CINGSA’s request for approval of the prudence of the storage facility upgrade. Tara Kaushik, attorney representing Chugach Electric, told the commission that Chugach Electric recognizes that Enstar is CINGSA’s largest customer and that Chugach Electric cannot say whether the project is required to meet Enstar’s needs.
Opposition from Homer Electric Homer Electric Association, however, opposes RCA approval of the project. Attorney Pamela Anderson, representing Homer Electric, said that CINGSA’s track record of reliable and uninterrupted service demonstrates that upgrades to the facility are not necessary. Even on that peak day in January 2017, the rate of delivery of gas from the facility was well below its design maximum of 150 million cubic feet per day, she said. Anderson also claimed that, even if the top delivering well in the CINGSA facility were to go out of action, the facility could continue to operate up to its design capacity for up to 21 days, using its four remaining wells.
CINGSA has said that its upgrade plan in part results from patterns of storage facility usage that have differed from what was originally expected and from an assessment of the risks that the facility faces. The company argues that, regardless of the reliability of the service in the past, it is prudent to take steps to guard against future problems.
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