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Chugach applies for new storage costs Tells RCA these are costs previously bundled as part of gas supply contracts; CINGSA storage will be purchased on unbundled basis Kristen Nelson Petroleum News
Natural gas storage isn’t new in Cook Inlet, but third-party gas storage is.
Chugach Electric Association told the Regulatory Commission of Alaska in a Dec. 15 tariff filing that storage costs are not new, but said they were previously part of bundled services embedded in Chugach’s gas supply contracts.
Chugach is contracting for storage with Cook Inlet Natural Gas Storage Alaska, owned by Semco Energy (parent company of Enstar Natural Gas, the Southcentral Alaska gas distribution utility), MidAmerican LLC, First Alaska and Cook Inlet Region Inc.
Chugach is requesting approval from the commission to recover natural gas storage and related transportation, injection and withdrawal costs through a quarterly fuel and purchased power adjustment mechanism. It is also requesting approval of its proposed methodology of recovery of the costs in rates.
Project certificated in 2011 The commission granted Cook Inlet Natural Gas Storage Alaska, or CINGSA, a certificate of public convenience and necessity for storage of natural gas on the Kenai Peninsula in January 2011. The commission also approved the tariff. The commission said CINGSA’s initial customers agreed that gas storage was needed and that only CINGSA’s proposed gas storage services were likely to meet the utilities’ urgent need for storage services.
Chugach is requesting commission approval to continue recovering gas storage costs through the established quarterly fuel and purchased power adjustment process.
Chugach said in its tariff filing that the costs are not new, but “were previously incurred and recovered through the surcharge process through bundled services embedded in the price contained in Chugach’s prior gas supply contracts. These services are now being purchased on an unbundled basis.”
The unbundled costs include cost of gas in storage; transportation of gas from the field to the storage injection point; injection costs; withdrawal costs; transportation of gas from storage; interest carrying charges; and storage reservation and capacity costs.
Volumetric and fixed recovery Chugach said all storage costs were previously recovered through one bundled price, but it is proposing that costs be assigned to appropriate seasonal periods, ensuring cost recovery from customers as they benefit from storage.
Specific gas storage cost elements are a direct function of system use and would be recovered on a volumetric basis, including transportation costs, injection and withdrawal costs, value of stored gas and attendant interest carrying costs.
Chugach said gas in storage would be valued on an average cost basis calculated on the association’s total cost of gas in storage divided by the total stored gas quantities.
Chugach is also proposing a monthly carrying cost based on its short-term interest rate on the basis of the total cost of stored gas, so that customers receiving the benefit of gas from storage will pay the attendant costs. Interest carrying costs cost total between $200,000 and $2 million annually, Chugach said, depending on interest rates, amount of gas in storage and gas prices. The association said it is required to pay reservation and capacity fees to use gas storage, from which members benefit throughout the year, and the methodology ensures customers pay for the standby value of storage.
The storage reservation and capacity costs would be charged on a monthly basis. The annualized fixed reservation and storage capacity costs are estimated to total $7.8 million initially but decrease to $6.6 million by 2017 as the contracted capacity is reduced from 2.4 billion cubic feet to 1.6 bcf.
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