|
KBPL defending pipeline expansion Pipeline operator believes capacity expansion is needed, defends postage stamp rate as a way to manage integrated system Eric Lidji For Petroleum News
A proposed expansion of east-to-west capacity across Cook Inlet would benefit all customers on the integrated pipeline system, even those customers who currently have no intention of shipping or receiving those supplies, according to the system operator.
Tesoro Alaska Co. LLC and Homer Electric Association Inc. recently questioned whether the cost of the expansion project should be included in system-wide shipping rates. The refiner and the utility operate facilities on the east side of Cook Inlet and had asked why they should fund the expansion when neither had any need for east-to-west shipments.
System operator Kenai Beluga Pipeline LLC believes those two customers would use the additional capacity, albeit indirectly. Specifically, the capacity expansion would better allow the company to “to manage pressures on its system to the benefit of all shippers.”
Speaking more generally, though, the company seemed to suggest that all customers on an integrated system should be expected to help fund system expansions, as needed.
“As gas production from some locations declines, and new gas sources come on line, KBPL expects it will need to expand and extend its system accordingly, as may be required by the public interest, to meet changing needs in the Cook Inlet,” Vice President Richard Novcaski told the Regulatory Commission of Alaska on Jan. 16. “All system users benefit from access to the integrated system, and KBPL should not be expected to justify each system extension or expansion by showing how a particular extension or expansion meets the parochially-defined needs of any specific interconnected person.”
The east-to-west capacity expansion “may be needed” as soon as next winter, according to Novcaski. If regulators approve the project by their current June 5 deadline, Kenai Beluga Pipeline “is hopeful that construction can be completed before winter,” he wrote.
Followed procedure The expansion is the biggest project to date on the newly integrated system.
After acquiring four regional pipelines through its two major Cook Inlet acquisitions, Hilcorp Alaska LLC created Kenai Beluga Pipeline to merge the pipelines into a single system. Among the key features of the consolidated system is a postage-stamp rate, meaning all customers pay the same rate to ship to and from any part of the system.
The postage stamp ramp was a component of a settlement agreement guiding various aspects of the merger. Tesoro signed the settlement. Homer Electric Association didn’t.
The agreement included procedures for managing a future east-to-west expansion, which Kenai Beluga Pipeline said it followed after proposing the project to stakeholders last year. The procedure requires Kenai Beluga Pipeline to provide cost estimates to customers and requires customers who approved the project to stand behind it unless the project went at least 20 percent over initial cost estimates. Kenai Beluga Pipeline said it proceeded with the project based on “indications of strong stakeholder support.”
The $16 million project would modify an existing compressor and add two new compressors at the Kenai Pipeline Junction to allow for larger shipments from fields on the east side of Cook Inlet to facilities on the west side. The project would roughly triple operating costs at the junction, in return for equivalent expansions in capacity.
The project would accommodate increasing industrial demand and declining production on the west side of Cook Inlet. It would also provide backup in case of a compressor failure at the Kenai Pipeline Junction or the temporary loss of other regional pipelines.
In a recent regulatory filing, Tesoro attorney Robin Brena had wanted to know whether Kenai Beluga Pipeline had “sufficiently considered alternative project configurations.”
According to Kenai Beluga Pipeline, no such consideration is required. Still, the company said it considered and rejected four alternate proposals because of cost or operational disadvantages. These were presented at a September 2014 hearing.
Defending the stamp Even if regulators approve the expansion project, the debate will continue.
Homer Electric Association has said it intends to challenge the postage stamp provision when Kenai Beluga Pipeline files its next rate case, which is planned for early 2016.
While Kenai Beluga Pipeline is hesitant to fight that battle now, the company is defending the postage stamp rate, which it claims encourages efficient use of the system, encourages natural gas exploration at the edges of the system and simplifies accounting. Previously, shippers chose pipelines based entirely on rates, which congested some pipelines and left others underutilized, Novcaski wrote.
“Departing from the postage stamp rate concept for the Compressor Expansion facilities would be an unfortunate step,” he added. “It would begin a process of re-balkanizing the system with separate rates and zones, as there would be calls for additional departures when any particular customer decides it is not sufficiently ‘benefitted’ individually by any particular system expansion or proposed extension into new production areas.”
| 