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THE EXPLORERS 2005: CIGGS dispute may be nearing an end The parties to the dispute are waiting for a regulatory commission ruling on a proposed settlement Alan Bailey Petroleum News
On Sept. 27 the parties to the Cook Inlet Gas Gathering System dispute — Marathon Oil Co., Unocal Corp. (now part of Chevron), Agrium, the Cook Inlet gas producers, Enstar Natural Gas Co. and the state of Alaska — filed a settlement agreement with the Regulatory Commission of Alaska. As of Oct. 17 RCA had not issued a ruling on the proposed settlement.
The Cook Inlet Gas Gathering System, commonly known as CIGGS, transports gas from fields in the Trading Bay area on the west side of the Cook Inlet to the industrial facilities at Nikiski on the east side of the inlet. Marathon and Unocal jointly own CIGGS, which has been operated as a private, unregulated system since its construction in the early 1970s. The dispute revolves around public access to the system.
According to a statement included in the September RCA filing “Marathon and Unocal will open their Cook Inlet Gas Gathering System (CIGGS) to use by the public and will submit it to regulation under the Alaska Pipeline Act.” The CIGGS owners will guarantee a minimum capacity of 40 million cubic feet per day for common-carriage service for third party shippers. The owners will retain firm rights to use the remaining capacity “subject to the terms and conditions set out in the settlement agreement,” so that the owners can continue to use the system for its present purposes.
The rate base for the use of CIGGS will be valued at the owner’s original investment cost and there is settlement rate methodology for calculating rates. The initial tariff rate will be 15.2 cents per mcf shipped, but after the first year of regulated service this rate may be modified if there is a “substantial and material” change in gas throughput in the system.
The proposed settlement deals with numerous issues associated with opening the pipeline system for third party shipper use — provisions within the settlement address issues such as operating pressures; input and output imbalances; control and monitoring; and gas quality. Started in January 2004 The CIGGS dispute started in January 2004 when Agrium, the owner of the fertilizer plant in Nikiski, filed a formal complaint with RCA. Agrium claimed that Marathon was failing to provide transportation services through the system under the terms of the Alaska Pipeline Act.
Because CIGGS was built before the passage of the Alaska Right-of-Way Leasing Act, the system enjoys an exemption, based on the pipeline’s original usage, from that act’s requirements that pipelines crossing state lands must be common carriers. But Agrium, faced with dwindling gas supplies for its fertilizer plant, viewed the operation of CIGGS as an unregulated pipeline as an impediment to establishing new sources of gas from the west side of the Cook Inlet.
RCA rejected Agrium’s complaint in April 2004 but in October 2004 Agrium filed a second complaint, this time against both Marathon and Unocal, for “violations of the Alaska Public Utilities Regulatory Act and the Alaska Pipeline Act through providing unregulated transportation service and refusing to provide regulated transportation service through the Cook Inlet Gas Gathering System.”
Marathon, the CIGGS operator, told RCA that changing the regulatory status of the gathering system would not change the amount of gas available in Cook Inlet, and could make less gas available to customers because the gathering system can only carry so much gas without an expansion. Marathon also told the commission that it would cost several million dollars to convert CIGGS to common carrier status and accused Agrium of ignoring these costs.
And in an interview with Petroleum News, Marathon cited major costs and delays resulting from the regulatory process for the Kenai-Kachemak pipeline as evidence that regulating a pipeline may prove more difficult and expensive than negotiating commercial arrangements for shared use. Move toward negotiation In December 2004 Aurora shut in its Nicolai Creek gas field southwest of Granite Point because of a commercial dispute regarding access to CIGGS. And Nicolai Creek remained shut in despite a May 2005 RCA ruling that granted interim access to CIGGS for Nicolai Creek gas without prejudicing the outcome of the RCA review of Agrium’s complaint.
Meantime RCA accepted petitions by Aurora, Enstar and the state of Alaska to intervene in the dispute. RCA set a schedule running through Nov. 2, 2005, for filings, briefs and responses.
On May 26 the parties to the dispute announced that they had entered mediated negotiations to find a settlement. On June 24 the parties said that they had executed a comprehensive agreement in principle “setting forth the principal settlement terms intended to resolve all outstanding rate and tariff issues.” RCA accepted the agreement in principle. Then, after another three months of hammering out the detailed commercial terms for the use of CIGGS, the settlement that RCA is currently reviewing emerged.
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