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RCA still to rule on CIGGS settlement Appeals to an earlier Regulatory Commission of Alaska ruling are still open but the CIGGS owners hope for a negotiated settlement Alan Bailey Petroleum News Staff Writer
The settlement agreement announced on Sept. 27 regarding access to the Cook Inlet Gas Gathering System (known as CIGGS) marked a major step towards resolution of a long-running CIGGS dispute. However, with the Regulatory Commission of Alaska still to rule on the proposed settlement, appeals by Unocal (now part of Chevron) and Marathon Oil Co. to the Superior Court of the State of Alaska over an April 2005 RCA order relating to the dispute have yet to be heard.
CIGGS transports gas from oil and gas fields in the Trading Bay area on the west side of the Cook Inlet to the fertilizer and LNG plants at Nikiski on the east side of the inlet. Marathon and Unocal jointly own CIGGS and until recently have operated the system as an unregulated gas gathering system, under a grandfathering provision of the Alaska Right-of-Way Leasing Act.
Since early 2004 Agrium, the owner of the Nikiski fertilizer plant, has filed two petitions with the Regulatory Commission of Alaska to regulate CIGGS. Agrium viewed the unregulated operation of CIGGS as an impediment to access to gas from some producers on the west side of the Cook Inlet.
RCA dismissed the first Agrium petition but the second petition, filed in October 2004, remains open. Marathon, Unocal, Agrium, the Cook Inlet gas producers, Enstar Natural Gas Co. and the State of Alaska have all become parties to the CIGGS dispute. RCA ruling In response to Agrium’s second petition RCA on April 22, 2005, issued an order that found CIGGS to be a pipeline subject to regulation as a utility operation that transmits or distributes natural gas to the public for compensation.
RCA said that CIGGS operated in part as a gathering line for Unocal and Marathon fields on the west side of Cook Inlet, and in part as a transmission line for moving gas to Nikiski. RCA further found that CIGGS furnished gas to electric and gas utility companies (and hence to the public). In addition, RCA asserted that Unocal and Marathon were shipping gas through CIGGS for compensation because the companies’ gas prices must include the cost of using the CIGGS infrastructure, even though CIGGS transportation costs were not explicitly stated in the pricing.
On May 9 Marathon and Unocal submitted motions for reconsideration of the RCA order. Both companies disputed RCA’s characterization of any component of CIGGS as a gas transmission line rather than gas gathering system. Marathon also said that its gas pricing for CIGGS-delivered gas depended on the gas market and was unrelated to CIGGS costs — the company said that it sold gas to utilities at a point “after the movement on CIGGS is completed.”
However, on May 26 the parties to the dispute entered into mediated negotiations to find a settlement. Those negotiations resulted in the Sept. 27 settlement agreement. That agreement guaranteed that a minimum capacity of 40 million cubic feet per day through CIGGS would be available for regulated common-carriage service for third party gas shippers. The remaining capacity would remain available to Unocal and Marathon to continue the use of the system for its present purposes. The agreement also established rules for the tariffs that would apply to the regulated component of the CIGGS throughput. Interim service RCA subsequently approved interim service on CIGGS under the terms of the settlement. This interim service started on Nov. 1 and will continue until RCA rules on the settlement.
But RCA has not responded to the motions for reconsideration that Unocal and Marathon filed in May, following the April 22 RCA order. Under RCA regulations, this lack of response indicates RCA denial of the motions. So, on July 22 and 25, prior to expiry of the time period allowed for appeal, each company separately appealed the RCA order to the Alaska Superior Court. Those appeal cases remain open.
However, both companies would prefer a negotiated settlement. Chevron has told Petroleum News that it appealed the RCA April ruling “in case the CIGGS settlement is not approved.” And Marathon spokesman Paul Weeditz said that Marathon continues to work with RCA.
“We’ve reached a preliminary settlement agreement that is now subject to RCA approval,” Weeditz said. “We’re continuing to work with RCA towards finalizing that, which … is our preferred option to resolve those issues.”
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