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Gas companies butt heads over Kenai Beluga Pipeline

  • Author: Eric Lidji
  • Updated: September 28, 2016
  • Published January 11, 2015

A proposal to increase east-to-west deliverability across Cook Inlet is revealing some of the potential challenges of consolidating four regional pipelines into a single system.

Tesoro Alaska Co. LLC and Homer Electric Association Inc. are questioning whether the cost of the regional expansion project should be included in systemwide shipping rates.

Enstar Natural Gas Co. believes the project would bolster the overall system.

The Hilcorp Alaska LLC subsidiary Kenai Beluga Pipeline LLC is seeking regulatory approval to upgrade an existing compressor and add two new compressors at the Kenai Pipeline Junction to increase shipments from natural gas fields on the east side of Cook Inlet to gas-powered facilities on the west side, where gas production is declining.

Hilcorp recently created Kenai Beluga Pipeline to merge four regional transmission pipelines into a single system. The consolidation carried broad support from utilities and producers across the region. Among the features of the consolidated system is a postage-stamp rate, meaning all customers pay the same rate to use any part of the system.

The expansion project is expected to cost some $16 million and could nearly triple operating costs, according to Kenai Beluga Pipeline. If regulators allow the company to recover project costs through its rates, those rate increases could theoretically impact all customers, even those with no interest in east-to-west shipments. Kenai Beluga Pipeline has estimated that the project could increase rates by 4.8 cents per thousand cubic feet the next time the utility evaluates its shipping rates, which is scheduled for early 2016.

Tesoro objections

"While Tesoro does not intend to challenge the use of a postage-stamp rate methodology in (Kenai Beluga Pipeline's) anticipated rate filing, it does not follow that all capital costs associated with the project are appropriate to include in such a calculation," Tesoro attorney Robin Brena told the Regulatory Commission of Alaska in comments on Jan. 2.

Tesoro wants regulators to investigate whether the project is needed, or at least whether Kenai Beluga Pipeline "has sufficiently considered alternative project configurations."

The refiner questions why all customers on the consolidated system should pay for a project intended largely to bolster supplies for facilities on the west side of Cook Inlet.

The company also wants to know how a proposed Enstar project to connect the Cook Inlet Natural Gas Storage Alaska LLC facilities to the existing transmission grid might impact the proposed Kenai Beluga Pipeline expansion project. If the Enstar project pulls customers away from Kenai Beluga Pipeline, it might jumble project economics.

Homer Electric concerns

Homer Electric Association shares many of those concerns.

The utility previously questioned the existing postage stamp rates on the consolidated system and now questions whether the expansion project should increase those rates.

According to Homer Electric Association, Kenai Beluga Pipeline "has made no showing that the additional compression proposed in the expansion project benefits all shippers on its system nor a compelling case that the additional compression is needed at all."

Like Tesoro, Homer Electric Association is asking regulators to investigate the proposal.

Enstar disagrees

Enstar unequivocally supports the proposal.

"Enstar supports the application because it provides critical operational redundancy, improves the trans-Inlet transmission capacity, and supports efficient management of pipeline pressures," Enstar President Jared Green wrote to the commission on Dec. 31.

By adding two compressors, the expansion project would provide much needed backup at the Kenai Pipeline Junction, according to Enstar. The additional support, and the increased east-to-west capacity, is especially needed to protect the system during "cold weather scenarios." The additional capacity would also provide a useful short-term alternative should any of four existing marine pipelines in Cook Inlet fail, Green wrote.

Enstar proposed a similar transmission system upgrade at a public meeting in May 2013.

The commission is currently scheduled to rule on the expansion project by June 5.

This story originally appeared in Petroleum News. It has been republished with permission.