Pipeline rate settlement helps decrease HEA bills

Edit: This story has been updated with additional information on Kenai Beluga Pipeline’s 2015 traffic.

A settlement in February over the cost of delivering fuel gas through the Kenai Beluga Pipeline (KBPL) will contribute to a decrease in next month’s electric bill for members of Homer Electric Association.

The settlement halts a dispute between several utilities and industrial gas consumers and KBPL, a wholly-owned Hilcorp subsidiary which formed in November 2014, when four different gas pipelines consolidated under Hilcorp ownership into a 137-mile line reaching from Ninilchik to Beluga. In May 2016, KBPL petitioned the state public utility regulator, the Regulatory Commission of Alaska, to allow it to raise the price of delivering a thousand cubic feet of gas from 29.15 cents to 63.98 cents.

One element in the increase was the 2015 installation of two new compressors in Nikiski, meant to pump a greater volume of gas through KBPL’s trans-Cook Inlet section from Nikiski’s East Forelands to west-side facilities such as the Trading Bay oil fields and the gas-fired Beluga Power Plant, providing for several platforms along the way. These compressors cost $12.2 million total, which the RCA had previously sanctioned as “prudently incurred costs” that benefitted the pipeline system.

When KBPL Vice President Richard Novcaski testified supporting the increase to the RCA in May 2016, the pipeline was also getting less use than it had in 2015, the year on which KBPL had calculated the expense it had to recover through its new rates. By June 2015, ENSTAR had finished installing a pipeline into the Cook Inlet Natural Gas Storage Alaska (CINGSA) facility, a depleted well in which four utility companies store gas during the summer for withdraw during the higher-demand winter.

Before completion of ENSTAR’s bypass pipeline running alongside Kenai’s Bridge Access Road, the only CINGSA-connected pipeline had belonged to KBPL. In January 2015, before the ENSTAR bypass line was active, KBPL moved 1.1 billion cubic feet of natural gas out of CINGSA, according to volume data that Novcaski supplied to the RCA. By In December 2015, its CINGSA traffic had dropped to 62.57 million cubic feet. As a result of ENSTAR’s competing pipeline, Novcaski said KBPL has “conservatively estimated that 90 percent of the volumes recieved from CINGSA during (2015) will not recur.”

ConocoPhillips’ liquified natural gas export facility in Nikiski, which operated for six months in 2015, had also received a large but sporadic share of KBPL’s traffic. The pipeline moved LNG during seven months of that year, during which LNG made up between 34 percent and 60 percent of its volume. The ConocoPhillips LNG facility stopped taking gas for export in October 2015 and is now inactive. ConocoPhillips announced in November 2016 that the plant is presently for sale.

As another element in the cost increase, Novcaski cited the possibility of the Alaska LNG Project’s pipeline being constructed to a terminal in Nikiski. This would allow utilities and industries to withdraw gas from it without using the Kenai Beluga Pipeline — shortening the pipeline’s economic life and requiring KBPL to raise revenue in a shorter period of time for the pipeline’s eventual demolition and removal — an estimated cost of $47.58 million, according to a study Novcaski cited.

In July 2016, the RCA approved the increased temporary rate. Of the 10 entities that ship gas through the Kenai Beluga Pipeline network, several protested.

HEA uses the Kenai Beluga Pipeline to transport fuel gas stored in CINGSA to its gas-fired Nikiski Combined Cycle Plant. In a complaint to the RCA, HEA stated that prior to the pipeline consolidation that created KBPL, it paid eight cents to transmit a thousand cubic feet of gas to the Nikiski plant, and called the jump to nearly 64 cents unreasonable.

HEA, which owns no facilities on the west side of Cook Inlet, was one of the complainants to oppose including the pipeline’s new compressors in the costs to be recovered through the increase, saying HEA receives no additional value from them.

“HEA does not need east-to-west gas transportation services and cannot envision a future scenario in which this service would be required by its members,” wrote attorney Pamela Anderson, representing HEA, in a comment to the regulatory commission.

ENSTAR, which wrote in its July 2016 petition to intervene that approximately 42 percent of its gas moves through the Kenai Beluga Pipeline, also intervened in opposition, as did Chugach Electric Association, Matanuska Electric Association, Anchorage’s municipal utility Municipal Light and Power, the Nikiski fertilizer plant Agrium, the Nikiski petroleum refinery Tesoro, AIX Energy, and the Alaska Attorney General.

The groups began mediation on the issue in September 2016, and in December, KBPL proposed a new temporary rate of 37.05 cents.

As part of the settlement, HEA will receive a $537,656 refund from the fees collected under the former rate, in effect from June 30, 2016 to Jan. 1, 2017.

The refund, combined with a general fall in the price of gas delivery, will shrink HEA’s Cost of Power Adjustment — the element of an electric bill meant to compensate for generation and transmission costs — by 6.9 percent, leading to a $2.75 reduction for a residential HEA member using the average consumption of 550 kilowatt-hours per month. The decrease will go into effect April 1.

In the broader view, the settlement price will cost HEA $1.2 million less than the originally proposed price, according to HEA General Manager Brad Janorschke’s March report to the HEA Board of Directors.

The settlement rate is also temporary, however — it will remain in effect until Jan. 1, 2018, when a permanent settlement may be enacted pending an investigation by the Alaska Attorney General’s office.

Reach Ben Boettger at ben.boettger@peninsulaclarion.com.

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