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Preliminary cost issue
RCA opens docket over Enstar's request to recover costs through its gas tariff
Alan Bailey for Petroleum News
In a Feb. 4 order the Regulatory Commission of Alaska denied a request from Anchorage based gas utility Enstar Natural Gas Co. to waive the normal statutory notice period for a tariff change, to enable a funding mechanism for the initial stages of a project for construction of a liquefied natural gas import terminal near Nikiski on the Kenai Peninsula. Instead, the commission has opened a docket to investigate the situation. The commission has scheduled a prehearing conference on Feb. 13 and says that it will issue a final order in the docket by Oct. 25.
The LNG import project is being pursued in response to an imminent shortage of gas supplies from the Cook Inlet basin. As previously reported by Petroleum News, Enstar has signed an exclusivity agreement with New York based Glenfarne Energy Transition to jointly work on the project. In the interest of expediting the planned project Enstar asked the commission to approve the requested waiver by Feb. 21.
Enstar and Glenfarne have agreed to work together over the next few months to develop joint development agreements, with the objective of then working toward a final investment decision that would lead to the construction and implementation of the LNG terminal.
Although the planned project only involves Enstar and Glenfarne, Enstar is actively engaging with the other Railbelt utilities in seeking a solution to the gas supply problem. Enstar, in its RCA filing, says that it will work with other utilities "to conclude back-to-back gas sales agreements and/or terminal capacity sharing agreements."
Potential $58 million in costs Enstar is seeking RCA approval for the recovery through gas rates charged to its customers for up to $58 million in costs that the utility expects to incur in association with the work leading to a decision on whether to proceed with the engineering and construction of the import terminal.
RCA has previously approved a regulatory asset under which the Alaska Railbelt utilities, including Enstar, have investigated options for addressing future gas supply shortages. Following a decision to move forward with the LNG import option for addressing the shortages, Enstar now wants to include costs associated with the LNG import project in the utility's gas cost adjustment, or GCA, calculations that are used to adjust the fees that Enstar charges its customers.
"Enstar proposes to recover future costs on an 'on-going' basis through each annual GCA," Enstar told the commission. "This process would ensure that costs of securing the long-term gas supply project are timely reflected in the cost of gas."
Three different cost categories The utility is seeking approval for the recovery of three different categories of cost: the utility's own costs associated with the project, costs incurred by the project developer and carrying costs associated with the regulatory asset for addressing the pending gas supply shortage.
There are two possible scenarios for dealing with the costs incurred by Glenfarne, the project developer. If the project advances to the construction of the import terminal, the developer costs will be applied to the capital cost of the terminal. The costs would then be recovered through the fees associated with the use of the terminal. If, on the other hand, the construction project does not proceed, Enstar would reimburse Glenfarne for the estimated project costs of up to $48 million and recover this cost through the rates the utility charges to its customers. In the event of this happening, Enstar estimates an impact of $15 per month to its residential customer bills.
In addition, Enstar and Glenfarne will independently fund their costs associated with project related agreements, potentially including a project development agreement, a gas sales agreement and a terminal use agreement.
Upfront costs for the project The upfront costs incurred by Glenfarne are anticipated to include the cost of conducting a front-end engineering and design project, while Enstar's anticipated costs during the course of engineering activities include the finalizing of commercial agreements and oversight of Glenfarne's activities.
Also, the project will need Federal Energy Regulatory Commission approval of required permitting, potentially including an environmental assessment. However, a decision to site the LNG import facility at a location already approved by FERC for an LNG export facility associated with a potential gas pipeline from the North Slope should simplify the permitting process, Enstar told RCA.
The upshot of all of this is the estimated $58 million that Enstar wants to be able to recover through its rates.
In its Feb. 4 order RCA cited a number of issues that need to be resolved regarding what Enstar is asking permission to do. These questions include a potential conflict with FERC jurisdiction over the construction of the LNG facility; why the funding of the regulatory asset for the gas supply investigation should not simply be terminated at this stage; why Enstar's ratepayers should have to assume the costs arising from the risks associated with the project; and why Enstar should be allowed to recover its costs through the GCA rather than through a rate case.
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