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Gulf of Mexico gas producers assess impact of Kinetica rate increase request

Highlights

Proposed hurricane surcharge seeks to cover damages

Municipal group says hike will impact small distributors

Houston — Gulf of Mexico natural gas producers Shell, Chevron and ExxonMobil asked US regulators May 11 to allow them to weigh in on Kinetica Energy Express' proposal to significantly raise transportation rates on its system and institute a hurricane surcharge that could go into effect when the Atlantic storm season begins June 1.

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Under the tariff proposal, KEE's transportation rates would increase $0.2118 to $0.5718/Dt for interruptible service. The reservation rate for firm service would increase $6.4423 to $17.3923/Dt.

The new hurricane surcharge would initially be set at zero, but KEE could file annually to recover "eligible costs" incurred as the result of a "storm event," defined as "any hurricane, tropical storm or depression named or numbered by the US National Weather Service."

The current rates were established under a settlement filed on April 15, 2020.

In a filing to the Federal Energy Regulatory Commission, Shell said that as a producer and marketer of natural gas that ships supplies on an affiliated Kinetica system, it has interests that may be affected by the outcome of the proceeding. Chevron and ExxonMobil, in separate filings, made similar statements.

Kinetica says that its revenues have fallen substantially, and its costs have risen, over the last three years. It also says it saw substantial damage in both the 2019 and the 2020 hurricane seasons. Last year's Atlantic hurricane season was the busiest on record. Kinetica argues that that more big storms can be anticipated.

The KEE system comprises 1,340 miles of gas pipelines serving multiple markets onshore and offshore of Louisiana.

In their filings to FERC, the Gulf producers noted that while the rate increases and hurricane surcharge are proposed to be effective on June 1, the operator would not oppose a suspension for five months. That would result in an effective date of Nov. 1.

In a protest filed with FERC on May 7, the Louisiana Municipal Gas Authority said the new rates would impact one of its members, the town of Grand Isle, which purchases firm transportation from Kinetica. Grand Isle owns and operates a small natural gas distribution system providing local natural gas distribution service.

"The magnitude of the increase -- and the corresponding impact on Kinetica's customers, particularly those such as Grand Isle that pay non-discounted rates -- demand careful scrutiny," the municipal group said. "Accordingly, LMGA submits, the commission should suspend the filing for the full five-month suspension period and establish evidentiary hearings to determine the rates that are just and reasonable."