In yesterday's blog, we urged the Regulatory Commission of Alaska (RCA) to repudiate its chaos-causing, 2006 rejection of the APL-5 Enstar-Marathon long-term gas supply agreement, to fall back on its 2001 Unocal gas supply agreement approval precedent as an appropriate 'standard of review' and to reasonably and timely approve current and future gas/power supply agreements between utilities and gas/power providers on a case by case basis. 

Your author was tied up with conference calls yesterday but a loyal reader briefed us on the RCA public meeting.  To set the stage, readers should know that RCA deliberates on three three types of matters that are organized into 'dockets': 'P' Dockets deal with pipeline matters adjudicated under AS 42.06; 'U' Dockets deal with utility matters (AS 42.05); 'R' Dockets are rulemaking dockets wherein the RCA exercises its quasi-legislative power to promulgate regulations which have the force of law.  Regs become part of the body of law after public hearings and public adjudication whereas 'P' and 'U' dockets are adjudicated in secret after a full due process proceeding.  'I' Dockets are informational or investigative in nature and designed to organize input from the public to commissioners in an effort to help them decide whether to proceed with a rulemaking, to open an 'R' docket.  Yesterday, the Commission's public meeting dealt with two 'I' Dockets that concern our gas pipeline readers.  Finally, we remind readers that this blog is based on accuracy and we always invite additions or corrections.  You may, of course, comment on the blog but, in addition, feel free to send us your addition/correction directly and we shall modify our original report accordingly:

OUR FURTHER COMMENT

1.  The RCA Should Not...

...become any more involved in gas and power supply negotiations than is absolutely necessary.  The RCA does not have jurisdiction over natural gas producers like Marathon, Chevron and ConocoPhillips.  When it attempts, as it has since its disasterous denial of the 2006 APL-5 contracts, to manipulate the market price of natural gas, it succeeds only in confusing the marketplace.  To successfully manipulate price, it would have to grasp jurisdiction to regulate the producers.  This would be necessary in order to determine their 'just and reasonable costs of production' in order to then 'allow' the utilities to pay producers a price that 'allowed' them to recoup 'a return of and on their investment'.  If Alaska seduced itself into this sort of socialized regulation, one could predict the gradual then accelerating exit, over a very few years, of producers subject to RCA jurisdiction.  Sure, well-intended Commissioners might think, "I've got to do something to keep the price of gas/power down."  But such good intent places the price of energy above the importance of the long term supply of energy.  In the long run, when Commissioners try to manipulate what cannot be manipulated they produce both shortages of energy and higher energy prices for consumers.  When I served on the Commission and dissented against the majority's rejection of APL-5, it was with the conviction that, "The RCA should regulate what it must and deregulate what it can".  My dissent came with conviction that the majority's decision would threaten consumer energy supplies, and it has.  I knew that consumer prices could increase more than the APL-5 approval would have allowed, and that is happening.   I believed that any logical reading of the record would lead to a conclusion that rejection of APL-5 would bring chaos to the Alaska energy marketplace, put the economy of Alaska at risk, put the lives of consumers at risk, and deter investment in energy for Alaska consumption.  Maturity and judgment should have taught decision makers by now what it did not earlier teach: sometimes the best action to take is less action.  Sometimes less is more.   Restraint does not always signify weakness; sometimes it reflects wisdom.

2.  The RCA Should know when to hold 'em, know when to fold 'em, know when to walk away and know when to run.

• Hold 'em. 
  • Make sure utility gas and power supply agreements don't have egregious errors.  Then, use the Unocal 2001 precedent to timely approve these agreements between willing parties.  Finally, encourage and support utilities in their quest for long term supply agreements for gas and power and don't punish them when they do produce such agreements.  This change in attitude by the RCA could largely remove the threat of catastrophic energy disruptions in the future.   It would also provide producers with some evidence that clarity and reason were returning to the Alaska investment climate.
  • Go ahead and make sure utilites have coordinated emergency plans that apply in any circumstance, ranging from gas supply disruptions, earthquakes, volcanoes, etc.
  • But since emergencies are now imminent, the RCA should look into its own emergency procedures, if it has any.  For example, it should assign one Commissioner to oversee a function within the Consumer Protection office to develop contingency plans and respond to utility emergencies.  Frequently, the major challenge of temporary power outages is lack of timely, accurate public information.  The RCA could establish emergency contact procedures with each utility in the state and roll into action when consumers experience utility emergencies, such as power or gas supply disruptions.  It should have close and continuing contact with the state's Homeland Security operations and with each municipal and borough emergency office.  News media and talk show hosts should have a one-stop-shop abililty to contact the RCA for any utility related emergency in the State and the RCA should be able to immediately respond by telephone and Internet.   (P. S. What is the RCA's plan for coordinating utility emergencies and public information if its own employees are caught, powerless, at home and the office has no power?)
• Fold 'em.  Resist the seductive temptation to over regulate as in the 2006 rejection of the APL-5 ENSTAR-Marathon gas supply agreement.  Regulatory commissions are created to regulate monopoly utility and pipeline activity as a substitute for competition.  But Cook Inlet gas producers and Cook Inlet Region Inc.'s Fire Island wind production are not within jurisdiction of the RCA.  While that fact may cause anguish to some commissioners, they should take a deep breath and accept the fact that their utilities will negotiate the best deals they can with gas, wind, geothermal, tidal or any other type of gas or power producer.  If commissioners do not know when to fold 'em and are seduced by the desire to exercise power over the production of power, they will end up hurting the consumers and utilities they are pledged to properly regulate.
• Walk Away.  The RCA currently deliberates over whether to not more strictly regulate gas supply agreements.  It better walk away.  If it doesn't, it will add confusion to the marketplace and further deter producer interest in meeting utility needs.  If they don't walk away now, they will become more guilty than APL-5's rejection has already made them, perhaps transforming today's difficult energy supply challenges into tomorrow's catastrophe.
• Run.  If the RCA does not run from the temptation to overregulate, it will be run out of town by citizens, legislative bodies or other elected leaders.  Its attempt to manipulate unmanipulatable costs will be seen by more and more citizens as the principle cause of Southcentral Alaska's iminent energy crisis.  For the last several years, utilities have come perilously close--on the coldest, darkest winter days--of shutting down.   What are the effects of 'shutting down', even for a few days?  Well, if there is insuffient pressure in ENSTAR's transmission and distribution pipes, pilot lights will fade as air begins to fill the vacuum once filled by pressurised gas.  Utility experts will have to come to each home and business to relight pilot lights once the system is repressurized.  If the Southcentral electric utilities, that rely largely on natural gas for electric power production, have insufficient gas, the gas turbine-powered generators begin to shut down.  Even if there is enough natural gas for residences, lack of gas for the electric utilities causes natural gas furnaces to lose their electric powered pumps and blower units.  Also, if electric supply is erratic, electric motors can be ruined as can computers.  Gasoline and air pumps can't operate.  How would such events affect homeowners...retail services...hospitals...police and fire...Elemendorf and Fort Richardson...other government services...movie theaters...traffic lights...real estate sales...airports?  You say, "Well, some of these have generators."  Perhaps.  But not all have generators and some generators are calibrated to use natural gas and not liquid fuel.  Generators have limited capacity.  Refineries that provide liquid fuels for home and business generators are somewhat dependent, are they not, on secure supplies of electricity and natural gas?  The bottom line is that disruption of natural gas supplies is unacceptable.  Since the RCA cannot but confuse the situation, it should recompose itself more as a 'supportive regulator' and retreat from its 'patronizing and overreaching regulatory posture'.  -dh

ADN via PNA by Wesley Loy. The state paid $193 million in cash over the past year to oil and gas explorers in exchange for tax credits they had accrued for making investments in the state, the Department of Revenue said.     *    Oklahoma State Regulatory Commissioners succeeded in urging their colleagues yesterday to adopt a resolution ... (story coming)

Energy Regulators from the U.S., Canada, Mexico and beyond meet for the NARUC summer conference in Seattle today and NGP Publisher Dave Harbour addresses luncheon gathering.

This morning at the Westin Hotel, assembled commissioners--including members of the Regulatory Commission of Alaska--are hearing FERC Chairman, Jon Wellinghoff, Mexican Energy Regulating Commission President, Francisco Xavier Salazar Diez de Sollano, and Canadian National Energy Board Chairman Gaetan Caron (NGP Photo, 9-07, middle, with Alaska Revenue Commissioner Pat Galvin  (left) and Dave Harbour) discuss energy policies at the gathering of some 800 Commissioners, staff , and other attendees.

NARUC Commissioner Emeritus Dave Harbour of Alaska is co-hosting a luncheon sponsored by the Consumer Energy Alliance (CEA) on whose advisory board he serves.  Harbour will present CEA President David Holt, Shell Oil's Alaska Manager Pete Slaiby (NGP Photo, 4-09) and Alaska Airline's Scott Ridge discussing the impact of energy policy on the Nation's consumers.

Tomorrow, Harbour will address NARUC's Gas Committee on the subject of technical studies sponsored by NARUC.  Harbour is former Co-Vice Chairman of the NARUC Gas Committee and former Chairman of the Gas Committee of the Western Conference of Public Utility Commissioners.

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Petroleum News Alaska: Prince William Sound Regional Advisory Council seeks John Devens' replacement (We're glad to see former ADN reporter Wesley Loy (NGP Photo) reporting, and wish him well in what we know will continue to be a stunningly successful career).   Legislature issues RFP for study on Alaska natural gas tax policy.  Kitimat LNG project moves forward, by Gary Park.  Former Premier Peter Lougheed wants to moderate oil sands tempo, by Gary Park.

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ADN by Kyle Hopkins.   The Fish and Wildlife Service says no deal after years of study and negotiations -- not to mention 100,000 public comments as environmental groups nationwide and some nearby villagers protested potential drilling in the Yukon Flats National Wildlife Refuge. But there's a twist. The Fairbanks-based Native corporation that pitched the swap, Doyon Ltd., may be happy to see it die.