by

Steve Pratt

(NGP Photo)

(Note: your author’s earlier views on Cook Inlet Gas pricing.)

The process used by the Regulatory Commission of Alaska to approve utility natural gas supply contracts is costly and problematic.  So noted RCA Chairman Bob Pickett in opening remarks at a natural gas pricing technical conference held at the commission today.  Documents from the conference can be found at www.state.ak.us/rca with inquiry reference I-09-007.

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The announced purpose for the conference was to explore ways to make the RCA’s natural gas supply contract review process more predictable and straightforward.  Utilities, producers, and interested parties were all invited to join the discussion.  Among the issues the RCA wanted to consider was the potential for a “safe harbor” pricing mechanism – contracts pricing gas within some predefined limits would receive very little RCA scrutiny.  Major producers, citing anti-trust concerns with establishing consensus pricing guidelines with other Cook Inlet producers, and a general unease with the narrow focus of the proceeding, declined to participate.  Their comments can be found at www.state.ak.us/rca as noted above.

Chairman Pickett focused his discussion on the appropriate standard of review the RCA should use when acting on contracts:  “What should be the appropriate standard?”  He also indicated that there might be some skepticism about various forms of review “given the RCA’s actions over the last decade.”  Commissioner Wilson wondered if retrospective review of contracts would be a better vehicle than prospective.  The current approach is “expensive for ratepayers and time consuming”.  Commissioner Price was concerned about the ability of the commission to make appropriate decisions on the price for Cook Inlet gas since “no one came forward with production costs for Cook Inlet”, noting that cost must be the basis for commission decisions.

Allan Dennis and Kurt Gibson from the state Division of Oil and Gas stated that the division has a dedicated staff working diligently at identifying available Cook Inlet gas resources.  The fundamental review has not changed since March, 2009 – it is clear that additional resources are available in the Cook Inlet area but these will require investment to access.  4 weeks from now they should have available the latest results from an assessment of undeveloped resources in the area. 

Tony Izzo and Steve Pratt appeared on behalf of Mayor Sullivan’s Anchorage Energy Task Force.  The message from the MOA was that energy supply issues are critically important to the community, and “the goal of the RCA should be to establish a working commercial framework within which negotiated natural gas supply contracts can be implemented.”

Enstar believes advance approval is required to protect its financial integrity – should the RCA not approve a multi-year, multi-million dollar contract, Enstar’s financial exposure might enormous if contracts were reviewed retrospectively.  In addition, the RCA’s standards for intervention in proceedings are too loose.  They tend to allow parties without a dog in the fight to add more heat than light to the specific proceedings, dragging them out and increasing costs.

Three things everyone agreed upon:  Storage.  Storage.  Storage.  Enstar is off and running with consideration of storage options, as are all utilities.  But this will require substantial investment which the RCA needs to find a way to allow for rate adjustments for.  Each utility’s needs are unique – one size does not fit all.

Natural gas markets, like all markets, are not static creatures.  Each negotiation brings different challenges and opportunities to the table.  It is likely that flexibility in allowing unaffiliated parties to negotiate freely to achieve the best overall deal for their stakeholders will achieve the best outcomes for the community.