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Aurora, Enstar wrangle over Fort Rich The companies are still arguing about billing error for laundry at Anchorage army base; Aurora wants oversupply returned in kind Alan Bailey Petroleum News
Although the Regulatory Commission of Alaska ruled in March that Enstar Natural Gas Co. could not retrieve from its customers the cost of a massive Fort Richardson billing error, related litigation between Aurora Power Resources and Enstar is still wending its way through the Alaska court system and RCA.
In a legal claim described by Enstar attorney William Saupe as a lottery with gas prices and by Aurora attorney Robin Brena as a consequence of Enstar’s gross negligence, Aurora wants compensation in the form of future volumes of gas.
Meter accounting error The error occurred between 2002 and 2007 when Enstar’s billing system incorrectly indicated that measurement from a new gas meter in the Fort Richardson laundry was in hundreds of cubic feet rather than in thousands of cubic feet, as it should have been. As a consequence, gas volumes from that meter were billed at 10 times the actual rate of usage and the U.S. Department of Defense gas suppliers delivered 10 times as much gas through the Enstar system as Fort Richardson needed, with the excess gas going unnoticed to Enstar’s customers.
Aurora, as a Fort Richardson supplier during part of the period when the error occurred, oversupplied about 819 million cubic feet of gas. The company was using Enstar’s gas pipeline system as a means of shipping gas to Fort Richardson and had consequently paid transportation fees to Enstar for the supposed gas deliveries.
After Enstar discovered its mistake in 2007 the utility agreed to pay $5.7 million to the Department of Defense in compensation for the overpayment for laundry gas supplies. In March 2010 RCA disallowed Enstar’s attempt to recover the $5.7 million through its tariff to its gas-consumer customers, thus forcing Enstar to pay the compensation from its own funds.
Meantime, Aurora had sued Enstar in Alaska Superior Court, claiming that, under the terms of Aurora’s contract with Enstar, Aurora was entitled to recover the 819 million cubic feet of excess gas from Enstar in the form of actual gas, despite the fact that the Department of Defense had already paid Aurora for the excess gas.
Asked for the gas In testimony to RCA, Aurora President Scott Pfoff said that his company, after being informed of the meter accounting error, requested from Enstar the future return of the oversupplied gas and a credit for the gas transportation charges. Aurora sued after Enstar informed Aurora that it had no obligation to return the excess gas, Pfoff said. Under the terms of Aurora’s gas transportation agreement with Enstar, an imbalance between the volumes of gas delivered to the pipeline system and the volumes of gas received by Aurora’s customers has to be compensated by a future credit in the form of gas, and not by dollar payments, he said.
And in paying the Department of Defense for the gas oversupply Enstar had taken action “without Aurora Power’s knowledge, consent or participation,” Pfoff said.
“Nothing in the GTA (gas transportation agreement) or Enstar’s tariff permits Enstar to take Aurora Power’s gas for its own use and then to pay an Aurora Power customer for the gas Enstar did not deliver to that customer, based upon the price in a contract between Aurora Power and that customer,” Pfoff said, adding that it worked to Enstar’s advantage that the price of the Aurora gas was lower than that of Enstar’s own gas during the same time period.
Lost opportunity Not only that, but by “artificially inflating DOD’s needs,” Enstar had deprived Aurora of the opportunity to sell the excess gas to other customers, forcing the sale of the gas to Enstar at “an artificial price” at a time when Enstar might otherwise have had to purchase gas from its suppliers to meet high winter demand, Pfoff said.
Enstar, for its part, has insisted that by compensating the Department of Defense for the overbilling it has acted reasonably to correct the accounting problem.
“Enstar attempted to place all parties, as closely as possible, back in the positions they would have occupied had the billing error never occurred,” said Saupe in a briefing to RCA. “In taking steps to rectify the error, Enstar reimbursed the DOD directly for overpayments to Aurora Power.”
And the Department of Defense had already paid Aurora for the excess gas and for the transportation fees associated with shipping that gas through Enstar’s pipelines, Saupe said.
Referred to RCA In April 2009 Superior Court Judge Jack Smith referred the litigation between Aurora and Enstar to RCA for evaluation, saying that the case involved more than just a simple contract dispute.
The ensuing RCA investigation has been slowly proceeding toward a hearing and in pre-hearing briefs lawyers on both sides of the case have been arguing their positions.
Saupe, arguing for Enstar, said that Aurora’s interpretation of its transportation agreement with Enstar and of Enstar’s tariff would mean that “these documents are effectively converted into lottery tickets, as Cook Inlet gas prices fluctuate over time.”
“When Enstar discovered the DOD billing error it reimbursed the DOD in full for its overpayments to Aurora Power, thus allowing Aurora Power to retain the proceeds (and profits) from the sale of the excess gas to the DOD,” Saupe said. “Notwithstanding this first windfall, Aurora Power is seeking a second windfall, by trying to take advantage of the fact that natural gas prices are higher today than they were during the period when the DOD billing error occurred.”
The error relating to the Fort Richardson gas meter was a billing error, correctible through dollar payments, and not a gas supply and delivery imbalance situation, he said. Moreover, unlike in a gas imbalance, the gas customer had paid the gas supplier in full for the excess gas.
Not so, said Aurora Power’s attorney, Robin Brena, in his pre-hearing brief: A gas imbalance occurs in any circumstance where a pipeline receives an amount of natural gas that is larger or smaller than the amount it redelivers to a customer.
“As a result of Enstar Natural Gas Co.’s repeated acts of gross negligence, Aurora Power Resources Inc. was required to supply 819,000 mcf more gas into Enstar’s pipeline than Enstar delivered to Aurora Power’s customer, the Department of Defense,” Brena said.
And, under the terms of the gas transportation agreement, gas imbalances must be adjusted “in kind” and not “in value” over the next 27 months, he said.
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