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RCA investigating ML&P Beluga gas use
Commission raises questions over use of gas for economy power sales and over costs associated with the Cook Inlet gas field Alan Bailey Petroleum News
The Regulatory Commission of Alaska has launched an investigation into the way in which Anchorage electric utility Municipal Light & Power uses natural gas fuel from the Beluga gas field. The utility’s 56.67 percent ownership interest in the field provides the utility with a relatively low-cost gas supply. But the RCA worries whether the utility is using this low-cost gas in a manner appropriate to the regulatory approval of its gas field acquisition.
ML&P originally acquired interests in the Beluga field in 1996. The Alaska Public Utilities Commission, the equivalent agency at that time to the RCA, approved the purchase on condition that ML&P’s ratepayers would be the ultimate beneficiaries of the field ownership. ML&P more recently increased its ownership interests in the field, when ConocoPhillips sold its field interests to ML&P and Chugach Electric Association.
ML&P’s ratepayers gain benefits because the use of relatively cheap gas reduces the cost of electricity. In addition, ML&P can sell some of its gas to other utilities, placing the profits from these sales into a fund for future use in maintaining the Beluga field and in reducing the cost of electricity for future ML&P ratepayers. ML&P also accumulates savings in a fund that will eventually be used for the decommissioning of the gas field.
ML&P has an approved method for determining the effective price of its Beluga gas.
Economy energy sales The RCA is particularly raising questions over the use of Beluga gas as fuel in what are referred to as economy energy sales, the sale of relatively cheap power to other utilities. All Railbelt electric utilities participate in these economy energy sales, in the interests of reducing the cost of electricity for consumers. But the use of some Beluga gas in the generation of power for delivery to other utilities appears to benefit those utilities, and not the ML&P ratepayers, as required by the APUC’s original stipulation, the RCA suggests. Moreover, the use of gas in this way reduces the amount of gas that can be sold to generate revenues for placement in the fund that will benefit future ML&P ratepayers.
The RCA questions whether it would be more appropriate, when accounting for Beluga gas used for power generation for other utilities, to price the gas using the opportunity cost to ML&P ratepayers of not having the gas for their own use, rather than using ML&P’s internal Beluga gas price. ML&P’s internal price is substantially below the current market price for gas from the Cook Inlet basin.
In addition, the occasional use of one of ML&P’s less efficient power generation units in support of economy energy sales further distorts the economics of those sales, the RCA suggests.
Other questions Other questions that the RCA raises include issues around whether an artificially low internal ML&P price for its Beluga gas distorts the dynamics of supply and demand in the Southcentral electricity market. The commission questions whether falling gas production from the Beluga field will result in a shortfall in the savings for field decommissioning. And the commission also questions whether ML&P is earning a high enough interest rate on those savings.
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