Enstar defends its tariff proposals

Alaska’s largest natural gas utility says changes aren’t meant to block competition, but rather to ensure fairness for all customers

Wesley Loy

For Petroleum News

Enstar Natural Gas Co., the major gas utility serving Southcentral Alaska, has proposed tariff changes that rankle some folks.

One change would require commercial customers to provide a one-year notice before leaving, or returning to, the Enstar system.

The proposal is a response to gas producers aiming to sell gas directly to select Enstar customers.

Direct marketers would use Enstar’s distribution lines to deliver their product. They argue the one-year notice proposal is anticompetitive.

Critics also complain that Enstar is insisting on expensive metering equipment at locations taking gas from alternative suppliers.

The Enstar proposals are now pending before the Regulatory Commission of Alaska.

Petroleum News invited Enstar to explain its proposals in plain language. Enstar contends the tariff revisions are important for customer fairness, and wouldn’t benefit the utility financially.

Enstar’s full response follows.

Enstar is seeking to protect its customers from additional costs brought about by other customers’ decisions to pursue gas supply with alternative suppliers.

Enstar has made gas supply, storage and transportation commitments based on a reasonably estimated number of customers, and based on some modest growth of that customer base. With very limited — and de minimis — exceptions, Enstar cannot modify its gas storage and gas supply contracts. If significant numbers of customers pursue supply from alternative suppliers, Enstar’s other customers run the risk of paying for gas supply or gas storage services that Enstar does not need.

Conversely, as has happened in the past, if significant numbers of customers return to the Enstar system with little warning, it is probable that any replacement gas will be at a higher cost if negotiated at the last minute. Again, without adequate tariff protections to prevent it, Enstar’s other customers will be forced to bear the costs associated with this additional gas supply.

To mitigate these risks to Enstar’s existing customers, Enstar is proposing a one-year notice period. The point of this notice period for customers leaving the Enstar system to pursue supply from alternative suppliers is to give Enstar time to address the surplus storage and supply arrangements, and attempt to mitigate any cost on its existing customers as a result of the change. The point of the notice period for customers returning to the Enstar system is to allow Enstar time to negotiate for additional gas supply, hopefully at prices that will not impose an unfair burden on Enstar’s other customers.

Enstar’s proposals are revenue neutral; Enstar neither gains nor loses money when a customer chooses to purchase gas from an alternative supplier.

While those opposed to Enstar’s tariff filing insinuate that Enstar is proposing these changes for its own gain, this is not true. When Enstar supplies gas to a Gas Sales Service Customer (one that is supplied by Enstar-acquired gas), Enstar does not make money on the sale of the gas to that customer. Instead, Enstar’s RCA-approved margin is earned on the per-mcf transportation rate applied to that gas. Similarly, when Enstar transports gas to a customer that is using gas acquired from an alternative supplier, Enstar still makes the per-mcf transportation rate, and thus still earns its margin. Thus, Enstar is financially ambivalent as to whether it has those customers as Gas Sales Service Customers or as Transportation End Use Customers.

Enstar requires “load following” to ensure its customers don’t unfairly pay for peak deliverability service.

Some alternative suppliers have complained about Enstar’s longstanding practice of requiring real-time data reads on gas flow in locations where customers are purchasing gas from alternative suppliers, which Enstar is proposing to codify in tariff at this time. Enstar’s historical experience is that, when alternative suppliers do not provide gas at a rate that meets their customers’ needs, Enstar ends up picking up the slack. This is unfair to Enstar’s other customers.

Enstar has, on its customers’ behalf, entered into gas storage and gas supply contracts which allow it to meet its customers’ deliverability needs, even on very cold days. In the past, when an alternative supplier did not meet its customers’ load, Enstar delivered the gas at the varying rates needed by the alternative supplier’s customers, but it was Enstar footing the bill associated with making the varying deliveries. In this scenario, Enstar’s existing customers are left subsidizing the commercial arrangement between the alternative supplier and its customers.

By installing the required equipment, Enstar can be sure that the alternative supplier meets its customers’ load, and can take remedial action if the alternative supplier fails to do so.

Enstar’s proposal doesn’t stifle competition.

Opponents of Enstar’s proposed tariff changes argue that the changes stifle competition. This argument is troubling for several reasons. First, Enstar is a very highly regulated company, and each of its firm gas supply contracts has been approved by the RCA as being in the public interest. Enstar has a firm obligation to serve its gas supply customers; this is an obligation it takes seriously.

In the 2009-2012 period, in part due to the unpredictable and sudden course reversals by the alternative suppliers, gas became extremely scarce, and very expensive, in Cook Inlet. Enstar went into each of those winters without its peaking gas under contract, and its customers paid up to $22 per mcf for gas to cover deliverability on those days. When given an opportunity in 2013, Enstar chose to enter into long-term contracts with three Cook Inlet suppliers to meet its needs through spring of 2018. Through a competitive RFP (request for proposals) process, Enstar offered each of the alternative suppliers the opportunity to sell it gas. Following this RFP process, Enstar entered into contracts with the entities that had firm volumes of consequence to sell.

When they failed at that competitive process, alternative suppliers began pursuing the direct marketing route. Enstar encourages increased exploration and production activities by these alternative suppliers, and has firm contracts with Anchor Point Energy/Cook Inlet Energy, Buccaneer Energy, and interruptible contracts with others. However, alternative suppliers’ efforts, while admirable, should not come at a cost to Enstar’s existing customers.