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Aurora wants clarity for CI gas market Company intervenes in RCA Enstar contracts hearing and makes the case for guidelines on acceptable gas contact terms and pricing Alan Bailey Petroleum News
The Regulatory Commission of Alaska should take a leadership role in spelling out what forms of gas utility supply contract are acceptable in Alaska’s Cook Inlet, Robin Brena, attorney for Aurora Power Resources told the RCA commissioners on July 27 during opening statements in a commission hearing about new proposed supply contracts for Enstar Natural Gas Co. Enstar, the main gas utility in Southcentral Alaska, has negotiated supply contracts with Cook Inlet gas producers Marathon Oil Co. and ConocoPhillips Alaska — RCA is determining whether to approve Enstar’s revised tariff that results from the contracts.
RCA regulates utilities such as Enstar but the commission does not regulate the gas producers. However, since gas prices agreed between utilities and the producers have a major impact on the rates that utilities charge their customers, the commission can accept or reject the gas prices and other terms in gas supply contracts that utilities negotiate.
The consequent game of tennis in which utilities alternately negotiate contracts with suppliers and then try to gain RCA contract approval can lead to lengthy delays in achieving contract agreements acceptable to both the producers and the commission. Enstar’s attempts to establish its new gas supply contracts, for example, have turned into an expensive multi-year process.
“Aurora does believe … that the commission should take this opportunity to clarify the goals and types of provisions that it expects in future gas sales,” Brena said.
Aurora Power is a small gas company that buys and sells gas in the Cook Inlet region.
Improved structures Brena said that RCA’s 2006 rejection of a supply contract between Enstar and Marathon had resulted in new contracts with improved structures but that the commission had not done all that it needed to do when it rejected that earlier contract. There are no guidelines on gas pricing, for example, he said.
It is necessary to reduce the regulatory overheads associated with gas contracts, Brena said. That can be achieved if RCA says up front what types of provisions should be included in contracts.
In particular, Aurora Power thinks that short-term rather than long-term supply contracts would enable new producers to compete in the gas market.
“If the marketplace is locked up there’s no incentive for a producer to go drill a hole in order to reach that marketplace,” Brena said.
The commission should encourage investment in gas storage and the development of new gas resources, he said, alluding to the need for gas storage to address the gas deliverability crunch during peak winter demand.
Unbundled rates
And contracts should have unbundled rate elements, with different pricing for different types of gas supply service.
“The possibility of competitive (market) entry by unbundled rate element is very, very important,” Brena said. “If you’re going to open this marketplace up, if you want more players in it, if you want more people drilling holes … you have to be aware of the role of these contracts in doing that.”
Unbundling is particularly important for the encouragement of gas storage facility development — without storage there isn’t an opportunity for a more competitive marketplace, he said.
“Until Enstar steps up to the plate and provides for its own storage it will be at the mercy of very few producers that can meet the (gas demand) swing needs,” Brena said. “We think that the time is long overdue for the development of storage by the utility.”
Another required contract element is gas pricing linked in some rational way to gas price indices, Brena said. The commission needs to let the market know what it expects in terms of pricing.
And in taking a leadership role in the Cook Inlet gas market, RCA should complement the state’s intervention in the export license for the Nikiski LNG terminal, Brena said, referring to the agreement that the state had struck with the terminal owners for continued LNG export.
Brena said that the closure of the Agrium plant on the Kenai Peninsula meant that there was one less major industrial gas consumer than previously and that the gas and electricity utilities have become critical to determining the gas market.
“Like it or not you’re a market maker,” Brena told the commissioners.
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