|
RCA OKs Chugach natural gas supply contract; first since ’01
The Regulatory Commission of Alaska has approved Chugach Electric Association’s new gas supply contract with ConocoPhillips. The contract, the first utility gas supply contract that RCA has approved since 2001, will cover Chugach’s unmet needs through April 2011, about half of the utility’s unmet needs between June 2011 and December 2015 and about 25 percent of unmet needs in 2016.
The contract involves pricing for base load gas supplies indexed to a basket of prices from gas producing areas in the Lower 48, with separate pricing provisions, indexed to the price of Cook Inlet LNG exported to Japan, for gas required to meet peak loads.
The commission has rejected contracts between various producers and Enstar Natural Gas Co. in recent years, saying that gas prices indexed to “city gate” market prices in those contracts were too high. And Chugach has spent several years seeking new supply contracts, given that it has had no contracts for supplies extending beyond 2011.
In late 2008, in an Enstar gas supply contracts case, the commission proposed a price cap involving a similar production basin price index to that in the now-approved Chugach contract. However, gas producers ConocoPhillips and Marathon rejected the price cap proposal.
More gas needed
The contract, for some 66 billion cubic feet of gas over seven years, meets all of Chugach’s gas needs through 2010, but leaves some 2011 and 2012 needs unmet.
Although regional needs for electricity — and the gas to produce it — could grow in coming years, Chugach expects its gas needs to ease in 2013 as a more efficient power plant comes online, and as two regional utilities stop buying wholesale power.
Chugach is using some 27 bcf a year of natural gas and expects that to drop to some 17 bcf in 2014 and 11 bcf in 2015.
Chugach is Alaska’s largest electricity producer, supplying customers in Anchorage and selling power to utilities across the Railbelt.
The utility uses natural gas to make 93 percent of its power.
Partial dissents Commissioners Kate Giard and Janis Wilson concurred in part and dissented in part with the commission’s decision.
The two said while they supported approval of the Chugach contract, they believe “the order should have harmonized our past decisions on gas supply contracts with this tariff approval or definitively distinguished that precedent. Substantive analysis and discussion could have advanced a solution to the Cook Inlet gas war.”
Without that analysis and discussion, the two asked, how could political leaders, Railbelt consumers and gas producers understand the meaning of the commission’s approval of the tariff and how should utilities needing gas immediately — Enstar, Matanuska Electric Association and Homer Electric Association — be guided by the decision?
“Most importantly,” they asked, “does this tariff approval establish a price for Cook Inlet gas that producers and utilities can rely on in future contracts?”
FERC possible model? Commissioner Paul Lisankie concurred in the commission’s decision, saying the decision not to investigate the gas sales agreement was based on the absence of any commenter seeking disapproval. He said he also considered “the nature of the commenters and the circumstances surrounding their comments more compelling reasons for concluding that approval without further investigation was in the public interest.”
Neither the Alaska Attorney General nor entities that participated in the Enstar gas sales agreement proceedings asked for disapproval or for suspension of the tariff for investigation.
“Given the similarity of issues, and the short time since the last hearing, perhaps the commenters share my view that another hearing would be unlikely to add much to the calculus of Cook Inlet gas contract approval, especially since they are still absorbing the substantial costs associated with those recent proceedings,” Lisankie said.
He noted tension between RCA’s responsibility to assure reliable provision of utility services and its responsibility for ascertaining that prices are just and reasonable, and suggested an inquiry into how the Federal Energy Regulatory Commission has dealt with similar issues since the deregulation of natural gas production, and how FERC has “regulated pipelines without resulting in backdoor regulation of unregulated gas producers.”
—Alan Bailey & Kristen Nelson
| 