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RCA orders hearing on new gas contract Regulatory Commission of Alaska suspends Enstar-Marathon gas sales agreement; entities have until Jan. 27 to intervene Alan Bailey Petroleum News
On Jan. 5 the Regulatory Commission of Alaska ordered the suspension until Aug. 15 of the proposed new Cook Inlet gas sales agreement between Enstar Natural Gas Co. and Marathon Oil Co. There will now be a hearing into the terms of the agreement.
Any entity wishing to intervene in the proceedings relating to the sales agreement needs to file a petition with RCA by Jan. 27. Agrium Inc., the owner of the Nikiski fertilizer plant on the Kenai Peninsula, and Tesoro Alaska Co., the owner of the Nikiski refinery, have already filed petitions to intervene. Many questions Enstar’s filing on Nov. 14, 2005, of its new sales agreement triggered many questions regarding proposed gas pricing levels and other contract provisions. An article entitled “New contract sparks debate” in the Jan. 8 edition of Petroleum News reviewed the various issues that the new agreement raises.
RCA’s suspension of the tariff filing reflects the recommendations of the commission’s staff, as expressed in a memorandum to the commissioners on Jan. 5. That memorandum concludes that “the terms and conditions proposed in the Marathon GSA (gas supply agreement) between Enstar and Marathon … may not be in the public interest. Enstar bears the burden of proof and should be allowed an opportunity to show that the Marathon GSA and revised tariff are in the public interest.” The memorandum lists seven issues that the staff says should be investigated.
• The gas prices proposed
• The gas transportation price proposed
• The termination date of the GSA
• The potential for Marathon to arbitrage gas by buying cheap gas from a third party producer and then reselling the gas to Enstar at the contract price
• The question of whether Enstar should be required to build gas storage facilities, to enable Enstar to purchase lower cost gas during periods of low demand. That might provide an alternative to Enstar paying premium prices to have producers accept the risk of meeting peak demand.
• The question of whether the gas prices in the new GSA should be included in Enstar’s weighted average cost of gas that determines tariffs charged to gas consumers.
• The question of whether all contract costs related to the new GSA should be included in Enstar’s tariff rates.
A prehearing conference will take place on Feb. 8, to establish a procedural schedule. This schedule must ensure that the hearing on the supply agreement concludes no later than June 15, to allow a 60-day period for RCA to review the hearing record and issue a final order.
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