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Cook Inlet gas pricing heading for Juneau? RCA responds to a legislators’ state energy policy action that seeks regulatory clarity over the pricing of Cook Inlet utility gas Alan Bailey Petroleum News
Could a hot potato in the form of guidelines for Cook Inlet utility natural gas pricing be heading for the Alaska Legislature?
During a public meeting of the Regulatory Commission of Alaska on Nov. 12, the commissioners reviewed a draft Alaska energy policy prepared by the Senate Resources and Energy committees. And the commissioners picked up on a statement in the policy requiring the Legislature to encourage RCA to come up with a predictable pricing methodology for Cook Inlet gas.
The policy proposes a legislative action to “consider legislation that would either establish a pricing methodology or require the RCA, in concert with stakeholders, to develop one.”
No market price In the absence of a spot market for gas in the Cook Inlet, with utility gas prices being determined as part of negotiations over medium- and long-term gas supply contracts, and with Cook Inlet gas supplies dominated by a small number of gas producers, the question of “fair pricing” for utility gas has proved a major stumbling block in RCA approval of new Southcentral Alaska utility gas supply contracts in recent years: Although RCA does not regulate the gas producers, the commission does have a duty to review gas supply contracts as part of its regulation of gas and power utilities.
But challenges to gas prices in new gas supply contracts and the lack of a consistent method of determining whether those prices are reasonable, has resulted in lengthy and expensive RCA contract hearings; rejection of several contracts; and regulatory uncertainty in the process of establishing new gas supplies for the utilities.
The commission has been mulling over whether or how to come up with a methodology for utility gas pricing, to reduce the regulatory uncertainty and eliminate the logjam in gas supply contract approval. But after opening an informational docket on the gas pricing topic and holding a technical workshop, seeking views on how to resolve the gas pricing issue, the commission has still not resolved the problem.
And the commissioners seem happy to let the legislators have a go at coming up with a solution.
“I would strongly encourage the legislators … that they consider legislation that would establish a pricing methodology,” said Commissioner Kate Giard during the Nov. 12 RCA meeting. RCA needs a strong statement on what the Legislature wants the commission to do, she said.
Thorny problem Commissioner Tony Price said that he did not envy the task that legislators would face in trying to come up with an acceptable pricing formula.
If the legislators are serious about going in this direction “they’ll experience what we experienced: a lot of pain and no answers,” Price said.
The commissioners agreed that an appropriate response to the statements in the legislators’ draft energy policy would be to deliver to the legislators the comments that the commission had received in its gas pricing informational docket, and the transcript from the gas pricing technical workshop.
“Clarity in the pricing of Cook Inlet gas would be most welcome, and we’ll be very supportive whatever it is the Legislature decides to do,” said RCA Chairman Robert Pickett.
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