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Vol. 19, No. 5 Week of February 02, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Enstar ignites protest

Gas utility seeks to stabilize customer base; direct marketers cry foul

Wesley Loy

For Petroleum News

Enstar Natural Gas Co. is drawing fire over proposed regulatory changes designed to encourage customer loyalty.

The critics include companies aiming to market gas directly to Enstar’s commercial users. These direct marketers would deliver their gas over Enstar’s distribution system.

They say the changes Enstar wants would stifle competition in the gas market, discourage exploration and add discriminatory or unnecessary costs to customers who deal with direct marketers.

Enstar’s proposed changes are pending before the Regulatory Commission of Alaska.

In recent days, critical comments have come in from several companies including Cook Inlet Energy, Aurora Power, BlueCrest Energy and Homer Electric Association.

What Enstar wants

Anchorage-based Enstar is the main gas utility serving Southcentral Alaska.

The company outlined its proposed changes in a Dec. 19 tariff filing.

Among other things, Enstar wants commercial users who switch to, or from, alternative gas suppliers to give the utility a minimum one-year advance notice. Customers who fail to do so might have to pay higher rates.

Enstar says the one-year notice is needed to smooth out the “unpredictable coming and going” of customers, which can disrupt the utility’s supply contracts and add cost to its existing customer base.

Another aspect of the tariff filing concerns metering of gas usage. Enstar wants to ensure direct marketers put the right amount of gas into the system to cover their sales. But critics say Enstar is unnecessarily demanding expensive data telemetry metering equipment for alternative supply customers.

Direct marketers have moved gas over Enstar’s system in the past, but such arrangements waned for a few years as Cook Inlet gas supplies tightened.

Gas production now seems on the upswing, and producers such as Cook Inlet Energy see Enstar’s commercial customer base as fair game for direct sales. This is especially true so long as major industrial users, such as the Agrium fertilizer factory at Nikiski, remain idle.

Attorneys for Cook Inlet Energy, including Robin Brena, filed a 19-page formal protest to Enstar’s proposed changes.

Cook Inlet Energy is a small oil and gas producer on the inlet’s west side. It operates the West McArthur River oil field and the Osprey platform in the offshore Redoubt unit.

The company’s protest, filed Jan. 23 with the regulatory commission, notes that Enstar has a monopoly on gas distribution facilities, and thus “an unqualified duty to provide transportation service.”

Enstar’s proposed one-year advance notice would greatly and unreasonably increase the much shorter notice requirements now in place, the protest says.

“This change alone effectively guts any reasonable opportunity to change gas suppliers, and would have a chilling effect on gas market alternatives,” the protest says.

The protest continues: “In the past, hundreds of gas customers have been able to contract for gas service directly with independent gas producers in the Cook Inlet and receive the benefits of reduced gas costs as a result. Given that Enstar’s customers have gone from paying the lowest price to the highest price for natural gas cost in the United States in a few short years, the commission should do everything possible to encourage the continuing development of a robust and competitive Cook Inlet marketplace.”

The Cook Inlet Energy protest goes on to sketch out a hypothetical example of how Enstar’s proposed tariff changes could be discriminatory.

“Assume there are three commercial customers with identical gas demand: Customer A was formerly an Enstar customer but discontinued gas service; Customer B never had gas service; and Customer C was formerly CIE’s customer. Under Enstar’s tariff filings, Customer A (which discontinued Enstar’s gas service) and Customer B (which never had gas service) may receive immediate gas service from Enstar under the same terms and conditions and at the same rates as Enstar’s existing customers, while Customer C (which was CIE’s former customer) would be required to give a one-year notice and potentially be penalized by having to pay far higher rates for gas than Enstar’s existing customers.”

Cook Inlet Energy asks the commission to refer the matter to a settlement judge to “explore the opportunities for developing an industry consensus through mediation.” It also requests the involvement of the Alaska Department of Law’s public advocacy section.

Aurora’s position

Executives for Aurora Power, a gas marketer, and its exploration and production affiliate, Aurora Gas, also called Enstar’s proposed changes anticompetitive.

Over a 15-year period starting in 1994, Aurora Power marketed more than 85 billion cubic feet of gas, most of it across the Enstar system, the company’s president, Scott Pfoff, wrote in a Jan. 21 comment letter to the regulatory commission.

“These sales generated tens of millions of dollars of savings to our customers and generated healthy competition in the market to the benefit of numerous large commercial businesses,” Pfoff said.

Access to commercial markets allowed Aurora to drill numerous exploratory and production wells that benefitted Enstar and its customers, he said.

Some years ago, circumstances forced Aurora to return its gas customers to Enstar, but now “we have received numerous inquiries from former customers, potential new customers and independent producers about the possibility of reestablishing our marketing efforts,” Pfoff wrote.

Enstar, he said, is “seeking to impose unnecessary and excessive costs, unrealistic advance notification requirements, and scare tactics to intimidate consumers.”

Ed Jones, president of Aurora Power, added in a separate comment letter: “Enstar, as a public utility, naturally has customers and meters that come on and off their system all the time. Their system can fully accommodate such fluctuations without being punitive to customers that have chosen alternative suppliers.”

Others weigh in

Steve Agni, of O’Malley Ice Arena and O’Malley Gardens in Anchorage, told the regulatory commission his two commercial recreational facilities use a lot of natural gas, and once purchased gas directly from Aurora Power.

Around 2008, O’Malley stopped using gas for ice making due to factors including the spike in price, Agni said.

Now that the Cook Inlet gas supply situation has improved, O’Malley is looking to reestablish direct gas purchases with Cook Inlet Energy, he said.

“The requirements to have real-time telemetry are an unreasonable and a cynical attempt to erect costly barriers to entry for customers such as O’Malley,” Agni wrote. Similarly, he said, the proposed one-year switching notice is a barrier to competition.

John Martineck, chief operating officer for BlueCrest Energy, likewise called Enstar’s tariff changes anticompetitive, and asked the regulatory commission to reject them.

BlueCrest owns 75 percent of the offshore Cosmopolitan project, which Martineck called “a significant gas development” in Cook Inlet.

“BlueCrest has expended tens of millions of dollars in proving up the Cosmopolitan project with the expectation that it will have markets for the gas. BlueCrest is now finalizing plans to bring the significant reserves of Cosmopolitan to market,” Martineck wrote. “The transportation tariff changes as proposed by Enstar will severely hinder the ability of independent producers or gas marketers to secure markets for new gas developments.”

Brad Janorschke, general manager of Homer Electric Association, also questioned Enstar’s tariff filing in a Jan. 23 letter to the commission, writing that “the public interest is best served by fostering competition in this market at a time when the industry is undergoing dramatic changes.”

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