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Vol. 14, No. 20 Week of May 17, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

More than expected

RCA decides wider scope for Cook Inlet utility gas supply investigation

Alan Bailey

Petroleum News

Regulatory approval of utility tariffs may not be the kind of topic to raise an average person’s adrenalin level, but the multiyear regulatory impasse over pricing and other terms for utility gas supplies from the Cook Inlet basin has and will impact the pocketbooks of Southcentral Alaska residents, as well as raising some important questions over future energy supplies in the region.

In the latest twist in this particular regulatory saga the Regulatory Commission of Alaska decided at its May 8 public meeting to open a regulations docket that will address a number of questions relating to the commission’s role in protecting the interests of gas and electricity consumers, who depend on ever-tightening gas supplies from the Cook Inlet basin, delivered by gas producers to gas and electricity utilities.

Contract approval

Although the commission does not regulate the producers, RCA regulation of utility tariffs, with the gas price paid to producers as a major component of energy rates, has led to a situation in which it has become de rigueur to seek commission approval of each new utility gas supply contract as a perquisite for approval of the associated tariff change. And that has led to a situation in which, if the commission rejects a contract, the utility has to go through the time consuming and expensive procedure of negotiating further contracts, and then seeking RCA approval of those.

In recent years the commission has rejected all new gas supply contracts negotiated between the Cook Inlet gas producers and Enstar Natural Gas Co., the main Southcentral gas utility, with the price of the gas being the main stumbling block. And on April 2 the commission asked for public comments on a proposal to develop a standard gas supply contract, to provide a level of clarity in what contract terms the commission would accept.

But, although in their responses to the RCA request two electric utilities expressed general support for RCA’s proposal, Enstar and the gas producers questioned the workability of the standard contract concept and instead suggested looking at the broader issues of RCA jurisdiction over gas prices and the shortcomings of the current RCA procedures for utility tariff approval.

Broaden scope

And in its May 8 meeting the commission took the various comments to heart.

“We started with a scoping document that dealt with primarily pricing interests of public utility gas sales contracts and trying to establish some certainty about the pricing terms of those contracts,” said Commissioner Janis Wilson. “But … the comments were much broader. … I believe that my initial approach was probably not broad enough and that there are questions we need to look at either before or along with the narrow question that we asked.”

Wilson proposed opening a regulations docket that would encompass questions such as RCA jurisdiction over gas prices, the effectiveness of RCA procedures for reviewing utility tariff changes and whether a gas-price docket is required.

Commissioner Kate Giard concurred with Wilson’s approach.

“I think the comments that we received … were terrific because they … emphasized for me the very, very difficult position our regulated public utilities are in,” Giard said.

There’s a “tremendous amount of opinion” as to whether formulating RCA pricing provisions will even help the situation — the commission has a lot of work to do and the commissioners need to decide what work will prove effective, she said.

Historic perspective

State of Alaska Senior Assistant Attorney General Robert Stoller commented on the historic background to the procedure whereby RCA reviews utility gas supply contracts. Stoller said that he was not aware of anything in the Alaska public utility statute that explicitly gives the commission authority to pre-approve the contracts.

“My recollection is that Enstar itself, on its own initiative, proposed a tariff provision back, I think, in circa 1981 or 1982, asking the commission to approve its gas supply agreements in advance of their becoming effective,” Stoller said. That provision has become part of subsequent tariffs.

Stoller emphasized that he wanted to do some research into this issue, but said that he thought that Enstar, in the interests of defensive protection, had probably wished to avoid a retrospective rate challenge after a new supply contract had gone into effect. The statutes and regulations do not require a utility to include its gas supply contracts in its tariff, but no utility will risk second-guessing a retroactive challenge to a contract, he said.

But when a utility such as Enstar files a new or revised tariff, the commission has to review that tariff, a requirement that triggers a need to review the utility’s gas supply contracts because of the impact of those contracts on the utility’s rates, Giard said. The commission must, by law, review those contracts, she said.

The real issue is how the commission exercises its authority, and whether the approval process can be streamlined, Stoller responded.

“There is reason to believe that the commission has shifted its standards upon which it decides whether and how to approve contracts,” Stoller said. And there’s reason to believe that the process has been dysfunctional, he said.

Timing

Commissioner Anthony Price said that the commission needs to obtain a legal opinion on its jurisdiction before opening a regulations docket and he expressed concern about the amount of time a commission investigation might take, given the urgency of resolving the issues surrounding utility gas supply contracts.

“We could … use much of our two-year timeframe for our docket, flushing out and getting comments … on our jurisdiction … without benefit of actually crafting or trying to craft regulations,” Price said.

But a review of RCA procedures could be done concurrently with the assessment of RCA jurisdiction, Wilson said.

Commission Chairman Robert Pickett also voiced concerns about timing.

“We don’t have two years of time for the commission to make sure that adequate gas-supply agreements are in place for utilities,” Pickett said. “… I do believe there are very serious questions concerning the commission’s standard of review. … As utilities have business dealings with non-regulated entities, just how far down the food chain does the commission’s reach go? Where is the line past which the commission defers to the management of that utility? And where does the public interest demand that commission walk down the food chain?”

Regulations docket

The commissioners, with the exception of Price, eventually voted to open a regulations docket. That docket will start with a notice of enquiry and will involve drafting regulations that clarify RCA jurisdiction over gas supply contracts; reviewing the effectiveness and consequences of the existing gas supply contract review procedures; determining whether the commission should continue with its practice of prior approval of utility gas supply contracts and whether there are workable alternatives; and determining whether the commission should play a role in creating incentives for the Cook Inlet gas supply market.

“The environment that we’re in today is dramatically different from the one that existed 12 months ago when Enstar brought new contracts into the commission,” Pickett said. “… Time is of the essence.”



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RCA backs off gas storage regulation

Faced with some significant unknowns regarding its jurisdiction over natural gas storage facilities that are not operated by a public utility, the Regulatory Commission of Alaska decided in its May 8 public meeting not to open a docket for developing RCA gas storage regulations. Instead the commission will continue to collect material in an information docket that the commission had already opened as a preliminary step of an investigation into the gas storage regulation question.

On April 2, following a presentation by the Alaska Department of Law on potential RCA gas storage jurisdiction, the commission had asked for public comments on the points made in the presentation, a presentation that had indicated that storage operated by a public utility would likely come under regulation, but that the regulatory status of other storage facilities would depend on the specific operational situation for each facility.

Raised questions

The public comments that the commission subsequently received continued to raise questions about the limits of the commission’s jurisdiction, said Commissioner Anthony Price at the May 8 meeting. Without legislative action that clearly specifies the commission’s authority over gas storage, a project to develop regulations would be unwise, he said.

“It’s evident from nearly all the responses that we received, that there’s a question as to the limits for our jurisdiction,” Price said. “… I am reluctant to launch into a very long program … for developing regulations for an uncertain number of storage facilities and providers, without clarity as far as jurisdiction. … What we would have in the end is probably a massive amount of litigation that would go on for years and years and years.”

Moreover, opening a regulations docket might dampen enthusiasm for investment in new Cook Inlet gas storage facilities that will be needed over the next few years. Meantime, the material collected in the information docket would create a record that the commission can use in the event of legislative clarity over gas storage jurisdiction being eventually achieved, Price said.

Commissioner Kate Giard, while supporting a motion not to open a docket for the regulation of non-utility gas storage operations at present, did express some concern that regulated utilities negotiating for unregulated gas storage use could face similar regulatory problems to those encountered when negotiating for gas supplies from unregulated producers.

—Alan Bailey