Sidebar: 20 years ago this month: Commissioner disagrees with RCA decision

Petroleum News

Commissioner Kate Giard of the Regulatory Commission of Alaska disagrees with the decision of the majority of the commission's members to approve the gas sales agreement between Enstar and NorthStar Energy Group for natural gas from the North Fork field proposed for delivery to Homer.

That sales agreement is based on the Enstar-Unocal gas sales agreement, includes a floor price and indexes the price paid by Alaska consumers to a 36-month Henry Hub futures index price.

Giard said in a dissenting statement dated April 5, 2004, that Enstar "failed to meet its burden of proof that this (gas sales agreement) is in the public interest." Girard agreed with the Alaska Attorney General's argument that Henry Hub natural gas futures include Lower 48 transportation and tax costs and said the Attorney General "provided evidence that the U.S. Average Wellhead Price Index is a more appropriate proxy, is nationally tracked and reported and linearly correlates to the prices of the Henry Hub Natural Gas Futures market."

The commissioner said the shift to a national pricing proxy "created a substantial increase in natural gas costs for Enstar's ratepayers," with natural gas price increases ranging from 12.44% to 13.93% between 2002 and 2003.

"To the extent these increases are necessary to assure future supply meets expected demand, they are a rational expression of economic policy," she said. "However, without adequate controls, this shift could create windfall profits and destabilize our economy."

In addition to using the U.S. Average Wellhead Price Index rather than Henry Hub, Giard also said the commission should establish a price cap, because as a consequence of the commission's approval of the Enstar-Unocal and Enstar-NorthStar sales agreements, "Alaska natural gas prices are utterly dependent on activities in the Lower 48.

"A series of events or a single dramatic event occurring in the Lower 48 could materially affect our economy."

If a terrorist attack in the Lower 48 put a gas pipeline out of commission for a period of time, or unusually cold weather occurred, the Henry Hub price would increase.

"The result is an increase in Alaskan prices completely unrelated to the supply or demand in Alaska," she said.

Giard said the commission should have required "a reasonable price cap" which would balance "the need to compete nationally for exploration and development dollars" with protection for Enstar's ratepayers.

Giard also said the commission should eliminate the floor price. Indexing Alaska's price to Henry Hub futures with no price cap "allows for unrestricted upward opportunity for price increases," she said, and coupled with an inflation-adjusted floor to secure against future decreases in the Henry Hub price, "is known in pejorative terms as having your cake and eating it too."

--Petroleum News