Agency rebuffs Enstar gas deal -
RULING: Regulators say higher rates did not encourage exploration.
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By ELIZABETH BLUEMINK, Anchorage Daily News
Published: September 30, 2006
Last Modified: September 30, 2006 at 04:27 AM
The Regulatory Commission of Alaska just before midnight Thursday rejected Enstar's proposed natural gas supply contract with Marathon Oil Co. because it priced local natural gas too high.
The commission simultaneously dealt a blow to Enstar's practice of linking the supply price of Cook Inlet gas to Lower 48 gas prices.
Anchorage-based Enstar Natural Gas Co. is the dominant gas provider to homes and businesses in Anchorage, Mat-Su and the Kenai Peninsula. The company wanted to link the price it would start paying Marathon in 2009 for Cook Inlet gas to Lower 48 natural gas prices.
Enstar's contract with Marathon was expected to supply roughly one-quarter of Enstar's gas needs between 2009 and 2016.
But Enstar's prior efforts to stimulate gas exploration in Cook Inlet by using the higher Lower 48 prices -- and thus lifting the price local consumers pay for heat -- has not produced results, according to the RCA ruling.
"Despite Enstar's ratepayers funding millions of dollars in an 'exploration and development' incentive plan, Cook Inlet reserves have declined," the ruling stated.
Enstar did not respond immediately to a request for comment on the ruling Friday.
The RCA ruling is subject to a 30-day appeal period.
RCA commissioners Dave Harbour and Mark Johnson dissented in the 3-2 ruling, which was reached at 11 p.m. Thursday, RCA spokeswoman Grace Salazar said.
In previous rulings, the RCA approved Enstar's use of Lower 48 prices in contracts with two other gas suppliers, NorthStar and Unocal.
Enstar claimed the higher prices that result from using Lower 48 prices were needed to stimulate exploration in Cook Inlet, where gas reserves are in decline.
The state attorney general's office intervened in the proposed Marathon contract, arguing that the contract's prices were unjust and unreasonable for Alaska consumers.
State Attorney General David Marquez said Friday that the Lower 48 price should be used only for gas found through additional exploration. "Under the proposed Marathon contract, the gas to be sold is based on proven reserves," Marquez said in a press release.
Despite Enstar's efforts to stimulate exploration in Cook Inlet with the Lower 48 prices, the decline of Cook Inlet gas reserves has only become more dire, according to the RCA.
"We must reluctantly conclude, based on this record, that the now five-year-old economic experiment promoted by Enstar in both the Unocal and NorthStar contracts has not produced noticeable results," the ruling stated.
Instead, the only factor that appeared to spur substantial increases in Cook Inlet reserves is liquefied natural gas exports to Japan, from the Nikiski liquefied natural gas plant, the commissioners said. The plant is owned by Marathon and Phillips Alaska Petroleum Gas Corp. |
