The Regulatory Commission of Alaska has approved Chugach Electric Association's new gas supply contract with Conoco Phillips.

The contract is the first utility gas supply contract that the state regulators have approved since 2001. It will cover Chugach's unmet supply needs through April 2011, about half of its unmet needs from June 2011 through December 2015 and about 25 percent of unmet needs in 2016.

The contract involves pricing for base load gas supplies indexed to a basket of prices from gas-producing areas in the Lower 48. Gas required to meet peak loans will be indexed to the price of Cook Inlet liquefied natural gas exported to Japan.

The commission has rejected contracts between various Inlet gas producers and Enstar Natural Gas Co. in recent years, saying that gas prices indexed to "city gate" market prices in those contracts were too high. And Chugach has spent several years seeking new supply contracts, given that it has had no contracts for supplies extending beyond 2011.

Late last year, in an Enstar gas-supply contracts case, the commission proposed a price cap that involved a price index similar to the one in the now-approved Chugach contract. However, gas producers Conoco and Marathon rejected that price cap.

The Chugach contract covers some 66 billion cubic feet of gas delivered over seven years. It plugs all the supply gap Chugach faced for next year but leaves some of its 2011 and 2012 needs unmet.

Anchorage-based Chugach is Alaska's largest electricity producer, supplying customers in Anchorage and selling power to utilities across the Railbelt. It uses natural gas to make 93 percent of its power.

Although regional needs for electricity -- and the gas to produce it -- could grow in coming years, Chugach expects its gas needs to ease in 2013 as a more efficient power plant starts up, and as two regional utilities stop buying wholesale power.

RCA commissioners Kate Giard and Janis Wilson concurred in part and dissented in part with the commission's decision.

The two said while they supported approval of the Chugach contract, they believe "the order should have harmonized our past decisions on gas supply contracts with this tariff approval or definitively distinguished that precedent. Substantive analysis and discussion could have advanced a solution to the Cook Inlet gas war."

Without that analysis and discussion, the two asked, how could political leaders, Railbelt consumers and gas producers understand the meaning of the commission's approval of the tariff and how should utilities needing gas immediately -- Enstar, Matanuska Electric Association and Homer Electric Association -- be guided by the decision?

"Most importantly," they asked, "does this tariff approval establish a price for Cook Inlet gas that producers and utilities can rely on in future contracts?"

Commissioner Paul Lisan- kie concurred in the commission's decision, saying the decision not to investigate the gas sales agreement was based on the absence of any comment seeking rejection of the deal. He also considered "the nature of the commenters and the circumstances surrounding their comments more compelling reasons for concluding that approval without further investigation was in the public interest," he said.

He noted tension between RCA's responsibility to assure reliable utility services and its responsibility for assuring that prices are just and reasonable. He suggested the Federal Energy Regulatory Commission be asked how it has dealt with similar issues.

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