Energy

Fight over $30 million gas sale could yield lower energy bills

State regulators will consider whether tens of millions of dollars in potential profits from an unexpected discovery of natural gas should be used to help lower gas and electric bills in Southcentral Alaska.

The Regulatory Commission of Alaska said recently it will investigate how money from a sale should be used, following a surge of comments on the topic.

Cook Inlet Natural Gas Storage Alaska found the gas in 2012 as it was creating an underground gas storage reservoir beneath the city of Kenai. The facility warehouses gas for four utilities -- Anchorage Municipal Light and Power, Chugach Electric Association, Homer Electric Association and Enstar Natural Gas -- so they can weather seasonal spikes in demand for power and heat.

Ratepayers with those utilities could benefit from a sale, depending on what the RCA decides.

In January, CINGSA officials sought a tariff revision from the commission so all profits from a sale would benefit its owners, primarily Mid-American Energy in Iowa and AltaGas of Canada, which owns Enstar.

CINGSA argued that its owners provided the startup capital for the $160 million storage facility and should benefit from the find.

It also said most of the discovery would not be sold but would stay in the ground to help pressurize the reservoir, offsetting costs for ratepayers because gas would flow more easily, thus reducing the number of wells needing to be drilled.

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CINGSA's proposed revision sparked several critical responses, arguing that ultimately ratepayers bear the startup and operating costs of the storage facility and deserve to be rewarded from a gas sale.

The pivotal argument came from the state attorney general's office, through its Regulatory Affairs and Public Advocacy section.

Steve DeVries, chief assistant attorney general, called for the commission to put CINGSA's request on hold so it can fully explore who should benefit from a sale he estimated could raise about $30 million. Commission precedent seems to suggest that ratepayers should receive "all or a significant part of any gain realized from sales of excess gas," he said.

DeVries' reasoning was noted in the commission's decision, issued March 16, to suspend CINGSA's proposed revision for six months to allow for further investigation and a hearing.

DeVries argued that CINGSA's tariff filing was incomplete, the commission said.

The attorney general's office "claims that our predecessor, the Alaska Public Utilities Commission, adopted an equitable balancing test to use in allocating gains from asset sales arising from utility operations and (CINGSA's) tariff filing fails to address this test," the commission's order noted.

But it wasn't just the state that sought a hearing. Three of the four utilities that are customers of the reservoir, Chugach Electric, Homer Electric, and Anchorage Municipal Light and Power, filed extensive comments requesting a hearing.

Those utilities said in separate filings that they support the state's argument.

Lee Thibert, a senior vice president at Chugach, said on Wednesday that the utilities should receive part of the profits of a sale, and the money would help hold down future rates.

"The utilities that are paying the tariff rates really took the risk of building the project," he said. "If we're required to be responsible for lost and unaccounted-for gas, it's hard to see why we shouldn't also get the benefit of the found gas. It's the same principle."

Lindsay Hobson, CINGSA and Enstar communication manager, said the opposition is not unexpected. "To that end, we welcome their participation in this investigation and even filed a non-opposition motion to include them as interveners," she said of the state and the utilities.

She said CINGSA is confident in its position. "Before we did our filing, we were careful about our facts and researched the law and we feel like we stand on solid ground. Going forward, I think that will come to light."

Several other parties have also weighed in with comments to the commission, including Mike Navarre, mayor of the Kenai Peninsula Borough. He also sought a suspension and hearing, pointing out that many residents of the Kenai Peninsula Borough had acquired mineral estate interests in the property before Alaska became a state. They may be entitled to royalty payments.

Navarre said that "while CINGSA has indicated willingness to pay the royalties, suspending this tariff would provide time to investigate and clarify the extent of these additional ownership or royalty interests."

The fourth utility that is a CINGSA customer, and shares a parent company with it, Enstar, has not filed a comment.

Tesoro Alaska, through Anchorage attorney Robin Brena, has also asked to intervene in the case to challenge CINGSA's proposal. As the owner and operator of the Nikiski Petroleum Refinery, Tesoro says it's a major ratepayer of Homer Electric Association.

The Homer utility factors CINGSA-related costs into its rates, meaning Tesoro and other ratepayers have funded the development and operation of the storage reservoir and facilities, Brena argued.

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"Tesoro has the right to have a voice in the process that will determine the disposition of the Found Native Gas and the valuable benefits that may flow therefrom," wrote Brena.

There will be a prehearing conference before the commission Wednesday, in part to set a schedule for the case. The commission said it will make a decision by Oct. 27.

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

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