7-2009.htm

(Today's blog is still under construction but here it is as we develop it for your better understanding of the emergencies that might confront Alaskan consumers this winter. -dh)

In yesterday's blog, we urged the Regulatory Commission of Alaska (RCA) to repudiate its chaos-causing, 2006 rejection of the APL-5 Enstar-Marathon long-term gas supply agreement, to fall back on its 2001 Unocal gas supply agreement approval precedent as an appropriate 'standard of review' and to reasonably and timely approve current and future gas/power supply agreements between utilities and gas/power providers on a case by case basis.

Your author was tied up with conference calls yesterday but a loyal reader briefed us on the RCA public meeting. To set the stage, readers should know that RCA deliberates on three three types of matters that are organized into 'dockets': 'P' Dockets deal with pipeline matters adjudicated under AS 42.06; 'U' Dockets deal with utility matters (AS 42.05); 'R' Dockets are rulemaking dockets wherein the RCA exercises its quasi-legislative power to promulgate regulations which have the force of law. Regs become part of the body of law after public hearings and public adjudication whereas 'P' and 'U' dockets are adjudicated in secret after a full due process proceeding. 'I' Dockets are informational or investigative in nature and designed to organize input from the public to commissioners in an effort to help them decide whether to proceed with a rulemaking, to open an 'R' docket. Yesterday, the Commission's public meeting dealt with two 'I' Dockets that concern our gas pipeline readers. Finally, we remind readers that this blog is based on accuracy and we always invite additions or corrections. You may, of course, comment on the blog but, in addition, feel free to send us your addition/correction directly and we shall modify our original report accordingly:

1. I-09-007. Pricing Regs. The Commission acted to move its technical conference to the latter two weeks of August or the first two weeks of September and authorized Chief Judge David Lawrence (NGP Photo) to poll potentially interested parties on the preferred meeting dates.

2. I-09-009. Railbelt Utility Contingency Planning. [It is worth reading the transcript on this one.]

a. ENSTAR's Mark Slaughter (NGP Photo) reported on contingency planning among Railbelt electric utilities on how to handle deliverability emergencies. Utilities are working on an agreement to

reflect procedures to be adopted. Various coordinated actions are being considered, including public service announcements encouraging conservation (turn down the thermostats); ENSTAR curtailments; brownouts; shifting to back up sources of generation (diesel). Though individual utilities have contingency plans, it is not clear that there is a detailed, omnibus plan on what happens in the event of winter energy shortages. Producers are not party to the agreement. Slaughter will provide his statement and draft agreement to the Commission. No ENSTAR interruptible sales customers remain. Some discussion involved the taking (borrowing) of gas from interruptible transportation customers. The first step would be for Chugach Electric (CEA) and Municipal Light and Power (ML&P) to terminate economy energy sales to Fairbanks, requiring GVEA to shift to more diesel and coal reliance. Next in line is alternative fuel source (diesel) for Southcentral electric generation. ML&P has current, installed capacity and could take a truckload an hour from Tesoro's Kenai refinery. Commercial customers go next could be curtailed and utilities could first request that they reduce load (i.e. turn off heated sidewalks, reduce thermostats in stores, etc.).

b. Commissioner Kate Giard expressed concern about lack of action by electric utilities. She observed that there has been not much progress since January. She expected to see a plan at today’s presentation. Utilities are bordering on being irresponsible in preparing for the situation. ENSTAR is leading the parade and she is not sure where the electric utilities are. RCA needs to step up its level of monitoring.

c. Chairman Bob Pickett observed that utilities have requested to come before the Commission at second public meeting in August to provide status of each utility’s contingency plan.

OUR FURTHER COMMENT

1. The RCA Should Not...

...become any more involved in gas and power supply negotiations than is absolutely necessary. The RCA does not have jurisdiction over natural gas producers like Marathon, Chevron and ConocoPhillips. When it attempts, as it has since its disastrous denial of the 2006 APL-5 contracts, to manipulate the market price of natural gas, it succeeds only in confusing the marketplace. To successfully manipulate price, it would have to grasp jurisdiction to regulate the producers. This would be necessary in order to determine their 'just and reasonable costs of production' in order to then 'allow' the utilities to pay producers a price that 'allowed' them to recoup 'a return of and on their investment'. If Alaska seduced itself into this sort of socialized regulation, one could predict the gradual then accelerating exit, over a very few years, of producers subject to RCA jurisdiction. Sure, well-intended Commissioners might think, "I've got to do something to keep the price of gas/power down." But such good intent places the price of energy above the importance of the long term supply of energy. In the long run, when Commissioners try to manipulate what cannot be manipulated they produce both shortages of energy and higher energy prices for consumers. When I served on the Commission and dissented against the majority's rejection of APL-5, it was with the conviction that, "The RCA should regulate what it must and deregulate what it can". My dissent came with conviction that the majority's decision would threaten consumer energy supplies, and it has. I knew that consumer prices could increase more than the APL-5 approval would have allowed, and that is happening. I believed that any logical reading of the record would lead to a conclusion that rejection of APL-5 would bring chaos to the Alaska energy marketplace, put the economy of Alaska at risk, put the lives of consumers at risk, and deter investment in energy for Alaska consumption. Maturity and judgment should have taught decision makers by now what it did not earlier teach: sometimes the best action to take is less action. Sometimes less is more. Restraint does not always signify weakness; sometimes it reflects wisdom.

2. The RCA Should know when to hold 'em, know when to fold 'em, know when to walk away and know when to run.

Hold 'em.
- Make sure utility gas and power supply agreements don't have egregious errors. Then, use the Unocal 2001 precedent to timely approve these agreements between willing parties. Finally, encourage and support utilities in their quest for long term supply agreements for gas and power and don't punish them when they do produce such agreements. This change in attitude by the RCA could largely remove the threat of catastrophic energy disruptions in the future. It would also provide producers with some evidence that clarity and reason were returning to the Alaska investment climate.
- Go ahead and make sure utilites have coordinated emergency plans that apply in any circumstance, ranging from gas supply disruptions, earthquakes, volcanoes, etc.
- But since emergencies are now imminent, the RCA should look into its own emergency procedures, if it has any. For example, it should assign one Commissioner to oversee a function within the Consumer Protection office to develop contingency plans and respond to utility emergencies. Frequently, the major challenge of temporary power outages is lack of timely, accurate public information. The RCA could establish emergency contact procedures with each utility in the state and roll into action when consumers experience utility emergencies, such as power or gas supply disruptions. It should have close and continuing contact with the state's Homeland Security operations and with each municipal and borough emergency office. News media and talk show hosts should have a one-stop-shop abililty to contact the RCA for any utility related emergency in the State and the RCA should be able to immediately respond by telephone and Internet. (P. S. What is the RCA's plan for coordinating utility emergencies and public information if its own employees are caught, powerless, at home and the office has no power?)
Fold 'em. Resist the seductive temptation to over regulate as in the 2006 rejection of the APL-5 ENSTAR-Marathon gas supply agreement. Regulatory commissions are created to regulate monopoly utility and pipeline activity as a substitute for competition. But Cook Inlet gas producers and Cook Inlet Region Inc.'s Fire Island wind production are not within jurisdiction of the RCA. While that fact may cause anguish to some commissioners, they should take a deep breath and accept the fact that their utilities will negotiate the best deals they can with gas, wind, geothermal, tidal or any other type of gas or power producer. If commissioners do not know when to fold 'em and are seduced by the desire to exercise power over the production of power, they will end up hurting the consumers and utilities they are pledged to properly regulate.
Walk Away. The RCA currently deliberates over whether to not more strictly regulate gas supply agreements. It better walk away. If it doesn't, it will add confusion to the marketplace and further deter producer interest in meeting utility needs. If they don't walk away now, they will become more guilty than APL-5's rejection has already made them, perhaps transforming today's difficult energy supply challenges into tomorrow's catastrophe.
Run. If the RCA does not run from the temptation to over regulate, it will be run out of town by citizens, legislative bodies or other elected leaders. Its attempt to manipulate unmanipulatable costs will be seen by more and more citizens as the principle cause of Southcentral Alaska's iminent energy crisis. For the last several years, utilities have come perilously close--on the coldest, darkest winter days--of shutting down. What are the effects of 'shutting down', even for a few days? Well, if there is insufficient pressure in ENSTAR's transmission and distribution pipes, pilot lights will fade as air begins to fill the vacuum once filled by pressurized gas. Utility experts will have to come to each home and business to relight pilot lights once the system is repressurized. If the Southcentral electric utilities, that rely largely on natural gas for electric power production, have insufficient gas, the gas turbine-powered generators begin to shut down. Even if there is enough natural gas for residences, lack of gas for the electric utilities causes natural gas furnaces to lose their electric powered pumps and blower units. Also, if electric supply is erratic, electric motors can be ruined as can computers. Gasoline and air pumps can't operate. How would such events affect homeowners...retail services...hospitals...police and fire...Elmendorf and Fort Richardson...other government services...movie theaters...traffic lights...real estate sales...airports? You say, "Well, some of these have generators." Perhaps. But not all have generators and some generators are calibrated to use natural gas and not liquid fuel. Generators have limited capacity. Refineries that provide liquid fuels for home and business generators are somewhat dependent, are they not, on secure supplies of electricity and natural gas? The bottom line is that disruption of natural gas supplies is unacceptable. Since the RCA cannot but confuse the situation, it should recompose itself more as a 'supportive regulator' and retreat from its 'patronizing and overreaching regulatory posture'.