Enstar suit may affect prices

Utility alleges Aurora didn’t supply natural gas as contracted

Posted: Tuesday, April 03, 2007

While many Alaskans are keeping their eye on prospects for getting North Slope natural gas to market — either within the state or in the Lower 48 — a less-publicized gas-supply skirmish has entered the Alaska courts.

Enstar Natural Gas has filed suit in Anchorage District Court against the relatively small independent gas producer, Aurora Gas LLC, claiming Aurora breached its contract by discontinuing shipments of gas to the utility.

Enstar spokesperson Curtis Thayer said 5 percent of its gas supply this year would have come from Aurora, had the producer not stopped delivery. Instead, 55 percent is coming from Chevron, 42 percent from Marathon and 3 percent from Beluga, he said.

Aurora President Scott Pfoff claims the Enstar contract allows Aurora “to suspend deliveries and sell the gas elsewhere” when it becomes uneconomical for the supplier to continue supplying at the contracted price.

“Aurora is not trying to break its contract with the utility, it is simply trying to invoke a contractual right that was bargained for at the time the contract was entered into and subsequently approved by the regulators,” Pfoff said.

Twenty-four cents of the recent $2.03 Enstar increase to customers was due to this lawsuit, Thayer said.

“We’re suing (Aurora) for the difference,” Thayer said. “If there’s a monetary award, consumers will see a reduction in prices.

“We’re suing on behalf of our customers,” he said.

Thayer said Enstar is unwilling to take Aurora’s word that it has become uneconomical to produce and deliver gas at the agreed upon $3 per thousand cubic feet.

“We need proof,” he said. “They need to show us the economics.”

He said the problem is compounded by the fact that Aurora has stopped selling gas to 500 commercial customers in the Anchorage area, forcing Enstar to pick up the slack.

“That’s Aurora Power (Resources Inc.),” said Pfoff. “They confuse the two companies.

“Aurora Power started in 1994, buying and selling gas in Southcentral Alaska to about 1,000 customers,” he said.

Pfoff is president of both Aurora Gas and Aurora Power Resources.

Depending on the time of year, between 20 and 25 percent of Aurora Power’s gas came from Aurora Gas; about 75 or 80 percent was from Chevron.

“Aurora Power had difficulty when the Chevron contract ended Oct. 31, 2006,” Pfoff said. “That’s what precipitated the drastic reduction in Aurora Power’s customer base. We had to turn back a bunch of customers to Enstar.”

Pfoff said, “I have lost track of how many times we invited them to sit down and look at it and try to understand this very complex issue.

“They won’t give us the time of day,” he said.

Thayer said Enstar recently closed a request for proposals (RFP) period March 19 seeking gas supply contracts for 2009 through 2016.

“Aurora did not respond,” Thayer said. “If Aurora is willing to negotiate a contract with us, we’re open to it. They chose not to participate.”

Pfoff said he does not recall ever receiving Enstar’s RFP.

“I don’t know if we would have been able to bid on a contract that size,” he said. “We were never sent a copy of the RFP.”

Pfoff said the irony is, Aurora would rather be out drilling for gas.

He said Aurora has invested about $70 million in Cook Inlet in the last five years, with results that were less than expected.

“We cannot continue to operate there economically,” he said.

Because Aurora has ongoing production on the west side of Cook Inlet, the company needs people to operate on a day-to-day basis, but Pfoff said the company is stopping all exploration and development work.

“The company has gainfully employed scores of local workers in its past five years ... however, most of these jobs will be lost without additional investment in its search for gas,” he said.

“Unfortunately, it looks like Aurora Gas will devote most of its resources in the coming year to fighting a lawsuit rather than drilling for gas,” Pfoff said.

Phil Hermanek can be reached at phillip.hermanek@peninsulaclarion.com.

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