Natural gas bills expected to increase for peninsula users

Posted: Sunday, December 17, 2000

The average Kenai Peninsula residential gas bill may soon rise by $11.54 per month thanks to the recent peak in the price of crude oil.

Enstar Natural Gas Co. now buys 80 percent of the gas it sells from Marathon Oil Co. and 20 percent from owners of the Beluga Gas Field in western Cook Inlet, said Dan Dieckgraeff, Enstar vice president for finance and rates. Enstar's cost changes each January based on the price of West Texas crude oil during the previous July, August and September.

From July through September last year, West Texas intermediate averaged $19.33 per barrel on the New York Mercantile Exchange, and this year, Enstar paid $1.63 per thousand cubic feet for natural gas.

This July through September, though, the price of crude averaged $33.66 per barrel on the NYMEX. Beginning Jan. 1, Enstar will have to pay $2.36 per thousand cubic feet for gas. It will pass the 73-cent increase to consumers, said Curtis Thayer, director of public and governmental affairs.

"We sell the gas for what we pay. It's a direct pass-through," he said. "Enstar doesn't make any money on the gas. Enstar makes money by transporting it. We're not changing that rate."

Enstar charges residential customers a base of $2.85 per thousand cubic feet, which includes the base price for the gas plus Enstar's operating costs and a return on its investment. By regulation, its return cannot exceed 15.65 percent.

There are lower base rates for business and commercial customers. The base rates have not changed since 1987, the last time they were reviewed by utility regulators. Thayer said Enstar has been able to absorb increased operating costs thanks to growth in sales.

To the base rates, Enstar adds an adjustment each January to account for changes in the price of gas. In 1997, residential customers paid the base rate of $2.85 plus a gas-cost adjustment of 66 cents, a total of $3.51 per thousand cubic feet. This year, they are paying $2.85 plus a gas-cost adjustment of 39 cents, a total of $3.24 per thousand.

Each year, after Enstar knows how its gas costs will change, it proposes a tariff adjustment to the Regulatory Commission of Alaska.

"They generally approve," Thayer said. "You have to keep in mind, they approved the contract (with gas suppliers) in 1988 with this index in place."

Enstar recently applied to the Regulatory Commission of Alaska to increase the cost adjustment by roughly 73 cents, to nearly $1.13 per thousand cubic feet. If the commission approves, residential customers will pay roughly $3.98 per thousand cubic feet, beginning in January. Enstar estimates the average residential gas bill would rise from $55.27 to $66.79 per month, a 20.8 percent increase.

The average small business bill would rise from $118.28 to $144.88 per month, a 22.5 percent increase. The average large commercial customer's bill would rise from $1,028.99 to $1,298.78 per month, a 26.2 percent increase.

The commission will take public comments on the proposed rate changes until Dec. 29.

The price of West Texas intermediate has recently fallen to about $28 per barrel. However, consumers will see no immediate effect, because Enstar adjusts its prices only each January based on the July through September index.

However, a prolonged decline in the price of oil could bring lower gas prices in 2002.

Meanwhile, Enstar rates are among the lowest in the nation. Natural gas in the Lower 48 has been selling recently for $6 to $9 per thousand cubic feet, Thayer said. Cook Inlet prices are lower because there is no pipeline to ship Cook Inlet gas Outside. So, there have been limited markets for abundant Cook Inlet gas.

"So our prices have traditionally been lower," he said.

Dieckgraeff said the limited market also is the reason the price Enstar pays is indexed to the price of oil. There are only a few big buyers of Cook Inlet gas -- Agrium, Enstar and the electric utilities -- so there is not much of a market on which to gauge the changing value of gas.

When the present contracts were negotiated, he said, Enstar and producers considered the price of West Texas crude on the NYMEX to be one of the best broad-based indicators for tracking fluctuations in U.S. energy prices.

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