The Case of the Missing Gas

The news broke March 2 that Enstar wasn't going to be allowed to bump up consumer charges to compensate for a billing error involving Fort Richardson, but the story behind the story is pretty fascinating.

Policy makers heralded the Regulatory Commission of Alaska's decision, but there's more than a simple billing error. Enstar can't seem to show exactly where the gas billed to the fort went. The distributor was acting as an intermediary for producers who have a direct contract with the fort - the gas never belonged to Enstar. And although the gas entered Enstar's system, it didn't make it to the fort.

Larry Persily, who works for Rep. Mike Hawker pending U.S. Senate confirmation to a new post as federal coordinator for Alaska gasline projects, sent an analysis to legislators. He lays out a far more complex situation than has been reported.

Here's what Persily sent to legislators:

The RCA March 1 rejected ENSTAR's request to recover its $5.7 million billing error at Fort Richardson from the utility's customers. The RCA directed the utility to return to its customers all funds previously collected in anticipation of recovering the shortfall. The order directs ENSTAR to file with the RCA by March 15 to remove the $5.7 million from the utility's interim (refundable) rate calculation and to file a plan with the RCA by April 20 to refund past collections.

ENSTAR has until March 18 to ask the RCA to reconsider its decision or, if it does not seek reconsideration, it has until March 31 to appeal the RCA order in state Superior Court.

That short explanation is the easy part to understand. I have learned, however, that the case is not as clear as has been reported in the press over the past several months.

• The gas at issue did not belong to ENSTAR. The gas that was not delivered and was not consumed at the Fort Richardson laundry between July 2002 and October 2007 was provided under a direct sales contract between Cook Inlet producers (ConocoPhillips, Aurora and Marathon, for different periods) and the Department of Defense. ENSTAR merely provided the delivery service and, unfortunately, the metering service, ordering up gas as needed from the producers, delivering it to the laundry, and then billing the producers for delivery services and advising the producers how much gas the laundry had consumed so that the companies could bill the Department of Defense for the gas and delivery costs.

• When ENSTAR discovered its error at the meter, it notified the Department of Defense and the producers, and the military demanded repayment of the overcharges from the producers for the gas that was never consumed and the delivery charges on that gas. For example, the Department of Defense demanded $1.9 million from ConocoPhillips -- $1.2 million for gas that the base never consumed, and almost $700,000 in pipeline charges for the gas that was never delivered. ENSTAR offered payment to the producers to cover the companies' refunds to the military. That's the $5.7 million ENSTAR wants to recover from its customers to make itself whole. Although Fort Richardson did not consume the gas, the producers did deliver the gas into the system. The utility's assumption had been that if the military didn't use the gas, ENSTAR's other customers must have consumed the gas - and should pay for it.

• Because the producers had sent the gas into the ENSTAR system as requested by the utility for those 5+ years, and because Fort Richardson did not actually burn the gas, the producers were out the revenue from the gas and figure ENSTAR did something with the gas and owed the producers for it.

• By the way, ENSTAR is still in litigation with Aurora, which wants its gas back in-kind, not as cash. I assume Aurora figures the gas is worth more today than a check for the gas at the prices of several years ago.

• The problem started in 2002 when Fort Richardson switched from steam to gas-fired space and water heating systems at the base laundry and other facilities and ENSTAR installed a gas meter at the base. The meter was configured to read the flow in hundred cubic feet, but it was added to ENSTAR's billing system as measuring in thousand cubic feet. It was a misplaced decimal in the multiplier - a costly decimal. The new meter was installed in July 2002 and the full switch from steam to gas occurred in mid-2003.