Alaska Dispatch

The Cook Inlet Recovery Act, designed to boost natural gas storage in Cook Inlet, had its first hearing in the House.

Absent a severe cold spell this winter in Southcentral, the availability of natural gas to meet peak demands for home heating and electricity may be far from consumers' minds.

But warnings of possible shortages within a few winters are ringing in the state's Capitol, and a comprehensive bill designed to increase production while furthering one solution to those shortfalls could be enhanced next week to surmount a final challenge.

That challenge came to a head two weeks ago when the Regulatory Commission of Alaska said it will look to lawmakers to decide whether gas storage falls under its jurisdiction. Once a policy call is made, a company wanting to build storage as a mid-term fix can get on with its plans.

"They basically punted the ball back downfield to us," act sponsor Rep. Mike Hawker, R-Anchorage, said. He added that the decision was wise to avoid second-guessing, potential legal challenges and even delays in planned storage projects.

Hawker said he will offer that direction with an amendment next week. The move could head off a potential debate among legislators about regulation -- some, like Hawker, want to steer clear of progress being made by the private sector, while others say they want double protection for rate payers who will likely shoulder the costs in utility bills.

For years, Southcentral rate-payers enjoyed the lowest natural gas prices in the nation. But those were different times, when the small local market was easy to supply as producers focused on making money from liquefied natural gas exports to Asia and feeding big industrial customers, like the now-shuttered Agrium fertilizer plant on the Kenai. As the Nikiski LNG plant's export license nears the end of its term -- March 2011 -- ConocoPhillips hasn't made a decision whether to seek federal renewal.

Couple the deliverability issue with production declines, and utility managers and municipal leaders are warning of potential shortages in the state's population center.

Two House Republicans from Southcentral -- Speaker Mike Chenault of Nikiski and finance co-chairman Hawker -- rolled out a comprehensive, technical bill called the Cook Inlet Recovery Act. It's an attempt to boost production and to further plans for a natural gas storage project, a warehouse of sorts that electric utilities and gas distributor Enstar can roll open the door on when they need extra fuel to meet peak demand.

"This is an urgent issue," Hawker told the House committee hearing the bill on Monday afternoon. "We are all at risk."

A TransCanada subsidiary, ANR, formed Cook Inlet Natural Gas Storage Co. (CINGS) to turn a nearly-depleted gas reservoir near Kenai into a storage center, but one hold-up remains, and it's a big one. CINGS officials told the state's Regulatory Commission in December they need to know if their project will fall under that body's jurisdiction. As RCA chairman Bob Pickett put it, the company doesn't want to start playing the game, only to find the rules change mid-point -- especially with an end-goal of having storage operational within a few winters.

Finding no clear authority in statute, the RCA asked the Legislature for guidance.

"The commission strongly welcomes legislative clarity and direction," Pickett testified, saying the bill is a good starting point. "It's not a silver bullet; it's not going to fix everything in the Inlet. But, it's a good starting point, and the status quo, quite frankly, is not acceptable ... Time is of the essence."

While the act doesn't include any direction to the RCA yet, Hawker said he is working on an amendment that would grant general authority without getting too specific. Most of all, the amendment would direct the RCA to watch out for consumers' best interests.

Aside from the RCA jurisdiction, the act is pretty technical on a number of existing and new tax and credit issues. The act offers an income tax credit for a company putting in sizable gas storage that is operational by winter 2015. But the tax credit isn't designed as an incentive, like most tax credits are. After all, CINGS made its proposal absent any incentives.

Instead, the credit is designed to take a little edge off the final bill consumers will pay for gas supplied to their homes and businesses, a price that's expected to increase as utilities face additional costs like storage in order to meet demand, Hawker said.

The company hasn't revealed rates for storage yet, but it's no secret that utilities paying for a ready supply of gas year-round will pass that onto consumers.

"The public is going to have to understand that gas storage isn't free," said Larry Persily, who works for Hawker. "For guaranteed deliverability, there will be a cost."

The hearing before the House Labor and Commerce Committee was the first for the act. Another proposal addressing the issue, by Sen. Hollis French, D-Anchorage, would offer tax credits to companies building storage facilities.

Read House Bill 0280A here (.pdf).

Contact Rena Delbridge at This e-mail address is being protected from spambots. You need JavaScript enabled to view it