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Lawmakers Question Gas Prices In Latest Enstar Contract

Call on the RCA to Determine Whether High Rates Are Reasonable 

May 14, 2010 - Five Southcentral lawmakers today called on the Regulatory Commission of Alaska to review whether gas prices contained in a proposed contract between Enstar Natural Gas and Marathon Alaska Production are "reasonable" for Southcentral consumers, as required by law.

The contract would provide Enstar with 14 billion cubic feet of gas in 2011 and 2012.  The price for the first 9 million cubic feet consumed each day would be $6.85/Mcf.  After that, it would rise to $9.59/Mcf.  If even more gas were needed in a given day, the price could rise as high as the "equivalent price of heating oil," which at today's prices would be over $15/Mcf.  

"These prices are far above what gas buyers in others parts of the country are paying," said Senator Bill Wielechowski, D-Anchorage.  "Why is this?  Southcentral consumers deserve to know."

Gas prices have been hovering around $4/Mcf at the internationally recognized gas sales center known as the Henry Hub.  The federal government forecasts prices at the Hub will rise to $5.34 in 2011, far lower than the prices in the new contract.

"Under this contract, Alaskans will be paying almost twice as much in the winter for our Cook Inlet gas than Lower 48 buyers," said Senator Hollis French.  "At the same time, the state is providing massive subsidies to Cook Inlet producers.  What explains this discrepancy?  Why are the prices being charged to Alaskans so high?"

The state currently pays about 45-65% of the cost of exploration in the Inlet, and new legislation offers even greater financial incentives.  One provides a corporate income tax credit of 25% for new investment in the Inlet.  The other provides a 40% tax credit against severance taxes for new exploration.

In addition, taxes on Cook Inlet production are minimal.  Whereas the tax rate on North Slope gas is 25% of profits, Cook Inlet producers pay less than 5% on average.

"All we are asking for are fair and reasonable rates for Southcentral families and businesses," said Senator Bettye Davis, D- Anchorage.  "It is the duty of the RCA to ensure that this is the case."

The lawmakers urged the Regulatory Commission to undertake a thorough, but expeditious, review of the contract as Enstar needs to ensure that it has sufficient gas under contract to meet local needs.

"We all support more development in the Cook Inlet and believe producers deserve a fair return on their investment," said Representative Berta Gardner.  "We just want to make sure Alaskan consumers are getting a fair deal."

Representative Pete Petersen concurred, saying "The goal is to secure a reliable supply of gas at prices that are reasonable for both producers and consumers.  The RCA needs to take a hard look at this contract to make sure it meets this goal.  Prices at the consumer end look pretty steep."  



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