In an expedited decision, a state regulatory agency on Thursday approved a deal allowing the city of Anchorage and Chugach Electric Association to buy a portion of a Cook Inlet gas field from ConocoPhillips for $152 million.
Three of the five members of the Regulatory Commission of Alaska – Robert Pickett, Stephen McAlpine and Janis Wilson -- participated in the hearing that began Monday.
Pickett and Wilson approved the purchase and sale agreement, while McAlpine offered partial approval and partial dissent over concerns related in part to the hurried timeline and confidential treatment of the agreement allowed by the commission.
Under the deal, Municipal Light and Power, which is owned by the city, will pay ConocoPhillips $106 million, while Chugach Electric will pay $46 million.
ML&P has owned one-third of the Beluga River Unit, about 35 miles west of Anchorage, since 1996.
Purchasing ConocoPhillips' portion of the field will boost the utility's overall ownership to 57 percent. Chugach Electric will be a new owner in the field, with a 10 percent share. Both utilities use natural gas in their turbines to produce electricity.
Oil and gas producer Hilcorp will continue to own the remaining one-third of the field, and will operate it.
The commission ruled that according to projections of the field's useful life, as analyzed by firms hired by the utilities, the benefits of the deal to the utility's customers are "reasonably likely to outweigh the costs of the acquisition."
The utility's "due diligence" in assessing the deal included reviews by consulting firms of the field's hydrocarbon reserves, estimated production and value. Other firms analyzed gas wells and surface production equipment, and found no "material" issues, the commission ruled.
"In addition to the gas cost savings that will flow through to ML&P and Chugach's customers, we are persuaded that the acquisition will provide the utilities and their customers with increased gas cost stability and enhanced gas supply security, which will qualitatively benefit ML&P and Chugach customers throughout the remaining life of the (Beluga River Unit)," the decision said.
Not participating in the hearing was Commissioner Norman Rokeberg, who had a scheduling conflict. To avoid a split decision, a three-member panel considered the utilities' request for approval, leading new commissioner Rebecca Pauli to also not participate in the hearing.
The utilities filed their request with the RCA on March 11, and sought an expedited consideration and a decision by April 21.
The utilities were in a rush in part because Chugach Electric wanted to take advantage of a small producer tax credit created by the state in 2006. Chugach must own an interest in the field by May 1 to be eligible. The credit will be worth an additional $10 million to Chugach and will save ratepayers about $500,000 a year, the utilities argued.
Anchorage Mayor Ethan Berkowitz said in a media statement that ML&P's increased stake in the field will "generate long-term savings for families and businesses in the Anchorage bowl."
Mark Johnston, ML&P general manager, said the utility's initial investment in the field has saved its ratepayers more than $239 million over the last two decades. That figure is based on the market price of gas during that period compared to the ML&P's cost of production at Beluga.
Brad Evans, Chugach CEO, said the deal secures a "low-cost and reliable" supply of natural gas that will benefit ratepayers.
ML&P plans to pay for its portion of the deal using cash savings built up from its initial ownership in the field, including from gas sales to other entities.
Chugach will issue short-term debt to cover its costs.
In his partial dissent, McAlpine found the process the utilities engaged in to be "abhorrent," in part because they waited until March to file their request with the RCA, when it apparently should have been filed in late January or perhaps even earlier.
He hopes the utilities were not trying to minimize the chance that the commission or others would "develop evidence of a contrary nature."
"One cannot help but suspect … that that might be the case," he wrote.
McAlpine would have denied expedited consideration, even if it meant that Chugach Electric would lose its tax credit, he said.
McAlpine also said the purchase and sale agreement should not have received confidential treatment.
"Our regulations require a party seeking confidential treatment to file a redacted copy of the document for which confidentially is sought," he said.
But no such document was filed, he wrote.
"Instead, the parties filed what was purported to be a 'summary' of the (purchase and sale agreement) and therein disclosed virtually all of the pertinent information contained in the PSA, together with their stated refusal to file any redacted version of the PSA," he wrote.
As a next step, the utilities will submit the lease transfer to the Department of Natural Resources and the Bureau of Land Management for approval.