Enstar tangles with Hilcorp Alaska in court over gas supply requirements

Arguing that it faces a potentially catastrophic situation that could result in a shortfall of natural gas this winter, Southcentral Alaska’s natural gas utility asked a judge on Friday for a swift resolution to a dispute over gas supply with producer Hilcorp Alaska.

Enstar has asserted that Hilcorp has failed to deliver gas under contract to be stored for periods of high demand, leading to the complaint it filed in Alaska Superior Court in Anchorage earlier in January.

Hilcorp has pushed back, saying that Enstar has not met requirements to receive the extra gas it’s calling for, and that its demands could result in gas shortages for other Hilcorp customers. The disagreement seems to have heightened tensions between two entities that provide much of the gas that’s critical for the region.

“Despite Enstar’s incendiary language and unnecessary escalation, we are committed to working together to resolve this disagreement in a manner that best serves all residents of Southcentral Alaska that rely on Cook Inlet natural gas,” Matt Shuckerow, a spokesperson for Hilcorp, said in a statement.

Both sides presented their oral arguments in a hearing that lasted close to an hour on Friday, before Judge Herman Walker Jr.

Nicholas Bajwa, an attorney for Enstar, said that Friday’s cold weather drove home the utility’s point that it faces an “emergency” if Hilcorp does not deliver contractually required amounts of gas.

With temperatures in Anchorage dropping solidly below zero, Friday was the third-highest day of natural gas use in Enstar’s history, with demand for more than 230 million cubic feet, Bajwa said.

The risk of the shortfall includes potential blackouts, when power is interrupted in given areas, Bajwa said.

The case comes as Enstar and other utilities face a looming shortfall of natural gas from Cook Inlet, which could lead to costly imports of liquefied natural gas.

The dispute involves “call gas,” additional gas that Enstar can call on beyond the 25 billion cubic feet of gas per year that Hilcorp also provides to Enstar. The utility can call for up to 4 billion cubic feet of the additional gas over a year’s time.

The extra gas can allow Enstar to meet its gas needs during periods of high demand, such as frigid winter days when the utility’s 150,000 customers turn up thermostats in homes and buildings.

Enstar has called for the disputed amounts to be delivered by the end of March.

Hilcorp, the top producer of natural gas in the Cook Inlet region, has argued that it has provided the gas required under contract, including daily amounts of “call gas,” as temperatures began dropping this week.

In court filings, Hilcorp argues that Enstar has exaggerated the risk of a gas shortage and does not face an imminent emergency. With one month of potentially high gas demand left this winter, Enstar has enough gas stored to meet its needs while the parties resolve their contractual dispute, Hilcorp argues.

Hilcorp claims that Enstar wants to boost its stored gas by acquiring “call gas” when temperatures are relatively warm, and the extra gas is not needed. It argues Enstar is improperly going to court, when the contract requires mediation and arbitration to resolve the issue.

“Enstar has thrown a lot of inflammatory language around,” said Jennifer Coughlin, an attorney for Hilcorp, during oral arguments on Friday.

But sworn statements from Enstar officials say “the only thing that’s going to happen between now and March, if an injunction is not entered, is that they will send a notice to other utilities informing them that they are standing up an energy watch and that there may be a shortage in the future,” Coughlin said.

Coughlin argued that Enstar had not met requirements under the contract that it draw on its own stored gas first, before calling on Hilcorp to provide call gas.

But as temperatures began dropping on Wednesday and Enstar’s demand for gas rose so that it met contractual requirements, Hilcorp provided “call gas” to meet Enstar’s needs, she said.

The requirement with Enstar addressing when “call gas” is available was put in place in order to help balance the needs for gas across the region, Coughlin said.

Hilcorp also provides significant amounts of gas to other utilities, including Chugach Electric Association, the power provider in Anchorage and surrounding areas.

“Enstar clearly wants to make its storage inventories higher than they are,” Coughlin asserted. “That’s sort of life in the Cook Inlet gas industry. We want the same thing.”

Hilcorp will continue to provide “call gas” as temperatures remain low and Enstar follows supply protocols, said Shuckerow.

“However, we strongly disagree with attempts to take additional ‘call option’ gas off the market during unseasonably warm temperatures and outside of our agreed upon supply protocol in order to hoard gas in storage,” Shuckerow said. “We believe this behavior is a violation of our contract supply protocols and ultimately bad for other Railbelt customers and utilities who rely on Hilcorp to fulfill their critical gas needs.”

Bajwa said during Friday’s hearing that Enstar has met the required protocols and is entitled to the disputed gas.

Judge Walker indicated on Friday he’s looking for a solution to resolve the issue without ordering a preliminary injunction, while the two sides resolve differences quickly, working together.

Walker said he can’t easily ignore the contractual requirement calling for potential arbitration outside of court.

Enstar needs “immediate relief” before the two sides pursue a resolution that could involve mediation or arbitration, Bajwa said.

Shuckerow, with Hilcorp, said after the hearing that the company will work to settle the disagreement.

“We look forward to resolving this contractual dispute with Enstar and its foreign owners in a timely and professional manner,” Shuckerow said, referring to TriSummit Utilities, Enstar’s parent company in Canada.

Lindsay Hobson, a spokesperson for Enstar, said after the hearing that the disagreement highlights the critical need for more gas production in Cook Inlet.

“It’s a tight market,” she said. “We are fighting for every molecule of gas out there. We value our relationship with Hilcorp and we are fiercely advocating for our customers and this process doesn’t change either of those positions. But it does really underscore the need to have additional gas resources in Cook Inlet.”