Oneok: Contract Rumors Jeopardize Merger
Oneok Inc. CEO Larry Brummett and Oklahoma Corporation
Commission (OCC) Chairman Bob Anthony sparred last week over
whether a 1993 gas purchase contract of Oneok subsidiary Oklahoma
Natural Gas (ONG) has been found to be fair to ratepayers. As
things stood Friday, Anthony was all but calling for an
investigation of the contract.
The 10-year contract between ONG and Tulsa, OK-based Dynamic
Energy Resources is said to be worth about $175 million and runs
until January 2004, Anthony said. The commissioner said the
contract specifies gas will be sold at whichever of three pricing
provisions is most attractive to the seller. One provision is spot
price plus 40 cents. Another specifies a flat price of $2.78/Mcf,
and the third is a weighted average cost of ONG's supply portfolio,
including the cost of old and expensive gas contracts, Anthony
said. "You might ask yourself why would anybody sign a contract to
pay more than the market price for 10 years," Anthony said.
When he asked Brummett the same question in the courtroom,
Anthony said the CEO couldn't answer it. "We are in the process of
assembling information on that right now," Oneok spokesman Roger
Mitchell said of Anthony's concerns about the supply contract. "Our
intention is to try to put this thing to bed. One commissioner is
creating the issues associated with this."
The contract has garnered much suspicion because of Dynamic
Energy. Dynamic's owners, Eugene and Nora Lum, have pleaded guilty
to federal campaign finance and tax violations. Rumors have
persisted that the ONG contract was somehow related to the Lums'
illegal activities, despite what Oneok calls repeated findings to
the contrary. The company pointed to a 1996 investigation by the
staff of the OCC's Public Utility Division that concluded the
Dynamic contract did not harm ratepayers and there was no evidence
Anthony pointed out that a staff investigation is not the same
thing as a commission ruling that the contract is prudent and
proper. "A commission ruling regarding the prudence of the contract
has never been made.
"I think the commission has a legal and constitutional
responsibility and duty to be sure that charges to consumers under
the contract are reasonable and prudent."
Brummett chided Anthony about a 1997 letter in which Brummett
challenged the commissioner to reveal any evidence of wrongdoing by
ONG. The company said Anthony has yet to respond to the letter.
Anthony said that is not true and that he did respond in his
concurring opinion approving the merger of Oneok and Western
Resources, which was filed Oct. 1, 1997. "The public still deserves
to know why ONG would give corrupt political operatives from
out-of-state a contract to sell about $175 million of natural gas
over a ten-year period when the principal owner had no gas
reserves, had no experience in the natural gas business, and
furthermore once had even testified she suffered from a memory
Last week OCC commissioners voted to release appendices to the
1996 OCC staff investigation report. The documents had been
requested under Oklahoma open records laws by three separate
parties. They contain information on the Dynamic contract as well
as other ONG gas supply agreements. Anthony said Oneok had
maintained it had no objection to releasing the information but was
concerned about liability it would have to suppliers for disclosure
of the information. The commission sought consent for the release
of the information from 24 parties who had contracts with ONG.
Anthony said eight gave permission to release the information;
seven raised no objections; and the others did not respond.
Brummett also last week told the commission that continuing
speculation about the Dynamic contract's propriety are jeopardizing
the $1.8 billion merger of Oneok and Southwest Gas. Joe Fisher,
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