Portland, OR-based NW Natural announced late Tuesday that it has reached an all-parties settlement on a previously announced joint venture to develop natural gas reserves with a U.S. subsidiary of Canadian-based Encana Corp. (see Daily GPI, Feb. 28). The settlement must be approved by the Oregon Public Utility Commission (PUC), and the parties are seeking an OK by May 1.
The joint venture announced earlier this year is to be with Encana Oil & Gas (USA) Inc., a subsidiary of the Calgary-based parent company.
Parties to the deal include the PUC staff, Oregon's Citizens' Utility Board (CUB), Northwest Industrial Gas Users and the utility. The deal and supporting testimony from the parties were filed with the PUC Tuesday, said a utility spokesperson, who noted that the parties made the deal effective May 1.
Based on the Feb. 25 joint agreement, NW Natural and the Encana U.S. unit will develop gas reserves in the Jonah Field in Wyoming, located north of Rock Springs. The gas utility will invest in the reserves for its utility customers with the investment being put in its rate base, on which a pre-set profit margin is earned.
In February NW Natural signed a 30-year, $250 million deal with the Encana unit, noting that it expects the deal to provide long-term supplies for the vast majority of its 674,000 customers in western Oregon. Its customers in southwest Washington state will not be involved.
NW Natural will pay $45-55 million annually for a five-year period, or a total of $250 million, to cover expected drilling costs, in exchange for working interests in specific Encana-owned sections of Wyoming's Jonah Field. The sections include both future and currently producing wells, a utility spokesperson said.
In announcing the settlement, NW Natural said the venture is "designed to develop gas reserves that will provide long-term supplies for [our] Oregon utility customers during about a 30-year period." In the first 10 years of the agreement, NW Natural said it expects the volume of gas received under the transaction to provide approximately 8-10% of the company's average annual requirements for its utility operations.
NW Natural expects its investment to provide about 93 Bcf in supplies at an average all-in price of about $5.15/dth, resulting in an estimated savings over the life of the deal of more than $50 million on a net present value basis. Based on the settlement, the utility is seeking deferral of expenses related to the transaction through the date that the costs are included in rates through the annual purchased gas adjustment (PGA) mechanism, which kicks in Oct. 31 each year in Oregon.
Under the PGA process, savings or added costs each year will be shared with customers and shareholder on a pre-set basis, and the same will apply if NW Natural opts to take its annual share of gas supplies or to have Encana sell the gas production at market prices. Customers get the bulk of any upside and shareholders have a limit of $2 million for either savings or added costs.
Also as part of the settlement, NW Natural will file a general rate case in Oregon by the end of this year.
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