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Oneok: Contract Rumors Jeopardize Merger

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 of impropriety.

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 deficiency."

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, Houston

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