HOME PAGE SUBSCRIPTIONS, Print Editions, Newsletter PRODUCTS READ THE PETROLEUM NEWS ARCHIVE! ADVERTISING INFORMATION EVENTS PETROLEUM NEWS BAKKEN MINING NEWS

Providing coverage of Alaska and northern Canada's oil and gas industry
March 2010

Vol. 15, No. 10 Week of March 07, 2010

RCA denies Enstar recovery after error

Commission requires refunds to customers for amount of transportation service error to Fort Richardson laundry included in rates

Kristen Nelson

Petroleum News

The Regulatory Commission of Alaska has denied Enstar Natural Gas Co.’s request to recover $5.7 million related to an error in billing between 2002 and 2007 for gas delivered to a Fort Richardson laundry.

The amount was included in Enstar’s tariff on a provisional basis; RCA is now requiring Enstar to refund the amount to customers and has given the utility until April 20 to file a plan for disbursement of the refunds.

In its March 1 order denying the request and requiring filings, RCA said that between July 2002 and October 2007, Enstar erroneously required Cook Inlet producers to deliver more gas into the pipeline for the Fort Richardson base laundry than was needed — or actually delivered — to the laundry.

The mismatch between gas needed and gas delivered into Enstar’s system occurred after the company installed a new meter at the laundry which recorded gas in hundreds of cubic feet. The results were erroneously put into an electronic database at Enstar as thousands of cubic feet, a tenfold error. As a result Enstar told the producers serving Fort Richardson to deliver 1.6 billion cubic feet of natural gas in excess of that needed by the laundry.

The $5.7 million is the amount the U.S. Department of Defense was overbilled by its suppliers because of Enstar’s error; it includes the gas and gas transportation.

Who used the gas?

Enstar initially argued that its customers burned the oversupply of gas but did not pay for it.

RCA said that under questioning at the hearing it held on the issue, Enstar “retreated from its claims that its customers had burned all of the oversupplied gas,” stating instead “that the entire system used the gas.”

In its order the commission said the revised position made more sense because Enstar is not the only user of its pipeline.

“Oversupply in a pipeline will increase pressure and reduce the amount of gas needed for all users,” the commission said, reducing the volume Enstar needed to supply its customers as well as the volumes needed by Cook Inlet producers who used Enstar’s pipeline to move gas to their customers.

“Exactly who benefitted from the oversupply and by how much was not determined on the record and may well be impossible to determine with certainty,” the commission said.

As to Enstar’s argument that the $5.7 million should be added as a new cost element in the gas cost adjustment, RCA said the Fort Richardson costs fail to meet a required criterion because the error leading to the costs was within the control of the utility.

An Enstar employee added the new meter to the spreadsheet that feeds the Enstar billing system, incorrectly specifying thousands of cubic feet rather than hundreds of cubic feet.

“No one verified that the spreadsheet information matched the paperwork with the meter,” the commission said.

There was an increase in volumes recorded from the laundry location, by a factor of more than 10.

“This should have indicated something happened,” RCA said.

The commission said the spreadsheet feeding the Enstar billing system “was not audited on any type of periodic basis” and said that in its hearing on the matter Enstar “agreed that the spreadsheet had not been appropriately audited.”

Enstar “has since implemented a new quality control system,” the commission said.

Impact on Enstar

Enstar asked the commission to consider the financial impact on Enstar if the Fort Richardson costs were disallowed, and told the commission that Enstar’s earnings are not large enough to compensate it for the risk of not being able to recover gas-supply costs in the gas cost adjustment.

The commission acknowledged that not being able to pass the $5.7 million payment through to gas supply customers “represents a substantial portion” of the utility’s annual earnings, but disagreed with the company’s assertion that disallowing the costs would drive up Enstar’s cost of capital or debt.

“Financial markets already recognize management risk as a component of expected rate of return,” RCA said.

The commission said that because it had decided that the proposed gas cost adjustment was not permitted, “we conclude it is unnecessary to rule on whether the proposed correction of the error was timely.”

Enstar’s proposed gas cost adjustment was $8.7457 per thousand cubic feet; RCA’s decision puts the GCA at $8.5585 per thousand cubic feet.

Enstar may appeal the RCA decision in Alaska Superior Court or petition the commission for reconsideration.

Wilson dissents

The commission’s decision was four to one, with Commissioner Janis Wilson saying in a dissenting statement that Enstar passed through to customers an unexpected windfall of more than $10 million from a lawsuit which Enstar initiated and won. That $10 million, Wilson said, offset by more than $4 million the Fort Richardson costs.

She said the utility “should benefit from the good stewardship of gas sales customer interests” in the settlement it won “as an offset to the devastating mistake it made at Fort Richardson.” Wilson said she believes that would send the appropriate signal to Enstar “that it is worth the risk to zealously pursue gas sales customer interests.”

Commissioner Kate Giard said in a concurring statement that Enstar should not be allowed to pass the $5.7 million through its 2009 gas cost adjustment because the amount was not gas costs associated with a gas supply contract and therefore did not qualify as a gas cost element.

But Giard said she accepted Enstar’s argument that the oversupply of gas into its pipeline resulted in fewer purchases from its gas supply contracts, and said the utility “should be reimbursed to the extent that it can reasonably estimate how much gas was used by gas supply customers.”

It is “not in the public interest to require Enstar to absorb the $5.7 million as a penalty for its failed system of internal controls,” Giard said. “Recordkeeping errors are made all the time. Shutting our eyes to the reality that Cook Inlet producers unknowingly donated gas supply to Enstar’s customers may be the popular consensus, but it does not obviate our obligation to do justice.”

Giard said Enstar needs to provide calculations “which reasonably estimate the amount of gas supply used by its customers and propose realistic alternatives for reimbursement.”

In a concurring statement, commissioners Paul Lisankie and Anthony Price addressed the issue of retroactive ratemaking limitations.

They said the Alaska Supreme Court “has held the calculation of an electrical utility’s fuel cost adjustment, once reviewed and approved by us, results in a final rate that cannot be changed retroactively.”

Lisankie and Price said they considered Enstar’s gas cost adjustment “analogous to the electric utility’s fuel cost adjustment” addressed by the court, and Enstar’s lost-and-unaccounted-for gas equivalent to the electric utility’s line lost cost element. Since RCA has reviewed and approved Enstar’s gas cost adjustment rates for 2002-08, “the limitations on retroactive ratemaking established by the Court may apply here as well.”






Petroleum News - Phone: 1-907 522-9469 - Fax: 1-907 522-9583
[email protected] --- http://www.petroleumnews.com ---
S U B S C R I B E

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)©2013 All rights reserved. The content of this article and web site may not be copied, replaced, distributed, published, displayed or transferred in any form or by any means except with the prior written permission of Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA). Copyright infringement is a violation of federal law subject to criminal and civil penalties.