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

Providing coverage of Alaska and northern Canada's oil and gas industry
June 2009

Vol. 14, No. 24 Week of June 14, 2009

RCA accepts Alaska AG-FNG settlement

Agreement links changes in residential rates to large commercial customer rates; prohibits residential fees that change balance

By Kristen Nelson

Petroleum News

The Regulatory Commission of Alaska said June 3 that it accepts the settlement agreement reached in February by Fairbanks Natural Gas and the Alaska Attorney General which keeps FNG exempt from rate regulation.

Fairbanks Natural Gas has been exempt from RCA economic regulation since 2003.

In 2008, in response to a request from legislators, RCA opened a docket to consider rate regulation for the utility, which delivers natural gas to some 1,100 customers in the Fairbanks area.

Legislators declined to participate as parties, but the Alaska Attorney General participated representing the public.

Fairbanks Natural Gas and the Attorney General reached a settlement in February, agreeing that rate regulation of FNG would not be in the public interest “at this time.”

In stipulations in that settlement FNG agreed that when it adjusts its rates in the future it will maintain the current ratio between rates for residential and large commercial customers for both volumetric rates and fixed charges. The volumetric rate for FNG’s residential customers is to be no more than 3.045 percent higher than the volumetric rate for large commercial customers and the monthly customer charge for residential customers will continue to be no more than 16 percent of the monthly customer charge for large commercial customers.

The settlement also stipulates that FNG will not apply any new fees or charges that result in residential customers paying a higher ratio of fees and charges — relative to large commercial customers — than those they pay currently.

Report on LNG plant required

FNG is also required to inform RCA on Nov. 1 of specific planning for the company’s proposed North Slope liquefied natural gas plant, including construction, completion date and funding, and if the development of the LNG plant is not on schedule to begin supplying gas by June 2010, FNG is to inform RCA of its plans for acquiring natural gas supplies beginning June 1, 2010.

FNG has liquefied Cook Inlet natural gas and trucked it north to Fairbanks, but lost its supplier due to declining deliverability of Cook Inlet natural gas. The company has contracted with ExxonMobil to buy natural gas on the North Slope, but now has to build an LNG facility at Deadhorse.

In a June 5 concurring statement, RCA Commissioner Kate Giard said she agreed to accept the settlement because she believed “there is adequate justification for FNG’s continued exemption from rate regulation and the settlement serves to protect the most price sensitive of FNG’s ratepayers, the residential ratepayer.”

She cited a response from FNG on its higher profits in 2008: The company indicated that because of higher oil prices FNG was able to keep its rates higher in 2008 than it had in the past and still remain more than 30 percent cheaper than fuel oil for much of 2008, but said it has to remain competitive and would lower rates to do that.

“FNG needs a form of rate discipline to protect its ratepayers from rate shock; yet traditional rate regulation is not cost effective,” Giard said.

Residential ratepayers captive

She said the Attorney General’s evidence indicated that Fairbanks residential ratepayers are captive and require price protection because they cannot move freely to the lowest-cost provider, “even when the market itself is competitive, as is the case with the Fairbanks heating fuel market.”

While larger commercial customers can switch from fuel oil to natural gas and back again, residential consumers are held captive by the cost of switching from a gas-burning furnace to a furnace burning fuel oil.

Because large commercial customers “can and will leave FNG if it does not set competitive prices,” the settlement imposing a link between residential prices and those charged to large commercial customers protects “the most exposed of FNG’s customers,” Giard said.

She said the settlement did not address all of her concerns, “but it does address the issue of rate regulation which was the heart of this docket.” The rate collar — linking residential charges to those of larger commercial customers — “achieves rate protection for the most vulnerable customers and it was a thoughtful, far less costly solution than traditional rate regulation,” Giard said.

She said another factor in her decision was FNG’s statements that it was lowering 2008 natural gas prices. “I will now anticipate that FNG’s profits for 2009 will be more reasonable than those reported in 2008,” Giard said.

She said she was sympathetic with FNG because of its difficulties in securing a natural gas supply, its startup status and the millions of dollars of unrecovered costs it has had since 2003, but remains unhappy with the company’s 2008 profits.

“There is only so much profit that should be made on 1,100 customers and personally, I believe FNG exceeded that amount in 2008,” Giard said.






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

Copyright Petroleum Newspapers of Alaska, LLC (Petroleum News)(PNA)Š1999-2019 All rights reserved. The content of this article and website 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.