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Ramras wants more scrutiny of FNG Believes utility is earning enough to justify further look into rate regulation; company says profits only shouldn’t be trigger Eric Lidji Petroleum News
A Fairbanks legislator is again asking regulators to examine the balance sheets of a natural gas utility to see whether economic regulation might be appropriate.
In a May 8 letter to Chairman Bob Pickett, Rep. Jay Ramras, R-Fairbanks, asked the Regulatory Commission of Alaska to study the earnings of Fairbanks Natural Gas.
Ramras believes a review of the 2008 earnings would show the company is earning a rate of return above that of other natural gas utilities in Alaska, such as Enstar Natural Gas.
“This renewed scrutiny is warranted in this case,” Ramras wrote.
The letter followed comments Ramras made at a May 6 hearing in Fairbanks. The hearing was a chance for Fairbanks Natural Gas and the state Attorney General’s office to present the terms of a deal to stave off regulation for the utility in return for concessions.
Ramras said recent testimony suggesting re-regulation wasn’t appropriate was based on 2007 financial figures, but that Fairbanks Natural Gas’ earnings increased in 2008. He also said company President Dan Britton received a higher salary from year to year.
Fairbanks Natural Gas said regulation shouldn’t be based on a few profitable years.
“To go back and pick out a year and say, ‘Okay, now you’re earning more than you earned last year’ is not really relevant to the underlying question before us, which is: Should they be regulated on an ongoing basis in every year, not just one out of 10, say,” Fairbanks Natural Gas attorney Mark Figura said at the hearing, according to a transcript.
Concerning the salary, Britton has said much of the jump can be attributed to his change in status from contract to salaried employment, and not to an actual increase in payment.
Issue playing out for years Fairbanks Natural Gas began life as an economically regulated utility, meaning it needed the approval of regulators to change rates. The RCA lifted that restriction in 2003, saying the utility needed agility to compete with the dominant fuel oil companies in Fairbanks.
Following a supply scare in 2006, Ramras began pushing for regulators to keep a more watchful eye on Fairbanks Natural Gas. In May 2008, Ramras and more than a dozen lawmakers from Southcentral asked the RCA to consider re-regulating the utility’s rates.
The request came after Fairbanks Natural Gas posted a profit after many years of losses.
The lawmakers decided not to be a party in the case and so the Attorney General joined the case on behalf of the public. A pair of witnesses for the Attorney General ultimately testified that economic regulation wasn’t appropriate now, but could be in the future if Fairbanks Natural Gas ever captured a large enough share of the home heating market.
One of the witnesses even said Fairbanks Natural Gas might be entitled to higher returns as a regulated utility than it was currently earning as an economically unregulated utility.
Fairbanks Natural Gas said profit alone shouldn’t trigger regulation, because the point of deregulation was to let the company use earnings from good years to recover its losses.
Looking to resolve the matter, the utility and the Attorney General proposed a deal to tether residential rates to those paid by large commercial customers, along with other concessions. Large commercial customers typically get a discount for buying in bulk.
The RCA hasn’t yet decided whether to approve the deal.
Price comparisons volatile The recent volatility in fuel prices created an unusual marketplace in Fairbanks.
For years, Fairbanks Natural Gas marketed itself as the cheaper alternative in a city where fuel oil companies try to offer a better price by just a few pennies on the gallon.
Trouble securing gas supplies from Cook Inlet forced Fairbanks Natural Gas to increase prices, leading to a stretch where natural gas actually cost more than fuel oil in Fairbanks.
That changed last spring and summer as crude oil prices rose to record peaks, taking fuel oil prices with it. Natural gas once again became the cheaper fuel in Fairbanks.
Now that prices have fallen, natural gas is again the more expensive option. During the hearing, it was revealed that the Princess Riverside Lodge — the building where the hearing was taking place — and other customers had switched back to fuel oil from gas.
Some larger customers, like the Fairbanks Independent School District, have the ability to switch back and forth between the fuels as prices dictate. The concern from regulators is whether the utility’s residential customers are “captive,” or unable to easily switch fuels.
Britton said his company’s goal is to be a cheaper alternative to fuel oil, but that can be difficult in periods like now when oil prices fall and costs to deliver natural gas increase.
Fairbanks Natural Gas liquefies fuel from Cook Inlet and trucks it north to Fairbanks.
Last year, the utility signed an agreement to buy North Slope natural gas from Exxon, but still needs to build a liquefaction plant before it can start trucking the fuel south.
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