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August 2009

Vol. 14, No. 32 Week of August 09, 2009

RCA considering Enstar tariff rate hike

Commission suspends tariff for investigation; separates it into revenue, rate design dockets; Alaska AG invited to participate

Kristen Nelson

Petroleum News

Enstar Natural Gas Co., the local natural gas distribution utility, applied to the Regulatory Commission of Alaska in June for a 4.9 percent increase in its revenues and to change 97 percent of its customers to a single fixed charge rate with the only variable based on the recovery of the actual cost of gas.

In a July 16 ruling the commission suspended the tariff for further investigation and invited participation by the Alaska Attorney General and intervention by interested parties, with an Aug. 17 deadline for petitions to intervene.

The commission also gave Enstar an opportunity to withdraw the portion of the filing on revenue requirements.

Enstar’s filing included recovery of costs incurred to investigate gas storage options, costs to comply with federal pipeline inspection requirements and normal increases in costs and services. Enstar included a cost-of-service study based on existing customer classes and a separate study based on proposed customer classes — the shift of 97 percent of customers to a fixed base rate.

Enstar also told the commission it was negotiating two collective bargaining agreements and said it expected to update costs in the filing once an agreement was reached. Another update Enstar proposed to file later was on the cost of a new field order system.

The commission said that because of the statutory timeline for completing the docket — by Aug. 25, 2010, 450 days after the filing was found complete on June 1 — and due process requirements for discovery and rebuttal, it could not accept updates of revenue requirements.

Two dockets

The commission established two dockets: U-09-069 for the revenue requirement portion of the tariff filing and U-09-070 for the rate design.

It suspended both the rate increase and the rate design change until Jan. 15.

The commission offered Enstar the opportunity to withdraw its revenue requirement filing and re-file when costs were known and gave it until July 30 to let the commission know its decision.

In a July 30 letter to the commission, Daniel Dieckgraeff, Enstar’s manager of rates and regulatory affairs, said Enstar did not wish to withdraw its filing and wished to proceed concurrently with both the revenue requirement determination and the cost-of-service and rate design portions of the filing.

He said Enstar completed negotiation of the collective bargaining agreements and that both agreements were ratified July 22.

“Because the discovery period for this case has not yet begun and, in fact, the period for interventions has not even closed, no party will be disadvantaged or have its due process rights affected in any way by these updates to the filing,” he said.

Dieckgraeff also told the commission that Enstar “is entering a period in which it will need to raise substantial amounts of capital to meet the supply and deliverability requirements of its customers,” and said that to attract investment on reasonable terms, “a supportive regulatory environment is necessary, including a constructive approach to minimizing the ‘regulatory lag’ normally associated with revising any utility’s base rates.” He said Enstar hopes the commission and parties in the case “will work together to achieve this objective, consistent with the due process rights of all parties.”

Objections received

The commission received numerous comments in opposition to the proposed rate increase and the rate design revision.

Residential customers objected to any increase in Enstar’s rates.

More detailed objections came from commercial users of Enstar’s transportation system.

Chevron objected to Enstar’s proposal for tariff charges associated with gas injected into gas storage and said it believes a flat fee for the first 100 million cubic feet “is excessive.” Gas storage flowing into Enstar’s pipeline system benefits Enstar, Chevron said, with gas storage on the west side of Cook Inlet particularly benefitting Enstar and its ratepayers by providing scarce west side gas to Enstar during the winter months.

“Enstar’s rate structure should take into account the benefit gas storage provides to Enstar and its rate payers,” Chevron said.

The company said it was charged $20,294.85 to flow 15.36 million cubic feet of gas into its Pretty Creek gas storage to meet reservoir concerns, a rate of $1.32 per thousand cubic feet.

“Charging onerous flat fees to ship gas into a storage facility is not just and reasonable,” Chevron told the commission.

Fairbanks Natural Gas LLC, which purchases transmission service from Enstar, said it moves gas from Beluga to the company’s liquefied natural gas plant, and faces a 59.6 percent increase under the proposed tariff.

“This is considerably higher than the rate increase proposed for any other customer,” FNG told the commission.

FNG also said its current rate was established in 2003, “and it is quite unlikely” that Enstar’s costs of providing the service have increased 60 percent in that six-year period.

ML&P

Municipal Light and Power urged the commission to suspend the proposed rates for a formal investigation and split consideration into revenue requirement and cost of service rate design.

ML&P is a firm transmission customer of Enstar, the firm’s attorney told the commission, and by “total revenue and volumes transported,” one of Enstar’s largest customers.

In 2008, ML&P paid $3.47 million in gas transportation charges to Enstar. The proposed rates would increase the fixed charge by 54.6 percent and increase the volumetric charge by 12.8 percent, an overall increase in ML&P’s transportation rates of approximately 30 percent.

“Any such rate increase will directly increase electric rates to ML&P’s customers through ML&P’s cost of power adjustment,” the utility said.

ML&P also asked for an investigation of Enstar’s proposed rate increases, and told the commission the proposed rates are “based on volumes of data; multiple, complex pro forma adjustments; a very high proposed rate of return on equity and a hypothetical cost of debt; a complex cost of service study; and significant, novel changes to Enstar’s rate design.”

The utility said it had been able to conduct only a limited review of Enstar’s filing, but said it believes there are several aspects of the filing that should be “rejected, adjusted, or at a minimum thoroughly analyzed.”

ML&P said it planned to intervene in the matter.





The great laundry fiasco

One of the items that surfaced in Enstar’s new tariff filing was a request by the company to recover $5.7 million it paid the Department of Defense to reimburse the department for overpayment for natural gas used at the Fort Richardson laundry.

Daniel Dieckgraeff, Enstar’s manager of rates and regulatory affairs, said in pre-filed direct testimony dated July 17 that Enstar replaced a meter at the laundry in July 2002 because natural gas usage was expected to increase after Fort Richardson shut down a power plant which had been providing steam for space heating and water heating to the laundry and other buildings.

He said the new meter recorded the laundry’s gas usage correctly, in hundreds of cubic feet, but the readings were incorrectly entered into Enstar’s meter reading subsystem, which generates bills for service, as thousands of cubic feet, resulting in billings for 10 times the volume of gas actually used.

Enstar discovered the error in November 2007 when it installed additional equipment at the laundry to transmit usage information directly to Enstar’s gas control operations center.

The new electronic equipment transmitted volume readings in the correct scale and when Enstar reconciled volume information from the new equipment to historic volumes it discovered the billing error and corrected it.

The laundry got its natural gas from third-party suppliers and neither the Department of Defense nor the third-party suppliers noticed the problem until Enstar notified them in early 2008.

Dieckgraeff said Enstar has checked all of its large meters since the laundry error was discovered and now has a procedure in place for double checking such new installations.

Enstar has reimbursed the Department of Defense directly $5,710,270 — a combination of the estimated $3,309,008 in gas supplied to the department by Aurora Power and the $2,401,262 estimated cost of gas supplied by Mangco.

Earlier refunds made by Enstar to Aurora Power and Mangco were returned; Enstar subsequently paid the Department of Defense directly.

Dieckgraeff said it was his understanding that Aurora Power and Mangco refused payment “because they were asserting claims for ‘in-kind’ reimbursement, as opposed to the ‘in-value’ reimbursement Enstar was willing to make.”

Enstar is asking for reimbursement of the $5.7 million from its other gas customers through its tariff because the gas incorrectly billed to the Department of Defense was actually used by Enstar’s other customers.

—Kristen Nelson


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