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Vol. 14, No. 41 Week of October 11, 2009
Providing coverage of Alaska and northern Canada's oil and gas industry

Enstar fights to keep laundry overbilling snafu in tariff

State, gas suppliers, politicians, ratepayers tell RCA company shouldn’t be able to recover $5.7 million

Kristen Nelson

Petroleum News

The battle continues over who should bear the burden of Enstar Natural Gas Co.’s $5.7 million overbilling of the U.S. Department of Defense for natural gas deliveries.

For several years Enstar’s billing system incorrectly indicated that measurement from a single meter was in hundreds of cubic feet rather than the correct thousands of cubic feet and gas volumes from that meter were billed at 10 times the actual rate of usage.

Enstar, the Southcentral Alaska local gas distribution company, has included the reimbursement it paid to the department in its tariff and customers are paying it as part of monthly gas bills. Approval of Enstar’s tariff — including the $5.7 million — is before the Regulatory Commission of Alaska.

Enstar argued in filings with the RCA that its customers got the benefit of reduced natural gas costs when it won a settlement in an unrelated court suit. The reverse, Enstar said, is that customers should pay the amount Enstar had to pay Defense for the utility’s overbilling for natural gas delivered to the department.

Enstar also argued that the natural gas was used by other customers and those other customers should pay for the gas.

Alaska legislators have joined the fray.

Sen. Bill Wielechowski, D-Anchorage, said in a statement that RCA should reject Enstar’s “request to add $5.7 million to the heating bills of Southcentral households and businesses this coming year to compensate for an error it made from 2002 to 2007.”

He called Enstar’s request “outrageous.”

“Why is Enstar asking all customers to pay for a mistake it made in overbilling one customer?” Wielechowski asked. “There is no claim that gas meters in people’s homes and businesses were inaccurately recording how much gas was being consumed, so how can Enstar come back now and say consumers used more than their meters recorded back then?”

Rep. Pete Petersen, D-Anchorage, said that as a small businessman he knows how important it is for businesses to take responsibility for their actions.

“Enstar made a mistake, and I do not believe that their customers should have to pay for it,” he said in a statement, adding that he will monitor RCA’s decision and if the commission “rules that under current law Enstar is allowed to pass these charges on to consumers I will introduce legislation to prevent this from happening in the future.”

“Thanks to Enstar, our local natural gas company, for reminding us why it needs to be regulated,” Rep. Les Gara, D-Anchorage, said in an e-mail to constituents.

Gara said that if Enstar gets its way, it will mean some $30 added to consumers’ natural gas bills this year.

“They’re billing you now, and retroactively seeking legal permission for it” from RCA, he said.

The RCA took public testimony Oct. 5 and heard arguments from Enstar and other parties Oct. 6-7.

What does the state say?

The state said RCA’s regulations do not support Enstar’s request to recover “through prospective rate increases” the cost associated with natural gas sales dating back to October 2004.

Enstar failed to properly calculate natural gas usage at the Fort Richardson laundry, the state said, “causing its gas transportation customers … to supply ten times as much gas as was being consumed by” the Department of Defense.

“Enstar reportedly used the volumes associated with (Department of Defense) mistaken consumption to meet its own system needs, but did not discover what had occurred nor settle up with the affected parties until recently, years after the gas had presumably been consumed by other Enstar customers,” the state said.

In a filing with RCA the state said Enstar recently settled claims from the Department of Defense related to a large portion of the overpaid amount “and requests that current and future customers pay an additional $5.7 million in cost associated with gas sales to customers dating back to October 2004.”

The state said it has no reason to dispute Enstar’s assertion that the unit price of natural gas from Marathon and Aurora — gas oversupplied to Enstar by those producers and overbilled to the Department of Defense — was “lower than would otherwise have been available for purchase by Enstar during the relevant time period.” The state also said the $5.7 million does not include more than $1.2 million worth of ConocoPhillips Alaska gas from Oct. 1, 2002, through Sept. 30, 2004, for which Enstar has yet to settle.

Gas cost adjustment not appropriate

The state said Enstar’s proposal to recover costs through its gas cost adjustment is not appropriate because the gas cost adjustment in the utility’s tariff provides for an annual submittal of changes in the cost of gas.

The gas cost adjustment also provides that cost elements in the adjustment must be “beyond the control of the utility,” the state said.

“As discussed above, it is beyond dispute that Enstar was entirely accountable for the subject $5.7 million in gas costs not being properly and timely flowed through the GCA mechanism, starting as early as July 2002. Accordingly, it is untenable for Enstar to now pass on such costs to its 2009 and 2010 customers, regardless of when the cost was incurred,” the state said.

While there may be some merit to Enstar’s argument on the timing of qualifying events for the gas cost adjustment, the state said, “Enstar’s analysis leapfrogs a threshold problem: The Commission’s regulations do not support Enstar’s request to recover those costs where their submission was not ‘beyond the control of the utility.’ In short, Enstar’s gas costs in this case do not fall within the definition of the GCA regulations and thus are ineligible for recovery by that mechanism.”

The state said that if Enstar had misplaced an invoice for gas purchases made in 2004-07 “the cost presumably would be excluded from consideration” under a current gas cost adjustment filing based on the agency’s regulations.

The state said that is essentially what Enstar is doing by including $5.7 million in gas costs in its current gas cost adjustment and charging 2009-10 customers for gas consumed as much as five years ago.

“Such operation of the GCA mechanism is neither contemplated nor permitted under the current regulations,” the state said.


Von Hutchins, in pre-filed testimony for ConocoPhillips Alaska, said the purpose of his testimony was to ensure that the factual record in the case, as it relates to ConocoPhillips, is correct, and that RCA “does not inadvertently characterize the facts in a way that jeopardizes” ConocoPhillips’ claims against Enstar in separate litigation.

After Enstar discovered its error, the Department of Defense demanded $1,903,971.19 from ConocoPhillips for overcharges for gas supplied to the department from Oct. 1, 2002, to Sept. 30, 2004.

This is in addition to the $5.7 million for overpayment of gas contracted through other producers.

Hutchins, director of gas supply and marketing for ConocoPhillips’ Cook Inlet gas assets, said that since Enstar caused the error, ConocoPhillips has demanded reimbursement of the $1.9 million from Enstar, but Enstar has refused to reimburse ConocoPhillips.

He said Enstar does not deny that there was an error, but maintains that its tariff provides that it is only required to “adjust for billing errors up to 36 months from the date of any invoice,” and these invoices are older than 36 months.

Hutchins said this was not a billing error: “The bills themselves were accurate because the amounts billed correctly calculated the product of volumes consumed multiplied by a rate,” and thus ConocoPhillips “could not have known of the error because the bills, on their face, were mathematically correct.”

Enstar’s error, he said, “was in its internal recording of the amount of gas consumed.”

Error predated Conoco contract

That error began before ConocoPhillips began supplying gas to the Department of Defense, so “the error was already embedded in the baseline meter readings by the time CPAI started to provide gas” to the department in 2002, Hutchins said.

ConocoPhillips contracted with Defense to provide the natural gas and then separately contracted with Enstar to provide transportation and Hutchins said the transportation contract required Enstar to maintain and operate measuring facilities and to test the accuracy of measuring equipment monthly.

He said the meter in question was one of eight separately itemized in the November 2002 bill to the Department of Defense and deliveries of gas at that time “overwhelmingly were directed to the power plant that was still in use.”

Of volumes in November 2002 — had Defense been billed correctly — the total would have been 160,478 thousand cubic feet or mcf; of that total, 76 mcf or 0.05 percent was for the meter with the error, had that volume been shown correctly.

He said the ten-fold error from the one meter, meter 118, was such a small percentage of the total, 0.4 percent, as to be “a nearly imperceptible … blip on the total bill for the example month highlighted.”

The bills were too high when ConocoPhillips began supplying gas, he said, “and there was no sharp ten-fold increase in the bills” after the company took over that reflected Enstar’s error.

Aurora wants gas

Scott Pfoff, president of Aurora Power Resources, said in filings with RCA that Aurora has sued Enstar in Superior Court over more than 800,000 mcf of Aurora’s gas which Enstar received as a result of incorrect billings from the laundry meter.

He said that in compliance with its agreements with Enstar and with Enstar’s tariff, Aurora has requested the return of the oversupplied gas and a credit for transportation charges for the oversupplied volumes.

“Enstar ignored Aurora Power’s request for over six months and thereafter denied Aurora’s requests,” he said.

The gas transportation agreement governing Enstar’s transportation of gas specifies filing of actions in Superior Court, Pfoff said.

Pfoff said Enstar’s response to the filing was to move for dismissal of Aurora’s complaint or for transfer of the litigation to RCA for a determination of the issues. While the Superior Court refused to dismiss the complaint, it did grant the jurisdictional motion in part, “effectively transferring the matter to the RCA for its review and comment.”

Pfoff said the problem with the Enstar meter occurred before Aurora began its gas supply contract with the Department of Defense, so Aurora did not have a frame of reference to compare usage before the meter change with usage after, and it “had no reason to question, or to be alarmed by the volumes of gas that Enstar reported as being delivered to the (Department of Defense) laundry meter.”

Resolution, Pfoff said, lies in return by Enstar of the oversupplied gas. He characterized this as a measurement error and said there have been numerous such errors over the years “similar to this one, albeit not as large.” In those cases Enstar has credited or debited the invoice to Aurora Power for the transportation billing portion of the error and debited or credited the gas imbalance account.

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