The Regulatory Commission of Alaska began a three-week hearing June 5 on Enstar Natural Gas Co.’s proposed tariff. A transcript from the first day of the hearing contained overviews from Enstar and other parties to the proceedings as they laid out in opening statements the case for and against increases in rates for moving natural gas. Enstar is the natural gas local distribution company for Southcentral Alaska and also provides bulk transmission services for other utilities and large customers: all are impacted by the new tariff proposals.
There are issues over the proposed rate and also issues over differences in treatment of different classes of Enstar customers.
Enstar
Matt Henry of Vinson & Elkins, representing Enstar, said the company keeps its rates low but needs those rates to be high enough to pay competitive wages to employees, recover investment in the system, attract new capital and provide customers with safe and reliable service.
Henry said Enstar’s proposed rate, if approved by the commission, would be about 50 percent of the national average, citing as a reason an employee-to-customer ratio he called among the lowest in the nation.
Enstar’s previous tariff was producing an overall rate of return of 6.49 percent, with an effective return on equity of 7.85 percent as compared to its last adjudicated return on equity of 12.55 percent, Henry said. The annual base rate increase requested is $11.8 million, increasing the typical residential bill by some $5.47 per month, he said - adding it was somewhat less now due to post-filing adjustments and concessions.
Henry said changes proposed by the Attorney General’s Regulatory Affairs & Public Advocacy Section, RAPA, would return the company’s revenue requirement to the level proposed in 2009. He said RAPA’s proposed methodology for year-end rate base, a 13-month average, would potentially “artificially dilute” Enstar’s rate base value.
Henry also said Enstar has unique challenges, among them that it operates a combined transmission and distribution system, and said risks and rewards must be evaluated on that basis.
RAPA
Jeffrey Waller, speaking for RAPA, noted that RAPA is the public advocate, not the consumer advocate, and has the job of representing the attorney general for the public. Its role is to make recommendations that follow the rules, makes sense and protect the public - but also protect the utility, he said.
On the comparison of Enstar’s rates with those in the Lower 48, Waller said rates are set based on cost, not on comparison.
RAPA recommends using a 13-month average, which he said is the rule, with year-end the exception. And since Enstar doesn’t come in very often for rate cases, a year-end rate would mean they could earn that for a very long time.
Waller covered a number of issues where RAPA has questions. On bonuses, for example, he said Enstar has to prove they should be in the rate base, and the commission has set out factors to be considered. RAPA also has concerns with a number of expenses, including charges for credit card processing, where RAPA questioned the number of customers with such transactions.
Cost of the Homer extension is also an issue: Waller said there are not enough people paying a dollar per mcf to cover the cost of service to Homer.
On the rate of return, Waller said 12.55 percent is a 15-year-old rate, and said while the rate has been adjudicated down it’s not low enough yet. The change reflects what’s happening to the cost of capital, he said.
JL Properties
Attorney Robin Brena of Brena, Bell & Clarkson, on behalf of JL Properties, which owns and manages substantial property in Anchorage, said they were the voice of the distribution system ratepayers in the hearing and said the goal should be a balance between the lowest reasonable rate for ratepayers and adequate revenue and return for the utility.
He said that in general JL Properties aligns with RAPA on revenue requirements, which for the most part would meet the lowest reasonable rate standard.
On credit card processing, Brena noted that in the last rate case the commission rejected credit card charges because the majority of the charges were not paid by the people using the service. He asked why he should be required to pay for someone else to use a credit card to pay their bill.
He said RAPA didn’t look hard enough at issues around the Homer pipeline, most of the cost of which, $8.5 million out of $11.5 million, was paid through a state grant, with Enstar financing the rest based on a surcharge to be paid by Homer residents. Brena said the responsibility for a noneconomic line shouldn’t be transferred to ratepayers in Anchorage.
He argued for more separation between Enstar’s distribution and transportation businesses and called for fair allocation of costs between distribution and transportation customers.
Titan
Mark Figura of Rose & Figura, on behalf of Titan LNG LLC, said Titan, as a member of the middle-sized firm transport class, deserves fair, just, reasonable rates based on the service provided to them.
Titan operates the LNG plant at Point McKenzie and ships gas from Beluga to the LNG plant, 39 miles, but with postage stamp rates, the same for every user, pays for the entire line when it only uses the first 39 miles. He said Enstar doesn’t have an integrated system, pointing to parts of the system which aren’t connected, and said there are various exceptions to the postage stamp rates for short service because rates are established for each customer class.
Titan wants a rate based on the portion of the line it uses, which he said would be about 60 percent of the current and proposed rates.
Figura also noted that Enstar’s gas sales have been essentially flat over the last four years, whereas volumes moved for transport customers have grown substantially, thus charges against the transport customers are worth more to Enstar than charges against gas customers.
