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RCA allows Beluga gas price change Starting in 2019 ML&P can change its method of calculating the cost of gas obtained from its ownership interest in the gas field Alan Bailey Petroleum News
The Regulatory Commission of Alaska has issued an order approving a change to the way in which Anchorage electricity utility Municipal Light & Power calculates the cost of the gas that the utility obtains from the Beluga River gas field on the west side of Cook Inlet. Because ML&P owns a 56.67 percent interest in the field, the utility in effect supplies itself with its own gas from the field, for its gas-fueled power generation systems. However, the utility must account for the cost of this gas when determining the prices it charges for the electricity it supplies to its customers. That cost is calculated using what is referred to as the gas transfer price, or GTP, a dollar-per-thousand-cubic-foot figure used in the same manner as the price paid for other gas supplies from gas producers in the Cook Inlet basin.
ML&P originally purchased a one-third interest in the Beluga River field in 1996. And, because the utility used revenue bonds to finance the purchase, the utility based the GTP for Beluga gas on the recovery of bond principle and interest payments, plus operating expenses and taxes. However, when in 2016 the utility increased its interest in the field to its current level by purchasing some of ConocoPhillips’ interests in the field, the utility used money from its own accumulated funds, and funds from a settlement with ConocoPhillips, for the purchase.
No debt involved Because the bonds used for the original purchase will be fully paid off at the end of 2018, while the 2016 purchase did not require any debt financing, the debt payment method of calculating the GTP will no longer be appropriate, ML&P has argued. In June 2016 the utility asked the RCA to approve a change to the GTP calculation, starting in 2019. The new method would be based on calculating a rate base for ML&P’s gas production operations at Beluga, and then determining a revenue requirement based on a reasonable rate of return on ML&P’s investment in the field. This is a method that regulated utilities commonly use for determining the rates that they charge their customers.
The RCA in its new order has approved ML&P’s request, albeit with some caveats over the details in the way in which the revenue requirement will be calculated. In particular, the commission requires ML&P to account for the money it used for the 2016 purchase of Beluga field interests from a restricted fund that the utility holds rather than from the utility’s unrestricted cash holdings. The cash counts as equity investment while money from the restricted fund does not. ML&P had argued a need to retain money in a restricted fund for use for future capital investments in the field. Providence Health and Services, a major ML&P commercial customer, had commented that the resulting relatively high cost of equity would drive up ML&P’s revenue requirement, and hence the GTP.
The RCA has also turned down a request by ML&P for approval of a change in the way in which the utility’s restricted funds can be used in the future.
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