RCA approves CINGSA formula rate mechanism

Alan Bailey

for Petroleum News

The Regulatory Commission of Alaska has approved a formula rate mechanism whereby Cook Inlet Natural Gas Storage Alaska can make annual adjustments to the rates that it charges its customers for the storage of natural gas.

The newly approved mechanism arises from an order that the commission issued in 2018. In that order the commission expressed concern that, because CINGSA’s rate base was depreciating rapidly, the company’s rates were becoming misaligned with the rate base - the use of a formula rate mechanism would benefit CINGSA’s customers through the use of annually updated data. The rate base, the value of a utility’s assets, is a key factor in determining how much a utility charges its customers. Normally there is a multi-year lag between the tariffs that utilities file.

In the event, CINGSA proposed a formula rate mechanism involving annual adjustments to several of the factors, including the rate base, that determine the utility’s rates. Following an investigation, all of CINGSA’s customers except Homer Electric Association agreed to a modified version of the proposed formula. HEA objected on the grounds that the ability to annually change several parameters that determine the storage rates would reduce CINGSA’s incentives to reduce its costs. However, parties to the stipulation argued that an entity questioning CINGSA’s cost efficiency could request the commission to investigate.

CINGSA plays a vital role for Cook Inlet gas and electric utilities by storing excess produced gas during times of low gas demand, for use during periods of high demand, especially during the winter. Without gas storage it would not be possible to maintain adequate gas supplies for heating buildings and generating electricity during Southcentral Alaska winters. The cost of gas storage, resulting from CINGSA’s rates, is factored into the rates that the utilities charge their customers.

- ALAN BAILEY