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RCA to investigate ML&P fund use; continuation from a 2013 rate case
An announcement in September 2013 by Anchorage electricity utility Municipal Light & Power that the utility wanted to raise the rates it charges its customers by more than 31 percent triggered a Regulatory Commission of Alaska investigation that did not end until July of this year. The ramifications from that investigation continue.
During the rate case investigation, Providence Health & Services, the company that operates Providence Hospital, a major user of ML&P’s power supply services, had argued that the commission should allow ML&P to use a fund called the Deferred Regulatory Liability from Gas Sales fund, or DRLGS, to offset some of the cost of the utility’s power. The commission declined to allow use of the DRLGS in this way but did say that it would initiate a separate docket to further investigate the issue. That docket has now been opened.
Utility gas sales DRLGS is a fund that accumulates revenues from sales of gas belonging to ML&P from the Beluga gas field on the west side of the Cook Inlet. ML&P has a one-third ownership interest in the field and, thus, owns one third of the gas production. Although ML&P primarily uses this gas as a fuel for the utility’s gas-fired power generation units in Anchorage, the utility also sells some gas in the Cook Inlet gas market. Proceeds from those sales go into the DRLGS fund.
In its 2013 rate increase filing, ML&P had requested and the commission had approved the use of some money from the DRLGS fund to initially offset some of the rate increase, thus allowing the increase to take place in two steps and thereby soften the price increase blow for electricity consumers. But the commission stopped short of allowing use of the fund for continuing electricity rate reductions, as requested by Providence, saying that consideration of this change to fund usage should not be assessed as an ancillary issue in a rate case. Hence the new docket.
The primary reason for ML&P’s requested rate increase was a need to pay for its share of Southcentral Power Project, a new state-of-the-art gas fueled power station that ML&P and Chugach Electric Association had built in south Anchorage. In its July 2015 order adjudicating ML&P’s rate increase application, the commission approved a 24.32 percent rate increase. As part of its findings in the case, the commission ordered ML&P to stop paying dividends to the Municipality of Anchorage, given what the commission saw as a disconnect between paying those dividends while at the same time implementing a major rate hike for ML&P customers. According to an ML&P financial statement, the utility paid $5.8 million in dividends in 2014.
Established in 2007 The DRLGS fund that is now the subject of a new investigative docket was established in May 2007. Up to that time ML&P had used revenues from Beluga River field gas sales to offset the price of gas used as a power generation fuel. But an emerging major increase in those revenues in 2007 and 2008 seemed set to make the effective price of the fuel gas negative, but with a sharp price increase to follow.
Rather than have ML&P’s current customers see a substantial benefit from the temporary price drop to the detriment of customers in the future, and to prevent abnormally low power prices undermining energy conservation efforts, ML&P asked commission approval to divert the gas sales revenues into a separate fund, the DRLGS fund. The new fund, which would accrue interest, would be used to pay ML&P’s share of the costs of capital improvements in the Beluga River field. Thus, the benefits from ML&P’s third party gas sales would flow both to current and to future customers, the utility argued. Any remaining amounts in the fund might at some time be used to reduce the cost of gas that ML&P might have to purchase at that time.
The commission approved ML&P’s request. However, now, as a consequence of the issues raised in the September 2013 ML&P rate case, the commission is opening its investigation into the potential future use of the DRLGS fund.
ML&P can reduce its internal gas pricing using the proceeds it receives from the other Beluga field owners as a consequence of the utility using less gas than it is entitled to take, a situation referred to as a gas underlift. On Sept. 30 the utility requested RCA approval to use a $2.4 million gas underlift settlement from 2014 to reduce the effective price of its fuel gas between July 1, 2016, and June 30, 2017.
- ALAN BAILEY
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