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FNG rate regulation back on docket State regulators returning to the familiar issue as required by a 2009 settlement between the utility and the Attorney General Eric Lidji For Petroleum News
State regulators are once again considering whether the lone natural gas distribution utility in the Fairbanks area should continue to be exempt from rate regulation.
The Regulatory Commission of Alaska recently opened a docket to consider whether Fairbanks Natural Gas LLC should still be allowed to change its rates mostly at will.
The decision to revisit the matter was not inspired by any recent events involving the company. When the RCA last considered the matter, in 2009, it decided to check up on the case this summer to gauge the effectiveness of several consumer-protection provisions included in a settlement between the utility and the state Attorney General.
Those conditions set a price cap tethering residential rates to large commercial rates, and required Fairbanks Natural Gas to tell all current and future customers about its regulatory status and to keep tabs on the number of customers with “dual-fuel capacity,” or the ability to easily and cost-effectively switch between gas and another heating fuel.
Those requirements sought to address concerns raised by the state Attorney General’s office, particularly the question of whether a significant number of Fairbanks Natural Gas’ residential customers were “captive,” or essentially stuck using gas because the cost of installing equipment to switch between fuel types was prohibitively expensive.
Return to a familiar issue The question of rate regulation perennially dogs Fairbanks Natural Gas.
Fairbanks Natural Gas began its life in 1997 as a fully regulated utility, but the RCA exempted the utility from rate regulation in 2003 to help it compete against the unregulated fuel oil companies that dominate the Interior Alaska heating fuel market.
While the question returned occasionally in the years following the decision, the most recent debate arose from a June 2008 request by Rep. Jay Ramras, a Republican from Fairbanks, and a group of Southcentral lawmakers. Pointing to a series of rate increases and the fact the utility posted a profit in 2007 after a decade in the red, they said Fairbanks Natural Gas had now “matured into a healthy profitable gas monopoly.”
But Fairbanks Natural Gas said the rate increases came largely as a result of contractual disputes with Cook Inlet suppliers, and argued economic regulation would only increase rates further because utilities are allowed to pass ratemaking costs on to customers.
The Attorney General represented the public on behalf of the lawmakers and ultimately said Fairbanks Natural Gas didn’t “over-recover” and shouldn’t be rate regulated, but suggested a price cap to protect customers who couldn’t easily switch back to oil.
The utility and the Attorney General reached a settlement in April 2009.
Prices appear steady After several years of increases, natural gas prices in Fairbanks have now stabilized.
Between 2003 and 2008, residential rates jumped from $8.56 per thousand cubic feet to $23.35 per mcf, occasionally topping heating oil prices on an energy equivalent basis.
Today, though, the residential rate remains at $23.35 per mcf.
Fairbanks Natural Gas currently serves more than 1,100 residential and commercial customers and operates more than 70 miles of underground distribution pipeline.
Currently, the company trucks liquefied natural gas from Southcentral.
The utility is contracted for Cook Inlet supplies through mid-2013.
A slate of projects Since the 2009 ruling, Fairbanks Natural Gas has been busy.
Through its affiliate Polar LNG LLC, the utility is working to build a liquefaction plant on the North Slope. The facility would allow the company to commence a 10-year supply contract with ExxonMobil and to get out of the supply-constrained Cook Inlet basin.
In late May, Fairbanks Natural Gas announced plans to build an additional storage facility in Fairbanks, increasing its current 340,000-gallon capacity by 5 million gallons (or enough to supply 2,200 homes for an entire year, according to company estimates).
The announcement came after the Legislature approved a tax credit for LNG storage facilities. Fairbanks Natural Gas expects to bring the facility online in 2014.
“This additional storage will provide the capacity necessary to grow and to meet the needs of new customers as well as our important existing customers, including homes, schools and medical facilities,” President Dan Britton said. “This storage capacity will play a major role in realizing the potential for a new source of LNG from the North Slope or other points in Alaska. In addition this substantial storage capacity will provide a meaningful redundancy of supply should a pipeline to Fairbanks be built in the future.”
Starting in early 2011, Fairbanks Natural Gas began offering a “small volume interruptible rate,” allowing customers buying at least 2 million cubic feet per year — mostly businesses, but possibly apartment complexes as well — to realize a 10 percent discount in pricing in return for accepting interruptible service during the year.
The goal was to give Fairbanks Natural Gas a way to expand its system in light of the wild swings in demand between winter and summer. The service is only offered to customers with the ability to switch their fuel supply on as little as six hours notice.
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