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AG, FNG propose regulation deal Utility would remain unregulated, but would tie residential rates to large commercial rates and increase reporting requirements Eric Lidji Petroleum News
The state Attorney General and a Fairbanks utility have proposed a deal that would keep the utility’s rates from being regulated in return for a price cap and other concessions.
The deal, which is pending approval by state regulators, would let Fairbanks Natural Gas keep the ability to change its rates without permission from the Regulatory Commission of Alaska, but would tether residential rates to those paid by large commercial customers.
The move is designed to alleviate regulator concerns that many of Fairbanks Natural Gas’ residential customers are “captive,” or that the cost of installing equipment to switch between fuel types is prohibitively expensive. Large commercial customers can better handle this switch, according to a consultant testifying for the Attorney General.
The price cap would maintain the current ratio between residential and large commercial customers, both for the price of gas consumed and the fixed customer fee for service.
Larger customers historically have received a discount based on volume.
Residential users now pay about 3 percent more for natural gas than large commercial users, but their monthly fee is only 16 percent of that charged to large commercial users.
Residential natural gas customers in Fairbanks currently pay $23.35 per thousand cubic feet, compared to $22.66 per thousand cubic feet paid by large commercial customers.
Fairbanks Natural Gas and the Attorney General proposed the settlement in late February following months of testimony. The Regulatory Commission of Alaska recently extended its deadline for ruling on the proposal in order to schedule hearings in Fairbanks.
The commission will now make its decision by June 5.
Seeking other concessions In addition to the price cap, the deal would require Fairbanks Natural Gas to update the RCA on the status of efforts to build a liquefied natural gas plant on the North Slope.
Fairbanks Natural Gas currently buys its gas supply in Cook Inlet, liquefies it and trucks it to Fairbanks. The company recently signed a deal with ExxonMobil to buy North Slope gas, but because no gas pipelines run south from Prudhoe Bay, the utility still needs to liquefy and truck the supply to its distribution grid coursing through Fairbanks.
Fairbanks Natural Gas is currently looking for a way to fund this new construction project and recently floated an idea for the state to issue $250 million in bonds.
If construction of the plant gets delayed, the deal would require Fairbanks Natural Gas to tell regulators where it plans to get new supplies after June 2010, when Cook Inlet supply contracts expire. Fairbanks Natural Gas already updates the RCA bi-monthly on the status of its supplies. The additional information would be added starting November.
The deal would also require Fairbanks Natural Gas to use direct mailings and Web site posting to tell current and potential customers that it is not economically regulated.
Fairbanks Natural Gas would also have to continue gathering information about the number of its customers that can easily switch between different types of heating fuels.
Natural gas not dominant Fairbanks Natural Gas began life in the mid-1990s as a fully regulated utility, but regulators exempted the utility from rate regulation in 2003 to help it compete against the unregulated fuel oil companies that supply most of Interior Alaska with heating fuel.
The Regulatory Commission of Alaska has considered re-regulating Fairbanks Natural Gas’ rates several times in the years since, most recently after a June 2008 request from Rep. Jay Ramras, R-Fairbanks, and 13 lawmakers from Southcentral. The lawmakers decided not to be a party to the case, handing over responsibility to the Attorney General.
Consultants for the Attorney General ultimately did not advocate rate regulation, but one proposed a price cap to tie natural gas prices in Fairbanks to average fuel oil prices in the area. The consultant also proposed revisiting the regulation issue if Fairbanks Natural Gas ever claims 25 percent of the space heating market in Alaska’s second largest city.
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