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FNSB and FNG spar over evidence The borough wants FNG to provide comprehensive information about affiliates; the utility believes the request is an attack Eric Lidji For Petroleum News
What information is relevant when a utility wants to increase its rates?
As Fairbanks Natural Gas seeks to increase its rates, the Fairbanks North Star Borough wants regulators to force the utility to provide comprehensive information about its finances and operations, the finances and operations of its affiliates and its failed bid to construct a North Slope liquefied natural gas facility. Fairbanks Natural Gas believes the requests are merely part of “ongoing public relations attacks” against the utility.
The borough’s initial requests came as part of the “discovery” phase of the proceedings, which is when parties to a legal case can request evidence before a trial begins.
Over the latter half of 2014, Fairbanks Natural Gas responded to 54 requests from the borough and 75 from the state Attorney General, the company recently told the Regulatory Commission of Alaska. The processing yielded more than 5,000 pages.
But Fairbanks Natural Gas balked at some of the borough’s requests. The utility said some fell outside of the scope of the proceedings (“irrelevant”) and others were more trouble than they were worth (“unduly burdensome”). The Fairbanks North Star Borough believes the additional information will help regulators develop a “full record” and wants the Regulatory Commission of Alaska to force Fairbanks Natural Gas to provide it.
A representative example: The Fairbanks North Star Borough wants Fairbanks Natural Gas to provide operating costs for its Point MacKenzie LNG terminal from 2008 to 2012, in addition to the 2013 operating costs already on record for the purposes of a “test year.”
Generally speaking, rate cases require regulators to determine how much money a utility needs to make to conduct its operations and how much profit the utility should earn.
The process involves a “test year,” where actual operating costs from a recent year are used to determine how much revenue the utility needs to earn. Because Fairbanks Natural Gas filed its case in late June 2014, the utility is using 2013 as its test year. “The cost of producing any good or service in 2008 is not an accurate indicator of the cost of producing a similar good or service now,” an attorney for the utility recently told the RCA.
The Fairbanks North Star Borough believes the request is justified because Fairbanks Natural Gas transferred ownership of the terminal to an affiliate in 2013. The borough wants to make sure certain operating costs were “backed out” of the proposed rates.
In other places, Fairbanks North Star Borough said information from earlier years and from Fairbanks Natural Gas’ affiliates would “assist in sorting through the complicated structure of (Fairbanks Natural Gas) and its relations with its affiliate entities.”
The Fairbanks North Star Borough made its initial discovery requests in early October, and Fairbanks Natural Gas responded later that month. In mid-December, the borough asked regulators to force the utility to provide the remaining information. The utility made its case against providing the information shortly before the end of the year.
The two sides are waging a similar battle in a separate but related case. Fairbanks Natural Gas wants regulatory approval for a liquefied natural gas supply agreement with the Hilcorp Alaska LLC subsidiary Harvest Alaska LLC. The agreement is a prerequisite for a proposed sale of the facility from the Fairbanks Natural Gas affiliate Titan to Harvest.
The Fairbanks North Star Borough wants regulators to investigate a 2013 transfer of the facility to Titan, which Fairbanks Natural Gas believes is irrelevant to the matter at hand.
Back and forth Fairbanks Natural Gas spent a decade adjusting its rates more or less at will before voluntarily agreeing to rate regulation, as part of a 2013 settlement with the state.
Over that decade, the company became increasingly complex.
Pentex Alaska Natural Gas Co. LLC acquired Fairbanks Natural Gas in 2004 and subsequently created numerous subsidiaries. Fairbanks Natural Gas manages gas distribution throughout the city of Fairbanks. Titan Alaska LNG LLC owns the 50,000-gallon per day terminal that liquefies Cook Inlet gas. Arctic Energy Transportation LLC owns the equipment used to truck that LNG to Fairbanks. Cassini LNG Storage owns storage facilities. Polar LNG LLC sponsored a proposed North Slope LNG facility.
The Fairbanks North Star Borough became greatly suspicious of that corporate structure and was also annoyed about rising rates and unmet promises to expand the system. And so, in 2012, the Fairbanks North Star Borough and the cities of Fairbanks and North Pole formed a competing municipal gas distribution utility called the Interior Gas Utility.
The Interior Gas Utility and Fairbanks Natural Gas sparred in 2013, as each sought permission to provide service throughout much of the borough. The proceedings became heated at a September 2013 public hearing. The Regulatory Commission of Alaska ultimately gave the authority to the Interior Gas Utility but chastised the utility for making “insinuations,” “assertions” and “accusations” against Fairbanks Natural Gas.
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