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Enstar applies for rate increase; typical gas bill would go up 4.6%
Enstar Natural Gas Co., the main Southcentral Alaska gas utility, has applied to the Regulatory Commission of Alaska for approval of an increase in the fees that the utility charges for the shipment of gas through its gas transmission and distribution pipelines. The utility told the commission that it seeking authorization to raise by $11.8 million the revenue that the utility needs to recover from its rates. That would raise a typical residential gas bill by 4.6 percent per year or $5.47 per month, Enstar told the commission.
Enstar proposes executing the rate rise in two steps. The first interim step, to be included in billings on or after Aug. 1, would involve an increase of about 1.6 percent of total annual revenues. An additional increase of about 2.3 percent upon commission approval of the rate increase would bring the total increase to 3.9 percent of revenues.
Rate of return too low Enstar says that it needs the rate increase to achieve an acceptable rate of return on equity following some substantial new investments in its transmission and distribution system. The utility proposes achieving a rate of return on equity of 12.55 percent. Currently, following $70.5 million in new capital investments and a $3.7 million increase in annual operating expenses, the utility’s effective rate of return has dropped to 7.85 percent, Enstar told the commission.
“A rate adjustment is therefore necessary to reflect the sizable investments and expenditures that Enstar has made on its customers’ behalf to continue providing safe and reliable service,” Enstar wrote.
Enstar has also requested approval for a change in the way in which the utility recovers the cost of storing gas in the Cook Inlet Natural Gas Storage Alaska facility on the Kenai Peninsula. The proposed change would more accurately reflect the timing with which the stored gas is used, the utility told the commission.
Enstar says that its requested rate of return on equity reflects the business risks that the company faces. Those risks include uncertain economic conditions in Alaska; declining average gas use per customer; weather uncertainty; operating in a remote and difficult environment; limited gas supply options; and regulatory lag.
New investments Enstar told the commission that investments that need to be added to the rate base for determining part of the utility’s revenue requirements include a new 4.2-mile gas transmission pipeline connecting the CINGSA storage facility to the Enstar pipeline system on the Kenai Peninsula; the replacement of two aging gas compressors used to drive gas through the pipeline system between the Kenai Peninsula and Anchorage; the replacement of the gas transmission line at the Beluga River crossing following river bank erosion; the replacement of aging pipeline infrastructure and pipeline stations; the replacement of more than 50,000 obsolete radio systems used for automatic meter readings; the installation of 113 miles of pipeline to serve new customers; and the purchase of equipment and plant for safety purposes, including emergency response and leak surveying.
Enstar also wants to recover through its rate base some remaining costs associated with the construction in 2013 of a gas distribution line from Anchor Point to Homer on the Kenai Peninsula, to enable gas supplies to Homer. Much of the cost of that pipeline has been recovered through a state grant and a Homer extension surcharge, but some costs remain, Enstar told the commission.
Concerns raised Some businesses impacted by the proposed rate change have raised concerns and have asked the commission to conduct an investigation into Enstar’s proposals.
Anchorage electricity utility Municipal Light & Power told the commission that, under the proposed tariff, a change to the way in which ML&P is classified would result in a 15.29 percent increase in ML&P’s gas transportation fees, on top of the proposed new transmission rates. Other aspects of the proposed tariff also warrant investigation and analysis, ML&P said.
Tony Izzo, general manager of Matanuska Electric Association, particularly questioned the rate of return that Enstar seeks on its equity, saying that the target 12.55 percent return “seems absurdly high” in relation to returns on similar investments. Izzo also questioned the method that Enstar has proposed for determining its rate base; some aspects of the rate base calculations; and the rules for allocating costs between different customer classes.
Homer Electric Association has questioned whether the new pipeline from the CINGSA gas storage facility was a prudent expense. HEA also questions the inclusion of the remaining Homer pipeline costs in the rate base and the manner in which the cost of Enstar’s new radio systems would be allocated. HEA says that Enstar’s target rate of return cannot be justified because it is considerably higher than industry averages.
- ALAN BAILEY
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