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Doyon seeking rate increase at bases Citing the need to replace utility systems after decades of neglect, the utility requests rate increases across three bases Eric Lidji For Petroleum News
As part of a wide ranging case involving a dozen utility systems at three Alaska military installations, Doyon Utilities LLC is asking state regulators to increase the rate it charges to provide natural gas service at Joint Base Elmendorf-Richardson by about 48 percent.
Doyon Utilities, a 50-50 joint venture between Doyon Properties LLC and Fairbanks Water & Sewer Inc., said it needs the rate increase to recover a $277,957 revenue deficiency for its natural gas distribution operation at the joint Air Force and Army base.
Doyon Ltd. is the Alaska Native corporation for the Interior.
The increase is largely needed to repair systems that have been “grossly undercapitalized for years, if not decades,” Doyon Utilities CEO Dan Gavora said in regulatory filings.
Although built and traditionally operated publicly, the U.S. Department of Defense privatized utility service at Fort Richardson, Fort Greely and Fort Wainwright in 2007, signing a 50-year contract with Doyon Utilities. In August 2008, the Regulatory Commission of Alaska gave Doyon Utilities a certificate to operate 12 utility systems at the three bases: water, wastewater, electric and natural gas or district heat service.
The arrangement includes operations as well as infrastructure projects.
Although rarely considered by the general population, the military bases in Alaska are major consumers of energy, essentially acting as small towns within larger cities. Joint Base Elmendorf-Richardson serves some 15,695 people, both military and civilian.
Doyon Utilities claims it always intended to revise its introductory rates after three years, enough time to gain “actual operating experience” and study its revenue requirements.
While admitting to higher operating costs since 2008, Doyon Utilities said in its RCA filings that the increase is “primarily” needed to meet “staggering continual capital demands” made by the Defense Department.
The Defense Department “has increasingly requested (Doyon Utilities) design, build, operate and maintain additional infrastructure. Although most utilities are able to recoup or offset increased investment through increased revenues, (Doyon Utilities) does not sell a commodity and therefore cannot offset this increased investment with new revenue.”
‘Vast number of problems’ The issue includes repairing old facilities and building new facilities.
Doyon Utilities is managing the “rapid infusion of capital required to address installation-wide deficiencies for utilities which, for decades, were operated outside of state and federal operational standards and guidelines,” as well as new facilities, Gavora wrote.
For instance, the steel mainlines at the base had not been cathodically protected (a corrosion inhibition process) and many gas service riders did not meet code. (The rider connects a distribution pipeline to a service meter.) According to Doyon Utilities, Enstar Natural Gas Co. “rightfully insisted that these be replaced for safety reasons.”
“It is difficult to describe in writing the vast number of problems which arose and solutions which we devised during this time period,” George Gordon, the former CEO of Doyon Utilities, wrote in an affidavit concerning the transition period when Doyon Utilities took over the systems, “but from early 2008, I was at the office seven days a week, from 5:00 a.m. until as long as I could take it at night. First in, last out.”
Gordon retired in August 2009, but remains on the Fairbanks Sewer and Water board.
Annual rate cases Because of these investments, Doyon Utilities expects to file rate cases “at least” annually and said future rate cases would likely to be “pancaked,” meaning the company would likely request one increase while the previous increase is still being adjudicated.
(A similar situation is currently playing out on the trans-Alaska oil pipeline, where four of the five owners have individually requested annual rate increases since 2008.)
To keep that from happening, Doyon Utilities wants regulators to allow for adjustments to pay for capital projects outside of the costly and time consuming ratemaking process.
Through its deal with the Department of Defense, Doyon earns a 12.5 percent rate of return on equity as a utility, and operates on 60 percent debt and 40 percent equity.
Although it has yet to file its full counter arguments, the Department of Defense said Doyon Utilities’ request contained “numerous unfounded allegations” and was “based on erroneous and incomplete information.” Currently, the Department of Defense pays Doyon Utilities more than $75 million each year for service at the three installations, but under the proposed rates that would increase to nearly $100 million, the agency said.
The RCA will begin hearing from the two sides on July 24.
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