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RCA OKs Enstar’s revised Homer surcharge
Homer gas demand less than expected, so surcharge period extended; Enstar ratepayers to pick up pipeline construction cost overrun Alan Bailey Petroleum News
On Aug. 23 the Regulatory Commission of Alaska approved a stipulation, setting out how Enstar Natural Gas Co. will charge its customers in the city of Homer for the costs that Enstar incurred in extending its gas distribution network to the Homer region of the southern Kenai Peninsula. In 2013 the utility completed a 22-mile gas pipeline, connecting the existing gas pipeline network on the peninsula to Homer, thus enabling Homer businesses, government buildings and homes to use natural gas for heating.
According to the RCA filing, the Homer pipeline extension cost $11.7 million, with a state grant covering $8.1 million of that cost. That left $3.6 million, plus associated interest and tax charges, to be recovered using the surcharge. When the Homer gas supply went into operation, Enstar set the surcharge at $1 per thousand cubic feet over an anticipated 10-year period. The newly approved procedure continues that $1 surcharge, but expects it to continue longer, potentially to the beginning of 2032.
Less gas demand than expected The original surcharge arrangements were based on a predicted level of gas demand in the Homer region but the actual demand has proven lower than anticipated. As a consequence, the total receipts from the surcharge have been insufficient to do more than cover some of the interest and tax “carrying costs,” and have not paid down any of the balance of the actual construction costs. With some of the carrying costs themselves not covered by the surcharge, the remaining balance of the total cost has grown from $3.6 million to $5.8 million, according to the RCA filing.
In 2016 Enstar proposed remedying the situation by putting the cost of the Homer extension into the rate base that the utility uses for determining the fees charged to all of the utility’s customers for gas supplies. However, the RCA rejected this proposal.
Another proposal In February of this year Enstar made an RCA tariff filing with another proposal for remedying the situation. This proposal involved reducing the rate of return the utility obtains from the construction of the pipeline system and, hence, also reducing the tax liability associated with that return. And the anticipated life of the surcharge would extend from 10 years to 30 years.
Enstar’s Homer area customers objected, arguing the Enstar should not be allowed to carry forward and compound into the cost recovery calculations the carrying costs that had not been recovered. Nor should Enstar be allowed to recover uncollected carrying costs using future surcharge rates. The customers also wanted Enstar to move a cost overrun of $1 million for the pipeline project into the utility’s rate base.
The state attorney general’s Regulatory Affairs and Public Advocacy section recommended that the $1 surcharge should be continued to September 2031, or until Enstar had collected $4.8 million.
Stipulation filed Prior to a scheduled hearing to review Enstar’s proposal, all of the interested parties other than the state agreed on a stipulation, under which the surcharge would remain at $1 per thousand cubic feet until the earlier of Jan. 1, 2032, or the date by which the outstanding balance of the surcharge would be collected. However, the cost overrun for the pipeline project would be added to Enstar’s rate base that applies to all of its customers. Enstar also undertook to reduce the balance of its unrecovered carrying costs by $400,000, but to continue rolling over and compounding these unrecovered costs. Enstar would use its proposed reduced rate of return in determining the carrying costs.
Given the state disagreement with the stipulation, the scheduled hearing in the case went ahead. However, following the hearing, the RCA has now accepted the stipulation.
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