STATE OF ALASKA THE REGULATORY COMMISSION OF ALASKA ORDER GRANTING REQUEST FOR APPROVAL OF THE INCLUSION OF GAS STORAGE FEES IN GAS COST ADJUSTMENT

Transcription

1 STATE OF ALASKA THE REGULATORY COMMISSION OF ALASKA Before Commissioners: Robert M. Pickett, Chairman Stephen McAlpine Rebecca L. Pauli Norman Rokeberg Janis W. Wilson In the Matter of the Tariff Revision Designated as ) TA- Filed by ENSTAR NATURAL GAS ) COMPANY, A DIVISION OF SEMCO ENERGY, ) INC. ) ) U--0 ORDER NO. BY THE COMMISSION: ORDER GRANTING REQUEST FOR APPROVAL OF THE INCLUSION OF GAS STORAGE FEES IN GAS COST ADJUSTMENT Summary We grant the request filed by ENSTAR Natural Gas Company, a Division of SEMCO Energy, Inc. (ENSTAR) to include the natural gas storage reservation and capacity fees paid to Cook Inlet Natural Gas Storage Alaska, LLC (CINGSA) as a specific component and cost element of its gas cost adjustment (GCA) and weighted average unit cost of gas (WACOG) calculations. Background ENSTAR filed TA-, including a revenue requirement study, a rate design, a cost-of-service study, and a lead-lag study based on a test year. 1 With TA-, ENSTAR requested a.% interim and refundable across-the-board increase to base rates, effective August 1,, and a proposed permanent rate 1 TA-, filed June 1,. Representing a 1.% increase to overall revenue. U--0() (0//) Page 1 of

2 increase based on the outcome of the proposed cost-of-service/rate design study. ENSTAR proposed a change to its GCA methodology by adding a line item to the GCA calculation to recover the costs associated with reservation and capacity fees related to stored gas. ENSTAR requested that we approve the new GCA methodology effective October 1,. ENSTAR submitted the prefiled direct testimony of Jared B. Green, Robert B. Hevert, John D. Sims, Mark A. Moses, Jillian Fan, Joshua C. Nowak, Daniel M. Dieckgraeff, and Bruce H. Fairchild in support of the tariff filing. We suspended TA-, granted the request for interim and refundable rate relief, and invited participation by the AG and petitions for intervention. The AG elected to participate. Titan Alaska LNG, LLC; Matanuska Electric Association, Inc.; Homer Electric Association, Inc. and Alaska Electric and Energy Cooperative, Inc. (HEA); Chugach Electric Association, Inc. (Chugach); the Municipality of Anchorage d/b/a Municipal Light & Power Department (ML&P); and JL Properties, Inc. filed petitions to intervene, which we granted. We set a procedural schedule for this docket that included dates to address ENSTAR s request to include gas storage reservation and capacity fees in its Order U--0(1), Order Suspending TA-, Granting Request for Interim and Refundable Rate Increase, Establishing Interest Rate on Refunds, Requiring Filing, Approving Tariff Sheets, Scheduling Prehearing Conference, Addressing Timeline for Decision, Inviting Participation by the Attorney General and Intervention, Designating Commission Panel, and Appointing Administrative Law Judge, dated July,. Notice of Election to Participate, filed July,. Petition to Intervene by Titan Alaska LNG, filed July, ; MEA s Petition to Intervene, filed July, ; Petition for Permission to Intervene of Homer Electric Association, Inc. and Alaska Electric and Energy Cooperative, Inc., filed July, ; Chugach Electric Association, Inc. s Petition to Intervene, filed July, ; Municipal Light and Power s Petition to Intervene, filed August 1, ; Petition to Intervene of JL Properties, Inc., filed August 1, ; Order U--0(), Order Granting Petitions to Intervene, dated August,. U--0() (0//) Page of

3 GCA. The AG was the only party that filed a response to ENSTAR s request. ENSTAR filed a reply. After further review, the AG filed a non-opposition to ENSTAR s request. We vacated the hearing date set to address ENSTAR s GCA request. Discussion ENSTAR is a natural gas storage customer of CINGSA. We approved ENSTAR s recovery of approved CINGSA natural gas storage charges in Order U--00() and approved the firm storage service (FSS) agreement between the two in TA-. The FSS agreement specifies the total quantity of natural gas that ENSTAR may store in CINGSA and also specifies a contract withdrawal quantity. CINGSA s tariff specifies the charges that apply to its customers for the total contract Order U--0(), Order Adopting Procedural Schedule, Extending Statutory Timeline with Consent of Parties, and Extending Tariff Suspension Period, dated August 0,. Office of the Attorney General s Response to ENSTAR s Request for Approval of New Methodology for Allocating Certain CINGSA Storage Fees to Its Gas Sales Customers, filed August 1,. ENSTAR Natural Gas Company s Reply to Attorney General s Response to ENSTAR s Request for Approval of New Methodology for Allocating Certain CINGSA Storage Fees to Its Gas Sales Customers, filed September,, and exhibits filed September,. Office of the Attorney General s Non-opposition to ENSTAR s Request for Approval of New Methodology for Allocating Certain CINGSA Storage Fees to Its Gas Sales Customers, filed September, (AG Non-opposition). Order U--0(), Order Vacating September Hearing, dated September,. Order U--00(), Order Granting Petition to Recover Gas Storage Costs and Closing Docket, dated January 1, (Order U--00()). Letter Order No. L001, dated October,, and corrected December,. TA-, FSS Agreement Between Cook Inlet Natural Gas Storage Alaska, LLC and ENSTAR Natural Gas Company, filed August,, at Attachment A, approved by Letter No. L001, dated October,, with validated copy of the FSS returned with a correction letter to Letter Order No. L001, dated December,. U--0() (0//) Page of

4 quantity (capacity rate) and contract withdrawal quantity (reservation rate). We approved the inclusion of reservation and capacity fees as a component of the average unit cost of stored gas in ENSTAR s GCA through TA-. ENSTAR now proposes to make the reservation and capacity fees a specific component and cost element of its GCA and WACOG calculations. Currently, the reservation and capacity fees are components of the average cost of stored gas and are booked into the Gas Stored Account (FERC Account.1). Stored gas costs are only recovered when, and to the extent that, gas is withdrawn from storage. Stored gas costs are passed through the gas cost balance account when gas is withdrawn from CINGSA by multiplying the withdrawn volumes by the average unit cost of gas stored. The average unit cost of gas stored is calculated as of the end of the month prior to the month the gas is withdrawn. To calculate its GCA every year, ENSTAR estimates the amount and cost of gas that it will withdraw from storage for the prospective -month period (July 1-June 0). ENSTAR uses stored gas for peak and gas supply management and stored gas is not fully cycled every year. Therefore, a portion of each year s storage reservation and capacity fees remains in the Gas Stored Account, resulting in the cost CINGSA Tariff Sheet No.. Letter Order No. L00, dated October, ; ENSTAR Tariff Sheet No., Section 0c(1)(c). TA- at. TA- at ; Prefiled Direct Testimony of Daniel M. Dieckgraeff, filed June 1,, in TA- (Dieckgraeff), at. ENSTAR Tariff Section 0; TA- at ; Dieckgraeff at. Dieckgraeff at. Dieckgraeff at. Dieckgraeff at -. TA- at. U--0() (0//) Page of

5 of stored gas increasing beyond the level of the average cost of gas purchased and injected into storage. ENSTAR states that its proposed revision provides that each year s reservation and capacity fees are recovered in that year s GCA calculation. ENSTAR asserts that this methodology better matches the annual benefit of having storage available to manage gas supply and winter demands. ENSTAR also claims that the proposed methodology will eliminate an inter-generational gap and ensure that current customers pay fees related to the availability of storage to them. The change will allow the average cost of gas to decrease over time as it becomes more aligned with the costs of gas purchased and injected into CINGSA. ENSTAR modeled the effect of the change using forecasted weather and consumption. The tables below show the effect of ENSTAR s proposed inclusion of reservation and capacity fees as a separate cost element of its GCA effective October 1,. As can be seen, the average cost of gas sold increases as the reservation and capacity fees are fully recovered on an annual basis, while the average cost of stored gas decreases over time. TA- at. Dieckgraeff at. Dieckgraeff at. Dieckgraeff at. Dieckgraeff at. Dieckgraeff at. Dieckgraeff at. U--0() (0//) Page of

6 1 With Reservation and Capacity Fees Average Cost of Gas Supply / Mcf Average Cost of Gas Sold Average Cost of Stored Gas / Mcf Without Reservation and Capacity Fees effective October 1, Average Cost of Gas Supply / Mcf Average Cost of Gas Sold Average Cost of Stored Gas / Mcf ENSTAR states that CINGSA s other customers (ML&P, HEA, and Chugach) all recover their reservation and capacity charges through their respective fuel and purchase power adjustments, in the same way proposed by ENSTAR for its GCA. 0 ENSTAR also states that its proposed method of recovering reservation and capacity charges is consistent with the treatment of similar costs by utilities in other jurisdictions. 1 When ENSTAR first modified its GCA tariff provision to include storage reservation and capacity fees it was revising its GCA on a quarterly basis. 0 Dieckgraeff at -. 1 Dieckgraeff at. Dieckgraeff at. Direct U--0() (0//) Page of

7 recovery through each quarter s GCA would have resulted in summer rates that would have been significantly higher than winter rates due to the difference in gas volumes caused by seasonal fluctuations. The GCA is now filed on an annual basis so seasonal fluctuations in gas volumes will not affect the averaging of reservation and capacity fees throughout the year. ENSTAR states that recovery through the GCA, rather than as a component of its revenue requirement, is the most appropriate treatment for the storage costs. They are gas supply-related and are currently being recovered through the GCA as gas is withdrawn from storage. Before the development of CINGSA, storage costs were bundled services embedded in the price of gas in ENSTAR s gas supply contracts, which were and are recovered through the GCA. And Chugach, HEA, and ML&P all recover their storage reservation and capacity fees through their respective cost of power adjustments, rather than via their revenue requirements. The proposed change in GCA methodology only relates to costs that are recovered through the GCA and does not have a direct effect on the revenue requirement proposed in TA-. The AG engaged in an on-site review of ENSTAR s books and records where they discussed the change in methodology with ENSTAR, reviewed materials and documents, and obtained clarifying information regarding the details of ENSTAR s Dieckgraeff at. Dieckgraeff at. Dieckgraeff at. Dieckgraeff at. Dieckgraeff at -. Dieckgraeff at. Dieckgraeff at. U--0() (0//) Page of

8 proposal. 0 After their evaluation, the AG affirmatively believes that no further investigation is required and does not oppose ENSTAR allocating reservation and capacity fees as proposed in TA-. 1 MEA stated on the record that it does not oppose the change proposed by ENSTAR response opposing the proposal. and no other party to this docket filed a We have already authorized ENSTAR s recovery of commission-approved CINGSA natural gas storage charges. The storage charges at issue in this order are reservation and capacity fees, which are approved rates found in CINGSA s tariff. We find that the removal of the reservation and capacity fees from the average cost of stored gas and their inclusion as specific components and cost elements of ENSTAR s GCA is a more reasonable treatment of the fees than the approach currently utilized by ENSTAR. The change will ensure that each year s reservation and capacity fees are recovered in that year s GCA calculation and this better matches the annual benefit of having storage available to manage gas supply and winter demands. Accordingly, we grant ENSTAR s request to remove the reservation and capacity fees payable to CINGSA from the cost of gas stored and make the reservation and capacity fees a specific component and cost element of ENSTAR s GCA and WACOG calculations. Tariff Sheets We approve Tariff Sheet Nos.,, and, filed in TA- on June 1,, with an effective date of October 1,. 0 AG Non-opposition. 1 AG Non-opposition. Tr.. Order U--00(). The validated tariff sheets will be returned under separated cover. We note that Commission Staff corrected the Revision Number on Tariff Sheet No.. U--0() (0//) Page of

9 ORDER THE COMMISSION FURTHER ORDERS: 1. The request, filed June 1,, by ENSTAR Natural Gas Company, a Division of SEMCO Energy, Inc., for approval to remove the natural gas storage reservation and capacity fees payable to Cook Inlet Natural Gas Storage Alaska, LLC, from ENSTAR s Gas Stored Account and make the reservation and capacity fees a specific component and cost element of its gas cost adjustment, is approved effective October 1,.. Tariff Sheet Nos.,, and, filed June 1,, in TA-, are approved, with an effective date of October 1,. DATED AND EFFECTIVE at Anchorage, Alaska, this th day of September,. BY DIRECTION OF THE COMMISSION ( S E A L ) U--0() (0//) Page of