Natural gas hike proposed

by Annie O’Brien

With local utility rates coming under scrutiny, the Wyoming Public Service Commission (WPSC) is in the midst of a hearing on a proposed rate change and restructuring brought by the utility company Pinedale Natural Gas, LLC (PNG).

According to Bryce Freeman, the state Office of the Consumer Advocate (OCA) Administrator, PNG applied over a year ago for an increased rate of return. The company filed an amendment to that application in February of 2007 requesting a $93,000 increase in revenue, or an 11.5 percent increase.

In its February 2006 application, Bruce Asay, an attorney for PNG, argued that the cost of providing natural gas, typically used to heat homes and power gas stoves and ovens, has increased. Pinedale’s growing population placed an additional strain on the company. Asay requested a change for the company’s rate of return on investment. Because PNG is a small company “with risks that are higher than larger, more diversified, companies, its rate of return must address this increased risk,” the company deserved a larger rate of return, Asay maintained in his application.

Wyoming law holds that any revenue a utility company receives cannot exceed an authorized rate of return, Freeman said. When the OCA determined the company did exceed the prescribed rate, PNG filed a rate case with the WPSC. The hearing, which began in Pinedale on March 21, will likely conclude in Cheyenne later this week.

Freeman said the OCA opposed PNG’s application partly because the company filed its amendment shortly before the hearing, giving his office little time to review the petition and prepare a response. PNG filed its amendment a little more than a month before the hearing, giving the OCA “no time to investigate,” he said. Freeman dismissed several of PNG’s reasons for the proposed rate change and restructuring. While the organization is small, its status as a limited liability company rather than a Chapter C corporation, meant it was taxed at a lower rate, thereby benefiting the owners.

PNG contended that those who did not wish to pay an increased rate for natural gas could switch to electric or propane heating, which Freeman maintains are typically more expensive than natural gas heat. He stated, “My contention is those are really not economic substitutes.” Freeman acknowledged that Pinedale’s growing population could affect utility providers, but said the OCA maintained “the customer should still be entitled to a just and reasonable rate.”

Instead, Freeman suggested alternative solutions to the company. PNG could apply for a depreciation rate change, which would allow it to recover investments made in utility infrastructure. The company currently has a relatively short 20-year depreciation life. Freeman said he believed PNG’s infrastructure will last as long as 40 years, and recommended the organization seek a depreciation rate based on that estimate. Polyethylene, the material used in gas lines, is a hardy, almost ageless substance, he said. The OCA also proposed that the WPSC analysis be performed on PNG’s processing plant to determine the physical health of the company’s infrastructure, a fairly common practice, Freeman said.

Although the commission did not set any dates for a proposed rate increase, Freeman speculated, if the company prevailed, consumers could see their rates go up by 10 to 12 percent as early as June. Pinedale Planning and Zoning Administrator Meghan Jacquet addressed the WPSC when it convened in Pinedale about the town’s growth projections. Between 2000 and 2005, Pinedale’s population grew by an average of 20 percent, and she anticipated similar population increases in upcoming years.

While large-scale development plans have been put forward in the town and county, including Bernard Andres’ potential 500-lot subdivision, Jacquet said such developments remained “extremely conceptual.” She added that in 2006, the town had issued slightly more than 100 building permits, split about evenly between residential and commercial structures. Ten to 20 percent of the permits were issued for renovations or additions to existing buildings, she added. Jacquet told the commission that most new houses are medium-sized, single family houses. WPSC deputy chair Steve Oxley asked if the community’s growth was due to an increase in transitory, “boom-oriented” workers briefly staying in Pinedale. Jacquet said such a demographic breakdown was difficult to pinpoint because many transient workers are “filled to the brims in our hotels.”

Jacquet described natural gas availability “as critical as water and sewer.” She explained that the town does not put utility facilities in undeveloped areas in anticipation of growth, but waits for developers to approach local government with requests for connections. Jacquet advised PNG to exercise restraint in laying pipeline before subdivisions were fully constructed.

“I wouldn’t creep in too far,” Jacquet said. PNG President Gilmer Mickey wrote in an email his company initially asked for an increased rate of return, “since interest rates had risen dramatically since 2003,” when it last applied for a return rate increase. The dispute between the OCA and PNG “has continued for 18 months and PNG incurred substantial costs to comply with many data requests from the Office of Consumer Advocate. The Company also has increased labor costs in the Pinedale Market. Because of all these increased costs, PNG filed for a rate increase in February 2007 to recover these costs,“ Mickey wrote.

PNG purchases gas from local production connected to Questar’s gathering system, Mickey reported. The company has no gas futures contracts in place because prices typically fall in warmer weather. PNG’s current rates are set at $1.06/therm for all residential and commercial customers, Mickey explained. A therm is 100,000 British Thermal Unit (BTU), a value of heat energy, equal to about 1.1 gallons of propane. The company’s proposed rates are $1.11 per therm, Mickey explained. Mickey argued the OCA’s contention that Pinedale consumers do not have a reasonable alternative to natural gas heat was both misguided and condescending. He wrote, “We have over 100 homeowners within the town of Pinedale who continue to heat with propane. Propane at $2/gallon costs over twice as much per therm as our proposed gas rates yet these customers remain on propane for a variety of personal choices. They apparently believe they have a viable economic alternative to using natural gas for space heating. I doubt they need a state bureaucrat from Cheyenne telling them what fuels they should choose.”

The PSC will resume the rate hearing on April 30 unless the OCA and PNG come to a settlement. Blair Bales, an attorney with the WPSC, said that outcome was unlikely.