Enstar to weigh rate structure

WASILLA — Volatility in a gas allowance that determines a portion of local gas bills has prompted officials to examine possible changes to the way that allowance is formulated.

If you understand the above sentence, we’re halfway there.

The bottom line: natural gas consumers in the Valley may have noticed first a steep decrease in their gas bills in April, May and June, then a steep increase in their bills in July and August. But understanding why takes some explaining.

Enstar Natural Gas buys natural gas extracted by companies from Cook Inlet gas fields and transports it to the houses of local consumers. As a monopoly, the company cannot make a profit on the gas itself, but can charge ratepayers for costs associated with transporting it, referred to as the “Enstar Service Charge” on your monthly bill. In addition, the company is required to change the Gas Cost Adjustment, or GCA, only under the oversight of the Regulatory Commission of Alaska.

The GCA comprises the rest of the bill, basically a composite cost constructed from prices set by the six long-term gas supply contracts and one short-term contract with Cook Inlet gas producers, as well as the company’s projections for how much gas will be used and what the weather — and need for heating — will be like, and how much will need to be stored.

The contracts themselves can be complex and variable. For example, one of the contracts for gas dates to the 1980s and is tied to the price of oil, according to John Sims, a spokesperson for Enstar.

In general, the GCA ranges between about 50 cents per centum cubic foot (ccf) on the low end and 80 cents per ccf on the high end, or did until April, when the GCA plummeted from its highest rate since 2009 (75.7 cents per ccf) to its lowest rate since 2000 (44.5 cents per ccf). Enstar notified customers in June that the rate would return to a higher rate starting July 1, and customers have paid the higher rate since then.

That volatility in pricing is only reflective of the quarter-to-quarter jumps. When the company “annualizes” its figures, or combines the quarterly highs and lows together, the price jump is still pricy (about 5.1 cents per ccf between 2013 and 2014), but comes after four consecutive years of decline between 2009 and 2012, followed by slight upticks between 2012 and 2013, Sims said.

“It’s fairly consistent,” he said.

Consumer discontent with the price increase spilled over into the commission’s July meeting on the subject in Anchorage, and a second session is planned for Aug. 13. The RCA has asked the company to put forward options to reduce the overall volatility in its gas prices.

The price volatility stems in large part from the weather, Sims said.

The GCA increase, “was the result of essentially significantly warmer weather than was forecasted in the quarter,” he said. “In the most accurate or normal winter we’ve had there was less fluctuation.”

The volatility arises from the system of “true up,” or adjusting the price to make up the difference between what the company’s best guess shows and how much gas consumers actually used, Sims said. Because the first quarter of 2014 was significantly warmer than projected, the price set for January, February, and March (75.7 cents per ccf) was too high, resulting in the drastically reduced rates for April, May and June, but also setting the stage for the July increase as the company struggles to match projections and prices, Sims said.

“Every piece of this information is an estimate,” he said. “We’re estimating consumption, we’re estimating weather. It’s a combination of inputs that can significantly change on another. The end goal for both Enstar and the customer is consistent pricing. Consumers haven’t seen that, and as a result it’s been bad for both the customers and Enstar.”

Another aspect of the volatility is that the GCA now changes on a quarterly basis. From 1998 until 2010, the GCA was set on an annual basis.

The change to quarterly pricing was enacted in part to more closely match cost and price, Sims said.

“The changes were made so the price would truly reflect what the cost of gas was,” he said. “We’ve lost consistency on a quarterly basis. Those changes in the quarter have been the concern.”

Commissioners have asked the company to propose options to more effectively manage the volatility, and company officials intend to present them at the Aug. 13 meeting in Anchorage, Sims said.

Contact Brian O’Connor at 352-2269 or brian.oconnor@frontiersman.com