WGL Holdings Inc. subsidiary Washington Gas Light Co. will submit a new plan to acquire upstream natural gas reserves for its Virginia customers, it said Monday.
The Washington, DC-based utility announced a deal last year with Energy Corp. of America to spend $122 million acquiring a 96% interest in 22 wells in Greene County, PA, and three wells in Clearfield County, PA. But the proposal, submitted under a Virginia state law passed in 2014 to allow local distribution companies to obtain part of their supply by directly investing in upstream reserves, was rejected in November by the Virginia State Corporation Commission (SCC).
The SCC reasoned that the reserves purchase agreement as proposed placed too much risk on ratepayers if the wells didn’t produce enough or if gas prices remained lower than projected over the 20 year term of the proposal (see Daily GPI, Nov. 16, 2015). The SCC also concluded that Washington Gas would be obtaining too great a percentage of the supply for its Virginia customers through the transaction, in violation of the 2014 statute.
“Given the complexities of a long-term investment in gas reserves and the criteria for approval under the Virginia law, we believe the best path forward is to consider the SCC’s observations about our initial plan, revise our reserves purchase plan accordingly and then file a new application,” WGL Holdings and Washington Gas COO Adrian Chapman said. “This course of action will have the benefit of providing all parties, and the SCC, with a longer period of time provided under the law to evaluate a new natural gas reserves purchase plan, and the significant benefits we believe it would provide to our customers in Virginia.”
Washington Gas said it plans to negotiate a new agreement with a producer and file a new application with the SCC in the next several months.
When asked about how the company might revise its next proposal to account for the SCC”s concerns, WGL spokesman Jim Monroe told NGI’s Daily GPI via email that the utility will continue working with the SCC to evaluate “production estimates and cost benefits for utility customers.
“The opportunity to purchase gas reserves in Virginia is a positive development as it allows us to secure a long-term, abundant and affordable supply of clean energy for our customers in the state.”
Monroe gave no indication of whether Washington Gas would look to Energy Corp. again as a producer partner, noting only that last year’s agreement with Energy Corp. was contingent on receiving SCC approval.
“Going forward, we will be considering all reserves supply options available as we prepare our new application,” Monroe said.
Utilities have established similar upstream arrangements in other states. In June, the Florida Public Service Commission gave Florida Power & Light Co. (FPL) blanket approval to invest up to $500 million/year of ratepayer funds on natural gas exploration without case-by-case approval (see Daily GPI, June 18, 2015). At the time that decision was made, FPL had already received the OK from regulators to invest in an Oklahoma gas drilling venture (see Daily GPI, Dec. 19, 2014; June 25, 2014).
Rapid City, SD-based Black Hills Corp. has also been moving forward on plans to implement a natural gas reserves program to provide cost-of-service arrangements for its utilities in eight states (see Shale Daily, Nov. 5, 2015, Oct. 5, 2015).