Michigan Consolidated Gas (MichCon) will postpone until 2010 a request to raise base rates if the Michigan Public Service Commission (MPSC) allows the company to sell excess gas from one of its storage fields.
In a proposed settlement agreement filed with the MPSC last week, the company requested approval to sell 3.6 Bcf of gas in 2008 and 2009 at an average price of $9/Mcf -- nearly a 92% markup from its $4.70/Mcf book value. MichCon would keep as profit about half of the $32.4 million gross generated by the gas sales. By enabling MichCon to retain the profit from the sale, the settlement would allow MichCon to earn its authorized 11% return on equity without raising customer rates.
According to MichCon's application, the native base gas is currently held in the Belle River Mills Storage field and will become available for sale as a result of a planned permanent gas storage decrement made possible through the addition of new gas storage facilities at Belle River Mills and the company's West Columbus storage field. MichCon intends to invest a total of $76.4 million in new facilities at the two storage fields, and expects previously inaccessible gas to become available for cycling as a result. Improvements at the Belle River Mills facility will allow deeper cycling, providing MichCon access to 4 Bcf of native base gas. MichCon will make, in total, a 17 Bcf decrement to its systemwide gas storage accounts.
In the settlement, MichCon agreed to not file a base rate case before Jan. 1, 2009. The company had been planning to file a rate hike proposal at the end of 2008. The rate case filing moratorium could be set aside if unanticipated changes in tax law, legislation or new accounting rules will affect MichCon's annual net income by more than $5 million, according to the settlement.
The MPSC is expected to take up the settlement proposal at its Tuesday (Aug. 21) meeting in Lansing, MI.
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