The Colorado Public Utilities Commission (PUC) on Wednesday rejected a proposed utility ratepayer-backed natural gas reserves acquisition program pursued by Rapid City, SD-based Black Hills Corp.’s gas utility in the state. This is the first of up to six state approvals being sought for similar programs in other states where Black Hills has utility operations (see Daily GPI, Oct. 5, 2015).

The PUC voted 3-0 to dismiss the Black Hills Colorado/Gas Utility Co. plan to acquire gas reserves, concluding the plan “posed serious risks to ratepayers.”

Colorado’s Consumer’s Counsel Office in the Department of Regulatory Agencies, of which the PUC is a part, filed a motion with the regulatory panel recommending dismissal, arguing that Black Hills had “failed to provide sufficient evidence on immediate and future costs of the proposal.”

Expressing disagreement with the PUC rejection, Black Hills Kyle White, vice president for regulatory affairs, said that company has not seen the order, but plans to review it and determine whether to ask for reconsideration. Regardless, the company intends to keep moving forward with similar gas reserve proposals in five other states where regulatory hearings are scheduled — Nebraska (next week), Iowa (June), Wyoming (August), South Dakota (September) and Kansas (September).

“We believe there is a very good opportunity right now with the distressed oil/natural gas industry to acquire gas reserves and bring long-term price stability and other benefits to utility customers,” said White, noting that the Colorado filing was seeking to set parameters for the program and direction on the types of reserves with which regulators would be comfortable.

According to Colorado regulators, Black Hills was seeking approval of a gas hedging agreement with its affiliate exploration and production (E&P) unit to acquire [ADD] up to [END Add] 50% of the utility’s forecasted annual firm gas demand. Production operating expenses, along with a return on expenses for capital used to acquire the reserves, drill wells and build related infrastructure would be recovered in utility rates.

Last December the PUC directed the Black Hills utility to provide additional information related to cost impacts of the program, and it submitted additional data, but the PUC said that additional information was insufficient.

The PUC decided that granting this particular gas hedging program without adequate backup information on ratepayer protections “was not in the public interest,” a PUC spokesperson said.

In January this year, Colorado’s largest utility, Xcel Energy’s combination gas/electric Public Service Company of Colorado, asked the PUC to approve its version of a natural gas reserve program as one of a half-dozen initiatives under its “Our Energy Future” plan (see Daily GPI, Jan. 27).

With continuing poor results in its overall E&P ventures in recent years, but some positive prospects in the Mancos Shale in the Piceance Basin, Black Hills officials earlier this year on an earning conference call reiterated a long-held strategy to narrow its future exploration activity to the proposed cost-of-service natural gas reserves programs to serve its utilities in multiple western states (see Daily GPI, Feb. 5).