The Utah Public Service Commission (PSC) on Monday ruled that Questar Gas cannot recover through customer rates the $28 million the utility spent to process natural gas over a four-year period.

“We disagree with the PSC’s decision,” which reversed a 1999 ruling that allowed the Salt Lake City, UT-based utility to recover 68% of its processing costs, said Questar Gas President and CEO Alan Allred.

Utah regulators concluded that the company failed to justify recovery of the costs for processing gas at a plant that was built by a Questar Gas affiliate in Price, UT, in 1999, said spokesman Curt Burnett. Between 1999 and 2004, Questar Gas paid Questar Pipeline to remove the carbon dioxide from the low-Btu content coalbed methane gas that was being introduced into the utility’s system. This helped to raise the Btu content and made the gas compatible with the utility’s historically higher Btu content system, he noted.

The construction of the processing facility by Questar Pipeline was determined at the time to be the lowest-cost alternative to protect the utility’s customers, according to Burnett.

“We did the right thing to protect our customers. We will find other ways to protect Questar Gas customers, but the alternatives will cost our customers more,” Allred said.

The PSC order requires Questar Gas to refund about $28 million in previously collected rates, the company said. “We’ve accrued for the refund liability, so this decision does not affect our guidance of $2.45-2.60 recurring earnings per share for 2004,” noted Questar Chairman Keith O. Rattie.

The commission’s order, however, may require Questar Pipeline to write down its $18 million book investment in the processing plant, he said.

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