FERC’s standards of conduct governing the relationships between regulated natural gas/electric transmission providers and their affiliates may cause “significant increases” in the rates of Wyoming customers of Questar Gas Co., the state’s chief regulator cautioned.

“The Wyoming Public Service Commission (WPSC) is concerned that, under your Commission’s Order 2004, Questar Gas Co. may be forced 1) to become an energy affiliate of Questar Pipeline Co., thereby incurring substantial additional and duplicative costs, or 2) to forego certain significant financial transactions related to its gas supply in order to retain its [local distribution company] exemption,” said WPSC Deputy Chair Steve Furtney in a letter to FERC Chairman Pat Wood and other FERC members.

The standards of conduct final rule (Order 2004) and the subsequent rehearing orders bar pipeline/transmission providers from giving preferential treatment, disclosing information and sharing employees with affiliates deemed to be “energy affiliates” by FERC, including LDCs under certain circumstances. LDCs can receive an exemption from the standards if they eschew certain activities, such as hedging. The new rule requires regulated pipeline/transmission providers and their “energy affiliates” to maintain separate operations and employees to prevent market abuses.

The Salt Lake City, UT-based LDC has warned the Federal Energy Regulatory Commission of the “serious negative financial impact to Wyoming ratepayers if the efficiencies [Questar Pipeline] and [Questar Gas] have achieved through their coordinated operations are removed,” Furtney wrote on Aug. 11. “We have supported Questar Gas’s position in the past, and we emphasize our continued support.”

Questar Gas estimates that its operating expenses will increase 6% or $12.87 million per year if it is deemed by FERC to be an “energy affiliate” of Questar Pipeline — a decision that would require it to comply with the standards of conduct. “This raises the prospect of significant increases in the costs ratepayers in Wyoming would have to bear, and it raises serious concerns for the commission.”

In order to be exempt from FERC’s standards of conduct, Questar Gas would be banned from using financial hedging tools to “stabilize and reduce gas costs to Wyoming ratepayers.” Given the high gas prices, “we…consider it critical that retail utilities have the ability to mitigate costs. We hope that this aspect of your order can be revisited, especially with regard to Questar Gas whose price stabilization activities are approved and closely monitored by the WPSC to insure that any financial hedging is done for the sole benefit of…retail customers.”

Even more critical, Furtney urged FERC to give serious consideration to the requests of Questar Gas related to gas production controlled by Wexpro Co., an affiliate of Questar Pipeline and Questar Gas. Under a 1981 agreement, which was approved by the WPSC and Utah Public Service Commission, Wexpro has provided Questar Gas’s customers with reliable supplies of low-cost gas for a number of years, he said.

All but a small amount of gas produced by Wexpro is delivered to Questar Gas to be consumed by its customers, Furtney noted. This “de minimis amount” of Wexpro-produced gas cannot be economically delivered to the LDC, he said. “Wexpro is bound by the agreement to sell this gas, and the revenues are credited to [Questar Gas’s] gas balancing account for the direct benefit of [its] ratepayers. [But] in a few instances, it is more economical for [Questar Gas] itself to exchange some of this gas in the field for gas of other producers that can be more economically delivered on-system to Questar Gas.” The LDC estimates the total volume of these sales is about 2,300 Dth/d, or less than 1% of its yearly average daily sales to end-use customers.

“We do not believe that these actions constitute off-system sales,” which would bind Questar Gas to FERC’s standards of conduct limiting communications and employee sharing with Questar Pipeline, Furtney said. “These de minimis sales and exchanges neither promote nor allow for pipeline-affiliate abuse. [Questar Gas] cannot profit in any way from the transactions because all of the benefits flow through to is customers under WPSC oversight. Wexpro cannot profit either, and is already obligated to observe your standards of conduct” because it is an “energy affiliate” of Questar Pipeline.

Furtney called on FERC to grant Questar Gas’s request for a waiver so it can continue to engage in these transactions. “Given the small amount of these transactions and the lack of any potential for abuse, we believe they should qualify for waiver treatment. Since 1981, the Wexpro agreement has provided real benefits to Questar Gas’s retail utility ratepayers, and it is capable of providing these benefits well into the future. We hope it can continue.”

Questar Gas serves 772,000 natural gas customers, with 95% located in Utah, and the remainder in Wyoming and Idaho.

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