FAIRBANKS -- The utility that supplies 335-degree steam heat to 73 downtown customers through underground pipes has been burned by the public response to its request for a 95 percent increase in its rate cap and is trying to cool the situation.
"It was not and is not Aurora's intention to increase actual rates by that amount all at once," Aurora Energy President Buki Wright wrote to the Regulatory Commission of Alaska Tuesday.
The company is now asking for a temporary increase in the price ceiling of about 45 percent, though it says the cost to consumers wouldn't jump from $10.45 per thousand pounds of steam to $15 overnight. Increases would be gradual, he said.
"We are concerned about rate shock were we to increase rates too much or too fast," he said.
Customers get half-cost steam heat
Ashburn & Mason, the law firm representing Aurora, filed a letter with the RCA on Dec. 9 saying that if an interim 95 percent increase to $20.45 were granted, "Aurora may or may not elect to move its rates immediately up to the new cap." But Wright told the RCA Tuesday that Aurora has no intention of jumping to the upper limit immediately.
Wright said the company still wants to raise its permanent rate cap to $20.45, but while that is under review, the company would like the rate cap to be set at $15. The process could take a year or more. This would be an "interim and refundable rate," meaning that if the RCA did not approve, all or part of any increase would be returned to customers.
This case is part of a long-running battle under which Aurora, an affiliate of the Usibelli Coal Mine, has sought to raise steam rates.
Joe Usibelli Jr., managing member of Aurora Energy, is also president of the Usibelli Coal Mine, which produces the coal burned by the power plant that makes the steam. The company says that steam customers are only paying 51.3 percent of what it costs Aurora to provide steam heat, assuming an 11.275 percent regulated rate of return on equity. "Our steam customers have received service that is not only priced substantially below the rates that similarly-situated hot-water customers pay, but is also far below our cost to serve them," the company said.
About 42 percent of the company cost is for coal, which Aurora says "is at or below" what it costs the Usibelli Coal Mine to produce coal. However, the specific price Aurora pays for 120,000 tons of coal a year has been kept confidential in the RCA filing.
The company says it would cost far more to import coal from Indonesia, which it says is the "closest source for coal of comparable quality to the coal (Usibelli) provides to Aurora."
Aurora says the existing rate cap on steam dates back at least 28 years to when the city owned the power plant and the steam heat system. The company bought the utility in 1997. In 2010, Aurora asked the RCA to eliminate the $10.45 rate cap on steam and allow the company to set rates "governed by market forces, not commission regulation."
Steam heat dates back to 1950s
Aurora also operates a district hot water heating system from the same plant that is not subject to rate regulation. The cost to steam customers is 40 percent of what it charges for hot water heat.
The hot-water system, built in the 1980s and later, has 49 customers at 101 locations, while the steam system, which dates from the 1950s, has 73 customers at 90 locations in the center of town.
The different regulatory practices grew out of a finding that hot water customers, to some extent, had equipment that allowed them to switch to oil heat, depending upon price, while most steam heat customers did not.
In 2010, the RCA rejected the idea of deregulating steam and allowing the company to raise rates to match the hot water system, deciding that Aurora would have to submit a formal revenue study justifying an increase in the rate cap. The recent study by Aurora asserts that the company is collecting about $1 million less than it should from steam.
It says the current steam rate is 32 percent of the cost of using heating oil and 37 percent of the cost of natural gas.
During the 2010 proceeding, Aurora had proposed quarterly increases in steam heat charges over 24 months until steam heat reached the same rates as hot water. The average customer bill would rise from $810 a month to $1,806 a month.
One of the steam heat customers, Leonard Hyde, president of JL Properties, said in 2010 that Aurora Energy linked costs of hot-water services to changes in the price of oil, not the price of coal. He asked the commission to investigate "whether it is in the public interest to have hot water and steam heat costs tied directly to changes in the price of heating oil when this commodity is not a cost incurred in producing the energy sold."
At that time, Wright responded that hot-water heat prices had been changed 33 times from 2001 to 2010, with 25 of those increases. They were "far fewer and less significant" than the increases in heating oil, he said.
Contact Dermot Cole at dermot(at)alaskadispatch.com. Follow him on Twitter @dermotmcole.