By VICTORIA CALDERON
• Leader & Times
The city commission conducted a special work session last Saturday morning. The meeting was to discuss Black Hills Energy’s request to change their transportation charge methodology and the city’s strategic planning.
The first item on the short agenda was the Black Hills presentation. Larissa Long represented Black Hills at the meeting.
She began her presentation by talking about a problem that has risen due to deregulation. “Deregulation in the industry is allowing larger companies to (get) their own gas supplies, instead of purchasing those from the utility. We still deliver the product, but we were not charging them for the gas. Therefore, we had no way of knowing how much they were paying for the gas,” Long said.
This lack of cost knowledge causes a problem. The methodology of calculating the commodity delivery fees needed to be converted to a volumetric equivalent, since the price of the natural gas purchased from third parties is unknown to Black Hills Energy.
To calculate the price of the franchise fee, Long explained, “We’ve taken whatever the piping was the previous year, added whatever (piping) was added, and then taken the prior year’s usage and then divided that to come up with a volumetric equivalent.”
In a nutshell, the total target revenue predicted based off piping growth in the community is calculated, then the cost is distributed among all customers.
This methodology is seeing a rise in prices that does not correlate with that of other communities or natural gas prices. Dodge City, for example, uses the same methodology as Liberal, but because of the diversity of the volumes of gas purchased by their customers, the fees are not an issue. Also, piping is added every year to Liberal, so the target revenue is constantly increasing. However, usage is decreasing within the community, which is causing prices to rise to atone for the lost revenue.
To combat the problem, Liberal Black Hills wants to adopt a franchise fee based on percentage of volume purchased, much like the system used in Wichita and Garden City.
“We would propose that we set up all of our customers on this 5 percent gross receipts, so it’s just 5 percent of their bill,” Long said of the franchise fees.
Overall, the proposed charge rate is meant to make the pricing fair for all customers based off the volume of natural gas purchased, and for the large customers buying from a third party, to charge them delivery fees based on the volumetric equivalent.
The commission took the proposal under consideration and agreed to discuss it at a later date.