Higher fuel costs approved for Fort Cobb Fuel Authority

by Mike Ray

Southwest Ledger



The state Corporation Commission approved Fort Cobb Fuel Authority’s fuel adjustment clause for calendar year 2022 even though it was significantly higher than the amounts charged by three other natural-gas providers in Oklahoma.

In calendar year 2023 the average utility price per thousand cubic feet (Mcf) of natural gas was $10.04 for Fort Cobb Fuel Authority (FCFA).

The comparable price for Arkansas Oklahoma Gas was $6.58 per Mcf, and $7.61 per Mcf for both Summit Utilities of Oklahoma and for Oklahoma Natural Gas Co. (ONG), records the companies provided to the public utility-regulating Corporation Commission showed.

FCFA did not engage in competitive bidding in 2022. Nevertheless, the company contends its gas costs are reasonable because it purchases a majority of its supply through discounted bulk supply contracts indexed to first-of-month prices.

“While this strategy includes some risk of overpaying if spot prices are low in a given month, it also acts as a physical hedge against high prices, which present a much greater risk,” company officials wrote.

The company’s tariffs approved by the Corporation Commission “provide for a dollar-for-dollar pass-through of the actual cost” of the natural gas it buys, “without markup,” wrote Ron Comingdeer, an Oklahoma City attorney who represents Fort Cobb Fuel Authority. The company “does not make a profit on the cost of the natural gas; it only recovers its costs to procure the commodity and the transport of it through the interstate grid” to its customers, he wrote.

Assistant Attorney General Greg Matejcic was critical of FCFA’s increasing volumes of lost and unaccounted for natural gas (LUFG). The company’s LUFG percentages have grown in recent years: from 5.22% in 2020 to 8.17% in 2021 and 9.91% in 2022, the Pipeline & Hazardous Materials Safety Administration reported.

“Elevated LUFG numbers” are reflected in a company’s higher fuel costs, “which ultimately are passed on to the company’s ratepayers,” Matejcic noted. In addition, he wrote, unintended releases of natural gas into the atmosphere “can lead to higher amounts of pollution, which may impact the environment and the health of the company’s customers.”

Gas leaks on FCFA’s distribution system, as reported to the U.S. Energy Information Administration (EIA), totaled 78,241 Mcf in 2019; were halved in 2020, to 39,018 Mcf; and fell slightly to 38,201 Mcf in 2021.

Even so, FCFA’s leak losses in 2021 amounted to 37.05 Mcf per mile throughout its 1,031-miles of pipeline, EIA records show.

CenterPoint Energy reported gas losses of 100.13 Mcf per mile along its 2,792-mile distribution system that year.

In comparison, in 2021 ONG recorded 59.47 Mcf in gas losses per mile on its 18,751-mile distribution system, and Arkansas Oklahoma Gas Corp. reported losses of 3.72 Mcf per mile on its 761-mile system.

West Texas Gas. Inc., which serves 30 cities in Texas and a dozen towns in Oklahoma, including Boise City, Goodwell and Texhoma in the Panhandle, recorded 2021 losses of 4.61 Mcf per mile on the 1,109 miles of pipeline it has in Oklahoma.

Matejcic recommended that the commission impose a cap or ceiling on FCFA’s gas losses, as that would “likely motivate Fort Cobb to prioritize lost and unaccounted for gas and line losses “and consequently result in a positive improvement” in the company’s numbers.

Company endeavors to repair line leaks

FCFA has performed and continues to perform leak detection “on every mile of pipe within our system,” Thomas Hartline, owner of Navitas and chief financial officer for FCFA, told the Corporation Commission. The company has repaired every major leak detected “immediately upon discovery,” and minor leaks are “logged and placed on a schedule to be repaired as soon as resources allow.”

The company “will continue to make every economically viable effort to control line loss, including an analysis of replacing the entire system.”

During discussions in FCFA’s recent rate increase case, “it was specifically requested” that the company be allowed to “hire additional personnel to address line loss (at an additional cost)” but that request “was not accepted” by the commission’s Public Utility Division or the Attorney General, Hartline wrote.

However, the Corporation Commission does not dictate the number of employees a public utility can hire. Instead, the state agency sets limits on expenses that can be charged to a utility’s customers.

Matejcic suggested that FCFA be required to reduce its LUFG percentage by a minimum of 1% a year “in order to achieve and maintain an overall LUFG level of 5% or less within five years,” starting in 2025.

The Corporation Commission on May 14 authorized Fort Cobb Fuel Authority to increase the base rate for its residential, domestic tap, and commercial customers to $24.50 per month effective Jan. 1, 2025.

During consideration of that case, Hartline testified that to achieve a reduction in LUFG below 10%, “We would need to hire at least one additional person at a cost of approximately $100,000 per year…”

In a rate case from 2009 the commission “found that Fort Cobb demonstrated … it is less expensive to have a line loss that exceeds a percentage which would be unacceptable on a larger system with more customers per mile of pipe, than it is to fix all the leaks” on FCFA’s distribution system, Hartline wrote in his rebuttal to Matejcic.

With 1,031 miles of distribution lines and 3,864 customers, Fort Cobb Fuel Authority has 3.7 customers per mile of pipe.

Replacing leaky lines would be expensive

“Hundreds of miles” of the FCFA gas distribution system were constructed with PVC pipe, Hartline said. “In addition to being much more susceptible to ground movement breakage (versus other pipeline media), the glued joints of the pipeline, which occur a minimum of every 40 feet, are known points of failure.”

And much of Navitas’ LeAnn system in northeastern Oklahoma was constructed with “unprotected steel pipe which is very old and prone to failure.”

Replacing all of those lines “would dramatically reduce LUFG,” Hartline conceded, but would be “uneconomic to the ratepayer and no longer fundable for the company.”

Navitas, “affiliated operator” of the Fort Cobb and LeAnn divisions, “has a history of taking underserved or unwanted systems” – such as Jennings and Hallett in Pawnee County, Kinta in Haskell County, and Dustin in northeastern Hughes County – and upgrading their service, Hartline wrote. Many of those consumers “have gas service which otherwise might not have been maintained,” he said.

Since 2014 Navitas invested on average more than $400,000 per year in Oklahoma in pipeline infrastructure, additional rolling stock, and other service equipment, Hartline informed the commission. Moreover, the company financed that growth without an increase in base rates for nine years, he reminded the agency.

Navitas minor player in gas utility market

Navitas buys most of its natural gas through Clearwater Enterprises LLC, a non-affiliated third-party gas marketer, according to Andrew Scribner, a senior regulatory analyst with the Corporation Commission’s Public Utility Division.

In its “Gas Procurement Policies,” Navitas contends it is “a relatively minor participant in the gas utility market” and other utilities “have a larger concentration of sales.” FCFA says that because of its size and the economy of scale, it “may face more challenges than larger market participants when procuring natural gas.”

Matejcic, though, maintained that “market dynamics are continuously changing.”

As just one example, Oklahoma City-based Chesapeake Energy Corp. is merging with Southwestern Energy Co. in Spring, Texas, creating the largest natural gas producer in the U.S. Chesapeake sold its crude oil holdings last year to become a “pure-play” natural gas producer.

With natural-gas production at all-time highs, Matejcic wrote, suppliers and marketers “are challenged with selling and moving the product, which forces them to be more creative in executing contracts or agreements.”

While soliciting bids may not have been favorable for Fort Cobb Fuel Authority in the past, “conditions have since changed,” Matejcic wrote. “More companies may now be able to participate as an asset manager, agent, or be willing to enter into Asset Management Agreements…”

FCFA to analyze its distro system

Matejcic’s recommendation was not incorporated into the Corporation Commission’s final order.

However, in a joint stipulation and settlement agreement, FCFA vowed that early next year the company will provide the commission with testimony about:

Ÿ its level of lost and unaccounted for gas “and an analysis of the cost/benefits of maintaining LUFG at the lowest reasonable level,” and the analysis will be performed by “sub-system” (i.e., particular service areas, such as Eakly, Gracemont, and rural Fort Cobb);

Ÿ FCFA’s repair and maintenance plan and the cost/benefits of possible changes that could result in a lower natural-gas loss rate;

Ÿ a description of FCFA’s gas procurement process and whether their customers would benefit from lower gas costs if the company initiated a request-for-proposals from suppliers and transporters of natural gas.