Natural gas customers set to see refund in portion of costs tied to Tacoma’s LNG plant
State regulators have given approval to Puget Sound Energy’s push to recover some of the costs tied to its liquefied natural gas plant in Tacoma’s Tideflats, but some customers will carry a bit less of that financial load.
Regulated natural gas customers and unregulated LNG clients help foot the bill in PSE’s cost-recovery effort. But a still-to-be determined amount is set to be refunded to regulated customers as a result of a new order issued April 24 by the state Utilities and Transportation Commission.
The site’s four-mile pipeline cost was embedded in current rates, and a portion of that will be refunded to customers.
The April 24 action by UTC means PSE now needs to make a subsequent filing to determine a refund for customers for pipeline costs not approved in the latest order.
UTC also put PSE on notice over the site’s operations in the April 24 order, which stated, “The company must take reasonable and appropriate steps to prevent air permit violations.”
The decision comes after revisions to its current natural gas tariff filed in May 2023 by PSE to recover costs of the plant’s construction and operations.
A utility tariff governs how the utility charges customers for natural gas usage.
In May, PSE proposed $47.6 million of additional revenue, obtained through recovering depreciation expense, return on investment, and operating and maintenance expenses associated with the regulated portion of the facility.
It also sought to recover deferred capital costs, which includes PSE’s deferred return on investment in the site and operating expenses since the facility began operations February 2022, according to the release.
The company also proposed an allocation of the costs of “constructing the four-mile distribution line used to supply gas to the facility between PSE’s regulated and non-regulated customers,” UTC noted.
PSE proposed to apply the rate of return approved in its recent general rate case to the total rate base associated with the facility, including its deferrals, according to UTC.
PSE stated that obtaining the additional revenue would result “in an increase of $3.34 per month for the average residential gas customer using 64 therms per month,” which is the standard PSE uses in average cost calculations.
UTC ultimately rejected PSE’s request to recover a portion of its deferred return on investment, which will slightly lessen the impact on customer bills.
“Unfortunately we do not have the actual bill impact at this time, though the effect of the adjustments the commission adopted resulted in an approximate 10% decrease to what was initially filed,” Amanda McCarthy, UTC communications director, told The News Tribune on Friday via email in response to questions.
“This would lead to approximately $3 increase per month prior to any refund granted on the four-mile pipeline — the amount is yet to be determined and will have a small impact on bills,” she added.
As a dual-use facility, the plant liquifies natural gas that can be vaporized and used by PSE’s gas distribution network as a “peaking resource” for all of its regulated gas customers, residential and commercial.
LNG from the site is sold to shipping customers for ship fuel on a non-regulated basis by Puget LNG, a subsidiary of PSE’s parent company, Puget Energy.
While the order parsed percentages, it also “expressed concern that PSE received violation notices from the Puget Sound Clean Air Agency,” according to UTC’s release April 24.
The commission noted the violations “could impact the company’s return on investment in the facility in the future.”
The commission rejected cost recovery “in rates of costs associated with marine shipping services since the services do not benefit the company’s gas customers,” according to the release.
The commission also rejected PSE’s request “to recover certain costs from customers, such as the costs of redesigning gas treatment equipment,” the release added.
Bellevue-based PSE provides natural gas service to more than 800,000 customers in King, Kittitas, Lewis, Pierce, Snohomish, and Thurston counties in Washington.
The UTC regulates private, investor-owned electric and natural gas utilities in the state.
How we got here
The Tacoma LNG facility was contested for years by environmental groups, The Puyallup Tribe of Indians and other opponents, who fought the development over safety and environmental concerns, among others.
It officially began operation in February 2022.
The April 24 action came after a December 2022 settlement approved by the commission regarding the site. That action focused on whether it was “prudent” for PSE to begin construction.
UTC said at the time of the settlement that it would allow PSE to start recovering costs, “subject to later review and possible refund, for the portion of the Tacoma Liquefied Natural Gas facility that serves customers of PSE’s natural gas utility.”
The settlement also allowed other parties to contest recovery of costs.
Distribution line costs and refund
On April 24, the commission “agreed with staff’s proposed allocation of the four-mile distribution line (costs) between PSE customers and non-regulated customers,” according to the release.
“The reduced allocation percentage lowered PSE regulated customers’ share of the $27.4 million distribution line from 62%, as proposed by PSE, to 30%,” the release added.
PSE was directed to refund the amount its regulated customers overpaid, with that refund amount to be determined “in PSE’s subsequent compliance filing,” the release from UTC noted.
PSE, in a statement sent in response to questions, told The News Tribune on April 25, “We are in the process of fully reviewing the order.”
The utility added, “The LNG facility is critical to ensuring we can serve our customers on the coldest days of the year, and it did just that this past January, when demand on the system was at its peak.”
Air permit concerns
The April 24 order notes that the commission members “have significant concerns with the operation of the facility and possible violations of its air permit.”
The order requires PSE “to file biannual reports with the Commission, describing any further (notice of violations) issued” by the Puget Sound Clean Air Agency, among other measures.
The commission said it would “continue to monitor PSE’s operation of the Facility, its responses to the (notice of violations), and any subsequent determinations by the PSCAA.”
PSE must also file biannual reports with the utilities commission, according to the order.
The utility has a contractor responsible for management and operations at the site, but the order said PSE “may be held to account for the actions of its contractor operating the Facility.”
The order also noted that PSE “states it is cooperating with the PSCAA, and that the PSCAA itself is able to penalize violations.”
The commission said it could in the future require PSE “to make repairs or improvements to the facility.”
PSE media representative Gerald Tracy told The News Tribune in response to questions about UTC’s violation concerns that, “We have no additional information to offer at this time.”
The News Tribune on April 25 sought more details from PSCAA about its notice of violations to the LNG site. A representative for the clean air agency said staff members were in an all-day board retreat “and decline to provide additional context on such short notice.”
The News Tribune has filed a records request with PSCAA for more details on the issued notices.
This story was originally published April 26, 2024 at 11:00 AM.
