OCA opposes Black Hill's plan to acquire reserves

On February 17, 2016 the Wyoming Office of Consumer Advocate (OCA) filed testimony with the Wyoming Public Service Commission (PSC) opposing Black Hills Energy’s plan to acquire gas reserves as part of its portfolio of gas supplies to serve its customers in Wyoming and five other western and mid-western states.

Under the proposal Black Hills Energy, who recently acquired Source Gas to serve the Platte Valley, would acquire enough gas reserves to serve 50 percent of its expected natural gas needs to serve its natural gas customers and electric operations. It proposes to develop and produce the gas through a company owned subsidiary at what it refers to as a utility cost of service rate.

“Although Black Hills hasn’t specified what reserves might be acquired, information provided by the company in its filing and publicly available information leads us to believe that Black Hills intends to acquire reserves that are currently owned by its corporate affiliate, Black Hills Exploration and Production Company,” said Bryce Freeman, Administrator of the OCA and the OCA’s principal witness in the case. “Black Hills E&P is unable to profitably develop these wells at today’s low gas prices so they are looking for a way to bring those reserves into the utility operations where they would be able to earn a guaranteed return on their investment,” Freeman said.

The OCA’s testimony details a number of problems with the proposal including the fact that market prices for natural gas are currently at historically low levels and are projected to stay that way for an extended time. “The cost of producing the company owned reserves would likely be well above current market prices and adopting the company’s proposal would cause customer rates to increase,” Freeman added. Additional problems with the proposal, as detailed by the OCA, include shifting all of the risk of acquiring the natural gas to customers and guaranteeing Black Hills Energy a profit on the investments it makes in acquiring and developing these gas reserves. “The proposed arrangement would be very lucrative for Black Hills Energy and its shareholders with Company benefits coming at customers’ expense,” Freeman stated. The case is scheduled to be heard by the Wyoming Public Service Commission at public hearings beginning on May 2, 2016.

Black Hills and its subsidiaries serve customers in southeast, south central, central and northeast Wyoming including the cities of Cheyenne, Casper, Gillette, Torrington, Rawlins, Lander and Riverton, as well as surrounding areas. Black Hills is the largest retail natural gas service provider in the State.