HomeMy WebLinkAbout1984-03-06 Council Minutes - Work Session with EnstarFW4
PUBLIC NEARING
March L, 1984
Enstar
Mayor Wagoners I would like to introduce to those members of
Coerncil who haven't met him Ray Benish of Arthur Young from
Anchorage and the purpose of the work session is to listen to
Enstar who is pursuing the purchase of XUSCO gas system here in
Kenai and with that, he is going to be talking, everybody
participating, is there any set agenda that you people would like
to follow, i t 's your show.
Rick Baldwins. I'll just make the introduction cause I know most
of the people at the table already. This is Dick Barnes of
Enstar and I think all of you know Oscar Thomas, I think we'll
just let Dick carry the ball. I understand what we are going to
do here tonight Enstar is going to basically going to lay its
fact out on the table as Enstar sees it and on the basis of all
the facts obviously you'll have to make some kind of decision on
the contract. There are two things that Enstar is looking at at
this point 1) as most of you know has made an offer to purchase
KUSCO. Dick will go over the terms of that contract and part of
that contract would entail the City waiving its rights to
purchase the system three years hence when the contract term is
up and Dick you can go into that right now. I think that in the
interest of, the problem primarily the rate payers in the City of
Kenai what everbody is looking for is the best deal for those
rate payers and what the lowest rates, and some method of getting
to the lowest rates possible consistent with good service. So I
think to that extent everybody in this room is after about the
same thing and I don't see this as being an adversary problem as
I have been hired neither as a advocate or an adversary but more
or less as local counsel for Enstar so with that I'll just turn
It over to Dick.
Dick Barnes Ok, Oscar do you want to start with a few comments
from KUSCO?
Oscar Thomass Well I think probably since we are on the record,
the, perhaps the best way to get into this is to read into the
record the letter that we enclosed to all of our customers in our
last billing.
City Manager Brightons Oscar, I think you need to pull that mike
a little closer to you and pull the switch forward to make sure
that it's on. Ok, apparently its on. She wasn't picking you up.
Clerk Whelan: It still doesn't show on the thing. Tap it.
(Since the Clerk told Oscar to tap the mike, it is not picking up
as loud as it was before he taped it.)
Oscar Thomas: I'll begin again, since we're on the record I
think the best way to start off would be to read into the record
a letter that we sent to our customers with their current gas
bill. "This is to advise you of an important development in
connection with natural gas utility service within the City of
Kenai.# Many of you know that our present gas supply contract,
which carries a very attractive price, will expire in less than
3 years. For some time now we have been concerned over our
ability to procure future supplies at costs that would help us
to ensure reasonable consumer rates to you, our customers. We
have finally conceded that this most probably will not happen.#
Accordingly, we have accepted nn offer by ENSTAR Gas Company to
purchase those asnots of our organization used to distribute gas
within the municipality. Thin offer is rontitigent upon certain
approvals from both the City of Kenai and the Alaska Public
Utilities Commission. Assuming such approvals will be forth-
coming we are sure that ENSTAR will ho able to provide yota with
excellent service at the lowest possible rates. The size of
their company will iinsure that certain economies of ocnle will
be available. This is something that no one else operating
solely within the present service area could offer. Perhaps more
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March 6, 1984
Enstar
Page 2
importantly, ENSIAR has long term supply contracts in force at
costs that we cannot hope to match. These contracts also contain
deliverability clauses that ensure adequate supplies during
periods of peak demand. Firially, ENSTAR has strong financial
capabilities with which to meet the capital demands placed upon a
utility company in an area of rapid growth such as Kenai.# For
the reasons stated herein we are convinced that the ENSIAR
acquisition, if approved, will provide you with the lowest
possible fuel costs over the long term. We will be happy to
answer any questions you may have in this matter." This is what
we told our customers and I guess that's what we are telling you
and I wrote the letter, I composed the letter and if you do have
any questions I would appreciate hearing them and perhaps give
you an answer. I think you all know me, I've been around for a
long time, (inaudible) Another thing as an operator of a gas
utility I cannot ignore, I cannot stress too strongly, and I'm
going to repeat it to everyone who will listen to me at the
safety of your operations. When I say safety I'm talking about
adequate dependable supply. And I think that a real heavy wish
when it's 20-30 below zero in the City of Kenai or any other city
in the world you've got to know that your supplier is dependable
and we have contracts and insure stability that will keep the gas
coming to every house in the City that's one of the things I hope
is not going to be overlooked in this deliberation. (inaudible)
and I will relinquish
Dick Barness Well, Mr. Mayor and Councilmembers I wanted to go
through a few of the issues that we talked about last week in the
-
Council meeting when I came down to visit with you and that is I
guess mainly what Enstar has to offer the City of Kenai with
respect to gas service and why we think that you ought to
consider our offer that we made to KUSCO to purchase the gas
utility process and initiate deliveries through our system and to
take advantage of the system that we built over the past 20
years. We have entered into an agreement with KUSCO to buy the
utility assets, all the operating assets plus the operating
—
rights and the operating facility that's here in town. The price
.'
that anticipate to pay to KUSCO is approximately 2.4 million
dollars. With that system as far as the operation goes we see
that it would fill sort of a donut that's in the middle of a
system that we're already operating around the outside of. We
operate in Sterling, Soldotna, and Kalifonsky Beach and on the
'
north road and in some cases we have service calls or operations
to do that require people to travel through 12 or 14 miles of
Kenai service areas just to get from one call to the next. We
'.
see the opportunity of operating within the City of Kenai as a
means to have a more efficient operation that we probably have
now on the Kenai Peninsula. That's the primary benefit to us as
wall as having initial inveatmeiit in utility plant that we would
expect to earn a fair return on. The people in Kenai, homeowners
and business people alike, we think we have four things to offer;
that's low cost of service, reliability of supply, an aggressive
development policy, and high quality service. I'd like to take
them one at a time and explain what I mean. Low cost of service
- we firmly believe that over time Enstar could deliver gas in
Kenai at a lower cost than anyone else. There are two reasons
why we think we can give a lower price that any other company or
municipal utility or co-operative and the first reason is because
that the advantage that we enjoy of existing gas contracts. We
have major gas contracts that go out a century to the year 2000
and the gas contracts we have include a low cost commitment
that's in the Kenai field that when blended together with current
market price contracts that we had recently negotiated, will t erid
to soften the move that is the standard unit that we sell gas
from the low coot gate contracts that both KUSCO and Enstar
enjoyed as a renult of market privi-9 in the 60s and moving into
the realities of what prices nre going for in the 00s. We hove
gas, Kenai gan contract that goes out through December 31, 1992,
that'll actually be dropping the current 64 cents per mcf that is
the standard unit that we sell nos down to 27 cents per mcf. That
a—.. .8, � ..
March 6, 1984
Enst ar
Page 3
compares to 33 cents that is currently being paid by KUSCO to the
same producers but khich runs out in a little lens than 3 years.
Our base supply for the new contracts is $2.32. It has in those
contracts a price adjustment that moves according to what happens
to the wholesale price of #2 fuel oil delivered in the Tesoro
refinery on a given date. The actual price of $2.32 was deescaluated
this year as a result of softening of product prices as compared
to the year previously. If oil goes up over time, gas will go up
over time, but it will stay at a percentage of, or the alternative
in the area we believe is oil will stay percentage wise at the
this same (inaudible) price advantage that we enjoy today.
During 1983 the average price of gas that was sold on the KUSCO
system was $1.90. During the same period the some price for
Enstar was $1.81, slightly less than KUSCO's. Even though we were
slightly less gran cost, $1.81 vs. $1.96, our price included
$1.03 for gas whereas only 33 cents of the $1.96 was the cost of
the delivery and service, the gas cost of $1.96 at KUSCO. What
that means is it cost on an average $1.63 for every mcf that was
delivered to KUSCO customer in the delivery cost of the amortization
of the pipe lines and other subsidizing. The $1.63 delivery
service cost on KUSCO compared to 78 cents on the Enstar system.
I want to stop there for a second and see if if you get the gest
of this, less than half.
Mayor Wagoner: Dick, maybe you want to go over and use the board
over there and put down on the board maybe that give a better
illustration. (We've got them)
Dick Barnes: While he's putting them up why don't I explain why
it is that Enstar was able to deliver gas if you can deliver part
of it, if you will, for less than half the cost to KUSCO. Well
it has to do with what they call in a utility business: --economies
of scale. We have over 61,000 customers on the Enstar system. We
are able to spread our cost over 61,000 customers including very
large power customers that each one of them carry administrative
and operating costs, return all capita, income taxes, all the
costs that have to deal with the cost of service and revenue all
spread upon 61,000 customers instead of around 1,600 which live
+;
currently within the KUSCO service area. KUSCO is required by
law to do nearly everything that Enstar is -pipeline safety,
state codes, city codes, requires certain things be done,
Industry practices. So where the cost of putting on a rate case
or putting, or doing what we call cathodic protection which has
to do with preventing corrosion of pipelines and potential leaks
that would result. While we have the ability to spread that,
those types of costs over a large number of customers, KUSCO
because of its size has to pick up those sorts of costs over a
--
smaller customer base. So no matter who runs small utility they
suffer from this thing I guess you'd call it "disenergy" in size
where economy is at scale if you look at it on the cost of size
_
of what a larger group of customers can do. We paid about three
times as much for gas if you look at the $1.03 vs. 33 that's
KUSCO yet we sold it if you look at the top line on a�,srage for
about the same price. (TAPE CHANGED) K1JSCO or Enstar operating
the same service area an KUSCO. You have to say to yourself well
let's take their cost of delivery and adjust that upwards or
..
downwards depending on what we think we can do that same customer
basis as far as cost of delivery. You might be able to beat that
1
somewhat or it might cost you more if you believe that you
wouldn't be quite as efficient as the existing (inaudible). Now
you could take your cost of gas number which is 33 cents and ask
yourself well what could be expect to pay for qns at a future
i
date or if we were to replace the exist inq contract with a now
contract even at this time, add the two together and you will
come to a hall park number as to what your snlea price to the
average customeru are going to be. Well, while other things are
important, the consumer I think in this day and aqe they have to
'
look carefully at what the delivery corn will he, it can be a
.
significant shock to a budget of a home owner to have doubling of
gas prices or doubl inq of f!lect ric prices anti we've sheer that
March 6, 1984
Enstar
PagP 4
happen elsewhere in the State. of Alaska and as Chur;ach Electric
has setan there can be real repercussions when there are massive
increases. I want to talk about reliability of supply a little
bit. That's another thing that we think have by this summer
Enstar (John Wise coughing) system will be connected to approximately
the equivalent of 80 wells. Some of these are multiple completions
and individual wells and they are in five different fields. We
can produce out of any of those fields and cover what we consider
to be our firm load and actually lose a great number of wells if
we have any pipeline problem or if there is a problem in any gas
field it may be a treating plant (inaudible) a dehydrator goes
out, freezes up, or burns up. We have interruptible customers
and by that I mean customers that can burn fuel oil or coal in
power plants that can share approximately half of our load at any
given time even at peak and they can carry on during a period and
cut the burden on our system to where we have the ability to run
on you might say half the wells that are connected and still not
have interruption of our homes, hospitals, schools, shops, and so
on. They didn't come cheap, it's part of our cost of gas. It's
part of our cost of interconnecting the system, the pipe line
investment. There is a word in the gas business called "deliver -
ability" and it's something that it's a technical term sort of
but it's easy to understand. And the issue is how is that
producer going to deliver the gas to you on that cold day when
you need a lot of it, in other words -- deliverability. We have
on our system contracted for gas on our cold peak periods where
the producers are required by contract to produce between 200 and
250% of our average day take. Now what does this mean? Well, if
I were going to sell gas to someone and I were a producer, I
would rather prefer to sell the same amount of gas every day of
the year. Well why is that? Well if I drill a well and it has
the capability of producing let's say 3 million cubic feet a day
and I put in a dehydrator which takes a lot of the moisture out
of the gas and the impurities of same and I have to put in a
metering set up, build piping, build pipeline and all, I would
like to build that so it runs at an optimum rate 24 hours a day,
365 days a year run at just a nice steady pace. But the demand
In Alaska is not steady, we don't need a lot of gas on the 4th of
July but on the 4th of January we need a heck of a lot of gas so
what we've asked the producers to do is to drill more wells put
in bigger production facilities and give us like 2 to 2 1/2 times
as much gas on those cold days as we take just on average over
the whole year and if you want to take it clear to that 4th of
July day to the peak day it's more like 400%. So there is a
trade off on price, he says fine I'll do it but you've got to pay
me for it. We have agreed to pay for, its included in price that
I'm talking about for gas. They've agreed to give us those
quantities of gas at those prices. The significance of this is
when someone says I'll sell you gas for 2 bucks, you can't just
say well that's great that's lower price than what Enstar is
paying for. You have to say well wait a second how are you going
to sell that, are you going to give me all I want when I need but
not make me take it when I don't want it, or are you going to
snake me take it on a stream day take a pay day day after day.
That's an important concept to gas contracts and one that some
times people overlook. We think it's important. The alternative
is to have gas stored in the Lower 48, you probably remembered
driving through towns you see these big strange looking tanks
that have a rack around the outside and an internal tank that
rides up and down that rack. Those are the old style gas
holders, you fill them up in the summer time and then they draw
them in the winter time. Our peaks are so radical here that you
have to have one in every six blocks in order to carry the peaks.
Some places they have underground storage. we have not been able
to find close to our load centers anyway undergroutid storage that
meets the needs as compared to producing out of the firrlds on the
days that we need it. It's an expensive alternat ive, the
producers are willing to do it as long .is we are willing to pay
the price. So the diversity of supply that we have, the large
number of completions that we have the ability to draw on, allowu
March 6, 1984
F.notar
Page 5
for product rots problems in the field without interrupt inq our
supply. If there is a water encroachments which can happen in
wells, they sand up, there are hydrates that form in the product ion
tubing it's kind of a oddball crystal looking form under certain
pressure and temperature and moisture conditions. If there are
mechanical problems with the well that you need to shut it down.
With the large number of sources we have to draw on, was think we
can offer more reliability to the town of Kenai. You've enjoyed
it on the contract we have cause you're tied into about 50
completions in the Kenai field. It's the same field that we're
tied into besides the other ones. I believe that if you tried to
purchase more gas you would have to pay the current market price
for it which is somewhat similar to what we've had to buy at
which is $2.32 or somewhere between 2 and 3 dollars. The third
major strength is £nstar is connected to the development. We
have good financial strength of the company and we have as an
internal policy decided to be aggressive in meeting the demands
of the new home builders and the builders of subdivisions and
builders of ( inaudible) try to work with these developers to have
reasonable main extension policies and we also work very hard to
install services right up to the very last minute that we can
still break the frost and get our lines in at the end of the
year. We t ry to make t hem rat her t ban say wel 1 why don't put an
oil or propane this winter and see you next spring. We try not
to do that and the way that we try to accomplish that is to try
to have a back up of materials and equipment and people so that
we can push hard at the end of the construction season and get
this work done. Last year we had 8000 new customers on our
system which was a new record for us and we feel quite an
accomplishment but we did it, we geared up for it and we were
able to meet the need of the various communities that we serve.
The fourth strength that we think that we have is the quality of
overall service. Because of the size of our service group, we've
been able to have specialized services developed in-house in
areas such as gas measurements, data processing, electronics and
in more esoteric areas something called cathodic protection.
This has to do with, when you put a piece of pipe in the ground
how long is it going to last? Fisherman around here know that if
you have a metal boat to the water you need to have sink anodes
to keep a steel boat or prop shafts from rusting out. We use the
some type of anodes (gas term) attach it to our pipeline. We
Also have transformers that we put low voltage current on to our
pipelines to make sure if there a nick in our pipe so they don't
get a little rusted, have a pit, have a breakthrough and have a
leak somehow. We also pioneered the use of a pipe that's call
"high density, high molecular weight polyethylene" supplies that
Phillips puts out and who were the first to tine it in Alaska And
Oscar's been using it in the KU5CO system. It's a material that
- actually becomes more, higher strength as the temperature goes
down and has the ability to take an impact of (inaudible)
getting next to it. If it does get hit hard it breaks cleanly,
_ it's easier to repair. It has setually reduced our cost of
putting in gas mains from 10 years ago. We could put in a gas
main cheaper today then we could 10 years stlo instead of usintl
welded pipe where previously we had the trencher waiting for the
welders, now it's the guys with the plastic pipe that are pushing
i the trenchers. As far au the type of employee service that we
have we think we have a very good reputation to the Public
Utilities Commission and to people in the communities that we
serve. We have had recent canes of major rate orders coming from
the Commission where thoy'vo had vary kind things to say about
what we done in the way of service, the lack of complaintti that
we've had with our customura, the hick of outageti, the attitude
}� of our people. We thank that that's moaningfuI to be able to
have dumonut rated s level of uervice that it; attentive to the
needs of the people.
Also wanted to mention our operating plan for Kenai - what will 1
mentioned that will go into buying the operating facility that is
now hreinq tised, our intvrittons ore to operate out of that
March 6, 1984
Enstar
Pan-- 6
facility, to operate the Kenai area and the North Kenai area
perhaps the wpgt end of Kalifonsky Beach Road from the Kenai
_
office and then operate the remainder of our System from our
offices in Ridgeway - Sterling, Soldotna, east end. Vie would
expect to have employees become familar with both sides of the
system to be able to work on it and also be familar with our
measurement and transmission facilities to the extent that they
are needed to help on those as well. As I pointed out earlier we
are convinced we can meet the Kenai consumers' needs better than
any other alternative and I think that's what we're here about
tonight to talk about is to explore the issues to see if there
are questions as to what a better alternative might be. As Oscar
mentioned and as Rick mentioned, we are asking the Council to do
3 major things: 1) to transfer the franchise from KUSCO to
Enstar. We want the Council to find that it is in the City's
best interest and the people of the community's best interest to
not buy the facilities at this time at the $2.4 million price off
set price, first rate (inaudible) price which is an option that
the City has at this time. They can meet that price and within
the 60 days from February 15th, the date I believe it was the
City could if they felt it was in the best interest, could buy
the facilities and in another month be operating a gas company
itself. We are asking that the City give up that option at this
time and find that it's in the City's best interest to go with
Enstar. At the end of 3 years, at the end of the franchise
period franchise also calls for the ability of the City to buy
the facilities at a fair market price. We are also going to ask
the Kenai Council to consider at this time to give up that option
you had to buy the facilities at the end of the franchise period
and why should you do that is what you should be asking yourself.
Why should you give up the right to buy the facility? I guess it
would be to accommodate what we would like to du in the way of
upgrading certain facilities of the KUSCO plant and making
additional investments to bring them to better the standards to
increase the liability of the service. At this time and during
this 3 year period we would like to make those investments and to
make the best system possible. If we were, on the other hand,
faced with uncertain as to whether or not we would be given the
y; run of the plan at the end of 3 years, we would have to ask
r; ourselves as an example should we begin a meter renewal program
which we'd carry on in Anchorage in our facilities that has not
been done to all meters in Kenai which would be an unrecoverable
I' cost. It would be an operating cost if we start pulling meters
off, repairing am and replacing them with other meters. It's not
_
a capital cost, it's a cost that's just lost. There are cathodic
protection areas that need to be remedied on the KUSCO system.
--
There are certain areas that need to have some work done, planned
to be done anyway, on Oscar's system we'd like to go ahead and do
_
those things but if we had an uncertainty it wouldn't be as
enticing to us to to go to the full depth to make investments
which we wouldn't necessarily be able to encumber in time. We
—
want to do a good job in bring this system into the Enstar group
and give the benefits of economies of scale we have and we would
like to do those things at this time. After we have bean ablo to
gain your approval, we then have to go through the Alaska Public
Utilities Commission. The AP1JC will have to approve the change of
certificate of convenience and replace them. It's a time
consuming job, we want to get that task as well. Oscar Thomas
has notified the current owners of KUSCO that he intends to
retire and relocate. Enstar would like to be able to start
'
planning for this; coming construction searsnn if we're going to be
responsible for it to take the responsibility to heart. It's
F
important for a lot of people, we're a short construction ueason.
f''
l;l More timely, the r.onaiderat tort provt!!;s to prove process is the
( innudihl e). The sooner you have the chance, t n reach your
decision, the sooner we'll have the opportunity to move ahead and
met out' obl igat ions. Approciat a your t urninn up on a night like
this to hear what we have: to aay. You'te important to us and
weld sure stand by rand be reaeiy to (In. February 1 is the day
( inaudible). I would also be wi t l ing to elo through with anyone
51
March 6, 1984
Enst or
Pagrs 7
who is interested in, I'll just bring the nub,ject up -- the
process of rate requ lat to. ., i ut i I i t ien. Some poop le don't
understand probably all the inns and outn fif it and t don't want
to go into it unless there is Somebody who wants to understand
the implicat ionic of how rates are not and how costs to recover
the utility. I'll leave that one for specific questions.
Mayor Wagoner: Council have question? Councilwoman Bailie.
Councilwoman Bailies Yes, Mr. Barnes, I'm confused. I've got
three different set of figures down here and I may have mis-
understood when you were explaining them. I've got down first
off 64 cents for goo that would he goinq to 27 cents in 92. And
then on your illustration there I see that you're paying $1.03
for gas. Then I've clot another figure that says $2.32 to $3 that
should he paid. If you could just, for my benefit. I'm just a
little confused I guess.
Dick Barnes: We have 3 main gas contracts and let me tell you
what ones they are. The old one in Kenai, the gas contract it's
with our company and the producers jointly is Marathon Oil
Company and Union Ail Company. That contract goes back to 1960
really. We initiated deliveries in August 1961 out field. We
paid then 22 to 27 cents right around in that area. As our demand
qrew in our system, in 1974 we entered into an amendment to that
contract which besides diving us more reserves called for
increased delivershility. We talked about deliverability. We
were concerned that we were not going to have enough gas on that
fateful cold days. They were unwilling to drill more wells. They
onid look shut off the power companies, let them run on oil or
coal and then when it warms back up again you'll be able to carry
them. Now this iti what's done in many places in the United
States. Power companies use gas (man clearing throat) and pay a
low price. When it gets cold they go off and they are interrupted
and then they use up an alternative higher price fuel. It was
our desire and it has been a policy of the company to try to
whereever possible to meet the needs of all our customers. The
choice between not contracting (inaudible) or interrupting them
or (inaudible). We took the more (inaudible) issue and we went
from 20 then with escalators it's up to around 30 cents and we
tagged on a deliverability component, doubled our goo. It went
up to was is today - 64 cents with escalators. In 1986 that
escalator and that deliverability feature on our contract ends
with the declining prefigure in the Kenai field and without the
knowledge of knowing what they can produce out of the field in
1974 when it was contracted they were the producers were unwilling
to have the deliverability feature beyond 1986 because they just
know how the decline curve was going to hit, whether they were
just going to get in a lot of trouble by having a commitment to
have (inaudible). So when that deliverability goes out our price
goes backwards back to the old base price of 27 cents and
continues on a flat rate for the main reserves out to 1996. Now
I'm just only talking about one piece (inaudible). Our remaining
reserves
Mayor Wagoners One question I was fining it) have and I could
combine it into this maybe. Was is the percentage of each
contract as you qo through of your total gan?
Dick Barnes: We hnve 217 billion cubic feet commited to us in
the Kenai field. That'u no of December 31, 1903. In the Reaver
Creek field we have bought 244 billion feet from Mnrathon Oil at
$2.32 an me adjunlEtd over t ime to what happens to the price of
oil at the refinery. Rather than to uuv a coat of livinq index
an the inflator or producer prirNs index which it; is (inaudible)
wholesale pricti isidex, we sutplitst(+d and were nbin, to line the
price of fur-1 ail and we used that becautis? we felt that it was
the alternative energy nourre for the nron. It was the r.losest
thing to a comparable priced fuel. 90 whereas our purchanst price
iv, maybe a 113 of the runt of fuel oft from the producer even on
March 6, 1984
Enst ar
Page 8
the new contracts. If the price of oil doublet;, the price of gas
will double too but it will still be a 1/3 of the cast. It wiII
keep that ratio.
Mayor Wagoner: What is there, can I ask a question? I heard
what you said about tying it to the oil but I see no similarity
in production of gas and product sort of oil other than the fact
there both systems that are hydro carbon systemn used for heating
of homes or an economic fact but the economics of the barrel of
oil going up economically I don't see how it's an economic
consideration in gas because, there, are two different things from
two different areas produced in two different mariner and tied to
each other in any way. I'm just, it's my own curiosity, I don't
understand that.
Dick Barnes: The producers were unwilling to sell at today's
market price forever. Just as today's market, just as the same
reason you can't buy arty more 33 cent gas in the area of Kenai.
So they wanted some sort of escalator so it was s value judgment
I suppose on our part as to what would be the most beneficial
item to key to. Well so for it's worked great. The cost of
living has gone up 3 or 4:, the price of oil has gone down. So
far it's worked great. Maybe there'll be fluxations. It you
look at what a lot of our gas is used for to produce electricity,
If gas became more expensive t!ien our customers who were burning
it for fuel for making electricity could switch to fuel. This
has happened across the country because of some bad contracts
that certain pipelines entered into for no called "deep gas".
They were paying upwards of $7.8 an mcf for gas out of deep
formations because they were desperate for gas down there. Well
then the demand slacked off 'hey found that they were stuck with
$7 contracts and #6 oil was selling for $3.50. Well if you are
an operator of a big utility and had the choice between buying 6
oil or resid oil at $2.5n-$3.50 an mcf equivalent or buying
natural gee nt r..aybe 5 or $6, and you had equipment to burn
either one which they do, you'd switch in a minute. So that was
part of the rationale. Also our projections and others showed
the constant dollar value of oil being clearly flat out to the
end of the year 2000. We all know that could change just for the
known production exists and is in demand guesses by a lot of
experts that look at those things they thought, they don't see
long standing run upe of price. (inaudible - 2 councilmembers
talking and can't hear about 2 sentences) I said we tied 244
billion cubic feet bcf from Beaver Creek and 220 bcf in the
Beluga field so have this total of 681 billion cubic feet
committed to us on contracts right now. Well, is that enough to
take care of Kenai? Well, Kenai uses about 1/2 billion and so if
you divide 681 by half you get the number of years that that
supply if it were be all dedicated to Kenai (inaudrole) we're
talking 1300 yearn worth of gas. If we throw in the power
plants up at * take avid the growth of this area and the growth in
Anchorage and the Mat Valley then it looku like it's pretty well
balanced between our current contracts and the oirligations we
have to by gas which takes about 15 to 20 years depending art how
fast the area grows. Are we going to buy more gas, you bet we
are. I would imagine to be back on the market within 5 years
buying significant amounts of gas. It depends upon what happens
to growth. If it keeps up like it has been (inaudible) and if we
end tip as I think we might helping to light Fairbanks through the
intert ie with gaff, we will have, an addit ional load to carry on
there. The gas could come from some place to feed that intortie
which can carry anywhere from 90 to 300 megawatts depending an
how they (inaudible) and we have an idea that some of that energy
will come from the gas by us. It's probably the cheapest way to
(clearing throat) (;;is, supply in Fairbanks (inaudible). 5o thit
total 681 billion is the total we'll have a mix in of 27 cent
cTas, $2.30 gas, rind overtime [hill wi l l move up so n third of our
gas is at the cheapest price. It would depend on the demand and
on which day you ask as to what our aviceracle cost would he. ihri
pri ceo that you flee up there will, sit 1903 avera(lre price that we
March 6, 1984
Ens'. ar
Page 9
pay that included some state royalty gas at art exhorbitant vote
for the state loan fare some heaver Creek gas and some
( inaudible) gas. So we paid $3.50 to the State of Alaska, our
benefactors, we paid 64 cents to Marathon Oil and Union Oil in
the Kenai field, Kenai gas (inaudible). We would pay $2.32 to
Marathon for some gas and that was a mix of those three contracts
that gave us the $1.03 figure.
Mayor Wagoners Excuse me, you said Beluga Field though, what's
your price on the Beluga Field.
Dick Barness Beluga Field is $2.32 as well. (inaudible)
Councilwoman Monfors In real simple terms, what kind of prices
are the consumers looking at if you take over KUSCO say in the
next 5 years?
Dick Barness Five years is tough. I could tell you tomorrow
they're going to be virtually the same price as you paid today,
no change, very little change, you wouldn't notice the difference
- 5: above, 10% above, 5% below, 10e below in that range today.
It's going to go up over time and it's going, but it's going to
go slowly. It's not going to be a big fly up in price such as
you would have if you took your 33 cent gas that you had up there
and then went to what could be say $2.50. If you took $2.50 at
the end of the 3 years when the contract was up and added your
$1.63 that's the general delivered price that you talk about say
around $4.00 gas delivered to you if you stay with what you have
and if those assumptions are correct which they may be high or
low, so it's $4.00. Our delivered price to the consumer is $2.36
to a residential person right now delivered price, it's going to
go up heading towards $3.00 by the time, by the 5 years is up.
It's a fact of life. I wish we would, low prices forever.
Councilwoman Monfors We're not going to have, what 1 was
�.± thinking of is in 1987 our contract ends, the gas contract we
have now. With you in 1987 we would just, you would have another
contract that already current so we wouldn't have come up with
the bill that's 3 times higher than what we're paying right now.
�.. Dick Barness It should be relatively stable, relatively stable.
Councilman Ackerlys Along the same lines, if your expansion
plans are aggressive and you say that there is some reconditioning
that you would like to do to the present system, that's not even
figured into what over the 5 years, I mean there's going to be an
---= escalation, I mean there's going to be a cost factor in there to
relation to her 5 year question there and we have no idea what,
do you have any idea what it would cost to put the system to
1 where you'd like it to be?
Dick Barrios: (inaudible) these numbers really. I would guess
we're probably talking in relative terms like this would be it
for the existing equipment that is there now probably $200,000-
$300,000 around theca. But we would also interconnect the system
to the other areas that are surrounding your system where we
could into the Enstar system that's goinq to take same pipe to do
and could be another $500,000-$600,000 (inaudible) interconnections
to tie it all together and what it would mean is that we would
have to rely entirely upon the taps that we currently have on the
20 (inaudible) but it could be from other sources. Once again
it's a diversity of supply and what we du where busineus we try
to loop our pipelintan so if there's a break here we can seal off
an area and not lone a whole commtutit y junt because of a simple
break. Ihoae are round numbers of what I can anticipate.
Councilman Ackerlys In other words there would be a million and
j.. a half maybe at the top?
Oick Parness Probably
rN
March 6, 1984
Enstar
Page 10
Councilman Ackerly: And would that be, I presume that this
million and a half would be spread not over the 1500 customers or
KUSCO, 1 mean Kenai customers I mean it would be over the entire
system.
Dick Barnes: It would be all the customers
Councilman Ackerly: of Enstar
Dick Barnes: of Enstar
Mayor Wagoner: I got one question talking, going back to this 33
cent gas maybe 1 don't even, this might sound dumb to you but
isn't and I haven't read the gas contracts I finally got them
today and isn't Y.enei don't they have the right to draw so many
million cubic feet of gas per year under their contract with
Union and right now what percentage of that will be drawing at 33
cents?
Dick Barness 20% (inaudible)
Mayor Wagoners If we're drawing let's say 25% then if you
purchase KUSCO will your company be able to draw at 33 cents the
additional demand of the 75% that isn't being drawn to service
KUSCO to use elsewhere in your system at the 33 cent price
Dick Barnes: I'm not sure, Mr. Mayor on that percent. It's less
than half Oscar tells me but more than 25. We would hope so
there is a real question as to the intent of the contract. The
contract calls for the gas to be used for, I want to lean on the
language something like municipal purposes.
Mayor Wagoners Ya I don't know
Dick Barnes: So there is always that question in our line
whether there is an intent problem or a contractual problem on
trying to sell or to move that qas outside of at least the
general Kenai area. We would, to the extent that Union and
Marathon allow us to do it, and to the extent that it is available,
we would try to take advantage of that lower price contract. The
gas, if you were to do that, would flow into our (inaudible) and
reduce the rates of everyone that was on the system by a small
amount because maybe we're talking about a daily basis maybe 4
million cubic feet of gas a day that's available as compared to
an average take of Enstar that's over 100 billion a day. So 4%
of our gas then would be at 33 cents and it would offset gas that
we would buy at a higher price so it would be helpful to the
overall costs if we do that and if Union would stand still for it
and Marathon would stand still for it we would try to take some
of that gas.
Mayor Wagoner: Any questions Council? Councilman Wise.
Councilman Wise: Yes but the contract is not between KUSCO and
Union it'a between the City and Union and as I read it, the
contract when you made that reference whereas the buyer plans to
own and operate natural gas distribution systems desire to
purchase natural qas from the seller for municipal purposes and
provided in the buyer's charter, will you provide us with a hold
+? i� harmless in the event any suit or diversion of gas and contro-
' vention of the contract?
Dick Barnes: Yes because our alternative would be to pay a
higher price anyway and in reality what we would do would he try
i ! to reach an accommodation with the producers rather than to do
something belligerent to that because we have to live with those e
producerrs and if we would try to work with they refuse to
accommodate us we would most likely not take the credits (inaudible) '
t
March 6, 1984
Enstar
Page 11
Councilman Wise: Well I would auk then that part of your reque+it
include additional data include a hold harmleari agreement
preferably prepared and authenticated fit) it can be anted on at
the same time the Council would act on the other aspects of this
matter.
Dick Barnes: An alternative if it were in the interest of the
City, we would be willing to assume that contract and all the
obligations under it and work directly with the producers as we
do with anyone else that we buy gas
Mayor Wagoner: I think in fairness to tor. Oarneu and the rest of
the people John we're here to more or less you know diacuss, I
don't think we're ready to discuss what you would do with a
contract, or what kind of proposal you'd make to the City but
other find, fact-finding information but I agree that there,
that's why I brought it up so a concern on th;; gas that we aren't
drawing down. Oscar
Oscar Thomas: Excuse me, Dick, but I would like to clarify one
thing in the gas contract and the possible use of cheap gas
prices 1) annual quantity of gas if its allowable under the
contract base (inaudible) maximum daily quantity that is received
by KUSCO at (inaudible) time. Our highest peak in recent days is
3600 mcf per day and our highest allowable take would be 7,500
mcfe per day less than almost half (inaudible). Second important
thing is that this arrangement goes by contract year and we have
just begun a contract year on February 1 so we have nominated gas
for this current contract year so what I'm saying here is that
after the current contract year there are only 2 contract years
left whereby Enstar could take gas at a cheaper rate. And I
don't warit to (inaudible) but what he's really saying to you is
(TAPE CHANGE) a two year period than the KUSCO customers would
benefit much more largely on Enntar's capabilities through their
own contracts and I'm going to take back something 1 contradicted
direction a while ago is February 15 that the City Council got
notice of this transaction. I had that date confused with 2/1.
Mayor Wagoners Any other questions?
Councilwoman Bailie: Yes, Oscar, you stated earlier that one of
the major considerations of Enstar taking over KUSCO would be
safety of operation. Is this, in fact, a problem right now?
Oscar Thomoss Not from the standpoint of public safety in regard
to (inaudible) for lack of secure or responsibility on our part
(inaudible) operations. When I use the word safety, Sally, I
meant safety from the standpoint of having the qns available at
peak demand time.
Councilwoman Bailie: Right, and I'm wondering in that a problem
right now?
Oscar Thomas: Not right now but it would be to us if we were to
go out and try as we have tried to nequt iate a new rorit ract over
the KUSCO area (inaudible) You soo what I'rn saying? We don't
demand, we don't require the quantities of qns (coughinq, and
Council talking) KUSCO it) Fitanding by ituelf and when we (in out
on the market and any we want to buy gas from you, let'n talk
price, let's talk deliverability, thu onfety thinkq weir: talking
about, public safety, public conr,erno, we (tnaudible) haver a lot
of voice, in fact, too inuch.
Councilwoman tiai 1 tes I just had ono lnrit question for 14r.
Barnet;. I wet; wonderinq if, i►, f act , the City were to waive
their opt ions, what renumerat ion would t horii bn for the :pity from
Entitar for thin waiver?
March b, 1994
Enst ar
Page 12
Dick Harnens (inatidibie) would have to be paid for by this
consumer. We hav,!n't ai t ached any kind of a dollar value: to it.
It's more of an operating ifsoue to un an to what we think in a
reasonable offer on our part 4; to how we would like to operate
the company. It 's, I queso it 11 a his ) Ie request which doenr► l l
(inaudible). What we would rather do in deal and demonstrate
what we have to offer an to superior nurvice and attentive
attitude towards the needs of the community. As for as, we don't
buy fronchioen generally from places we go into to do sevvice. As
an example, we're gornq into Palmer and we're going up to
Wasilla. We're not payinq anything to go in and they have
certain ordinances that are different from the town of Kenai.
I'll mention one, this town of Kenai requires utilities to move,
relocates their utilities at the experine of the utility. We
understarid that, we can lsv9 with that. Wasilla and Palmer pay
100% of whatever it couto to move the utilities. Now that's part
of doing business there. the City of Anchorage charges us 100%
of movinq the utilities in Anchorage. That's part of doing
business there and we accepted that.. I think the current
situation in Soldotno, if I recall, is that we split the cost,
50/50. If we are on a state road and it's a otate project, the
state picks up the coot 100%. And in some rases t heu.z could be
significant costs. If we have significant pipeline has to he
moved we're lookinq at, for instance, on Dimond Blvd. in Anchoraqo
a million dollar expenditure to move pipeline for widening Dimond
Blvd. Thank goodsteos most of it's state highways so they'll be
reimbursed. If if happened to not be a state highway, then we
would have to pay for it. It can't he capitalized, it doesn't
have long term time no it's a current expense to us. The Public
Utilities Comrniosion may or may not allow us to recover at a
future rate case, it depends upon how soon it will be before we
are back before the Public Utilities Commission. So I wish I had
a simplier answer. We would like to nee, have the City to see
its way clear to decide what we are offering to do is in the best
interest, that it be done from that standpoint rather than to
(inaudible).
Mayor Wagoners Can 1 follow that up a little bit then since the
question been open? In your letter to Board of Directors, Kenai
Utility Service Corporation where you layed out the specific
amounts when you discussed the offer advice or the offer to
purchase. You talk about if the City of Kenai received any money
to waive their righta to purchase the facility, etc., etc., and
the price of that whatever the City wan paid by Enstar would be a
additional charge to the consumer right? Is that basically what
you said? If the City received funds from Enotar, in order for
us to waives our right to purchase, that's what Councilwoman
Bailie requested I believe. Then you said that the rate payers
would probably receive an Increase in the rates they were paying
to pink thin charge up?
Dick Barnes The only way we can inerenne rates for those kinds
of charges Pro to have the Public Ut i l i t ie ti Comrninnion agree that
that charge in in the best i nt erent of utility cutit omers or that
it's for home use (inaudible) original cost wasn't planners. You
will notice that there is n opec.ific figure in our coat for
premium over hook value.
Mayor Wagoners That 's whet I'm goinq to ask you then if that
price was going to he redistributed against the rate payers aluo.
Dick harness We will try at; hard as wo can to do tin. 1 call tell
you that the Afauka Ptibl►c litilitieti Commission has nevur
approved what's eallFsd tin acquisitlost ad•juotrnent in their history
since 1970 and noveral peoplo! have tried. We will try Ton
liescausitt we think it's part of the Mont of acquiring the utility.
We will t y to dornonst rat o t•ight n in the ovoral l bust int great of
exist inq cunt otnerti and for current KISSCtt cutii otnern and Ennt ar
r,uniomurti thaE wt.. try to ttervicv in thin ut!lity. We will talk
about how (Inaudible) batter st!rve this or,anjInl tun or rat ionnl
LIU
March 6, 1984
Enstar
Page 13
(inaudible) (paper shufflinq) start economies of scale on the
Kenai (inaudible) They may buy it, like I say, they haven't yet
(paper shufflinq)
Mayor Wagoners ' think Mr. Rogers had a question a minute ago.
Attorney Rogerss Yes, if I could ask a couple of questions.
First in your offer, F_nstar's letter to KUSCO on page 2 I notice
the premium is about equal to the liabilities assumed by Enatar.
The liabilities assumed by Enstar then does that represent
long-term debt, pretty much?
Dick Barness No we did not assume any long term debt.
Attorney Rogers: No, then those are then current or do you have
a label for them?
Dick Barnes: Wel! there should be an exhibit A to that letter.
And if you look oij the right lower page you can pick them off.
Look at the second column on the page which is entitled Liabilities
and Stockholder's Equity. The first item that we are picking up
is $67,975 which at December 31 were customer deposits. These
are deposits that were put up by the customers this year and the
only other alternative would have been for KUSCO to refund all
those deposits to all customers and then for Enstar to bill back
all those customers the deposits. We picked up that. The'next
one is $42,309 which are contributions in aid of construction.
These are non-refundable monies that are put up by the customers
for facilities. The customer advances for construction, $139,398,
were monies that put up the main extensions
that are refundable under certain conditions over time having to
do with billing (inaudible) of customers (inaudible). The last
item -- the deferred investment tax credits which are actually
deduction in rate base as far (inaudible) Public Utilities
Commission rate making procedures. What this means is that the
investment tax credits are takers over time and (inaudible) rather
than being the year of construction. This is the unadvertised
portion (inaudible).
Attorney Rogers: A point of inquiry, in your trade are the
deferred investment tax credits transferrable?
Dick Barness Yes they are.
Attorney Rogerss Ok, so one can sell those too I assume is what
you're saying?
Dick Barness But if you did you probably would still have
reduction in your assets whon they determine your rate base they
reduce your rate base by that amount of deferred
Attorney Roqerss I was thinking more of the City sellinq but
-- that's something we can get into perhaps later. So that is what
makes up that 350 then. Also I was wondering, in your letter and
I guess it's included then in the letter from KUSCO when they
used the figure $2,258,322. It appears that your figure of
$20832,000 plus the $250,000 paid for the KUSCO operating
facilities then equals the amount in the KUSCO letter. Is that
correct?
Dick Barness I quens I'd have to cross-reference numbers.
Attorney Rogers: Well. there'u $250,000 there beinq paid for the
building and I'm looking at it from the City's stand point if
that then and perhaps Ducar can answer t hat . That building i b
owned by you, Oscar with a partner is that not correct?
Oscar Thornans That 'a correct .
Marc!i 6, 1984
Enst ar
Page 14
Attorney Rogerss Ok, would that be a cost to us if we exercise
an option to purchase?
Oscar Thomass Well it would have to be because of the fact that
KUSCO has approximately 10 years left on a lease, the liability
to KUSCO
At t orr;ey Rogerss Well I understand that the City would assume
that lease at something like $2,450 a month until 1993 is what
the contractual arrangement between you and KUSCO is that
correct 7
Oscar Thomass That would be correct but at the same time Tim
that would be an entirely different transaction
Attorney Rogerss Right, in other words that would have to be a
separate transaction if the City injected itself into this. It
would not be actually a part of the KUSCO purchase if it were the
City.
Oscar Thomass Well the alternative would be for KUSCO to assume
ownership of that property under a wraparound or whatever you
want to call it
Attorney Rogerss And then have the City buy it?
Oscar Thomass True
Attorney Rogerss So what I come up with is approximately $1.6
million and a premium of $350,000. Is that about right?
Dick Barness If you don't buy the building?
Attorney Rogerss Right.
Dick Barness That was true as of 12/31/83
Attorney Rogerss Subject to adjustment with the financial
statement.
Dick Barness of half a year's earnings essentially which would
occur during little more than half a year during the first three
months of 1984 so add $100,000.
Attorney Roqerss We're qoinq to have need to get into the KUSCO
books. Are they available, and we're hipinq to do this next
week. It's looks like we're going to need a couple of days.
Oscar is that any problem next week?
Oscar Thomass Well I had planned to be out of town next week but
1 could make arrangements to make whatever information available
to you
Attorney Rogerss It's our intent to set up with Ray Benish,
whose sitting in my seat up there at Council table sometime next
week here in the City offices and if he could contact you
directly I'd appreciate it and they he could make those arrange-
ment a. Is that okay with you Ray?
Ray Beniahs That's fine.
Oscar Thomases Could that contact he made tomorrow?
Ray Benishs yes.
Attorrey Rogers: Another thing if I may, I'd like to get into
that $1.63 now that's breen desitpinted an cost of delivery and
service is the 20 franchise fee included in that?
I
March 6, 1984
Enst ar
Page 15
Dick Barnes: Yes it will be.
Attorney Rogerss Ok, and profits included in that tool
Dick Barnes: That's all the coats of delivering the commodity
with existing manager existing control.
Attorney Rogerss Do you have a rough idea what amount of that
$1.63 is attributable to maintenance and operation?
Dick Barnes: We'd have to go to the books
Attorney Rogerss You don't have a percentage of that either of
you, Oscar?
Oscar Thomas: No
Attorney Rogers: Mr. Mayor, I'd ask if, with your permission if
Mr. Benish has any questions he'd like to ask now. I realize
he's going to be getting in the books but there maybe some things
he might want to ask at this particular time to get him going at
this point.
Ray Benishs Richard on your letter to XUSCO under 2 you got in
the second paragraph for the premium you stated as being $350,000
for the operating rights of KUSCO. Is that a going concern type
payment to KUSCO. You say operating rights what does that really
mean?
Dick Barness It's excess the cost over book rather than writing
up the assets essentially. It's an excess of cost over book
value. It's approximately a 3O% premium over the value of the
equity of the shareholders at the financial statement date.
Ray Benioh: So it's really not in lieu of operating rights,
you're not buying operating rights. I mean you're buying an
existing on -going business?
Dick Barneos Well, there are tax subtleties to your question. I
said there are tax subtleties to this question with respect to
how the purchase is treated with respect to the current owners of
KUSCO as to whether we are talking about some ordinary income or
whether we're talking about all capital gains. It's a clean way
to express it, how would you like to express it.
Ray Benlahs I don't know it's not how I'd like to it's trying to
find out I'm just trying to find out really where the title
operating right. I had a question for Oscar and that is Richard
went over and stressed I think in some detail both the reliability
of service and the doliverability. Has that in the last 18 years
or thereabouts have those, two things been problems with the
current gas purchase contract?
Oscar Thomass Is has not Ray, however, in our most recent
discussions with people that we had reason to believe might be
our suppliers we were not in a position, we found ourselves not
in a position to gain confidence through their statement that
they made in regard to (inaudible).
Ray Beniuhs So you actually have gone out and talked to gas
producers and attempted to negotiate,?
Oscar Thomass I thought that was n matter of public knowledge
that we've baen lookinq for homer time now for a supplier as I
said in my letter to our cuntomer'i
Ray Ben i sh i But what did the gas r.ompan i ern nay that they were
just not interested in oupplying in small q,iunt it iris?
of s
March 6, 1984
£nst ar
Page, 16
Oscar Thomau: Well the one that we particularly had confidence
in as far as reliability wag concerned, rrsserved to commit to us.
Ray Benish: ! just have of. -other qurgtion of Richard and that is
the completion of the new qas pipeline from Beluga that also
would become part of the rate base that you would cover through
charges for cost and delivery?
Dick Barneos That 's t ime, that arid, as I mentioned, that would
narrow the cost of servir.e differential from the numbsrn you nee
on the board but as we grow and there is a change in number it
would go into rate hikes, know doubt about it.
Ray Benishs Was there some problem, 1 think your gas contracts
your new ones go out to 2000 is there, some problem getting beyond
2000. 1 means your looking at Cook Inlet region for gas, looking
at, in fact what is the percentage for electrical generation
coming out of your reserves now versus
Dick Barness approximately half
Ray Benishs Are you looking at a real tiqht market for level of
proven reserves in Cook Inlet?
Dick Barness Well the operative word is "proven reserves" of
course and proven reserves are those that have been developed and
have enqineering reports that have been published with us and
(inaudible) from the state as to those reserves. We have
confidence that more reserves are available. fifteen year
contracts are extremely long term by today's recent years market,
it used to be 20 year contract which is typical that the way they
all run but so many producers got caught up in not being aisle to
perform on the contract or having prices, having alternative
price (inaudible) that most producers are unwilling to go
anywhere beyond 15 years. There's a good analogy as, at times
you can't borrow 20 year bonds because the market's unsure as to
what's going to happen to the interest rates. Gas producers that
are selling for 25 to 30 cents in this region today wish they had
shorter gas contracts because the market price is much higher
than that today and that's less than fair, it's burned very
indelibly under the hide of every mef they produce that could be
going for 7 or B times the price of (inaudible).
Ray Renishs Did Enstar go in and look at the phyv,ical condition
of the KUSCO plant?
Dick Barness Most of us, we did look at the types of equipment
they use. We supply the pipe that's used by KUSCO, the service
line. We have a similar meter (inaudible). KUSCO doesn't have a
transmission system, it doesn't have compressors, it doesn't have
micro wave systems, it doesn't have telemetry. It's a very, it's
an easy system for us to understand because
Ray Banish: Doesn't that
make our cost figures up here all the
more dramatic brrcause of
the cost of service, there's no real
pipeline cost, I mean the
gas is delivered to KUSCO at no cost,
i
doesn't that really make
the comparison that much more dramatic?
.
Dick Barness It really would.
If they had to provide their own
}I
transmission from the producers
to their system then it would
much higher from what you
nos and the only producers that I'm
aware of that can produce
through the current taper is Union
Marathon but their reserves
are, deelininy at least in the distant
r
fialdg. The pressures sire
clor.lininq and bailed on Union's side on
how the remaining gas they
have is committed to their chemical
plant on the North Road.
We ware unable to buy additional
M
research ourselves. They
told us to look elsewhere and we did.
March 6, 1984
Enst ar
Page 17
Ray Ben; sh; Has £nst ar projected rsut its rlao ral es? it rou1 ri 1
think through the melding project out the next 10 years;, Don't
you have unme idea on the old gas and the new goo and split and
disregarding the escalation provision just take the $2.32 well
head price. Can't you mold that arid come up with snme, kind of
projection on your rates as the, old qas is used up?
Dick Barnes: Ya, t hat 's, I don't hive that available but there to
such a projection. It would depend upon the rate of production.
RECESS
Councilman Ackerlys The current expansion that you're going
through on the pipeline from Beluga to the Matsu and points
beyond, or around about, or whatever, that $60 million is not
currently figured into the price that Enotar has on the board, is
that right?
Dick Barness That's correct.
Councilman Ackerlys And do you know what, is that going to be
another 30 or 40 cents spread throughout the system or, I mean
Dick Barness It could be. 1 don't have the number to tell you
instantly, well hold on a second I could give you a round house.
' (MIKE TURNED ON AT THIS POINT) I get 26 cents for a general
number just for a go-by. Now that depends upon a couple of,
that's presuming that our volumes stay relatively where they are
now. One of the things that we might be able to do with that
pipeline that we haven't talked about much yet because it will
depend upon what the producers end up wanting to do but there's
another 440 billion cubic feet in the Beluga Field that's
uncommitted. On our off-peak times we could move producer's gas
through our pipeline to Kenai and it's one of the thoughts that
we have to generate now income and to keep the coot to the
consumer dorm. As an example, there talking about increasing the
'
injection rate and pressures in the Swanson River oil field. They
probably already understand where they are doing to get the gas
to do that but an alternative might be to move producer gas
that's already owned by 5oCa1 and ARCO that's uncommitted and
Beluga to the Swanson or to some other plants down here. It's
going to give some real flexibilty to movement of gas throughout
'
the area that up to now hasn't existed, it's all been one way fee
to Anchorage effectively. But either through displacement or
trading or whatever we think !hot we will be able to offer the
ability to move gas so and also not figured into that number is
„-
the potentials for selling more gos to generate electricity for
--
Fairbanks and to deliver that electricity through the intertto
line that's on -again, off -again under runstruction between
9lasilla and Fairbanks, Wasills and Healy. So that's another
source.
Councilman Ackerlys Carrying this on to another area then is
Enst ar srtrve Anchorage and pretty soon the Matsu, they're not
into Southeastern
Dick Barness No we are not
YI Councilman Ackerlys I t 's just scut hr-ent ral Al antra
b� Dick Barness It's all pipeline cont;guouts areas that we deal
k, r Councilman Aekerly: Ok, and £r►atar to a larder corporat loft. I
i` mean there's 9, it's a publicly held atuck curporat iun
Dick Harneo: Right
k ,
Councilman Ackerlys And there's an outside parent rompaiiy
March 6, 19w4
E-sat ar
F aqe 18
Dick Barnes: That's right, it's based in Houston and it is in
three other general lines of husinttoo the largest of which is the
production of natural gas in the Republic of Indonesia. We're
part of a joi}it venture that produces approximately 1.5 billion
cubic feet per day of gas that's liquefied on what used to be
called the island of Borneo, they now call it fast Kalamantan,
it's out in the middle of the jungle, it's almost on the equator
and that gas is within 25 miles of tide water. There's a
liquefaction plant there that, some as the one here in Kenai that
changes that gas into a liquid ships it up to Japan. It's the
market that Phillips and Marathon essentially pioneered in the
60s. We're in the oil and gas exploration and production
business in the Lower 48. We're usiriq some of our internotional
earnings to invest in oil and gas production in the Lower 48 and
we have a small engineerinq firm that produces field facilities,
treating facilities, platform facilities, for the oil and gas
industry.
Councilman Wises tor. Barnes you mentioned earlier that you
consider the relocation problem as varies from community to
community to be an operating cost, Anchorage calls for FULL that
you relocate at your own expense, Kenai calls (garbled), Soldotna
50/50, Wasilla and Palmer when they get it will do it for free if
it ever occurs. What is your position on the current pending
rate schedule change by KUSCO before the Public Utilities
Commission as to relocation costs. Would you scrap that?
t Dick Sorriest 1 would have to look at it. It is as I recall the
idea there was to take relocates that are above, Oscar can help
me with this, that are above a base level or perhaps as all costs
and to flow them back to the customers within the service areas
after, as soon as the costs are incurred. Currently what tie do
is we have a base level, so to speak, that's in our rates for
relocates and because of out overall size, any one job is not a
catastrophe to us whereas with a smaller utility such as KUSCO
that had in general had earnings last year of about $150,000, if
they were to have done a $500,000 relocate job it would have all
been charged to earnings currently and they would have had a
.fi substantial loss for the year plus they would have had a cash
flow problem to meet that cost. I can't answer your question
because I really haven't studied and heard the arguments one way
or the other. We tend to go with what you might consider, state
of the art commission desired approach to how to run a utility.
Councilman Wises If 1 remember correctly, and Oscar I'm sure can
correct me, they're asking for a surcharge for temporary surcharge
to cover relocation costs that were somehow approved by somebody
is that correct Oscar?
Oscar Thomas: Yes, t fiat 's correct, that surcharge would have to
have, of course, approved by the Alaska Public, Utilities Commission.
The theory behind it was that as Dit:k has stated that we are a
relatively small utility and expenses such as we had incurred
last year would normally be catastrophic to us on a rout inuinq
basis. We do have the vehicles to recover those expenses through
what Dick referred to as state of the art proceedings through the
Commission but when you are a very small utility you can find
yourself broke before ynu have the opportunity to fulfill the
atate of the art.
-1
Councilman Wise: Ok, now goitiq back to thu original question tor.
Barnes, if the ptirchane by Enstar its succeuoful will you pursue
that particular rate filinq?
jtick But u: Maybe anothttc gaud way to answer that is to say
r that noose of the tariffs that exist between KUSCO, the Public
Uti l it ies Commiaiiiriii, acid KUSCOlu cunt omers would carry over to
Enat or. gnat ar will have it u own tariffs filed and I'm not aware
of current ly any move inriitfe Fnutar to have such a tariff' filed
for Enotar'a customers. If it were, it would he once arlain
March 6, 1984
Enst a
Page 19
spread cyst emwide. In general the cuat Omer payft for the cost of
relocations. I might just take a second if I could indulge the
Council and talk about regulation and how it works in the real
world. The utility is allowed that is regulated by the APUC to
recover its coals, recover them, to recover the cant of its debt
but not levera+le up any benefit from its debt and to return a
fair rate of return on the equity portion of the funds that it
supplies for its capital. ;o you get a rate of return on equity.
That's what a utility enjoys and it's an imperfect calculation
and it bounces around somewhat but generally works and the idea
is that the utility does riot qet a rate of return that is flashy
but on the other hand it doesn't have as big a risk of suffering
a Iona so the idea of regulation is to have predictable rates,
predictabit- returns, and have the consumer protected by abuses by
companies that if they did have a monopoly might price in such a
way that they would take unfair advantage of the consumers. So
if relocate costs have to be done over time, they'll be paid for
by the customer they won't he paid for by the shareholder or by
the City if the City owns it, it'll be paid for as part of the
rates. So how you get there is a matter of technique in spreading
the cost 1 guess.
Councilman Wises Well, that raises a question of if £nstar
assumes KUSCO will the tariff then change, say for instance, like
this board here from $1.96 to $1.81, or remain $1.96? until a
new filing is made or what?
j Dick B arneas That would be up to the Public Utilities Commission
to decide but I would expect that we would apply to the Public
Utilities Commission as soon as the Council has reached decision.
If it's an affirmative decision, who would apply for a certificate
and would apply for what we call postage stamp rates and that
means you would have the some rates that we charge in Anchorage
or any place else and those rates would not go into affect until
such time as the Public Utilities Commission held hearings and
agreed that scheme of regulation. In the meantime we would
continue with the some rates that are on there today.
Councilman Wises Ok, let me ask (garbled) one question (garbled)
of the relocation. Is your firm supporting the effort in the
legislature to require the municipalities in every case to pay
t, relocation costa 100%?
3 ,
+ Dick Barness I don't know of it if they are. I would have
Councilman Wises It seems to be a very heavy utility lobby
Dick R arness I would have to find out to be able to answer that
directly. I am not aware of a big push in our company to do
that. We tend to try to work with the cities that we are in
rather to have then as adversaries.
Councilman Wines I would be curious, as I mentioned earlier, I
would like to know about sielliric gas outside the City, presumably
hold harinleau agreement be furnished in the event you pursued it,
and also I would like a statement as to relocation costs, would
you intend in pursue the KUSCO rate filing and set? that to the
(innudit)le). I think there are two things that are certainly
important to the City and to its consumers,
ry pick Barnes: and I undnrtit arid what the City'ri interest are
trying to gat as much dune in the City with the resourcun it has
available to it snd I can't find (atilt with that personally. I
think it 'u quad rubI ir, poI icy. I hope, on the other Mind that
when they donign a street that you design it to the extent you
can to not run over our utilities and not just say I don't carts
about them that 'a their problem and vice vernn.
March 6, 1984
f_nst ar
Page 20
Councilman Wises I hope Ducar han made you aware of the ordinance
that was recently adopted no to ut i 1 i t y relocations. I'm sure he
has a copy of it, he probably has several of the draft copses
It oo.
t Mayor Waqoners Did you have a question Mr. Rogers?
At'torney Rogers One th?,,q on the utility relocated, you have
previously been informed and I'm sure you recall the bill passed
out of Senate last year and passed out Labor h Commerce so far
this year in committee substitute and it would burden all
{ municipalities insofar as all relocations are concerned for
street projects, virtually all, and includes the economically
unregulated utilities such as cable television arid it wouldn't be
a matter for the APUC any more.
Councilman Wises Ya, but does it also have retroactive clause?
Attorney Roqerss There is some protection for retroactive
relocations
Dick Barness Well as I say we've been living with the concept of
100% payment in the City of Anchorage and that's part of our cost
€ of doing business and we can live with it.
1 Attorney Rogerss Well you won't have to if the legislation
Rpasses and I don't imagine you'd gratuitously give that up.
Dick Barness No but
Attorney Rogerss Representative Furnace (inaudible) they will.
Dick Barness You can be assured that the Alaska Public Utilities
I Commission will reduce our rates by a enmmensurate amount as it's
back to the coat recovery issue
r Attorney Roqerss We're going to have to redefine our concept of
reasonable use of right of way and 2% franchise fees may not cut
it if we have to r,ay for the relocations.
Mayor Wagoners That was my next question. I wanted to ask if
you are planning to continue to pay the 20 franchise fee past the
I' 87 date in the City of Kenai which you currently pay.
Dick Barness As long an the City of Kenai rontinues to feel that
that's a reasonable remount to charge, yes. We have continued, I
,Zy might add, in the City of Anchorage and the City of Soldotna when
those franchises expired in 1901 we continued to pay those
without missing a beat even though the franchises were over we
continued to pay
Mayor Wagoners Woo that because you were afraid they might go up
if you went brick to negotiate the franchise or is it gust, or was
It a good faith thing
Dick Barness Good faith I think
Mayor Waqoners logical question because I would wonder why
somebody continued to pny 20 franrlijoe fee when they weren't
requi rtsd to.
I
Dick Harness It's roosnnable to charge cost for the use of the
streets that reasonably approx smut en t do curet to the City for
having to do that arid wti undt?r-it and that in fact the Public
Utilities statutes anecifically ?,all for the ability of cities to
be ably, to charge a fair sate for the uue of the streets In the
form of a fee arid they nisei, if I recall, provide that it' there
is a di►ipute that the? ANtlf, will its, tilt? nrhitet of what's f►air and
what isn't, that t hat '?i In tilt? nt at ut e. Rio if you charge; uu 20
we'd probably cry wolf to t hr? A110C.
r"
March 6, 1984
Enstar
Page 21
Mayor Wagoner: I only gat one more question and 1 think one of
the other times you were down here you discuaned the di fference
between the way KUSCO at this time provides services in a new
subdivision and the method whereby Enstar does. Could you give
us a scenario of exactly what, how Enstar would handle the
expansion of a natural gas service into Section 36 that we're
talking about developir►q out on the highway and as to how the
charges would be billed back to the people that purchase the
property and the people who build the houses or whoever.
Dick Barness Getting to a new area is, if we chose to serve a
new area that's remote. For instance, we're going to run a line
from as we did years ago from Anchorage to Eagle River. We do
that on our own. That's our choice for an investment. Then when
it comes to piping a subdivision itself our general tariff calls
for 100 feet of main in the street to be provided at no cost for
every new residence that would go into that subdivision (TAPE
CHANGED) and we returned $480 back to, for each new residential
customer that comes on that wasn't on there on the original in
the original deal. We have a slightly different formula for
commercial because they use more gas -- 85e of the main extensions
that we have deposits put up by the developer, the funds are
returned to him within 5 years 100%, 85% of that. Some of them
go out for 10 years before they get their funds back. ,
Mayor Wagoners Excuse me, let me interrupt you is that with a
certain percentage of interest on the funds that he's put up for
deposit.
Dick Barness I'm not sure what you mean by interest Mayor.
Mayor Wagoners If you require a developer to put a deposit down,
$10,000 in an area where he's going to do some development and
you're going to reimburse him over a period of years, do you pay
an interest on that deposit?
Dick Barness No, we don't we return the funds to him. I suppose
if we cranked in an interest factor then it would take us longer
for him to give it back to him. I mean that's just the cost of
capital is part of the cost of putting that pipe in. We have to
j go out and borrow the funds in addition to his deposit to build
them he's paying part of it, we're paying part of it, so but
those are the generalities is that 85% of the main extension
deposits are totally paid back within 5 years. We pay them back
annually but we review them annually, it's on a computer program
and we have the lot and block numbers tied in so that they
— automatically generate the calculations for us.
Mayor Wagoners Other questions by Council?
Counci lman Hall: I'm just curious, Oscar, how .could you answer
that same question that KUSCO is (inaudible)
Oscar Thomas Well Jess ours works a little differently. The
minimum charge that wr., have would be for a 2" diameter gas main
and it would be $6 a foot. It would be additional charges of
surveyinq or r,learing the right of way that were involved. We
would effectively give the same 100 feet free to the developer
for each new home. The advanena that we receive would not bear
interest paid to the developer for the reanon that we have to use
the money ourselvon, we're not makintl any profit off of it. We
•
do not make refunds on the basic; of revenue we make refund on the
i
basis of this flat fee for 100 feet which would be $600. 1n other
.
worda, if a man pays us for 200 feet and he gets one customer the
f
first year and he nets $00 back. If hr; puts the other r.uritomer
{
on the second hundred feet the second year he gets the riacand
$600 bade and he's got all his money hack. If it takes 20 ye;irn
to get. that second customer he waits thrit long to grit his money.
r
Ones that answer your question?
I■ -
March 6, 1964
Fnet ar
Page 22
Councilman Halls Ya I Just got confused on one thing. You mean
300 foot line the first 100 feet would be no cost
Oscar Thomas: As long as there's a customer there
Councilman Hall: Ya at the end of the 100 feet, and then the
next 200 feet would be $6 a foot
Oscar Thomass Right
Councilman Halls As one customer goes on line for a hundred foot
stretch
Oscar Thomass He qets $600
Councilman Halls What if he had two customers on in the next
hundred foot strip?
.I Oscar Thomass A total of 300 feet?
Councilman Halls Ya
Oscar Thomass Then he would get all his money back but never
more than his original advance. Clear?
Councilman Halls Ya
Mayor Wagoners Any further questions by Council? Any one else
have a question? tor. Bielefeld
Mr. Bielefelds I have several questions. There are two of us
here that were involved in the original contract on the Council
-
and the reason that we got the contract we had some negotiating
power to get the contract at the price accordingly. They have
what they called favorite nations clause and that's what we based
everything on and your attorney can tell you about that. We
could get the cheapest, we were told we have the cheapest price
to any customer that Union Oil had and the reason we got that
they wanted to put the pipeline through the City of Kenai to
Union chemical plant and that was our negotiating power and right
now the City of Kenai has the same negotiating power even with
that pipeline plus the mineral rights within the City to keep our
_
cheaper rates. We sat at that Council meeting until 2 o'clock in
the morning negotiating and there's one person that held it
together. He's not here, but he held it together and made it
i
come true. But I think that the City's going to have to look,
the Council's going to have to look at this to see whether they
can hold it together by negotiating with Union Oil right now
before the contract's up and possibly, I'm not running anybody
--
alas down I'fi just saying I don't want to get on the wrong side
but we have definite negotiating power. We don't know what the
case is under the City of Kenai and that's the basis of doing
this with a pipeline the gaff unit that's close by we can almost
get royalties in gas for the customers of Kenai if it comes true
and that's always an if but I'd like to make sure that you dwell
on that and make us more worthwhile then what we did 17, 18 years
ago. I wish you'd get ter. Dye to come in and let him explain a
few more of the details. Holt; much more versatile in telling,
i!
explaining it. The fix -mayor would, I'm sure, would be glad to
come in and do it. I have other things to say can't just
j
remember unless you have notes but I think the City ought to at
least question 11nion 011 and uiie a Iitt1it I e v e r to see what kind
!
of rates we could come up with if the City wanted to go on with
tho contract themselvos. Also the City put money, taxpayer money
out to enginer.r a gau system for the Kenai before the contract
was lot to franrhine was lot to somebody eeloe it was taxpayer
j
money out the Covington Corporat ton didn't follow the •engineerinq
{
contract they said it waon't any good for thom which that's up to
them they did it themselves. Another• comment, Anchoragtr Natural
March 6, 1984
E riot a r
Paqe 23
Gan which wan t he r. ompany at, t hat t i me ergot i at ed w It h t he C It y
of Kenai they waited the contrar,t at that time. It war, kind of
heated battle, public heat-;i.,u, :.rid the people voted to go with
the City to purchase the qas, this people did and I would like to
see hefore anything wan pervanent1y agreed upon that the people
qet to vote rigain on which way to go.
Oscar Thomarit If I may respond at leant in part to some of the
statemento that Mr. Bielefeld tins made, particularly in regard to
the engineeriiiq of the qao fiyfitem I would remind the Council that
the engineerinq fee of $24,000 that was charged by Hill Nunsue(?)
to the City was paid by Kt1SC0, J. M. Covington Corporation,
whatever, was paid by K1JSCO technically and if it wasn't followed
I'm not aware of any inatance that it waft toot. 1 could be
corrected on that. Arid I'm not really trying to promote thin
sale becacine to me personally it doesn't make too much difference
particularly from a financial stand point but since we're talking
about the value or the potential value of the royalty qas, it
would seem to roe art a person, as the body if the royalty gas is
there and it aelongri to the City of Kenai, its going to have a
value, a certain value regardless of whether you apply it to
supply to serve the people of Kenai or whether you take the money
in place of the goo and use it to the public benefit. That's all
I have to say.
Mayor Waorinert I think gust to make Council aware of it. I
think most of them are already to follow up on what Oscar said
and somethinq that Bob said I think that we so the Council also
have to take into consideration, it seems like we talk about the
royalty gas that's there arid maybe the City of Kenai has access
to. That gas then if the City of Kenai eeress is gas that is
owned or property right baoirally of all the people that live in
the City of Kenai. Not all the people in the City of Kenai are
natural gas users and I think that's another consideration in any
decision we have to make. We need to take into affect that there
are people who are not natural gas users who are also residents
of the City of Kenai, reside within this city and have for a long
time. It's not any pro or con statement it's just a fact that
there are a lot of people in this town that don't use the natural
gas oyotem. Councilman Wine.
Councilman Wises And I carry on r4r. Bielefeld's comments. I
understand that word I received today ig that the Cannery Loop
Unit is going to be redefined in 1 believe that there is some
diocussion between Union which is apparently leased from Pacific
Alaska LNG to delay their actual operation, I believe they are
asking for another 5 years or aomething like that and I think we
ought to get art update on that particular situation. The union
has been in violation of the ordinance numerous times and we've
never exercised any leverage there except excuse them and
apparently they're again trying to delay development of the
so-called Cannery loop Unit. I understand that there is some
discussion going between Union Marathon or union pnd Pacific
Alaska LNG or whoever it in now has been come nanignments I
understand of those leanest that indicate that that supply is
going to be included in production for smother 5 years. Certain
1 think it has a variant, not only on thin actuation as a source
as gas for the City'a residential, City renidence, but also as to
the value thrit the Mayor went ionnd that accrues to all the
residents of the City and in particular to dedicated revenue
that's dridication of Daubenupeck property which is to recreation.
1 think uumethinq iu sliding by acid I'd like to not an update so
to whore thsit situation to acid it may have is very nignificant
variance upon the otti►otinn no bfting preuented to us tonight.
Mayor Wagoners Any furthiir r.ommento?
'f I
March 6, 1984
Enstar
Page 24
Ruby Coyles I'd like to ask one question. Is all the expenses
of the gas line coining across the Inlet to go to Fagle Riv"r and
all out there is that all applied to all the customers if Kenai
customers were incorporated into Enstar system?
Dick Barnes: I guess the short answer to that is yes that all of
our pipelines and all our facilities are charged back as cost to
all of our customers and you might say why should that be and
through studies that the Public Utilities Commission has done
they have decided that it's almost impossible to say whether a
particular segment of our system benefits just one area or one
customer because you also have other benefits this economies of
scale I was talking about that make this service that we offer
generally cheaper to all of our customers. It kind of gets mixed
together in order to account for each small area as to what our
exact costs of serving would be would he a monumental task and
would be imperfect by the time we allocated all the costs
involved. So the answer is yes it would be and but also the gas
that is coming from that contract and in the future will come
from that general gas providence that's on the west side will be
available to the customers here as when needed through displace-
ment or otherwise.
Ruby Coyle: Well then the only thing that I would have to say to
Council as Mr. Bielefeld has just said this residents of the City
of Kenai, I happen to be one of them, at the time that Anchorage
Natural Gas which is now Enstar gave gas to Soldotiva we the
people of Kenai waited 2 years, 2 years negotiating with Anchorage
Natural Gas so that we would not have to pay part of the cost of
the pipeline to Anchorage. Now my question would be to the
Council and this was the peoples' decision as Mr. Bielefeld said
was to wait and I would say to Council now that I think that the
feelings of the people of the City of Kenai might still remain
the some way especially if they know that they're going to have
to pay for a gas line from Beluga Field across the Inlet, I mean
to have to pay part whatever share it is equal that among all the
customers clear to Eagle River and Palmer and that is quite a
stretch of how shall I say it, of line there and lots of places
are not too many customers, maybe a customer in one secluded area
but there is a lot of area does not have people residing in it
Mayor Waqoners Mrs. Coyle, I think we'll have time for this type
of testimony in a public hearing if
Ruby Coyle: Well
Mayor Waqoners We're here basically in a work session to hear
from Enstar and hear what their proposal is to the City
Ruby Coyles Ok, may I say one other thing. I'd like to see you
further on what Mr. Wise said because I can back up what he said.
Mayor Wagoner: Ok, on the 5 year extension
Ruby Coyles On the 5 year extension I can back that up because
we attended a meeting in Anchorage which I can back that up.
Mayor Wagoner: Uk, thank you Ruby.
Ruby Coyles And Union will be down here asking you all for 5
year more extension on capping those wells I'll guarantee you.
Mayor Wagoners Other people wish to say anything? I'd like to
thank you Dick and Oscar from coming down. ICq ives us a lot to
think about. Rick?
kick Baldwin: I f i t 's just about wrap up t ime i f you don't mind
Mayor Wagoner: No 45 --
Nip
March 6, 1984
Enstar
Page 25
Rick Baldwin: No, but I did want to just maybe set the tone or
wrap it up or whatever by thanking Council for working with
Enstar on this. As I started the evening I'd like to bring it
back to the bottom line and that is we're all interested in
certainly as the member of the KUSCO group and myself, my primary
interest is in the bottom line on the gas prices. toy second
interest also is in my tax ration in the City of Kenai so I
think, all of us I think are in that same boat, we would hate for
there to be an increase in taxes or increase in gas rates more
than necessary and I think that in, well I told a little antidote
earlier about when I was converting from fuel oil to gas a couple
of years ago my primary concern was this nagging feeling in the
back of my mind at some point, I didn't know exactly how many
years I had but the cheap gas was going and we'd be in a real
world again of high gas prices and my concern was where is that
gas going to come from and when I heard that Enstar was negotiating
to take over the system I breathed a sigh of relief. I think you
get back into the real world and you get back to that good issue
of where are going to buy your gas and I think as far as we can
see Enstar has got the gas contract and has the old gas contracts
and Enstar has indicated that not any more of those around and
also their reliability that goes the two factors that obviously
we're on. I would ask for you to really consider your looking at
any proposals or any other requests from any other sectors. In
closing I would like to say that both of you guys have been in my
estimation too modest about their operations. You look at KUSCO,
KUSCO is really a one-man operation. Oscar reads the meters,
appears before the Public Utilities Commission, I don't know if
he cleans the office, I don't think he does that. It's an
operation, it's a bare bones operation. It's run just as tight
as it can, it's owned by one investor in California and the name
of the game is the bottom line. I think that anyone wanting to
take over that system will have to ask themselves the question,
can we run it that cheap or cheaper and I think that Enstar
showed at least from the numbers standpoint that it can. Un-
fortunately though as Oscar has indicated, he's living in a month
and that leaves some holes that need to be plugged. We can look
at short term benefits versus long term benefits and say well
maybe let the system crash over the summer, pick it up latter on
and I think you can kill two birds with one stone by letting
Enstar getting into the driver's seat and start doing some
planning for this summer and we shouldn't have any real problems
in the transition. With regard to my suggestion that we Enstar
has been a little bit too modest, I 'd like to refer to a recent
order from the Public Utilities Commission, I guess it was the
last rate hearing. The Public Utilities Commission very seldom
writes its order in commendatory tones but they talk in this
order about Enstar succeeding in controlling the level of its
rates in periods of extrordinary high inflation, of it being able
to maintain a high quality of service to customers as evidenced
by the noticable absence of customer complaints regarding
promptness of service connections, negligible outages, employee
courtesy, minimal billing errors and the overall positive
corporate responsiveness to customer concerns. That right there
I think you might want to hang on your wall and it might be hung
on the walls of Enstar somewhere I don't know but the PUC said
that about me I'd sure qo around beating my drum about it and
they haven't and I think they should. It goes back to what I
think what you've seers and that's your philosophy of doing
business. Unfortunately the world we Kee today there's too much
of what the negotiators call the zero sum game. There's a dollar
out there and if I don't get my 75 cents and somebody else is
going to get their 25 cents and so you get out there and in every
situation scramble and fight for every last nickle of that dollar
and that 's looking at the short term and I think it 's a successful
business you can see that they don't do business that way and I
can see it developing philosophy of the City so that it doesn't
do business that way either. This is the public service question
and it's not a question of trying to grab every last nickle for
the various entities the question is the bottom line and I ask
March 6, 1984
Enst ar
Page 26
for you to focus on that and the dut ies of hot concerns to the
ultimate rate payer in making any decisions that you can and
would appreciate the chance to provide you with any information
{ that you need.
Mayor Wagoner: No further questions, I would like to thank you
' for cominq.
Meeting adjourned.
Mary/knn Dore
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