Kansas Gas Service customers will get a freeze in base rates until 2017 and some small rebates over the next three years, if regulators approve a plan by Oklahoma gas giant Oneok Inc. to spin off its utility operations.
Those provisions are part of a settlement between Oneok, the staff of the Kansas Corporation Commission and the Citizens’ Utility Ratepayer Board.
The settlement means there will be no opposition to the company split when the plan goes before the commission for a final decision, expected next week.
The plan is to break Oneok into two separate companies, each with its own stock and corporate identity.
A new company called One Gas will take over Oneok’s natural gas distribution systems in Kansas, Texas and Oklahoma.
The remainder of Oneok will keep the original company name and operate its businesses in gathering, transport and processing natural gas and related liquid products such as propane and butane, said spokesman Brad Borror.
With more 2.1 million customers, One Gas will become the nation’s third-largest publicly traded natural gas utility company, according to testimony filed by KCC accounting chief Justin Grady.
From a customer-service and billing standpoint, the company will retain the names of its three operating divisions: Oklahoma Natural Gas, 847,000 customers; Texas Gas Service, 634,000; and Kansas Gas Service, 630,000, said company spokeswoman Dawn Ewing.
The company wants to assure customers a “seamless” transition and that they’ll continue to get the current level of service provided by the same employees, Ewing said.
“Our customers are and will continue to receive safe, reliable, environmentally responsible service,” she said.
The settlement contains some key provisions to ensure that the split will be in the best interest of customers as well as the company, said David Springe, chief consumer counsel for CURB, the state agency that represents residential and small business customers.
“What we tried to do was get customers some tangible benefits today, because you can’t lock down costs in the future,” Springe said.
Among the consumer protections in the settlement:
• One Gas won’t seek any increase in basic rates for gas delivery that would take effect before Jan. 1, 2017.
• Customers will receive rebates totaling about $3.4 million a year for three years. Each customer will get a $5.34 bill credit paid in April in 2014, 2015 and 2016. Most of the money for the rebates will come from projected savings on pensions and related expenses. Some will come from Oneok writing off income it’s getting now to pay off transaction costs from when it bought Kansas Gas Service from Western Resources (now Westar Energy) in 1997.
• One Gas will not seek to increase its gas safety and reliability surcharge beyond 40 cents per month per year. The surcharge, now 15 cents a month, pays for the gas company to make improvements related to safety and reliability of service, such as replacing aging and leak-prone, cast-iron pipes.
• One Gas will contribute $1 million plus $200,000 for administrative costs to charities that help low-income people weatherize their homes to save energy.
• The gas company will have to follow quality of service standards, including rules on billing, answering customer calls and responding rapidly to leak reports. The settlement sets up a regimen of fines if the company doesn’t meet the standards.
Another potential long-term benefit is that One Gas will buy out and refinance about $1.2 billion of existing Oneok debt, Springe said.
That should bring some savings for One Gas, and ultimately its customers, because the company will presumably be able to borrow the money at a lower interest rate than Oneok has been paying, he said.
However, despite the favorable financing and concessions in the settlement, gas bills will continue to fluctuate and still could go up.
Commission actions only regulate the portion of the gas bill that pays Kansas Gas to run the system that delivers gas to customers.
The state can’t and doesn’t regulate the market price of natural gas itself, so that actual cost is passed straight through to consumers by the gas company.
The gas company also has a special rider for passing on any increases in its property taxes.