South Dakota PUC: SDIP Rate Reduction Approved in Settlement

• The South Dakota Public Utilities Commission approved a rate reduction for the South Dakota Intrastate Pipeline Co. on June 26, 2018.
• The approved settlement, involving SDIP, PUC staff, Montana-Dakota Utilities, and Ringneck Energy, will decrease SDIP's annual revenues by approximately $279,000.
• Initially, SDIP had sought an 81 percent rate increase, which was later revised down before the final reduction was negotiated.
• The new rates will take effect on September 1, 2018, and include a three-year moratorium on future rate case filings by SDIP.
• The agreement facilitates cost-sharing once Ringneck Energy begins receiving natural gas service in November 2018, benefiting Montana-Dakota's customers.

For legal professionals advising energy companies or large industrial gas consumers in South Dakota, this case demonstrates the PUC's commitment to balancing stakeholder interests and securing long-term rate agreements.

The South Dakota Public Utilities Commission (PUC) recently concluded a significant natural gas rate case, approving a reduction in the rates charged by the South Dakota Intrastate Pipeline Co. (SDIP). This decision, reached through a comprehensive settlement agreement, marks a notable shift from SDIP's initial request for a substantial rate increase. The PUC formally accepted the agreement at its regular meeting in Pierre on June 26, following extensive negotiations among SDIP, PUC staff, Montana-Dakota Utilities Co., and Ringneck Energy & Feed LLC.

The process began last summer when SDIP sought approval for a rate hike that would have generated approximately $1.8 million in additional annual revenue, representing nearly an 81 percent increase. However, after thorough data review and discussions involving PUC staff and Montana-Dakota, SDIP revised its request in November 2017, scaling it down to approximately $250,000 in additional annual revenue. Ringneck Energy & Feed LLC subsequently joined the proceedings in March, adding another key stakeholder to the discussions.

Ultimately, the approved settlement resulted in a decrease of approximately $279,000 in SDIP's annual revenues. This new rate structure is slated to become effective on September 1, 2018. A crucial component of the agreement is a provision under which SDIP committed to a three-year moratorium on filing any new rate cases, providing a period of stability for its customers.

The case, formally designated as docket NG17-009, highlights the complexities inherent in South Dakota intrastate pipeline regulation, particularly when new market participants emerge. SDIP operates as an intrastate pipeline, primarily responsible for delivering natural gas from the Northern Border Pipeline. Historically, its sole customer has been Montana-Dakota Utilities, which then distributes natural gas to consumers in central South Dakota, including the city of Pierre.

The entry of Ringneck Energy & Feed LLC into the rate case in March introduced a unique dynamic. Ringneck Energy is currently constructing an ethanol plant near Onida and is scheduled to commence receiving natural gas service from SDIP in November 2018. This future operational change was a key factor in the settlement discussions. The agreement specifically accounts for the fact that once Ringneck Energy becomes an active customer, certain operational costs previously borne exclusively by Montana-Dakota will be shared between the two entities. This cost-sharing mechanism is projected to lead to reduced natural gas costs for Montana-Dakota's end-use customers.

The multi-party negotiation, involving an existing utility, a new industrial customer, the pipeline operator, and regulatory staff, underscored the South Dakota PUC's role in balancing diverse interests while ensuring fair and stable natural gas rates. The settlement's structure, including the South Dakota PUC SDIP rate reduction and the three-year moratorium, reflects a comprehensive approach to managing the financial implications of new infrastructure and market entry within the regulated utility landscape.

This decision by the South Dakota Public Utilities Commission sets a significant precedent for how complex natural gas rate cases are managed, especially those involving new market entrants and multi-party settlements. The outcome, transforming an initial request for a substantial rate increase into an actual reduction for consumers, was widely praised by the commissioners. PUC Vice Chairperson Kristie Fiegen expressed her delight at the shift, commending the diligent work of the PUC staff in scrutinizing the financial data. Commissioner Gary Hanson acknowledged the considerable effort involved in coordinating and negotiating among four parties with distinct interests, highlighting the admirable resolution achieved. PUC Chairman Chris Nelson further emphasized the strategic value of the settlement, noting its "excellent solutions" and appreciating that the resolution would facilitate the timely operation of the Ringneck Energy plant. The South Dakota Intrastate Pipeline rate approval process, in this instance, successfully navigated competing demands.

For legal professionals advising energy companies or large industrial gas consumers in South Dakota, this case demonstrates the PUC's commitment to balancing stakeholder interests and securing long-term rate agreements. The inclusion of a three-year rate case moratorium exemplifies the regulatory body's focus on rate stability and predictability, while the cost-sharing arrangement for Ringneck Energy illustrates a pragmatic approach to integrating new demand into existing infrastructure without unduly burdening current customers. The SDIP natural gas rate settlement NG17-009 ultimately benefits end-users and provides a framework for future South Dakota intrastate pipeline regulation.

This decision sets a precedent for how the South Dakota PUC handles complex natural gas rate cases involving new market entrants and multi-party settlements, particularly regarding cost allocation and rate stability through moratoriums. Lawyers advising energy companies or large industrial gas consumers in South Dakota should note the PUC's approach to balancing stakeholder interests and securing long-term rate agreements.

Source: Original reporting via South Dakota Public Utilities Commission press release.