Applicant Posthearing Brief.pdf

EUGENE C. THOMAS
JOHN W. BARRETT
J.CHARLES BLANTON
R. B. ROCK
RICHARD C. fiELDS
RICHARD E. HALL
MYRON D. GABBERT, JR.
PAUL S. STREET
DONALD J. fARLEY
lOREN C. IPSEN
T.N. AMBROSE
LARRY C. HUNTER
PHilliP S. OBERRECHT
e e
LAW OFFICE
JEffREY A. STROTHER
GLENNA M. CHRISTENSEN
MARK S. PRUSYNSKI
MORGAN W. RICHARDS, JR.
DOUGLAS J. BALfOUR
RONALD S. HOOGE
MARK A. YATES
DAVID R. LUDWIGSON
MICHAEL G. MePEEK
STEPHEN R. THOMAS
MOFFATT, THO~S, BARRETT & BLAON
CHAERED
FIRST SECURITY BUILDING
P. O. BOX B29
BOISE, IDAHO 63701
October 9, 1980
Idaho Public Utilities Conuission
472 West Washington Street
Statehouse Mail
Boise, Idaho 83720
Attention:MS. Myrna Walters
Secreta.ry
Re: Case No. U-I034-88
MTB&B File No. 11-500.59
Dear Ms. Walters:
We submit herewith for filing the original and seven
copies of APPLICANT'S POSTHEARING BRIEF in the above-entitledmatter.
TNA/mas
Thank you.
Very truly
(r
I
T. N. Ambrose
Enclosures
WilLIS C. MorrATT
(1907-1980 I
OFFICE ADMINISTRATOR
THOMAS D. Mel NTYRE
TELEPHONE
1208) 345-2334
TELECOPIER
[phone]
e e
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF INTERMOUNTAIN GAS COMPANY FOR )
APPROVAL OF ITS PROPOSED RATE )
SCHEDULES. . . . . . . . . . . . . . . . . . . . . . . )
)
CASE NO. U-I034-88
APPLICANT'S POSTHEARING
BRIEF
KNOWN AND MEASURABLE CHANGES
The Staff of the Commission has recommended that two of
Intermountain's proposed known and measurable changes not be
allowed in this proceeding. The Staff has recommended that neither
the therm sales adjustment due to conservation recommended by
Mr. Robinson nor the increase price level adjustment for inflation
recommended by Mr. Worthan be allowed. Intermountain submits that
unless these adj ustments are made, the Commission is effectively
making it impossible for Intermountain to have any reasonable
opportunity to earn its authorized rate of return with the rates
set by the Commission in this matter.
The Idaho Supreme Court has set forth the requisite
standards for making known and measurable changes to a utility's
test-year figures. A test year "must be modified to incorporate
any upcoming increases which are 'known and measurable.'"
Intermountain Gas Co. v. Idaho Public Utilities Commission, 98
Idaho 718, 722, 571 P.2d 1119 (1977) (emphasis added). The Court
has also stated:
(T) he use of an historical test-year, adj us tedprospectively for anticipated changes, is a
proper method to establish need for a rate
change increase, where it is shown that the
use of historical data will inadequately
demonstrate real revenue needs, and where the
future-year projections are shown by the
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applicant utility to be reasonably reliableand certain.
Agricultural Products Corp. v. Utah Power and Light Co.., 98 Idaho
23,25, 557 P.2d 617 (197fi).
Finally, the Court has ruled that "where more accurate
information is unavailable estimates should be considered."
Application of Lewiston Grain Growers, 69 Idaho 374, 380, 207
P. 2d 1 0 2 8 ( 194 9 ) .
All witnesses discussing the issue agreed that there
would be continued inflation during the 12 months immediately
following the issuance of the COmmission's order in this matter.
Intermountain wi tnesses Robinson, Worthan and HOllY all predicted
that the inflation rate would exceed the nine percent (9%)
requested by Intermountain in this proceed ing. Even Staff witness
Smith agreed that there would be inflation facing Intermountain
after the order was rendered. Therefore, the only evidence in
the record regarding inflation indicates that it will be at least
nine percent (9%) during the upcoming year. It is therefore
submitted that inflation is reasonably certain during such time
frame and that the estimated amount, being the lowest amount
proj ec ted, is reasonably rel iable .
The goods and services purchased by Intermountain Gas
Company to serve its customers are subject to the same inflationary
pressures as the general economy. While it might, in the abstract,
be desirable to have precise inflation projections for each category
of expense (i.e., gasoline, rubber bands, pencils, etc.), such a
study would not be cost-beneficial to the ratepayers and the
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numbers derived from such a study would not be likely to differ
s ignif icantly in accuracy from use of the general inflation rate.
Intermountain's case for an adj ustment to expected therm
sales due to the effective conservation is equally strong. Both
Intermountain witnesses Robinson and Holly projected that therm
sales would decrease due to conservation. The evidence shows
that a sales decrease is reasonably certain wi thin the next 12
months.
The principal reason given by the Staff for rejecting
the proposed adjustment was that the study supporting it was not
sufficient. Intermountain admits that no econometric study can
ever, with complete accuracy, pred ict anything. This study,
however, when coupled with the balancing account proposed by
Intermountain witness Lebens, insures that neither Intermountain
nor its ratepayers will be damaged by any error in the projected
sales. Any over-recovery due to such an error would be refunded,
and the company would recover any under-recovery if the projection
was too low. Staff witness smith, during his cross-examination
regarding the balancing account to bad debt expenses, agreed that
such a procedure protects both the company and the ratepayer from
improper projections. The only argument presented by Staff witness
Anderson against the balancing account was that Intermountain had
not proposed to recognize the value of money in its proposed
balancing account. Intermountain witness Worthan effectively
took care of this objection in his rebuttal testimony when he, on
behalf of Intermountain, offered to place an interest factor on
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the money held in the proposed balancing account. The proposed
sales adj ustment and balancing account, when taken together,
clearly are reasonably rel iable and certain.
During Intermountain's rebuttal case, Mr. Worthan
testified that disallowance of the projected therm sale decrease
would lower Intermountain's return on equity from 14.5 percent to
13.11 percent. The disallowance of the inflation adjustment
would lower the return on common equity another .6 percent, down
to 12.51 percent.
It is submitted that the projections for inflation and a
decrease in therm sales have been shown to be reasonably reliable
and certain. Although completely accurate proj ections can never
be made, these estimates are the best that can be obtained given
the constraints of the ratemaking process. Therefore, it is
submitted that the two adj ustments meet the legal requirements
for known and measurable changes as have been articulated by the
Idaho Supreme Court and that the COmmission should allow such
adj ustments in this proceed ing.
WORKING CAPITAL
Staff witness Smith has made several adjustments to the
lead-lag study performed by Arthur Anderson and testif ied to by
Intermountain witness Gelhaus. The most significant changes, and
the ones objected to by Intermountain, are Mr. smith's handling
of depreciation and shareholder equity.
During cross-examination, Mr. Smith admitted that the
shareholders are entitled to earn their rate of return on utility
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investment in plant until rates are collected. He also agreed
that utility investment in plant depreciates continually. As
is shown by the direct and rebuttal testimony of Intermountain
wi tness Gelhaus, Intermountain experiences a 35. 45-day lag in
collection of the depreciation expense from the time it occurs
since it takes that amount of time to collect revenues from the
ratepayers after service has been rendered. Since depreciation
occurs 35.45 days before revenue is collected, the shareholder
is not earning his rate of return on common equity on the full
utility investment in plant unless such lag is taken into
account in either the working capital allowance or the rate base
computation. The working capital allowance would be the logical
place to take this lag into account. Failure to account for it
in some fashion will make it impossible for Intermountain to earn
its authori zed rate of return.
The adjustments made to dividend payments and equity by
Mr. Smith are likewise improper. The total return on common
equity, including the amount paid out as dividends and the amount
retained by the corporation, has a lag of 35.45 days from the
time service is provided to the ratepayers. As was admitted by
Mr. Smith during his cross-examination, the decision of
Intermountain's. shareholders as to what to do with their money
after it has been collected from the ratepayers should have
absolutely nothing to do with the determination of what rates
are to be set by this Commission. Mr. smith's adjustments, by
adj usting Intermountain's working capital allowance on the bas is
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of what portion of the shareholders' return on common equity is
paid out as dividends, and when such dividend payments are made,
do affect the rates set by this Commission since they lower the
working capital allowance. Therefore, they should not be made.
Another factor evidencing the impropriety of the
adjustments proposed by Mr. smith are that they require a negative
working capital allowance for Intermountain. Mr. Sri th admitted
on cross-examination that any company needs a minimum amount of
cash on hand to meet everyday contingencies. Not only would his
adjustments to the lead-lag study not allow this, they would
resul t in a negative cash on hand posture for Intermountain.
REVERSE FLOW-THROUGH ADJUSTMENT
Staff witness Carlock, in her prepared testimony, proposed
an alternate method for computing the amount of reverse flow
through tax expense for Intermountain. As was stated by witness
Carlock, her adjustment could cause cash flow and deferred tax
reserve problems for Intermountain. Intermountain has no objection
to the adj ustment being made in this case but does reserve the
right to extensively study and analyze the matter during the
upcoming months, which was not possible due to the time constraints
of this proceeding, to determine how severe these potential
problems could be. Intermountain will report its findings to the
Commission in its next general rate case.
CONFERENCE CENTER
All parties, including Intermountain, are tired of
discussing the Conference Center in rate proceedings. Intermountain
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is, however, concerned that the Staff proposes to delete the entire
facility from Intermountain's rate base on the grounds that it is
not used and useful. Two rate cases ago, when the issue first
arose, it was determined by the Staff that the facility was used
by Intermountain sixteen percent (16%) of the time. The Commission
allowed fifty percent (50%) of the facility to be included in
Intermountain's rate base and allowed Intermountain to recover
fifty percent (50%) of its expenses through rates. In the last
rate case, the Staff determined that the facil ity was used fifty-
four percent (54%) of the time. The Commission treated the
facility in the same manner as it had in the previous case.
Then, when intermountain modified its procedure for use of the
facility, the Commission asked Intermountain to present the issue
one more time. In this proceeding, the Staff computes that the
facility was used seventy-two percent (72%) of the time for
company utility purposes. Staff then proposed, however, to
delete the entire facility from rate base and disallow all
corresponding expenses. It is submitted that such a proposal,
given the dramatic improvement shown by Intermountain and the
Commission's request to address the issue one more time, is
simply improper and unfair.
Suggestions by the Staff that the Company rent space
from downtown hotels flies in the face of the COmmission's stated
objective of reducing energy usage and pollution. Intermountain
would also submit that the Staff's present advice is diametrically
opposite to that given in the past when Intermountain was instructed
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to use the Conference Center and discontinue its (former) practice
of holding meetings in downtown hotels.
It does not make sense for the Staff to argue that the
Conference Center is not "used and useful." It is equivalent to
someone arguing that the Commission Hearing Room is not "used and
useful" because it is only used a small proportion of the business
day for hearings involving a large number of people, which
hearings could otherwise be held in the Gold Room, the Hall of
Mirror conference rooms, etc. The law does not require such a
strenuous test for property to be found used and useful.
Finally, the facility justifiably serves a legitimate
utility function. Valid utility purposes are served by use of
the facility. In order to accomplish valid objectives, people
must get away from their usual office and the telephone. If they
do not, the phone continually rings and nothing can be accompl ished.
It is respectfully requested that the entire Conference Center be
included in the utility rate base and that all corresponding
expenses be allowed.
DATED this ~ day of October, 1980.
MOF F ATT , THOMAS, BARRETT & BLANTON,
CHARTERED
BYT.~~Firm
Post Office Box 829
Boise, Idaho 83701
Attorneys for Intermountain
Gas Company
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CERTIFICATE OF MAILING
I HEREBY CERTIFY that on the i ~~ day of October,
1980, I served the foregoing APPLICANT'S POSTHEARING BRIEF upon:
Ms. Mary Ann Johnson
Deputy Attorney
Idaho Public Utilities CommissionStatehouse
Boise, Idaho 83720
Mr. Randy Smith
Mr . Melvin D. Alsager
Post Office Box 27
Boise, Idaho 83707
Mr. Dan L. Poole
Mr. Gary Greer
Elam, Burke, Evans, Boyd & Koontz
Post Off ice Box 1559
Boise, Idaho 83701
Mr. Harold C. Miles
316 Fifteenth Avenue South
Nampa, Idaho 83651
Mr. R. Michael Southcombe
Clemons, Cosho & Humphrey
1110 Bank of Idaho Building
Boise, Idaho 83702
by depositing true copies thereof in the United States mail,
postage prepaid, in envelopes addressed to said attorneys at
the above addresses.
T.
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