INT Hedemark Direct.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
INTERMOUNTAIN GAS COMPANY Case No. U-l034-88
PREPARED DIRECT TESTIMONY OF N. CHARLES HE DEMARK
Q. Please state your name, business address and position with
the applicant.
A. My name is N. Charles Hedemark. My business address is 555
South Cole Road, Boise, Idaho. I am Vice President of
Division Operations for Intermountain Gas Company.
Q. What is your education background?
A. I am a graduate of the College of Idaho with a Bachelor of
Arts degree in Marketing. I have also taken additional
courses at the University of Idaho, the University of Utah
and Boise State University. I have attended various cour-
ses and seminars dealing with utility/industry related
matters.
Q. Will you briefly describe your responsibil ities.
A. As Vice President for Divisions for Intermountain Gas
Company, I have the respons ibil i ty for planning, super-
vising and controlling the administration and operations of
Intermountain Gas Company's five operating divisions.
Q. Have you previously given testimony before this Commission?
A. Yes, I have testified before this Commission on several
occasions.
Q. What is the purpose of your testimony in this proceeding?
A. My testimony in this proceeding deals with the Company's
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rate design, the effect it has on its customers, its rela-
tionship to cost of service and its relationship to com-
peting energy fuels.
Q. What is the basis of the rate design proposed by the Company?
A. The rate design follows .the guidelines as set forth by the
Idaho Public Utilities Commission in its Order No. 14859.
That Order provided that pricing of utility service should
be based primarily on the cost of providing service to
def inable customer classes. It also stated that although
the cost of service must support the basic rate structure,
other considerations should enter into rate design.
Q. Based upon the Company's current rate structure and the
cost to serve the various customer classes, what is the
range of revenue deficiencies for these classes?
A. The revenue deficiencies range from a 1.2% decrease to a
17.4% increase as is shown in Mr. Penning's Exhibit No. 107,
Schedule 4.
Q. Are you, in this proceeding, proposing an adherence to the
cost of providing service as the primary basis for the
Company's rate design?
A. Yes.
Q. Will you identify the exhibits for the proposed rate sche-
dules and the section on these schedules where changes may
be found.
.A. The rates which I propose are shown in Exhibit No. 108,
Schedules 1-8. Most changes are shown in the area of the
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exhibi ts entitled "Rates."
Q. What changes do you propose for rate class RS-l?
A. The RS-l rate class is for all residential customers not
otherwise specif ically provided for, and is shown on
Exhibit 108, Schedule 1. For this rate class, we are pro-
posing to eliminate the current minimum charge and provide
different commodity tariffs for two defined seasonal
periods: a winter season from December through March and
the other season from April through November. In place of
a minimum bill, we propose a seasonal customer charge.
Q. Why do you propose to eliminate the minimum bill?
A. Our current minimum charge allows for usage up to 10 therms
per month. This charge, due primarily to tracking
increases, has become qurdensome to the small customer
using less than 10 therms per month. To ass ist these small
customers, we presented to this Commission, in our April,
1980 tracker, a proposal to keep the minimum charge at its
then current level of $6.43 and apply all of the tracking
increase to the commodity portion of the tariff. The
Commission approved that proposal.
Many of our customers are attempting to conserve
natural gas by extinguishing their pilot lights during warm
weather, and are upset about still having to pay the large
minimum charge including unused therms. Our proposed rates
eliminate the minimum bill including the ten therms per
month, and replaces it with a lower customer charge with no
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gas commodity included.
Q. Would you explain the proposed rate structure for the RS-l
rate class.
A. As shown on Exhibit 108, Schedule 1, under the section
entitled, "Rate," we propose that during the time period
from April through November, a customer charge of $3.00 per
month be imposed and that from December through March a
customer charge of $ 7.50 per month be imposed. These
charges would be decreased by a $1.00 per month service
credit after the customer had been on service for thirteen
months or more.
The commodity charge for billing periods from April
through November is 67. 935~ per therm and for billing
periods from December through March, the commodity charge
is 54. 348~ per thermo These rates provide for an increase,
as shown on Exhibit 109, page 1, of 7.96~ per therm, or
an average price of 65. 49~ per thermo
Q. What other considerations were addressed in the decision to
propose a customer charge in this rate class?
A. The cost of service study shows a customer charge of
approximately $7.10 per bill to be fair, reasonable and
equi table. Because the RS-l class is predominantly res i-
dential heating customers and many customers are not on
service during the summer months, we applied a higher
customer charge during the four winter months in order to
insure that all of this customer class shares equitably in
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the cost of providing service to the class. Additionally,
we established the charge of $3.00 ($2.00 with the continuous
service credit) per month from April through November to
provide an incentive for these customers to maintain their
utility service during this time period. This, in turn,
will help save Intermountain time and expense by decreasing
service reconnections in the fall.
Q. Would you explain the continuous service credit.
A. In addition to keeping the customer charge lower in the
summer period to encourage conservation, we are proposing
to provide a credit to those customers to remain on
service. The continuous service credit gives a $1.00 per
month sav ings to those customers who, by remaining on
service, have spared us operational expenses associated
with reconnecting their service. This credit is received
by all customers in this rate class who have had continuous
service at the same service location for thirteen months or
more.
Q. Why do you propose changing to a four-month winter period
versus the six-month period in your present rate tariff?
A. From our study, we determined that 93% of our annual
variation in usage due to weather is limited to thes) four
months. By using this four-month higher customer charge
and lower commodity charge, we will reduce the swing in
customer bills. Our flat-rate structure causes a burden to
our customers, especially in colder-than-normal winters.
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This proposal of a lower commodity charge during the cold
periods will provide some assistance through leveling of
their bills. Additionally, this helps to minimize the
volatil i ty of earnings, which improves the financial
strength of our Company to attract captial at better
conditions, and allows us to flow through resultant savings
in capital costs to our customers.
Q. Would you explain the rate design changes in the proposed
rate structure for the RS-2 rate class?
A. The rate design changes proposed for rate class RS-2,
Multiple Use Residential Service, which are shown on
Exhibi t 108, Schedule 2, are identical to those proposed in
Rate Class RS-l. Customers in this class have multiple use
appliances with space heating and water heating. To
encourage conservation, we chose to propose the same
customer charges, the same commodity relationship, and the
same continuous service credit as was proposed for the RS-l
class. Customers in the RS-2 class can also turn off
unneeded pilots, especially summer pilots on space heating
equipment, and be rewarded with a consumption savings.
Schedule 2 of Exhibit 108 shows a customer charge of $3 ~ 00
per customer and a flat commodity charge of 62. 395~ per
therm for bill ing periods ending in April through November.
For billing periods ending in December through March, the
customer charge is $7.50 per customer and the commodity
charge is 49. 915~ per thermo Also proposed is a continuous
service credit of $1.00 per month for all customers having
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13 or more months of continuous service at the same
location. As shown in Exhibit 109, this rate design
resul ts in an average rate for the class of 59. 93~ per
therm with an increase of 4. 77~ per thermo
Q. Would you explain the rate design changes in the proposed
rate structure for GS-l rate class?
A. The rate schedule GS-l is for small volume nonresidential
customers and is shown on Exhibit 108, Schedule 3. We are
proposing to eliminate the minimum charge, which includes
seven therms per month, and to adopt the same customer
charge as adopted for the res idential classes. Many of the
GS-l customers have the same characteristics as the resi-
dential group, and we propose to offer the benef it of the
smaller customer charge and the incentive to remain on ser-
vice to help alleviate the service reconnection problem in
the fall. Schedule 3 of Exhibit 108 shows a charge of
$3.00 per customer and a commodity charge of 60. 892~ per
therm for bill ing periods ending in April through November.
For billing periods ending December through March, the
customer charge is $7.50 per customer and the commodity
charge is 48. 7 l3~ per thermo We also propose a continuous
service credit of $1.00 per month for all customers having
13 or more months of continuous service at the same location.
As shown in Exhibit 109, this rate design results in
an average rate for the class of 54. 51~ per therm with an
increase over our current rate of 1. 05~ per thermo
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Q. Would you explain the rate design and proposed rate struc-
ture for the GS-2 class?
A. The rate schedule GS-2 is for large volume nonresidential
customers whose annual requirements exceed 36,000 therms.
Large volume customers whose requirements exceed 2,000
therms a day may also be served under this rate schedule
upon execution of a one-year written service contract.
This proposed rate is shown on Exhibit 108, Schedule 4.
Many large customers served on this rate reflect the same
sensitivity to weather variations as the residential and
small commercial customers. To reduce the customer burden
of wide variations in cost due to abnormal weather, we pro-
pose the same seasonal rate classification as has been
afforded the smaller commercial customers.
Many GS-2 customers have also raised questions
regarding customer charges during nonheating months. To
reduce this burden, we propose moving these costs to the
four winter months. The cost of service study shows that
the customer costs for serving customers on this rate sched-
ule exceed $816 per year. The proposed winter charge of
$110.00 per month will recover slightly more than 50% of
this cost. This charge will also equalize the price dif-
ferential between service on rate schedules GS-l and GS-2
at a 3,000 therm per month consumption level. For winter
season bills with less than 3,000 therms, the service on
rate schedule GS-l will cost less than service on rate
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schedule GS-2.
Schedule 4 of Exhibit 108 shows a commodity charge of
47. 323~ per therm with no customer charge for bill ing periods
ending April through November. For billing periodS ending
December through March, the customer charge is $110.00 per
customer, and the commodity charge is 45. 263~ per thermo
As shown on Exhibit 109, the proposed rate design
resul ts in an average rate for this class of 46. 70~ per
therm, with an increase over current rates of 1. 4~ per
thermo
Q. Would you explain the rate design changes and proposed rate
structure for the WP-l class.
A. Currently, the WP-l rate is available between March 1 and
November 30 of each year for customers using gas in the
operation of irrigation and soil drainage pump engines.
This rate is shown on Exhibit 108, Schedule 5. We propose
to change the availability of this schedule from the nine
months ended November 30 to the eight months ended November
30 to conform with the Idaho irrigation season.
As shown in Exhibit 109, this rate design results in
an average rate for the class of 51. ll~ per therm with an
increase over current rates of 7. 59~ per thermo
Q. Is there any proposed change in the P-l and S-l rate
design?
A. It is important to point out that the rates have been
increased to recover the revenue deficiency shown in
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Mr. Penning's cost of service study. In the S-l and P-l
classes the comrod i ty increase is approximately 10. s%.
This increase is 4. 62~ per therm and is shown on Exhibit
lOS, Section 7 and 8. The demand charge on S-l has been
increased from 3t to 3. 4St per therm and the seasonal
periods have been changed to reflect the same seasonal
period used on other rate schedules. Because these prices
will exceed equivalent prices on rate schedule LV-l for
customers purchasing interruptible service for more than
120 days each year, and since we have an obligation to give
our customers the option to change their contract to the
lowest cost, we project a large shift from these rate
schedules to less expensive LV-l service.
Q. How many customers will be affected?
A. Sixty-one customers now contract for service under rate
schedule S-l. Our study shows that 46 will save money by
increasing their firm LV-l contract demand. These 46
customers will reduce their purchases of S-l and P-l by
over 30,000,000 therms.
Q. How will the revenue deficiency for the volumns transferred
be recovered?
A. The revenue deficiency from this shift was recovered in the
LV-l class wi th an 11 % across-the-board increase in demand
charges. This results in an increase for the current LV-l
customer of . 23~ per therm, resulting in an average cost of
42. 45~ per thermo
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Q. Have you prepared an exhibi tto show a comparison between
revenues at present rates and revenues at proposed rates
for the different customer classes?
A. Yes. I have prepared Exhibit No. 109, entitled "Allocation
of Revenue Increase by" Class of Service." This exhibi t sum-
marizes the revenue at current rates and at rates proposed
in this case by class of service.
Q. Please summarize what this schedule indicates.
A. The residential RS-l customer class would receive an
increase of 13.8%; the residential RS- 2 customer class
would receive an increase of 8.7%; the small and large
general service GS-l and GS-2 customer classes would
receive respective increases of 2.0% and 3.3%; the WP-l
water pumper customer class would receive a 17.4% increase;
the large volume LV-l customer class would receive a .5%
increase; and, the S-l and P-L interruptible customer
classes. would receive respective increases of 2.0% and 2.1%.
This results in a total overall proposed increase to all
customers of 3.6% which would increase revenues by $5,665,899.
Q. Have you studied your proposed rate design in relationship
to other energy sources?
A. Yes. I have summarized the information on Exhibit 110,
Schedule 1, "Cost of Residential Utilized Heating Energy -
Southern Idaho." This exhibit graphically illustrates the
utilized heat energy on deli very to one's furnace taking
into consideration the heating uni t efficiency. As this
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exhibi t illustrates, we have a competi ti ve advantage in
both RS- land RS- 2 rate schedules in price of our pioduct
vs Utah Power and Light and number 2 heating oil found through-
out southern Idaho. We are roughly equal to Idaho Power for
resistance heating ch~rges, have a disadvantage in price to
wood, coal, Idaho Falls electricity and residential heat
pumps installed on the Idaho Power system.
Q. Have you studied your proposed rate design in relationship
to other commercial energy sources?
A. Yes. I have summarized this information on Exhibit 110,
Schedule 2. This Exhibit graphically illustrates the
commerical utilized heating energy relationship for competing
fuels for a medium-sized commercial account that would use
approximately 1,000 therms peak heating load. This exhibit
shows we have a competi ti ve price advantage vs the maj ori ty
of our competing fuels with the exception of coal.
Q. Will the rate design submitted by Intermountain cause a
reduction in its market penetration?
A. In my opinion, it will not. As is shown on Exhibit 110,
Schedule 1, the relationship of the cost of natural gas to
the cost of other energy sources will not be significantly
affected by this rate proceeding.
Q. Have you attempted to share the increased cost burden
equi tably while considering the cost of service to various
customer classes?
A. Yes. This rate design follows Mr. Penning's cost of service
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study as closely as reasonably possible, and does not
materially affect the competi ti ve cost of Intermountain' s
product.
Q. Does this rate design provide an incentive for your
customers to conserve .energy?
A. The customer charge concept proposed, coupled with the
lower summer charges and seasonal rates, certainly encour-
ages our customers to extinguish pilot lights on equipment
not being used while still allowing both the customer and
Intermountain the benefits of continued and consistent
service.
Q. Does this conclude your direct testimony?
A. Yes, it does.
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