Order No 15951.pdf

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BEFORE THE IDAHO PUBLIC UTILITES COMMISSION
IN THE MATTER OF THE APPLICATION)
OF INTERMOUNTAIN GAS COMPANY FOR )
AUTHORIZATION TO INCREASE ITS )
RATES AND CHARGES . , , , . , , ,)
)
CASE NO. U-1034-88
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ORDER NO, 1~95 1
On May 14, 1980, Intermountain Gas Company (Com-
pany or Applicant) filed an application with the Idaho
Public Utilities Commission (Commission) requesting author-
ization to impose permanent revised rates and charges for
natural gas service in the State of Idaho in the amount of
$5,566,079, By this Order we determine that Intermountain
Gas Company has a gross revenue deficiency of $4,139,196 and
authorize the Company to file revised tariffs which will
produce increased annual revenue in that amount. When the
October i tracking decrease authorized by Order No. 15862 is
taken into consideration, the net effect is an overall reduction
of $5,855,900 or 3.75 percent in the Applicant's pre-October
rates,
INTRODUCTION
Intermountain Gas Company is a gas utility, sub-
j ect to the jurisdiction of the Idaho Public Utilities
Commission, It is engaged in the sale and distribution of
natural gas to cus tomers in southern Idaho, primarily in the
Snake River Valley,
The application for increased rates was suspended
pursuant to Section 61-622, Idaho Code for a period of
thirty days plus five months from June 14, 1980 or until
such time as we issued an order in respect thereto, Pur-
suant to a Notice of Application and Prehearing Conference,
a prehearing conference was held in this matter on June 16,
1980, Subsequent to that conference, all parties who par-
ticipated entered into a stipulation regarding Applicant's
cost of equity and capital struèture. On August 7, 1980,
Applicant filed revised exhibits and testimony updating the
partially proj ected test year reflecting actual results of
operations and the 14,5 percent cost of equity stipulated to
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by all parties, As a result of using actual revenue and
expense figures and the stipulated cost of equity, Applicant
revised its request for an increase from $5,566,079 to
$4,545,511.
On May 9, 1980, the. Commission received a Petition
from Beker Industries Corp, requesting the Commission to
establish a rate for natural gas used in the production of
anhydrous ammonia, The Commission Staff entered a Motion to
Consolidate the Beker petition with Applicant's rate case,
For the reasons set forth in Commission Order No, 15701
issued on July 21, 1980, the Staff's motion to consolidate
the two cases was granted, Despite the consolidation, we
believe the Beker petition warrants discussion in a subsequent
of the petition,
order, Therefore, today' s Order does not address the merits
Pursuant to notice, hearings were held on August
12 and 13, 1980 and September 30 and October 1, 1980,
During the course of the hearings the following appearances
were entered:
APPEARACES
FOR APPLICANT INTERMOUNTAIN
GAS COMPANY
FOR INTERVENOR FMC CORPORATION
FOR INTERVENOR BEKER INDUSTRIES
FOR INTERVENOR J, R, SIMPLOT CO,
FOR INTERVENOR IDAHO CONSUMRAFFAIRS, INC,
FOR THE STAFF OF THE IDAHO
PUBLIC UTILITIES COMMISSION
Eugene C, Thomas, Esq,
Tom Ambrose, Esq,
MOFFATT, THOMAS, BARRETT & BLANTON
P, 0, Box 829
Boise, Idaho 83701
R. Michael Southcombe, Esq,
CLEMONS, COSHO, HUMHREY
& SAMLSEN
Bank of Idaho Bldg,
Boise, Idaho 83701
Dan L, Poole, Esq,
ELAM, BURKE, EVANS, BOYD
& KOONTZ
P, O. Box 1559
Boise, Idaho 83701
Randy Smith, Esq,
P, 0, Box 27
Boise, ID 83701
Harold C, Miles
315- 16th Ave, South
Nampa, ID 83651
Mary Ann Johnson, Esq,
Deputy Attorney General
472 West Washington
Boise, Idaho 83702
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TEST YEAR
We find that the test year proposed by the Applicant.
and used by the Staff in this case, i. e. the twelve month
period ended June 30, 1980, to be an appropriately representative
test year.
RATE BASE
While the Applicant and Staff agreed upon the use
of an average rate base, the Staff witnesses proposed two
adjustments to that rate base which were disputed by the
Company,
1, Conference Center
In Applicant's last two rate cases, we have de-
ducted one-half of the cost of this facility from rate base,
Despite our admonition in Order No, 14859 that "our position
on this issue should be very clear and the Company is put on
notice that no purpose would be served by presenting the
same arguments in subsequent rate cases", Applicant once
again argued that the entire facility should be included in
rate base, Applicant based that argument on its contention
that the facility is used only for utility purposes during
working hours,
Staff witness Terri Carlock argued that the entire
investment in the building should be removed on the grounds
that Company use of the building is insufficient to consider
the building used and useful to the ratepayer, Her exhibit
no, 1 indicates that the Company used the Center 33,5 per-
cent of the working hours during the test year, The total
yearly operating expense for the building, according to her
exhibit, was $24,806, 65% of the Company meetings had 16 or
fewer people attending, It was Mrs, Carlock's contention
that these meetings could be held in the Board Room of the
Conference Room in IGC' s General Office Building, She
calculated that the remaining meetings involving more than
16 people could be held at convention facilities in Boise
for a charge of $4,308, Based on exhibit no, 1 we concluded
that the Conference Center is underutilized to warrant
passing the total expense of the Center on to the ratepayers,
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While Mrs, Carlock has presented a persuasive case
that the use of the facility, during this particular test
period, was inefficient, we are not convinced that exclusion
of the entire facility from rate base is warranted. In our
judgment, neither the Company approach of 100 percent inclusion
nor the Staff approach of 100 percent. exclus ion provides a
long term resolution to this issue which continues to be
debated ad nauseum, While it appears that the facility is
of marginal benefit to ratepayers, we shall adhere to our
initial resolution of deducting one-half of the cost of the
facility from rate base, Once again, we note that this
resolution may be unduly generous to Applicant's shareholders
in view of the evidence. However, it is clearly in the
best interests of the Company, its shareholders and its
ratepayers if this issue is considered settled and treated
consistently from case to case.
2, Cash Working Capital
The Company employed Arthur Andersen & Co, to
perform a lead-lag study to determine IGC' s cash working
capital requirement, The results of that study indicated a
cash working capital requirement of zero, Staff witness Bob
Smith agreed that the lead-lag study approach is the preferable
approach to determining necessary cash working capital,
However, he proposed the following modifications to the
Company's study:
(a) Witness Smith testified that upon review he
discovered several errors in the Accounts
Payable portion of the study which necessi-
tated restating that entire portion, In the
course of that work, he stated that he found
that in many cases, payments to suppliers
were bèing made prematurely , i, e, prior to actual
due date to determine the lead time between
receipt of service and payment, reasoning
that prudent management would dictate that payment
not be made until the due date, This increased
the Company's lead days for Accounts Payableand Materials & Supplies from 15,67 days (Ex,
104) to 16,44 days,
(b) Witness Smith restated the lead times for
property, franchise and unemployment taxes
arguing that these items were also paidprematurely,
(c) State tax laws require that at least 80% of
a company's estimated tax liability is due
and payable on January 15 with the balance
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due and payable on July 15, IGC paid 100% of
their es timated tax liability on January 9
to avoid 8% interes t charges on the unpaid balance
between January 15 and July 15, The Staff wit-
ness argued that this was not a prudent decision
in light of the fact that this was a period
of 12% plus, short-term interest rates, There-
fore, the Staff restated the tax liability, as-
suming 80% payment on January 15 and the balance
due and paid on July 15, Lead days were cal-
culated on that hypothetical, statutory basis,
(d) The Staff witness substitued zero for the Com-
pany's dollar amounts of depreciation expense,
deferred taxes and deferred investment tax
credit, The Company witness argued that these
items are not collected as they are incurred
and expensed on the books, Rather, he contended
that there is a 35-45 day lag in the collection
of these items between the time service is rendered
and the expense incurred, and that failure to
recognize this lag results in an improper re-
duction of the investor's return, Witness
Smith argued that these items are book expenses
only~ they are associated with no cash out-
flows and therefore have no place in calculating
a Company's cash working capital requirements.
(e) Witness Smith used the annual amount of common
stock dividends in his restatement of the
lead-lag study rather than the total cost of
common equity as used by the Company, reasoning
that the actual dividend payment represents
cash out-flow. The Company argued that the term
"cost of common equity" in its study is synony-
mous with return on common equity and should
include both amounts paid in to the equity holder
as dividends and the balance representing re-
tained earnings.
(f) Witness Smith also used 45 lead days rather
than the Company's zero for common equity. The
Company's rationale for a lead time of zero is
that a stockholder is entitled to earn his allowed
return on a daily basis. The Staff witness
disagreed, contending that the return on equity
determination, made by determining what return
an investor will require in order to attract
capital into the company, assumes an investor
who is knowledgable and recognizes the time value
of money. Thus he argued, if the Commission
accepts the stipulated overall return in this
case of 14 1/2 percent, that is the same as an
annual rate of 13 1/2 percent compounded daily.
He contended that if the investor received the
allowed 14 1/2 percent on a daily basis, the
actual annual return would be higher than theallowed return.
The Company witness did not challenge the modifi-
cations outlined in (a), (b) and (c) but he strongly dis-
agreed with those described in (d), (e) and (f). Adoption
of all of Witness Smith's modifications results in a 1.7
lead days betweeen payment for and rendition of service or
a negative working cash component to the working capital
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portion of rate base of $717,669. While we find witness
Smith's arguments persuasive in principle, we are reluc-
tant at this time to implement a negative cash component
thereby reducing the Company's rate base. For purposes
of this case, the result of the Company's lead-lag study
indicating a cash working capital requirement of zero
will be adopted but we stress that in adopting that
result, we are not adopting or indicating approval of
the methodology employed by the Company in performing
the lead- lag study.
3. Resulting Rate Base
Based on the foregoing findings and adjustments,
we find and adopt an average rate base of $ 74,569,826
calculated as follows:
Average Rate Base
12 Months Ended June 30, 1980
(a)(b)(c)
Plant in Service
Company
Exh. 4l102
Sch. 2, pg. 1
ConferenceCenter
Adjustment
Adjusted
Rate Base
1 Gross Plant $ 103,700,751 ( 331,362) $103,587,389
Less:
2 Accum. Depreciation &Amortization
3 Net Plant in Service
(32,214,030)43,642 32,170,388
$71,486,721 (69,720)71,417,001
(215,318)(215,318)4 Advances in Aid of Construction
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Working Capital:
Materials & Supplies
LNG Inventory
Cash Working Capital
$ (69,720)
696,975
2,671,168
-0-
$ 74,569,826Rate Base
696,975
2,671,168
-0-
74,639,546$
COST OF CAPITAL
The capital structure and cost of equity stipulated
to by all parties to the prehearing conference are hereby
adopted as just, fair, reasonable and sufficient to support
utility operations.
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Capital Amount of 70 of Cost Effective
Component Capital Total Rate Rate
Short-Term $4,348,200 5.548%14.589%.815%
Debt
Long-Term 35,869,050 45.769 9.277 4.246
Debt
Preferred 7,423,850 9.473 8.632 .818Equity
Common 24,878,846 31. 746 14.5 4.603Equity
Deferred 5,849,366 7.464 -0--0-
Income Taxes
TOTAL $78,369,312 100.00%10,482%
RESULTS OF OPERATIONS
As reflected on Staff Exhibit No.5, the Staff proposed
seven adjustments to the Company's results of operations
illustrated on Company Exhibit No. 102.
(1) Conference Center. 0 & M expenses and depreciation
expense associated with the Conference Center were excluded
by the Staff for the same reasons discussed under the Rate
Base section of this Order. Following the same reasoning
employed in our rate base treatment of the conference center,
we find that one-half of the expenses should be excluded
and one-half included.
(2) Dues and Donations. Certain service club dues not
recognized by this Commission were inadvertantly included as
above the line items by the Company. There was no dispute
over the Staff adjustment removing these items and we find
the adjustment a necessary one.
(3) Bad Debt Expense. The Company requested an adjustment
to increase its provision for bad debts to a level of 6
tenths of 1 percent of gross operating revenues. Based on
his analysis of the Company's actual bad debt write-offs for
the most recent 24-month period, witness Bob Smith concluded
that a level of 5 1/2 tenths of 1 percent would be more
accurate. Mr. Smith also recommended that the bad debt
balancing account, authorized in Commission Order No, 15735
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be continued to December 1, 1980 since IGC traditionally
experiences an increase in recoveries of bad debts during
the fall months. In Witness Smith's opinion, it would be
inequitable to ignore the effect of these recoveries from
last heating season while recognizing the increase experienced
in write-offs, We find that because this is our first
year of experience with our new deposit and termination rules,
a fairly generous increase in the Company's provision for
bad debts to a level of 6 tenths of one percent of gross
operating revenues is just and reasonable. We further find
that the bad debt balancing account shall be continued to
December 1, 1980 for the reasons discussed by Staff witness
Smith.
(4) Purchased Gas Cost Adjustment. This adjustment
correçt~~an error in Company witness Worthan' s testimony and
exhibits,
In the Company's exhibits, Mr. Worthan made an
adj ustment to the Company's cost of gas purchases on Schedule
4 of Revised Exhibit No. 102. In that calculation, at line
10, for SGS Commodity Costs, Mr. Worthan used a commodity
rate per therm of 22. 192t. That rate includes SGS storage
gas credits from Northwest Pipeline of 3. 542t and 3. 856t.
Those SGS storage gas credits have terminated and no longer
exist. Therefore, Mr. Smith calculated that the rate that
should appear on Mr. Worthan' s exhibit is 29. 590t. The
Company agreed with this adjustment and we find it to be a
reasonable one.
(5) Reverse Flow-Through Depreciation. In the years
prior to 1974, Intermountain Gas Company flowed tax savings,
from the use of accelerated depreciation rates, through to the
ratepayers of the Company. Beginning in 1974, the Company
was authorized to switch to normalization of these tax
savings. Assets that were depreciated at an accelerated
rate for tax purposes prior to 1974 are beginning to reach
the end of their depreciable tax lives. As the tax advantages
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for those assets reverse, Intermountain Gas Company's tax
liabilities increase. Since the Company was flowing the
benefit of the tax advantages through to ratepayers in years
prior to 1974, no deferred taxes were provided for on the
Company's books, Therefore, the Company's net operating
income will decline. IGC has recognized the reversal of
this tax advantage in both its last rate case and this case.
Upon review of the method used by IGC to recognize
the reversal, the Staff concluded that the Company's procedure
is burdensome and time-consuming for both the Company and
the Commission Staff as well as very costly for the Company,
Staff and customers of Intermountain Gas Company. Therefore,
the Staff proposed that: (1) the total impact of all tax
advantages flowed through to customers prior to 1974 be
identified; and, (2) a deferred account be established on
the Company's books, the balance being amortized over the
remaining book life of the assets in question in order to
facilitate the ratemaking process. Exhibit No. 3 is the
Staff's calculation of both the amount that should be
established in a deferred position on IGC' s balance sheet
and the amount of the annual amortization needed to recover
the tax advantages flowed through in prior years over the
remaining life of the assets. The Staff recognized that its
proposed method could present IGC with a cash flow problem
during the middle years of amortization since the company
will collect less revenue through amortization in those
years than will be due for the increase in income taxes.
However, that situation is reversed in the earlier years and
the Staff witness felt that the problem would be minimal
through careful cash management,
We find the Staff proposal to be a better method
of recognizing the reversal than that employed by the Company
in previous rate cases and it is hereby adopted,
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6 , Price Level Change, The Company reques ted a 9
percent increase in O&M expenses to reflect the impact of
inflation. Citing Commission Order No, 15408 issued in the
last Utah Power & Light Company rate case, Staff witness
Smith stated that the Commission has established a policy of
requiring a company to make a clear showing of positive
action taken to reduce and minimize expenses to deal with
the problem of inflation before the Commission will recognize
any inflation or attrition factor, In witness Smith's
opinion, IGC failed to make any such showing in this case
and he recommended that the proposed percent adjustment be
denied,
We agree with the Staff witness that the Company
made no clear showing of positive action taken to reduce or
minimize expenses to deal with inflation, Inflation plagues
all entities today: individuals, government, businesses and
public utilities, Absent a showing by the Company of its
sincere attempts to deal with inflation in its operation and
management from top to bottom, this Commission cannot grant
the requested 9 percent allowance based on a general allegation
of need due to inflation, Regulation is no panacea for a
pervasive problem such as inflation. As discussed more
fully below, it is our judgment that this Company will fare
better in the long run if it holds the line in every respect
it can on the price of the gas it sells and conducts an
aggressive and effective marketing campaign to attract
additional customers. For these reasons, the requested 9
percent inflation adj ustment shall be denied.
7, Declining Therm Sales Adjustment, The Company
presented an econometric model which predicted a 6.5 percent
decrease per household in residential gas consumption from
1980 to 1981. The Company is requesting the Commission to
recognize declining therm sales when establishing the revenue
requirement in this case,
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The Staff opposed the adjustment arguing that the
projected 6.5 percent reduction in sales was not sufficiently
demonstrated to be used as a known and measurable adjustment
to revenues, In addition to arguing that IGC' s model contained
several basic flaws such as failure to include heating
degree days as a variable, Staff witness Anderson stated:
All predictive models are based on the assumption
that past relationsips between variables will either
remain constant or will change predictably over
time, IGC' s model assumes the former, thus pre-
dicting future household consumption of gas based on
an underlying assumption of insatiable conservation,weatherization and replacement of gas appliances,
but not to the extent of becoming non-customers.
It is more probable, however, that there are sat-
uration levels for conservation and weatherization,
and that as these saturation levels are approached,
gas customers will begin absorbing price increases
without reducing consumption- -up to the point where
prices dictate they eliminate all gas appliances and
become a non-customer, Thus, in addition to the
methodological shortcomings, it seems inevitable that
rCG's model will fail, as it already has, because
of basic assumption errors,
Witness Anderson concluded that short-term profits
should not be emphasized to the exclusion of long-term
implications, Even if rGC' s model produced reliable results,
it was his opinion that raising prices in anticipation of
declining sales could exacerbate the decline and worsen
IGC's situation in the long run,
The Company argued that failure to recognize the
declining therm sales would insure that the Company would
not earn its allowed return.
Having considered the arguments carefully, it is
our judgment that the requested adjustment should be denied,
We tend to agree with witness Anderson's evaluation of the
predictive powers of this particular econometric study but
that is not the only basis for our denial of the adjustment,
For the first time in recent years, IGC has entered
the heating season with some clear advantages over its
competition for space heating. Instability in overseas oil
supplies is again a matter of page one headlines and television
coverage, With new gas finds in the domestic Overthrust
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Bel t and additional drilling scheduled for the Overthrust
including its eastern Idaho component, the public is coming
to realize that this region has long term access to reliable
natural gas supplies,
The greatest competition to natural gas has been,
and still is, electric space heating, However, as utilities
and regulator commissions put new stress on avoiding unnecessary
construction of additional thermal plant for generating
electricity, electric space heating, once a justifiable
application of hydroelectric surpluses, is increasingly
being identified as an unnecessary contributor to the demand
for expensive thermal plant, Hydroelectric surpluses are
behind us and as new policy is written in the generic and
rate case orders of this and other regulatory commissions in
the West, electric space heating is increasingly singled out
from basic electrical services, One of the primary motivations
underlying this singling out is a desire to signal to the
fpublic the cost-incurring consequences of decisions about
space heating,
In such a competitive climate, we believe IGC must
be given every incentive to profit from its new advantage,
and no incentives to profit--by our decisions--from lost
sales, Our duties as regulators of real and implied monopoly
franchises do not excuse us from observing the marketplace
at work, Indeed, we feel obligated to allow the marketplace
at large to work rather than inject Commission decisions
contrary to opportunities in the energy field which would
interfere with that process,
In defining and dealing with the capital-investment
impact of electric space heating on the electric utilities
and their customers, we cannot ignore the implications of
that work on the sales of the natural gas commodity, From a
common perspective on all the energy matters that come
before us, we deem it irresponsible to ignore one facet
while treating another,
The fact that IGC has access to this commission
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for rate relief when its earnings are too low becomes a
weakness rather than a strength when increased earnings are
requested not on the basis of price of the commodity but on
the basis of decreased sales, In today' s inflation economy,
the ability to go to the public with an enhanced price
advantage is the route to better earnings. Reliance on an
authorized rate of return regardless of performance in
marketing a franchised commodity is a misuse of the regulatory
process, The public and rGC' s shareholders will be best
served by aggressive sales, The thrust of this order when
viewed in combination with the recently lowered price of gas
transmitted to the Company and our recently instituted hook
up charge for residential customers in Idaho Power Company's
service area is to improve the earnings of the gas utility
while reducing the inflationary pressures of electric space
heating on the electric utilities,
RESULTING COST OF SERVICE
AND REVENUE DEFICIENCY
After taking into account the foregoing adjustments
and their attendant tax consequences, this Commission finds
Applicant's test period cost of service, based upon a 10,482
percent rate of return, and the resultant revenue deficiency
at current rates to be as follows:
INTERMOUNTAIN GAS COMPANY
ADJUSTED STATEMENT OF REVENUES, OPERATING EXPENSES
AND OPERATING INCOME FOR l2 MONTHS ENDED 6-30-80
Coadjusted 12 months Adj ':stments Adjusted Test
Ended 6-30-80 Year Results
Operating Revenues
$Gas Sales $153,978,152 $2,264,568 156,242,720
Other Operating Income 1,893,052 1,893,052
TOTAL $155,871,204 $2,264,568 $l58 , 135,052
Operating Expenses
$Cost of Gas $129,494,799 $2,202,758 131,697,557
O&M Expense 12,510,771 (3l6,8ll)l2,193,960
Depreciation &Amort.3,497,251 (4,032)3,493,219
Taxes -General 2,870,374 2,870,374
-Fed,&State Income 1,969,321 184,812 2,154,133
Operating Income $5,528,688 $197,841 $5, 726 ,529
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CALCULATION OF REVENUE REQUIREMENT
Gross Revenue Deficiency
$ 74,569,826X ,10482
$ 7,816,409
5, 726 , 529
$ 2,089,880,5049
$ 4,139,196
Rate Base
Rate of Return
Net Operating Requirement
Less Operating Inc. Earned
Net Operating Inc, Deficiency
Net to Gross Multiplier
ALLOCATION OF THE RATE INCREASE
The parties presented two divergent methods for
allocating the authorized rate increase among the Company's
customer classes, The Applicant argues that the allocation
should be based primarily on its cost of service study in
order to equalize the rate of return from all customer classes,
The Staff too offered a proposed rate spread based on its
version of the cost of service study, but it also presented
an alternative proposal spreading 1/3 of the increase on a
cost of service basis and the remaining 2/3 by an equal per-
centage increase for all classes,
The pros and cons of strict adherence to cost of
service studies have been discussed at great length in many
previous orders and little purpose would be served by repeating
the arguments in this Order, Suffice it to say that we
unanimously agree the single most important criteria to consider
in spreading this increase is IGC' s marketing position. We
believe the ultimate rates must not jeopardize the Applicant's
attempt to sell natural gas for space heating to residential
and commercial customers, On the other hand, the risk of
losing existing industrial customers to competing fuels or
feedstock sources compels us to begin the process of paring
away the existing differential between the industrial class'
and residential class' rate of return.
Therefore, we find that the rate increase should
be spread as nearly as possible in accordance with the Staff's
1/3 cost of service proposal. This decision is subj ect to
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one overriding constraint--no class is to receive an increase
in rates above the level in effect prior to the October
1st rate decrease authorized by IPUC Order No, 15862.
The rationale for this decision should be fairly obvious--
it will allow IGC to advertise a net decrease in rates for
all customers, We believe the long-run benefits for all customer
classes of additional sales due to this marketing position
far outweigh the detriments of a partial departure from strict
cost of service ratemaking.
We therefore find that the rate increase and resulting
rates described in the following chart are just, reasonable
and nondis criminatory.
Annual Pre-Tracker Ratest Post-Tracker 1 1RatesNew Rates
Therms Revenue Uth,Revenue Uth,Revenue l.th.
RS-1 Residential 36,027,105 20,724,967 57.526 19,535,337 54.224 20,573,999 57.107
RS-2 Residential 27,924,312 15,362,870 55.0169 14440 779 51,714 14,933,084 53.477.l. ,..'
GS-1 General
Service 42,281,754 22,618,024 53.494 21,222,058 50.192 21,617,252 51.127
!
GS-2 General
Service 26,024,917 11,774,302 45.242 10,914,850 41.940 11,249,489 43.226l
WP-1 Water
Pumping 847,746 368,977 43.534 340,984 40.222 367,961 43,404
LV-1 Large
Volume 169,929,411 71,814,976 42,262 66,204,499 38,960 67,702,500 39.842
S-l Seasonal
Service 22,516,309 9,726,009 43.195 8,982,431 39.893 9,247,123 41.069
P-1 Peak Service 9,021,650 3,852,596 42.704 3,554,711 39,402 3,664,182 40.394
TOTAL 334,573,214 156,242,720 46.699 145,195,649 43.397 149.335,590 44.635
i. These are effective costs including customer charge.
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SUMR/WINTER RATE DES IGN
Intermountain proposes a redesign of the present
boundaries of the sumer and winter seasons and of the
customer and commodity charges attached thereto, Under
existing tariffs, the sumer season extends from April through
September. During this season, as throughout the remainder
of the year, every residential RS-l and RS-2 customer is
assessed a customer charge of $6,43, The charge includes
the conmodity cost of the first ten therms of gas consumed
each month, Similarly, GS-l customers are subj ect to a
year-round customer charge of $8.90 each month which includes
the first seven therms of consumption. For many customers,
this combined customer-and-commodity charge is burdensome
since no consumption takes place during the summer season,
To avoid the charge, such customers are driven to disconnect
from the system each spring and reconnect during the fall at
the outset of the heating season, Intermountain proposes to
reduce the customer charge to $2,00 per month for both
classes and to charge separately for gas consumption on a per
therm basis under the rates established in this order. 1 The
corresponding customer charge for winter months will be $6,50
per month, again with separate commodity charges per therm as
specified in this order under the new RS-l and RS-2 tariffs,
In addition, the Company proposes to extend the sumer season
(with the accompanying lower customer charge) so as to include
the months of October and November, Finally, the Company
proposes to redesign the existing seasonal differential, At
present, summer rates for RS-l customers are approximately 3
cents per therm higher than winter rates; for RS-2 customers,
the difference is approximately one cent per thermo The Com-
1 Intermountain proposes a $3,00 basic customer charge for
customers who have not established 13 months of continuous
service at one location. Those who disconnect annually, of
course, would be faced with this higher rate as a result of
their decis ion. Such an approach assumes that the newly es tab-
lished $2,00 will be insufficient as an incentive to prevent
disconnects. We are not willing to make that assumption, Inter-
mountain should monitor the situation this coming summer, If
the disconnect problem remains, it will be time then to reconsi-
der this proposal,
16
e e
pany proDoses :l~Y'2maticshift so .,,t summer rates. in the
future, will be approximately 15 cents per therm higher than
winter rates for both classes of customers.
SUMRY OF FINDINGS OF FACT
I
Applicant is a gas utility, subject to the juris-
diction of the Idaho Public Utilities Commission, engaged
in the sale and distribution of natural gas within the State
of Idaho under authority of Commission Certificate No, 219
issued December 2, 1955, as amended and supplemented by Order
No, 6564,
II
Applicant obtains its supply of natural gas solely
from Northwest Pipeline Corporation (Northwest) ,and provides
natural gas service to communities and areas in Ada, Bannock,
Bear Lake, Bingham, Blaine, Bonneville, Canyon, Cassia,
Caribou, Elmore, Fremont, Gem, Gooding, Jerome, Jefferson,
Lincoln, Madison, Minidoka, Owyhee, Payette, Power, Twin Falls,
and Washington Counties,
Applicant's utility properties consist of trans-
mission pipelines, a compressor station, a liquified natural
gas storage facility, distribution mains, services, meters
and regulators, its general office building and related
equipment,
III
Intermountain Gas Company has filed with this Commis-
sion an application requesting authorization to increase
its rates and charges for natural gas service within the
State of Idaho by an amount that would produce annual increased
revenues of approximately $5,566,079. This amount was revised
to approximately $4,545,511, when proj ected figures were
updated to actuals and pursuant to stipulation of the parties
regarding an appropriate rate of return.
IV
The present rates charged by Intermountain Gas Com-
pany, pursuant to existing rate schedules do not provide a
fair, just and adequate rate of return and are no longer fair,
just and reasonable. 17
.. ,,~ ~. ~e e
V
The appropriate test year to be used in this pro-
ceeding is the l2-month period ending June 30, 1980, The
actual test year proposed by the Applicant is appropriate
and accepted by the Commis sion as reflecting the current
results of operations in the present economic period, and
reflects as nearly as possible the near future results of
operations,
VI
The total rate base for utility operations adopted
in this proceeding is $ 74,569,826 utilizing end of the month
averages which properly match revenue earned during the
test year with the net gas utility plant producing that revenue,
VII
It is necessary and appropriate to deduct from
Applicant's rate base one-half of the cost of Hospitality
House to insure that Applicant's customers are not paying
a return on plant not used and useful in Applicant's utility
business. Operating expenses for said facility will be
split according to the same formula,
VIII
A zero cash component of working capital in rate
base is justified on the basis of the Company's lead lag
study.
IX
An increase in bad debt expenses to 6% is just
and reasonable as proposed by the Company.
X
Establishment of a deferred account on the Company's
balance sheet to recognize the amount of taxes previously
flowed through to the ratepayers is appropriate, with amortization
of that amount to take place over the remaining life of the
assets,
XI
The Company's requested 9 percent inflation adjust-
ment is denied for failure to make a clear showing of positive
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action to reduce and minimize expenses to deal with the problem
of inflation,
XII
The Company's proposed adjustment in revenues,
based upon a proj ected 6.5 percent reduction in sales, is
rej ected as being insufficiently demonstrated and as not in
keeping with the Commission's proper regulatory function in
fostering aggressive sales efforts on the part of Intermountain
Gas.
XIII
The nature and risk of Applicant's non-utility business
makes it necessary and appropriate to separate Applicant's
capital structure for utility and non-utility operations.
After reducing Applicant's consolidated capital structure
by the appropriate components, we approve the capital structure
and cost of capital computation stipulated to by the parties
and outlined in the text of the Order.
XIV
The test period adjustments to expenses and revenues
discussed herein are just and reasonable, and necessary to
calculate Applicant's test year cost of service.
XV
Applicant should be authorized to increase its
rates and charges in an amount that will provide a return on common
equity of 14,5% and an overall rate of return of 10,482%
on the rate base used in this proceeding, These returns are
in all respects fair, just and reasonable,
XVI
To measure Applicant's revenue deficiency, a net
adjusted test year operating income of $5,726,529 is just, fair,
reasonable and supported by the evidence.
XVII
A rate of return of 10.482% is just, fair, reasonable
and sufficient, This will provice $ 7 ,816,409 in operating
income based on the test year and will allow Applicant to
attract capital on favorable terms.
XVIII
An increase in rates and charges for natural gas
19
c c,.e
service in the State of Idaho of $4,139,196 will give Applicant
the opportunity to earn a 10,482% rate of return on the
approved rate base and is in all respects fair, just and
reasonable,
XIX
The rate increase authorized by this Order should
be allocated to the Applicant's customer classes as determined
herein, This distribution of the increase is just, reasonable
and nondiscriminatory.
xx
The Company's proposalS to lower the summer customer
charge, eliminate commodity expenses from this charge, extend
the summer season to include the months of October and Novem-
ber, and institute a substantial seasonal rate differential
are just, reasonable and in the public interest,
XXI
The changes in rates, charges, and rate design
authorized by this decis ion are jus t, reasonab le, and non-
discriminatory; the present rates and charges, insofar as
they differ from those set forth in this decision, will be
unjust and unreasonable after the effective date of this
Order.
XXII
The proposals and recommendations for changes in
rates and charges not specifically authorized by this de-
cis ion are unj us t, unreasonab le, and ,hereby denied.
CONCLUSIONS OF LAW
I
Intermountain Gas Company, the Applicant herein, is
a "gas corporation" and a "public Utility" as those terms
are defined in Chapter 1, Title 61, Idaho Code, and is
under the jurisdiction and regulatory authority of this Com-
mission,
II
The present rates contained in Applicant's present
tariff on file with the Commission, did not provide a fair,
20
c '.
..'.- .-e
just and adequate rate of return and are no longer fair, just
and reasonable,
III
The rates contained in Applicant's proposed tariff
would not result in a fair, just or reasonable rate of
return and should be denied,
iv
The weighted cost of capital computation set forth
in the text of this Order is in all respects, fair, just and
reasonable to Applicant's customers, its shareholders and
to Applicant.
v
A 14,5% return on common equity and a 10,482%
over-all rate of return on the approved rate base is in all
respects fair, just and reasonable,
Vi
The allocation or spread of the increased revenue
as herein allowed among the various classes of service as
set forth herein is in all respects fair, just and reasonable.
o R D E R
THEREFORE, IT is HEREBY ORDERED that the Applicant,
Intermountain Gas Company, be and it is hereby authorized to
file revised tariffs subj ect to the terms of this Order,
which will produce increased annual revenue in the amount
of $4,139, 196.
IT is FURTHER ORDERED that those rate shall become
effective one (1) day from the date of our approval thereof,
The existing permanent rates and tariffs will be cancelled
upon the adoption of the new tariffs.
ANYONE having an interest in this Order shall have
the right within twenty (20) days from the service date of
this Order to apply for a rehearing in regard to any matter
determined herein,
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jb/16-35
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