U-1034-99 Brown Testimony.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
INTERMOUNTAIN GAS COMPANY )
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Case No. U-I034-99
PREPARED DIRECT TESTIMONY OF THOMASR. BROWN
1 o. Please state your name, occupation, business address, and
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relationship with Intermountain Gas Company.
A. My name is Thomas R. Brown.I am the president of Marcept
Consul ting and Research with its home office at 815 Park
Blvd., Boise, Idaho. The firm was formed in 1973 and con-
ducts custom marketing research studies .We have cond ucted
several marketing consumer and commercial market research
studies for Intermountain Gas Company since 1974.
9 Q. Briefly describe your educational and work background.
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I graduated from the University of Redlands in 1966 with a
Bachelor of Arts degree in Economics and Business
Administration. I then served in the Uni ted States Army
obtaining an officer i s commission at the Quartermaster 's
School, Fort Lee, Virginia, thereafter serving as a staff
supply and property book officer from 1967 to 1969. In 1969
I attended the Graduate School of Business Administration at
the University of California at Berkeley where I graduated
wi th a Master of Business Administration degree in 1970.
Thereafter I was employed with the plastics operations at
Boise Cascade Corporation performing various functions in
management analysis, marketing and developmental sales work
for new acquisitions. After nine months with the company I
helped form a spin-off company, Bio-degradable Plastics, Inc.
headquartered in Boise, Idaho for which I was Corporate
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Treasurer, Marketing Manager and minority owner. My respon-
sibilitir.s included negotiating licensing agreements with
domestic and foreign companies, managing marketing activities
for a chemical additive system, and financial management.
The firm was later acquired and relocated out of Idaho
whereupon I terminated my relationship and formed Marcept
Consul ting and Research.
Please describe the work your firm performs for its clients.
We conduct a wide variety of custom marketing research stu-
dies for business firms and other organizations. Much of our
work involves the application of survey research techniques
among random samples of target populations. We conduct such
surveys using mail, face-to- face interviews and te lephone
interviews.In addition to survey research work, we also
Who are some of the firms for which you have conducted stu-
dies recently?-2-
A. In addition to Intermountain Gas Company we have conductes
studies for Boise Cascade Corporation, First Interstate Bank,
Acme Manufacturing, Ore-Ida Foods, Inc., Li tehouse, Inc.,
First Security Corporation, St. Luke's Hospital and Alaska
Pacific Bank. These are some of our more recent clients.
Q. lfhat is the purpose of your testimony?
A. The purpose of my testimony is: 1) to provide support for
Intermountain Gas Company's contention that household therm
consumption of natural gas is now and will continue to
decline, 2) to provide quantitative estimates based on our
forecasts for IGC, and 3) to provide additional supporting
data regarding customer usage intentions based on our annual
consumer survey in the IGC service area.
How much has per-household consumption of natural gas
declined?
Looking at the long run, that is since 1973, the 12 month
moving average for residential consumption of natural gas has
declined from 93 therms per month to 60 therms per month
based on our most recent analysis conducted in March 1982.
That's a decline of 35.7% over an 8 year period or an annual
decline of 4.4%. In our opinion, residential gas consumption
(normalized for weather) has declined significantly and
steadily since 1973.
What has been the nature of the decline when looking at only
the winter months?
In the past 3 years natural gas consumption during the winter
(November through April) has shown an ever accelerating rate
of decline. Consumption in the winter of 1979 was down 2.4%
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from the previous winter, 1980 the decline was 5.2%, and for
the winter of 1981 the decline was 8.5% from the prior year.
(Exhibit 7 , Schedule 1)
Q. What about the future? What do your surveys show regarding
future decreases in gas consumption?
A. Intermountain Gas customers report that they intend to
decrease their gas consumption an average of 16.2% in the
winter of 1 982 (October 1982 through September 1983) compared
to the usage they reported in the immediate past winter.
This compares with reported intended consumption reduction of
9.1% in our prior survey (Feb. 1981). Further, it represents
the highest intentions to decrease consumption since our
annual survey series was intiated in 1978.
You say that consumers report they intend to decrease gas
consumption an average of 16.2%. On what data is that based?
In our annual survey of IGC customers and non-customers we
ask them to report the percentage of home heat which is
contributed by various fuels. We then ask them their expec-
tations for the next winter. The two statistics are then
compared.
How reliable are these usage intentions?
We i ve analyzed usage intentions from prior year i s surveys
wi th subsequent year i s actual usage behavior. Our analysis
shows that the public is becoming more disposed to carry out
their stated fuel switching intentions. For example, we see
that in 1981, natural gas customers actually decreased their
consumption by 8.5%. Our survey a year earlier showed con-
sumers were intending to decrease their consumption by 9.1 %.
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Thus, the pred iction based on the survey results was very
close to what occurred.(Exhibit 7 , Schedule 1)
Recalling that the intended reduction for next year is 16.2%,
what actually occurs could be a decline of well over lO%.
However, that is somewhat uncertain.
So what is your best estimate regarding natural gas consump-
tion next year?
Our most reliable forecast has been that based on a mathel'a-
tical analysis we conduct each year. It uses a computer
program we designed based on classical trend decomposition,
that is, breaking down the historical trend, cycle, and
seasonali ty factors. Our most recent forecast shows that
household therm consumption of natural gas will be at a level
of 656 therms for the one year period, March 1982 through
February 1983.(Exhibit 7 , Schedule 2 & Exhibit 7
Schedule 3)This is a decline of 7.2% from the consumption
of 707 for the same period of a year earlier.
How accurate is this forecasted decline of 7.2%, in your
opiaion?
Our experience in forecasting IGC household consumption has
been very accurate using this approach. For example, last
year our forecast varied from actual experience by less than
1. 3%.(Exhibit 7 , Schedule 3)The year ear i ier our fore-
cast varied by less than 1% from actual experience. I
believe it was close to a .6% variance.
Given your survey research information and the mathematical
forecast you i ve prepared, what is your opinion regarding the
gas company i s forecasted decline of 5.5% in residential
consumption.-5-
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A. I believe it somewhat underestimates the decline which will
actually occur.
Q. Then you believe their projected rate of decline in household
consumption is a reasonable estimate?
A. It i S reasonable from the standpoint that I firmly believe
that at least as. 5% rate of decline will occur.
Q. Does that conclude your direct testimony?
A. Yes it does.
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