20170320Transcript Volume III.pdf

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ORIGINAL CSB REPORTING
C e rtiJied S ho rth and Reporte rs
Post Office Box9774
Boise,Idaho 83707
csbreporting@)'ahoo. com
Ph: 208-890-5198 Fax: l-888-623-6899
Reporter:
Constance Bucy,
CSR
BEFORE THE IDAHO PUBLIC UT]LITIES COMMISSTON
IN THE MATTER OF THE APPLICATION
OF INTERMOUNTAIN GAS COMPANY TO
CHANGE ITS RATES AND CHARGES EOR
NATURAL GAS SERVICE ]N THE STATE
OF IDAHO
CASE NO. INT-G-16_02
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BEFORE
COMMISSIONER KRISTINE RAPER (Presiding)
COMMISSIONER PAUL KJELLANDER
COMMISSIONER ERIC ANDERSON
PLACE:Commission Hearing Room
472 West Washington StreetBoise, Idaho
DATE:March 2, 2017
VOLUME rII Pages 966 1,197
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CSB REPORTING
(208 ) 890-5198
APPEARANCES
For the Staff:Mr. Karl Klein
and Mr. Sean CostelLo
Deputy Attorneys General-
412 WesL Washington Street
Bo j-se, Idaho 837 20-007 4
For Intermountain Gas
Company:
![r. Rona1d L. I[i].liamsWilliams Bradbury, P.C
1015 West Hays StreetBoise, fdaho 83102
For The Amal-gamated
Sugar Company:
Mr. Peter J. Richardson
RICHARDSON ADAMS PLLC
Post Office Box 12LB
Boise, Idaho 83702
For
Gas
Northwest Industrial
Users:
Mr. Chad M. Stokes
CABLE HUSTON LLP
1001 SW Fifth AvenueSuite 2000
Portland, Oregon 97204
For the Community Action
Partnership of Idaho:
!!r. Brad M. PurdyAttorney at Law
201,9 North 17th Street
Boise, Idaho 83102
For Idaho Conservation
League and Northwest
Energy Coaliton:
!{r. Benjamin J. Otto
Attorney at Law
Idaho Conservation League
Post Office Box 844
Boise, Idaho 83701
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APPEARANCES
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CSB Reporting
(208 ) 890-s198
INDEX
WITNESS EXAMINATION BY PAGE
Diego Rivas
( ICL-NWEC )
Mr. Otto (Direct)
Prefiled Direct Testimony
Mr. WiII j-ams (Cross )Mr. Richardson (Cross)
Commissioner Raper
961
969
1004
1006
1008
Randy Lobb
( Staff )
Mr. K1ein (Direct)
Prefiled Direct Testi-monyMr. Williams (Cross)
Mr. Otto (Cross)
Commlssioner Kj ellander
Commissioner Raper
1009
7072
1036
!042
L044
704'7
Donn English
( Staff )
Mr. Klein (Direct)
Prefiled Direct Testimony
1053
1055
Joseph Terry
( Staff)
Mr. Kl-ein (Direct )Prefiled Direct TestimonyMr. Wil-l-iams (Cross )
Commissioner Raper
1073
]-01 6
1096
1041
Michael Morrison
( Staff )
Mr. Klein (Direct)1098ttj2
113 0
1150
tt61
IT7 3
119 3
Prefil-ed DirectMr. Wil-1iams (Cr
Mr. Stokes (Cros
Commlssioner Rap
Tes
OSS
s)
er
timony
)
Mr. Kl-ein (Redirect)
Mr . Wil-liams (Recrosss )
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INDEX
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CSB Reporting
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EXH]BITS
NUMBER DESCRIPTION PAGE
FOR THE IDAHO CONSERVATTON LEAGUE & NWEC
401.Cascade Natural- Gas DSMIncentives for Commercial-
and Industrial- Customers
Premarked
Admitted 968
FOR THE STAFF:
101 .Sal-es & General Advertising
Expense
Premarked
Admitted 1054
]_02.Management Expense Reports PremarkedAdmltted 1054
103.Revised exhibit sponsored by
Joseph Terry
Premarked
Admitted 1075
L04.Exhibit sponsored by
Joseph Terry
PremarkedAdmitted 1075
105.Confidential exhibitby Joseph Terry
sponsored Premarked
Admitted 1075
106.Assets that are
for Euture Use
Partly Held Premarked
Admitted 1075
108.Response to Request No. 202 PremarkedAdmitted 1101
109 Response to Request No. 1.02 Premarked
Admitted 1101
110 Staff All-ocation of Revenueto Existing & Proposed
Cl-as ses
Premarked
Admitted 1101
111 .Staff's Estimates of Billing
Determinants
Premarked
Admitted 1101
723.Excerpt from fGC's Exhibit 39 Identified 1175
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CSB Reporting(208) 890-s198
EXHIBITS (Continued)
NUMBER DESCR]PT]ON PAGE
FOR THE STAFF: (Continued)
124.Response of IGC to Second
Production Request of the
Commission Staff
Identifled tll 6
125.Response of IGC to Sixth
Production Request of the
Commission Staff
Identified 1183
FOR INTERMOUNTAIN GAS COMPANY:
AA Excerpts from Morrison's
Workpapers
Identified 1136
,tr
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CSB Reporting
(208 ) 890-s198
BOISE, IDAHO, THURSDAY,MARCH 2, 20L1, 9:00 A. M
COMMISSIONER RAPER: Good morning, Day 2,
so I wil-l go through the preliminaries. This is the
second day set for a technical hearing in INT-G-1 6-02,
further ldentified as in the matter of the application of
fntermountaj-n Gas Company's request to change its rates
and charges for natural gas service in the State of
Idaho.
I will ask one more time, do we have any
Snakerepresentatives here for the j-ntervening parties
River Al-Iiance or the Federal Agencies? Let the
reflect that those intervenors do not have
of
record
representatives
although we left
Commission Staff
that there was a
League have its
Our only
5:00 and
present on Day 2, and f understand,
the record yesterday anticipating that
would be first to present its witnesses,
request that the Idaho Conservation
witness.
MR. OTTO: That's correct, Madam Chair.
constraint is that Mr. Divas l-eaves today at
I just want to make sure that we have time for
him to get on and get through things.
COMMISSIONER RAPER: If there's no
objection, we can begin this morning with ICL's witnesso25
966 COLLOQUY
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CSB Reporting(208) 890-5198
RIVAS (Di)
ICL_NWEC
Mr. Rivas.
League
Northwest
stand.
A My name
policy associate with the Northwest Energy Coalition.
Diego Rivas that
MR. OTTO: On behalf of the Conservation
T'm sorry, Idaho Conservatlon League and the
Energy Coalition, I call Diego Rivas to the
DIEGO RIVAS,
produced as a witness at the instance of the Idaho
Conservation League and the Northwest Energy Coalition,
having been first duly sworn to tel-l the truth, the whole
truth, and nothing but the truth, was examined and
testi-fied as foll-ows:
DIRECT EXAMINATION
BY MR. OTTO:
O Good morning, Mr. Rivas.
A Good morning.
O Could you please state your name and your
affiliation for the record?
is Diego Rivas. f'm a senior
O And are you the
filed 71 pages of testimony
testimony and one exhibit?
sorry, 18 pages of
same
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RIVAS (Di)
ICL_NWEC
A Yes.
O And if I asked you those the questions
contained in that testimony today, would your answers
remain the same?
A They woul-d.
MR. OTTO: And with that, f'd ask that Mr.
Rivas's testimony be spread upon the record, including
his exhibit, which is No. 401, and I offer the witness
for cross-examination.
COMMISSIONER RAPER: Without ob; ection,
oh, Do, direct
if read.
rebuttal,
to the record.
(ICL-NWEC Exhibit No. 401 was admitted
into evidence. )
Mr. Rivas's testimony will be
testimony will be spread upon
Exhibit 401 wil-l- be admitted
the record as
of Mr
(The fol-Iowing prefiled direct testimony
Diego Rlvas is spread upon the record. )
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December
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Rivas, Di 1
]CL-NWEC
O. Please state
for this testimony-
A. My name is F
Policy Associate with
your name, affiliatj-on, and reason
. Diego Rivas, and I am a Senior
the NW Energy Coalition and based
in Helena, MT. The reason for my testlmony is to
encourage implementation of smart rate structure and
program design to maximize the use of energy efficiency
as a resource.
O. Pl-ease list the topics you will cover as a
witness.
A. My
Management
Col-Iection
issues for
(pages 13
testimony covers
programs (pages 1
Mechanism (pages
the Residentiaf and General- Service
the proposed Demand Side
9) , the Fixed Cost
10 - 13), and rate design
c.l-as ses
18 ) .
DE!{AND SIDE MANAGMENT
O. Intermountain Gas proposes a 'suite of Demand
Side Management programs. Do you have any general
comments on this proposal?
program is a critical element of any
an effective Demand
region has
the primary
Side Management (DSM)
utility's supply
prided itself on
resource and nearly
A. Yes
portfolio. The northwest
makj-ng energy efficiency
all- regulated utillties
a means of keeping costs
in the region use
l-ow.
DSM programs as
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December \6, 20L6
rNT-G-1 6-02
Rivas, Di 1a
ICL_NWEC
As such, it is encouraging to see Intermountain
Gas Company's (IGC) interest in offeri.ng a DSM program.
However, the program as presented in the testimonj-es of
All-ison Specter and Chery1 Imlach and supported by the
testimony of Dan Kirschner falls more in the category
of a fuel--switching incentive program than a true DSM
program. IGC does not hide from the fact that the intent
of the program j-s to encourage fuel-switching, stating,
"Conservation incentives associated with high-efficiency
natural- gas space and water heating equipment woul-d
provide the Company with the two-fold benefit of
acquiring essential DSM resources while allowing natural
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ICL-NWEC
gas to serve the role it performs best, ds a direct space
and water heating fuel." (Spector, page 4, In 2 - 6).
While there may be some savings to be had in
encouraging fuel switchers to purchase more effj-cient
appliances, the Company is ignoring Iarge segments of
their customer base and should be looking more broadly in
the development of their DSM program.
utilitles be actlvely0.
promoting
A.
debated.
( Council )
Should natural- gas
re-studied the
fuel-switching?
The merits of fuel-swltching continue to be
The Northwest Power and Conservation Council-
gas in the development of
They concluded that there
for househol-ds to convert
topic of direct use of natural
the 7th Northwest Power Pl-an1.
may be some economic benefit
from electricity to natural gas
and that "naturaf gas wil-f continue to gain space and
water heating market share whil-e el-ectricity's market
share of these end uses will continue to decrease.2" The
Counci-1, however, whlle recognj-zing the potential
economic benefits, does not include fuel-switching in
their definition of conservation.
IGC's assertion that the dlrect use of natural
gas is lnherently more efficient than electriclty
generation from natural- gas depends on the precise
generation mix of the electric utility. Looked at in25
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]CL_NWEC
isolation, direct use of natural gas for heating in a
modern furnace is more efficient than generating
el-ectricity in a modern combj-ned cycle' gas turbine and
using el-ectric resistance for heating. But this
theoretical l-ook at a single fuel and single heating
equipment type is incomplete. Heat pump type heaters can
have higher resource efficiency than gas furnaces.
Utilities with large hydroelectric resources generate
el-ectricity without relying on outside fuel-
1 Seventh Northwest Conservation and El-ectric Power P1an,
Appendix N: Direct Use of Natural Gas, Northwest Power and
Conservation Council- .
http : / / www. nwcounci 1 . org /me dia / 1 7 4 9 9 0 4/ 7 thplanf inal_appdixn_
duofnatgas . pdf
2 Seventh Northwest Conservati-on and El-ectri-c Power P1an,
Appendix N: Direct Use of Natural Gas, Northwest Power and
Conservation Council. Page 12.
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]CL_NWEC
sources, which is largely the case in fGC's servlce
territory- For example, in 2OL5 natural gas made up only
74.32 of Idaho Power's supply portfol-1o, while
hydroelectric power made up 41.52 and renewable energy
sources adding roughl-y another 10?3. Also within IGC's
service territory are rural electric coops and municlpal
utillties that are customers of Bonneville Power
Administration (BPA), whose portfolio is B5%
hydroelectric generation.
WhiIe IGC claims, and we agree, that natural
gas is more efflcient as an end use product, they provide
no cost-justification for fuel-switching from hydro based
utifitles. Company wj-tness Kirshcner on page 5 of his
testimony states, "natural gas generation can be expected
to replace some portion of regional coal retirements
because it is dispatchable, economic and a cleaner
generation resource." However, the Northwest Power and
Conservation Council's 7th Northwest Pl-an states, "Only
low to modest amounts of new natural gas-fired generation
is likely to be
demand response,
needed to supplement energy efficiency,
Furthermore,
electricity in
would
of
and renewable resources...4"
should natural gas be used to provide more
northwest markets, the price of natural gas
undoubtedly increase, leaving the economics
fuel-switching further up for debate.o 25
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ICL-NWEC
Instead of lustifying natural gas conservation
programs on the basis of savings in the electricity
system, gas DSM programs must be justified by avoiding
the costs of gas service. Because of this fCL and NWEC
strongJ-y support gas DSM programs that encourage
customers to use qas efficiently rather than merely
encouraging fuel switching. FueI switchlng may result in
greater efficiency in speci-fic applicatj-ons under certai-n
conditions, but conserving fuel is what benefits
customers.
3 tdaho Power Company, Resource PortfoLio FueJ- Mix - 2075
https : / /www. idahopower. com/ AboutUs / EnergySource s / Fue fl4ix/
re source Po rt f o L io_2 0 1 5 . cfn4 Seventh Northwest Conservation and Electric Power Plan,
Page l-6O25
2076 974
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O. Should natural gas util-ities be abl-e to clarm
energy savings from fuel--swltching activities?
A. Yes, if energy savings are al-so being achieved
through other utility sponsored DSM programs. Due to the
economics of natural- gas versus electrici-ty, the
Northwest Power and Conservation Council expects natural
gas water and space heating appliances to naturally
increase market share. As more househol-ds choose natural
gas applications in their home, it will- become
increasj-ngfy important for natural gas util-ities to offer
incentj-ves for customers to not only instal-f efficient
equipment, but use gas efficiently in homes and
businesses through improving building envelops and
enacting conservation behaviors.
As market share of natural- gas end uses
increase throughout the regj-onr so too wil-1 aggregate gas
demand. Under fami1iar concepts of supply and demand, we
can expect the cost of natura1 gas supply to increase.
Furthermore, rising gas demand will eventuafly trigger
the need for infrastructure j-nvestments putting upward
pressure on rates for customers. To the extent fuef
switching causes rising gas demand and therefore rising
gas costs, incentives to use gas more efficiently in
homes and businesses help offset the increase in initial-
December 16, 2016
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Rivas, Di 4
rCL-NWEC
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ICL-NWEC
cost to the customer, and can provide downward pressure
on rates for all utility customers.
A DSM
incentives for
program based
fuel--switching
. Whil-e some
solely on providing
customers coul-d have the
opposite
customer
compared
model-s,
effect "savings" are achieved if a
installs a more efficient appliance model- as
to the assumed basel-ine of the least cost
overall
would actually
natural gas obligation for the utility
increase. Again, this coul-d end up having
upward pressure on rates.
The real savings from fuel-switching programs
fal-1 on the electrj-city side. Dual--fue.l- util-ities are
more Iike1y to offer fuel--switching incentives, relievlng
pressure on their electric system. However, as electric
applicatj-ons become increasingfy efficient, the price of
natural gas
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increases, and the electric grid becomes increasingly
rel-iant on cl-ean, renewable energy, we expect
fuel-switching programs to be less popular.
O. IGC uses the Utility Cost Test to compare the
costs and benefits of proposed DSM measures (Spector at
p.9 In 2 - 3) . Do you support this methodology?
A. In regards to Intermountain Gas operations in
Idaho, I do support using the Utility Cost Test to ensure
cost effective DSM programs. The Idaho Commission, like
most other state commissions, utilities, and industry
experts, look at a variety of cost-benefit tests for DSM
programs. WhiIe the Total- Resource Cost (TRC) is
typically the primary test, the Utility Cost Test (UCT)
is also commonly used, and the Idaho Commission recently
approved "utj-lization of the UCT as a threshold test for
the proposed Igas conservation] DSM programs." (Order
No. 33444, at 9, AVU-G-15-03). Under the TRC, the
utility and stakeholders compare the avoided energy,
capacity, and quantifiabfe non-energy benefits against
the costs to the utility and the program participant.
Importantly, this test incl-udes the program participantrs
incremental- costs to purchase the equipment eligible for
a rebate. However, these participant's costs are never
borne by other ratepayers or shifted onto society,
therefore it is not clear what ro1-l- these costs pfay in
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policy making. Meanwhlfe, the Utility Cost Test compares
the avoided energy and capacity costs against the utility
costs to administer and lncent conservation measures.
This comparison is a traditional role for policymakers,
comparing the utility's
fair-priced energy. As
utility, which flow to
costs and benefits to ensure
long as
customers
the benefits to the
energy and
programs,
prudently
capacity costs, exceed
policy makers can feel
by reducing or avoidlng
the costs to administer
confident util-ities are
spendlnq ratepayer dollars.
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O. fntermountain Gas Exhibits 25 and 26 outline
the proposed DSM measures. Do you have any comments?
A. The proposed measures are consistent with IGCs
desire to encourage fuel-switching. As stated in IGC's
response to Staff Request No. 158, "A1I participants i-n
the Residential- Space Heating Equipment Rebate under
current rate schedule ER were new heating customers. " fn
an apparent effort to continue this trend, aII six
measures in Exhibit 25 are incentives for high capital
cost equipment targeting new customers. Absent from the
portfollo are low-cost, easy to install measures.
targetlng customers already uslng natural gas for water
or space heat, ds well as complimentary measures, such as
weatherization, for new and existing customers.
O. Intermountain sets their DSM target based on a
"programmatic potential. " Have you seen this l-evel- of
refinement used before?
A. Having reviewed conservation potential
assessments for mul-tipIe utilities and rural- electric
coops, I have never before seen the term programmatic
potentiaf used to determine DSM targets. In almost al-l-
cases, utilities use the achlevable potential as the
basis for setting their annual DSM goals. There is
clearly value in determining what a programmatj-c
potential is but it seems to be grossly misused in IGC's
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DSM determination.
First, w€ object to the definition of
achievable potential given by Company witness Allison
Specter. On page 13 of her testimony, she states that
achievable potential- "asks 'how much savings wil-1 result
from this portfolio of
reaf-world conditions
ut111ty rebate measures based on
in Intermountain's
and customer awareness? "' This level- of
servr_ce area,
refinement
with a focus on " this portfolio" - more accurately
depicts programrnatic potential. Achievable potential
does not take into account a utility's DSM program, but
rather asks how much cost-effective DSM available in the
service territory can a utility realistically capture
over a set period of time. Or as
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December 16, 2076
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stated in the Cascade
Resource Pl-anr "While
are both theoretical
Natural Gas 2076 Integrated
technical and economic potential
limits to energy savings, achievable
set of assumptions about thepotential
decision
embodi-es a
consumers make regarding the efficiency of the
equipment they purchass.'r5 Utility programs should then
be designed to influence these decisions towards
conserving energy in order to achieve the cost effective
potential. By starting with the energy savings a suite
of programs may delj-ver, a utility hamstrings the effort
to pursue all- cost effective energy efficiency.
Generally speaking, the floor for achievable
potential- in utility conservation potential assessments
is around 102 of economic potenti-a1. The Northwest Power
and Conservation Council uses a 0.85 multiplier to get
from economic to achievable.
Using the Company definition of achievabl-e
potential, IGC claims that only 97,825 out of 2,446,984
economical-1y available savings four percent - were
achj-evable in 2016 (Company Exhibit 25). We contend that
this number actually represents programmatic potential -
91,825 represents the total- number of therms available to
be captured based on the fuel--switching portfol-io IGC has
put forward. Instead, using the low of 709:" as a
multiplier, no less than 1,172,888 therms were achievabl-eO25
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in 2016 utiliztnq a well-deigned DSM portfolio.
O. Do you propose a dlfferent or compl-ementary
suite of measures?
A. Yes, along with the proposed incentives
targetj-ng fuel-switching, IGC should include low-cost
measures such as low-flow showerheads and faucet
aerators. These measures are most effective as direct
install applications, often occurring during a home or
business energy audit. IGC should al-so target energy
savings from weatherization measure incentives, such as
insul-ation and windows. These measures provide
additlonal- benefit by increasing the health and comfort
of the
5 Cascade Natural- Gas, 2076 Integrated Resource Pl-an, Section 7
Demand Side Manaqement. Page 7-9
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util-ity customer househol-d and as such would 1ike1y pass
both the utility cost test and total- resource cost test.
O. Do you recoflrmend any DSM programs f or
low-income residential- customers?
A. Yes, a fow-income program is crucial- for our
support of a decoupling mechanism. Increases in rates due
to investments in DSM can disproportionately impact
1ow-lmpact customers if they are unable to partlcipate in
energy efficiency measures due to the initial cost
barrier. We have discussed this issue with CAPAI and
support their proposal. Absent immediate development of a
FCCM.low-income program, we cannot support the
O. Intermountain proposes DSM programs for
residential customers only. Do you propose DSM measures
for other customer cl-asses?
A. Yes. Consistent with the practj-ces of other
natural gas utllities throughout the region - lncluding
IGC's si-ster company, Cascade Natural Gas IGC should
develop and implement a DSM program for the GS-1 General-
Servlce rate cIass. Al-so, consistent with other natural
gas util-ities,
significantly
the savings potential per customer is
greater,allowing the
lower costs.
utllity to capture
more energy savings at
The average annual RS-2 (space and water heat)
consumptj-on was 718 therms annually (Blattner, p. 20)o 25
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Within the GS-1 rate class z 37 .5% of customers - nearly
1-2,OOO accounts use between 1,,2O0 and 20,000 therms
each year; roughly 510 accounts use between 20,000 and
601 000 therms; and roughly 100 accounts use over 601 000
therms per annum (Bl-attner, p 24) . These numbers
indicate the potential for large therm savings per
customer.
In order to quickly capture significant energy
savj-ngs, I have
description of
for Commercial
attached Exhibit 401 to my testi-mony - a
Natural Gas offersthe lncentives Cascade
and Industriaf customers in Washington
DSM measures IGCasagood starting point of the types of
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should implement now. We reconrmend that going forward
IGC should conduct an end-use
customers and implement a more
on those flndings.
study for its cS-1
robust DSM program based
FI:GD COST COLLECTION MECIIA}IISM
O. Have you reviewed Intermountainrs proposed
Eixed Cost Collection Mechanism?
A. Yes. IGC proposes to break the link between
the sale of natural gas therms and revenue, thereby
ensuring the col-Iection of flxed costs necessary to
malntai-n and expand the distribution system. This is
known as revenue regulation, though more commonly
referred to as decoupJ-ing (decoupling can take on
different forms as well-). The ECCM wilf afso remove the
disincentive for IGC to pursue cost-effective DSM,
theoretically allowing the company to treat DSM without
prejudice in its requirement to reliably serve its
customers. It is important to note that the FCCM would
apply to the new RS (residential) and GS-1 (smaII
commerci-aI) rate classes, as weIl as the interruptible
snowmelt rate cfasses.
O. Do you have any recoflimendat-ions f or the FCCM?
A. I have both policy and technj-cal-
recommendations. Generally speaking, ICL and NWEC
support revenue regulation. This form of decoupling iso25
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typically adopted for utilities with known track records
of DSM programs that cause j-dentifiable impacts to fixed
cost coll-ections. The reasoning is that decoupling
should address foregone fixed cost recovery attributable
to utility actions to promote conservation. Eoregone
fixed cost revenue attributable to weather, economic
conditions, or customer behaviors not influenced by IGC,
while a feature of allocating fixed costs into varlabl-e
bill components, are a normal rj-sk to util-ity operations.
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IGC proposes the FCCM without this track record
of DSM accomplishments. Accordingly, at least in the
early years of the DSM program ramp-up, most of the fixed
cost volatll-ity comes from factors outslde
Intermountain's controf. And, because much of
Intermountain's proposed DSM portfol-io focuses on
switching customers from electric to gas lnstead of gas
conservation, even in later years the fixed cost
volatility attributable to utility sponsored DSM, under
the current proposal, is minimal to nonexistent. ICL and
NWEC's support for the FCCM is directly tied to the
quality of the proposed gas conservation programs; to the
extent they focus on conservation for Residential,
General Servi-ce, and Low Income customers, our support
grows. However, without a robust DSM program that
targets existj-ng customers and DSM efforts beyond fuel
switching and without a substantial- low-income program,
we cannot support the FCCM.
If the Companyrs DSM proposal is j-mproved, and
the FCCM considered, we offer the following
recoflrmendations on the technical side. Overa11, we
encourage the Commission and IGC to keep the decoupling
mechanism as simple as possible during the early stages.
Adding nuanced detail to the mechanism increases the
l-ikel-ihood that it wiff not accomplish its intended
December 76, 2015
rNT-G-76-02
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goa1s. Bel-ow we
the FCCM-
Cap Rate Increase
Slmilar
propose five changes to the structure of
to the decoupling mechanisms used by
shou]d beIdaho Power and Avista,any
three
increase in rates
capped at no more than
done by Pamela Morgan shows
percent annuaIIy. Research
that "642 of all- adjustments
.. [and] almost 152 areare within plus or minus 22.
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within plus or minus 3%6. " Capping rate increases at 3Z
limits potentj-aI
outslde of IGCs
extreme rate volatility due to factors
control, factors for which customers
should not be penalized.
Per Customer ReconciLiation
"Per customer" decoupling has seemlngly become
the preferred method of ensuring adequate fixed cost
recovery for natural gas utilities. These util-ities
generally have robust DSM programs, limiting the
long-term environmental and economic impacts of providlng
service to existing and new customers. The addition of a
handful of new customers might warrant the need to ensure
fixed cost recovery, especially considering that growth
is likely to occur on the fringes of its distributlon
system.
It this case,
program largely based on
businesses to become new
wilf have access to DSM
efficient appllances
risky position with
under-col-l-ection of
may increase to
fuel-switching
efficiently and
proposes a DSM
households and
These new customers
however, fGC
encouragr-ng
customers.
They are, therefore,
regard to rate
fixed costs.Whil-e natural- gas rates
recover fixed costs, these new,
customers inherently use gas more
as a result, rate impacts wilf have less
j-ncentives and new,
r_ncreases
highly
in a less
due to
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ICL-NWEC
impact on them.
Current existing customers, however, without
access to DSM measures enabling them to purchase
high-efficiency appliances or weatherize their home or
business, will necessarily be in a position to pay hlgher
rates and higher bills.
Without the presence of DSM measures for
existlng customers, total- utilit.y natural gas sales will-
Iikely i-ncrease rather than decrease due to
fuel-switching new customers. Fixed cost recovery
therefore not be
likely to be
contained within volumetric sal-es shoul-d
an i-ssue. These customers
located well within fGC's
limiting fixed-cost
current distribution system,
6 Morgan, Pamefa. A Decade of Decoupling for uS Energy Util-ities
Rate Impacts, Designs and Observations. 2012
are afso more
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needs. Because of this dynamic,per customer
to over estimation ofreconciliatj-on woul-d likely lead
the revenue requirement and higher than necessary rates
for customers.
The Commission coufd to use the attrition
method to periodically adjust
opt
base rates
changes
during
bel-ow.
incl-uding number of customers.
the annual- reconcil-iatj-on process
Conversely, NWEC and ICL woul-d support use of the
per customer method with inclusion of a more robust DSM
program.
Per Month ReconciLiation
Similarly, per month reconciliation is
unnecessary at this time. As pointed out by Janj-ne
Migden-Ostrander and Rich Sedano of the Regulatory
Assistance Projectr "More frequent adjustments...can expose
consumers to volatility from such factors as swings in
the weather that can cause unusuafly high or Iow
revenues...7" Low-income and fixed income customers can be
particularly burdened by these swings in rates.
Utilizinq a cap on rate j-ncreases wil-f help affeviate the
impacts of these swings, though not efiminate them
entirely. Calculating rates on a monthly basis is also
an administrative burden, utilizing resources that could
be better served by strengthening IGC's DSM program. A
for certain
This coul-d occur
as proposed
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2009 study by Pamela Lesh of Graceful- Systems, LLC found
that of 25 decoupled natural gas utilities, 19 of them
used an annua.l- rate true-up method. Only four used a
monthly method while two used a semi-annual/quarterly
method. B
NWEC and ICL propose
reconci1iation provision of the
fixed cost calculations to set
removr_ng
FCCM and
the per month
use total annual
rates under the FCCM. If
IGC or the
7 Migden-Ostrander, J., and Sedano, R. (2016) . Decoupllng Design:
Customizing Revenue Regulation to Your State's Priorities. Regulatory
Assistance Project. http: / /www.raponline.orglwp-content/
upl oads,/ 2 0L6 / ll / r ap- s edano-m-igdenos t rander-de coupl ing-des ign-
customi zing-revenue-regulation-state-priorities-2 0 1 6-november . pdf
8 Lesh, P. (2009), Rate Impacts and Key Design Efements of Gas and
El-ectric Utifity DecoupLing: A Comprehensive Review. Page 6.o 25
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Commission determine after a period of time that fixed
cost recovery ca1cufations are not adequate on an annual
revisited.basis,
Removaf
the i-ssue coul-d be
of Largest Customers in
Intermountaj-n states,"the largest GS-1
customers are simil-ar to many Industrial LV-1 customers,
and Iare] very different from most GS-1 customers,
(Bl-attner, p. 25) . Ms. Bl-attner' s testimony incl-udes
Table 8.1 on page 25 that shows the largest 50 customers
use 135,585 therms per year whereas as all other GS
customers use 3,052 therms per year, a very large
disparlty. This disparity has the ability t.o
disproportionately affect smaller GS users under the
proposed FCCM. For example, if one large user were to
drastically reduce natural- gas consumption for any number
of reasons - energy efficiency, the economy, change of
business p1an, etc rates would necessarily increase for
al-l- other users in order for Intermountain to collect the
required revenue. Again, a cap on rate increases could
help al-l-eviate some of these concerns but we question if
a small business shoul-d have rates increase 3Z due to the
decisions made by a handful of larger businesses.
NWEC and ICL propose removing the largest 50
customers from the GS-1 rate cl-ass and the ECCM
mechanism. Reducing the threshold for qualification in
GS Rate Cass
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the LV-1 rate class coul-d be consi-dered as coul-d a
separate rate class for these customers (GS-2).
RATE DESIGN
O. Does ICL and NWEC have an overall- objective
regardlng rate design?
A. Yes, we bel-j-eve all rate designs should send a
meaningful price signal to encourage the efficient use of
energy resources. This is one of Bonbright's rate design
principles (Blattner p 79, In 16 - p10, ln 1). This is
also reflected in Idaho state policy that prioritizes
cost effective energy
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efficiency and instructs all state agencies "to
consistently reinforce and support state objectives
regarding energy efficiency." (State Energy PIan page
8-9.). Because Bonbright's prlnciples incl-ude other
important criteria - l-ike simplicity, effectiveness,
stability, and fairness - ICL and NWEC submlt that rate
design is an lmportant area for the Commission and other
stakehofders to balance policy objectives.
ICL and NWEC bel-ieve Idahoans are best served
by sending price signals that encourage customers to use
capacity and energy efficiently. We are concerned that
Intermountain's rate design proposals reduce the
commodj-ty price signal in order to increase the customer
charge. We believe thls proposal is out of balance.
O. Intermountain proposes changes to the
Residentia] rates. Please comment.
A. fntermountaj-n proposes to combine two current
resldential classes lnto a single res j-dential- class.
( Blattner
eliminate
p27,ln9 p22, ln B ) IMG also proposes to
the seasonally differentj-ated rates, which in
the winter increase the customer charge and reduce the
gas distribution component of the per therm charge. ICL
and NWEC agree with these proposals because they match
cost causation, simplify rates, and maj-ntain price
signals for efficiency.o 25
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Customer Charge:
fntermountain
monthly customer charge
$2.50 summer and $6.50
al-so proposes to increase the
from a seasonafty differentiated
winter monthly charge to a fl-at
31, Sheet L, note this$10 per month. (see Exhibit
increase was not covered in
j-ncrease comes predominately
costs. ICL and NWEC oppose
reasons.
the testimony). This
from reducing the commodity
this change for the following
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First, to the extent the increased customer
charge reduces the commodity charge, this change dilutes
an important price signal for customers. Individual
customers have no ability to affect the monthly customer
charge. So while a relatively steep monthly charge maybe
provide stability to utility collections, it sends no
price slgnal to be more energy efficient.
Second, hlgh monthly fixed charges
disproportionately hurt low-income households because
energy bi1ls represent a Iarger portion of these
households' monthly expenses. While it can be argued
that rate increases due to DSM activities under the FCCM
could al-so hurt low-income households, there is at the
very l-east the opportunity to participat.e in energy
savings measures under properly designed utitity DSM and
l-ow-income weatherization programs. There 1s no
opportunity to reduce a monthly fixed charge through
either equipment or behavioral- changes.
Third, the proposed FCCM would address the same
issue that raising the customer charge is intended to
address fixed cost recovery through volumetric sales.
ICL and NWEC belleve that proper rate deslgn incudes a
1ow monthly customer charge along wlth a decoupling
mechanism. Because it maintains a commodity price
signal, 1s more falr to customers, and addresses revenue
December 76, 2016
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stability
instead of
O.
design?
A.
ICL and NWEC support a properly designed FCCM
the monthly customer charge.
recommend for the RS class rate
r-ncreasr_ng
What do you
Jim Lazar and Wil-son Gonzalez of the Regulatory
Assistance Project recently produced a paper that updates
the Bonbright principles. In Smart Rate Design for a
Smart Future, Lazar and Gonzalez define a customer charge
as "a fixed charge to customers each billing period,
typically
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to cover metering, meter
do not vary with size or
customer charges "should
costs associated with an
service drop, billing and
Based on these
reading, and bil-l-ings costs that
usage.rf 9 They al-so state that
not exceed the customer-specific
additional customer, such as the
collection. "1o
principles, we recommend setting
and adjusting thethe customer charge at $3.50 per month
per therm charge to recover the remai-ning revenue
requirement. This amount is derived from numbers in
Company Exhlbit 2L, Cl-ass Cost of Service - Account
Detail
Customer Account Subtotal, Residential, Page l0:
Customer Service and Information Subtotal, Residential, page 10:
Customer Account Subtotd, Residential, page 16:
Total:
Divided by totd residential customers (302,790):
Divided into tvvelve months:
The Idaho Commission has approved sj-mil-ar
investor ownedcustomer charges for fdaho's
utilities not based on cost of service, rather on
principles of fairness to customers and maintain the
abiJ-ity to send commodity price signals.
7,2M,763
193,418
3,911,317
LL,341,498
37.45
3.12
other
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A quick survey of other northwest natural gas
utilities indicates a mean of $7.68 and median of $1.3'7-
At $10.00, Intermountain woufd have the second highest of
behind Pugetthe surveyed utilitles,
Sound Energy at $10.34.
faIllng slightly
Despite these higher customer
charges at other
company, Cascade
utility operating
charge. 11
utilitles, Intermountainrs sister
Natural Gas, is a decoupled natural gas
with a $3.00/month residential- fixed
9 Lazar, J. and Gonzalez, W. (2015). Smart Rate Design for a
Smart Future. Regulatory Assistance Project.
http : / /vnvlrr.raponline. org/document/download/J.d/l 680. Page 83.
1o Lazar, J and Gonzalez, W. Page 65rr Utilities surveyed incl-ude Cascade Nat.ural Gas, NW Natural-
OR, NW Natural-WA, Puget Sound Energy, Avista-ID, OR and WA,
and NorthWestern Energy.o 25
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We al-so recommend the Commission direct
fntermountaj-n to work with stakeholders to propose
tiered, incl-ining block, commodity rates to further
refine the balance between setting rates that refl-ect
costs and sending a strong price signal for conservatj-on.
O. Intermountain proposes changes to the General
Service rate design. Please comment.
A. Intermountain proposes three changes to the GS
rate design eliminating the seasonally differentiated
customer charge, increasing the monthly customer charge
and adding a fourth bl-ock to the per therm charge.
With regard to the customer charge, NWEC and
TCL take a similar position as to the RS rate class. We
have no objectlon to the el-imination of seasonal rates as
there is no cost or policy justification to have two
different rates. However, the substantial increase in
the customer charge severely diminishes
sent to GS-1 customers to be more energy
the price signal
efficient. As
with the RS rate class, Intermountain should consider
lowering the customer charge and increasing the per therm
charge in order to better establish this price signal.
Eollowing the same steps as with the residentiaf cIass,
we recommend the GS-1 customer charge be set at $10/month
(actual calcul-ation came to $8.23/month). Intermountain
shoul-d also quickly ro11 out a commercial DSM program ino25
2016 10 01
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order to assist small businesses in becoming more energy
efflcient.
The addition of a fourth decllning block to the
per therm charge exacerbates an archaic form of rate
design that encourages consumers to use more energy.
This proposal directly undercuts Intermountain's argument
that the FCCM will allow the utility to effectively
promote energy conservation. On the contrary, the
largest users of the GS class wil-l flnd minimal- benefit
in energy efficiency upgrades, and coul-d potentlally see
bill increases due to these investments. A quick survey
of natural gas utilities in the northwest region found
that only Avista in Idaho uses a decllning bJ-ock rate
structure for the GS rate classes.
December
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December
INT-G- 1 6-
16,
02
Rivas, Di 18
]CL-NWEC
The better policy option is
rates, charging customers more
to use incl-ining block
not l-ess - per therm as
rates send a strongthey
price
use more energy. Inclining
signal to customers that they should j-nvest in
energy efficiency, signlficantly reducing the payback
time for these investments. If inclj-ning block rates are
not feasible, a flat per therm rate would achieve greater
conservation impact than declining rates.
O. Does this concl-ude your direct testimony?
A. Yes.
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CSB Reportlng(208) 890-5198
RrvAS (X)
]CL_NWEC
(The following proceedings were had in
open hearing. )
COMMISSIONER RAPER: And begin with the
Company.
MR. WILLIAMS: Thank you, Madam Chair
CROSS-EXAMINATION
BY MR. WILL]AMS
(,Y
coming here
Good morning, Mr.
for this hearing. I
Rivas. Thank
just have one
you for
question
for you. ft's rel-ated to page 9
could turn to that.
A I'm there.
O And at the bottom
of your testimony, if
you
of that you have a
recommendatj-on regarding the Company's
coll-ection mechanism and then down on
fixed cost
l-ine 2l you state
economicforegone fixed
conditions, or
Intermountain
revenue attributed to weather,
customer behaviors not infl-uenced by IGC,
a feature of allocating fixedGas, whil-e
costs into bill components, it's not a normal- it is a
normal risk of utility operationsr so when I read that
and other parts of your testimony, my understanding is
that you think that the fixed cost adjustment mechanism
is only a mechanism that should rel-ate to DSM and noo25
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CSB Reporti-ng(208) 890-s198
RrvAS (X)
ICL-NWEC
other items, 11ke
A No,
accurate. I wou]d
weather, for instance.
f wouldn't say thatrs exactly
say that revenue regulation decoupling
DSM investments by utilities.
time to incorporate more features,
began as a response to
That has changed over
including declining use per customer, but that DSM
investments by the utility remain the signature reason
why utillties request decoupling mechanisms.
O Okay; so specifically your reference to
foregone fixed revenues attributable to weather is a
normaf risk of util-ity operatj-ons, how do you think
that's gone for the Company this winter, that rlsk?
A I woul-d assume with your winter here being
quite intense in Boise, I think the opposite would be
true. I think that, you know, the utility probably
overcollected i-ts fixed costs for this particular year.
a So to the extent that there's weather rlsk
that the fixed cost adjustment mechanism could also
account for that risk really hasn't been i-t's been a
reward to the Company this wi-nter and the risk instead
has been on the customers; would you agree with that?
A To some extent, yes, though I would also
say that the pattern is the opposite over timer so, you
know, taking one season isn't necessarily the best way to
analyze who's got the risk.o 25
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CSB Reporting(208) 890-s198
RrvAS (X)
ICL-NWEC
O Sure, and I would agree with
what the Company
you that the
is concernedpattern
about.
of weather risk is
We11, that's al-l-.
Madam Chair, I have no further questions.
COMMISSIONER RAPER: Thank you,
Mr. Wilfiams. Commission Staff?
MR. KLEIN: None from Staff.
MR. STOKES: We have no questions, Madam
Chair.
COMM]SSIONER RAPER:
MR. PURDY: I have
Thank you.
COMMISSIONER RAPER:
Mr. Purdy?
no questions for Mr.
Rivas.
Mr. Richardson?
MR. RICHARDSON: Thank you, Madam Chair,
just a couple
CROSS-EXAMINATION
BY MR. RICHARDSON:
O Mr.
testimony, on line
switching continue
the context of fuel
gas ?
Rivas, oo page 2 of your di-rect
B, you state that the merits of fuel
to be debated, and f assume that's in
switching from el-ectricity to natural-
A That's correct.o 25
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CSB Reporti-ng
(208 ) 890-5198
R]VAS (X)
ICL-NV{EC
O And you don't think it's debatable that
it's a desirabl-e public policy, do you, for an industriaf
customer to switch from direct use of coal- for boil-er
fuel to natural gas?
A Irm sorry, wouJ-d you rest.ate the question?
O You don't think from a public policy
standpoint
policy to
coal as a boiler fuel to
it's debatabl-e that itrs a desirable
encourage the
public
use ofswitching of the direct
naturaf gas?
A Actua11y, f would say it's somewhat
debatable in the latter part of that statement. I think
there's sti1l debate on which fuel- is a replacement and I
think some would debate switching to natural- gas rather
than switching to, you know, some sort of other
mechanism, biomass, other resources, if possible, that
that may not always be possible, but certainly that's up
to debate.
O But if the universe of options is coal- or
that you would prefernaturaf gas direct
naturaf gas?
A You
fue1, I assume
know, I don't know sure, I would
would say naturalthink -- my personal opinion, sure, I
gas would be preferabl-e, y€s.
MR. R]CHARDSON: ThanK
thatrs all I have.
you. Madam Chair,
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CSB Reporting
(208 ) 890-5198
RIVAS (Com)
ICL_NWEC
COMMISSIONER RAPER: Thank you, Mr,
Richardson. Are there any guestions from the
Commis sloners ?
EXAMINAT]ON
BY COMMISSIONER RAPER:
a I just have
testimony, lines 7 and
one. I'm looking at page B of
the last sentence,your , just
ofa"Absent immediate development
FCCM, " the
low income program, we
cannot support
mechanism. Is
the fixed cost collection
a l-ow income program the only
only deficiency
thlng
to the
fixed cost
absent, in your opinJ-on,
Company being justified
mechanism?
the
1n col-lecting under a
A No, I think a large part of my testimony
robustness ofal-so expresses concern with the leve1,
the Company's proposed DSM program, so
quick investment j-n energy efficiency
the
without further
and DSM, we would
al-so have reservations about supporting the DSM.
COMMISSIONER RAPER: Thank you. That's
all I have. Any redirect?
MR. OTTO: No redirect, Madam Chair.
COMMISSIONER RAPER: Thank you, Mr. Rivas,
for your testimony.o 25
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CSB Reporting(208) 890-s198
LOBB (Di)
Staff
THE WITNESS: Thank you.
(The witness feft the stand. )
COMMISSIONER RAPER: Do you wish that he
be dismissed from the remainder of the hearing?
MR. OTTO: I wou]d wish that Mr. Rlvas be
dismissed at his dlscretion.
COMMISSIONER RAPER: With no objection,
Mr. Rivas is dismissed from any further hearj-ng and we
will then move on to begin Staffrs witnesses, Randy
Lobb we11, I guess Staff can call their first witness,
although they've provided me generously with the l-ist of
witnesses to which they wouJ-d l-ike to adhere.
MR. KLEIN: Thank you, Madam Chair. Staff
cal1s Randy Lobb.
produced as a witness
having been first duly
truth, and nothing but
testified as follows:
BY MR. KLETN:
O Good morning.
RANDY LOBB,
at the instance of the Staff,
sworn to tell the truth, the whole
the truth, was examined and
DIRECT EXAMINATION
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CSB Reporting(208) 890-s198
LOBB (Di)
Staff
A
o
Good morning.
Would you please state your fufl name for
the record?
A
o
My name is Randy Lobb.
And by whom are you employed and in what
capacity?
A I'm employed by the Idaho Publ-ic Util-ities
Commission as the utll-ities division administrator.
O Are you the same Randy Lobb who filed
testimony in this case?
A
o
fam
Do you have any changes to your
testimony?
A Idohavea
I'11- go through
few changes. The
those. The first
first
change change
5 .21- .
as on
page 2, l-ine 10, the number 3.62 should be On that
same line, the number L.44 should be 2.01. On l-ine 79,
the same page, the number 3 should be the number 6, so it
would be 6 percent. On
shoul-d be 46. On line
that same line, the number 24
21, the
number
number 18 should be L6.
On that same line, the
Turning
the number
24 should be 22.
to page 6, line 25 at the bottom
of the
page 1
5 the
Pa9e,
, line
10 shoufd be the number 9. On
7, the number 3.62 shoul-d be 5.2L. On line
words "bank fees" should be removed. On line 12,o 25
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CSB Reporting(208) 890-s198
LOBB (Dl)
Staff
the number 529,950 should be 318,911, and on page B,
10, the number 3.4 shou1d be 2.02. That completes my
fine
changes.
O If I were to
set forth in your testimony
ask you the same
today with those
questions
changes,
would your answers be the same?
A Yes, they would.
MR. KLEIN: Madam Cha j-r,
Lobb's testimony be spread on the record
here today.
COMMISSIONER RAPER: With
I'd ask that Mr.
as if presented
no obj ectlon,
the record asMr. Lobb's testimony will be spread across
if read.
(The foll-owing prefiled direct testimony
spread upon the record. )of Mr. Randy Lobb is
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CASE NO. INT-G-16-02
12/76/76
(Di) 1
STAFE
O. Pl-ease state your name and business address for
the record.
A. My name is Randy Lobb and my business address
is 412 West Washington Street, Boise, Idaho.
O. By whom are you employed?
A. f am employed by the Idaho Public Utilities
Commission as Utilitles Division Admlni-strator.
O. What is your
background?
A. I received a
educational and professional
Bachefor of Science Degree in
University of Idaho intheAgriculturaf Engineerlng from
1980 and worked for the Idaho
Resources from June of 1980 to
Department of Water
November of 1981.I
received my Idaho
Civil Engineer 1n
Util-ities Commission
analyzed utility rate
filings and customer
numerous proceedings
li-cense as a registered
198 5 and began work at
December of 7981.
applications, rate
petitions.
before the
I have
Commission
prof essional-
the Idaho Public
I have
design, tariff
testified in
l_n
cases dealing with rate
supply, Iine
acquisitions.
extens ions ,
management and
to Commission
My duties
oversight
O. What
proceeding?
structure, cost of
regulatory policy
at the Commission
of al-1 technicaf
includj-ng
service, power
and facility
incl-ude case
Staff assigned
f i1i-ngs.
1s the scope of your testimony in thiso25
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CASE NO. ]NT-G_76_02
72/76/L6
LOBB, R. (Di) 2
STAFF
A. I wil-1 summarize Staff 's recommendations,
describe case processing j-ssues, and int.roduce each staff
witness and the issues they wil-I address. I will al-so
present Staff's position regarding fntermountain Gas
Company's (the Company, IGC) proposal to implement a
Fixed Cost Collection Mechanism ("ECCM") as part of this
^a ca
cjASE OVERVIEW
O. Please summarize Staff 's recoflrmendation
A. Staff recommends increasing the Company's
overall revenue requlrement by 5.21 milfion, or 2.07e", a
return on equity of 9.252, and a capltal structure of 503
debt and 50% equity. Staff further recommends increasing
revenue requlrement on a proportional basis for all-
customer cl-asses, with customer charges respectively
increaslng for residential- service (RS) and general
service (GS) customers by about 44% and 1112. As a
result of increasing customer charges, changes in RS base
rate commodity charges (commodity not incl-uding purchased
gas) will range from an increase of about 6Z to a
decrease of about 462 depending upon a customerrs current
RS class and the time of year. The change in GS base
rate commodity charges will decrease from 162 to 222
depending upon commodj-ty rate block.
Staff supports combining the two residentialo25
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RS1 and RS2 classes into a single residential class, and
adding a fourth rate block to the GS class. Staff also
supports a
CASE NO. INT_G-16_02
t2 /16 /t6
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CASE NO. INT_G_76_02
t2/16/16
LOBB, R. (Di) 3
STAFF
demand charge for the large commerciaf class, but at a
fower level than that proposed by the Company to reduce
individual customer bill impacts.
Staff maintains that the Companyrs cost of service
study 1s based on incomplete cost information and should
be rejected. Staff al-so mai-ntains that the Staff-
developed weather normal-izatlon methodology is superior
to that provided by the Company, and should be acc€pted
by the Commission in establishing normal test period
natural gas consumption. Staff further maintains that
the Company has not justified its proposed FCCM on the
basis of any signi-ficant revenue loss from DSM programs
or any other showing of ongoing customer consumption
decline. Instead, Staff recommends that the Company,
Staff, and other lnterested parties meet after this case
ends to dlscuss accounting and record keeping
improvements, cost of service load studies, and customer
consumption and i-nvestment information that may aIlow
more j-nformed consideration of cost allocation, a FCCM
and Capital adjustment mechanisms in future proceedi-ngs.
Staff recommends that the Company modify its
line extension tariff to incorporate rate of return
approved by
recommends
the Commission 1n thi-s case. Staff further
that
line extension
the Company file a case to update overall
policy within a fixed tlme period upono25
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CASE NO. ]NT-G-76_02
t2/16/16 LOBB, R. (Di) 4
STAFF
completion of this case.
O. Pl-ease describe processing of the Company's
Appllcation.
A. Staff evaluated fGC's Applicatlon in the same
way it has processed many other utility rate case
applications in the past. The f il-ed test j-mony and
exhibits were reviewed, underlying work papers were
requested and analyzed, productlon requests were
prepared, responses were reviewed, and on-site audits
were conducted.
a. Was there anything unusual about this case when
compared to other rate cases previously processed by
Commission Staff?
A. Yes. The primary difference is the length of
time sj-nce the Company's last general rate case in 1985.
During the past
from just under
plant - in-service
mill-ion to about
30 years,
90,000 to
over the
customer totals have increased
$600 mil-1ion.
and mai-n line extension rules,
project-specific internal rates
300,000 whil-e
period has grown from $117
In addition, service line
which rely on
of return to establ-ish
contributions, have
over
same
customerCompany investment and
remained unchanged.
Other issues
lnvestigation included
encountered in the Staff
changes in the Company'sa25
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CASE NO. INT-G-16_02
1,2/16/!6
LOBB, R. (Di) 4a
STAFF
accountj-ng systems
to book individual
over time and the Company's decision
and associatedproject costs
contributions by EERC account rather
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than also having project-specific documentation. In
addition, the Company incorporate a variety of
adjustments in customer and consumption data over time
that made comparing and analyz:-nq that data difficul-t.
O. What problems di-d this present for Staff when
it evaluated the Company proposals?
A. Staff was not abJ-e to evaluate many of the
Company's underlying capital costs on an indlvidual
project basis to determine total project cost, project
justification, and whether there were any contributions
that offset Company investment. This made it impossible
for Staff to evaluate construction processes, fu11y
assess investment prudency, and determine economic
effj-ciency. It also made allocation of costs among the
customer cl-asses inaccurate and incomplete.
Staff al-so struggled to duplicate Company customer totals
over tlme and tota.l- annual consumption for the purpose of
validating proposed weather normal-ization 1n establj-shing
test year billing determlnates. Staff asked over 230
production requests and held numerous meetings with
Company representatives in an attempt to obtain and
duplicate Company calculations.
O. Are you criticizinq the Company for failure to
fil-e a rate case for 30 years?
A. No, not at all. The Company should be
CASE NO. ]NT-G-16_02
72/16/L6
(Di) s
STAFF
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comrnended for maintaining stable base rates for such a
long period of
LoBB, R. (Di) 5a
STAEE
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CASE NO. INT-G-16-02
72/L6/16
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CASE NO. INT-G-L6_02
72/76/16
(Di) 6
D.LAI I
time. The Company was also responsive in provlding
information that was available. However, such a long
out without detail-ed, consistent
al-l-ocation very
O. What do you suggest to resol-ve these issue 1n
future cases?
A. I recommend that Staff and interested parties
meet with the Company after the conclusion of this case
to address the accountj-ng processes and book keeping,
cost al-l-ocation and natural gas consumption patterns to
better assess class cost of service, fixed cost
adjustment mechanisms and perhaps capital- investment
trackers.
O. Are you the policy witness for the Staff in
this case?
A. Yes, with the possj-ble exceptj-on of some
accounting adjustments and cost of capltal, I am the
policy witness for al-l- Staff positions presented in this
CASC.
STAFF hIITNESSES
stay
makes evaluati-on
O. Cou]d
the issues they
A. Yes.
record keeping
and cl-ass costof underlying costs
difficult.
you
wifl
please introduce Staff witnesses and
address ?
Staff witnesses and the issues they
address are descri-bed below.o 25
7020 LOBB, R
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Staff Accountant Joe Terry sponsors the sufiunary
revenue requirement exhibit showing 9 Staff adjustments
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CASE NO. INT_G-16_02
1.2/1-6/L6
LOBB, R. (Di) 6a
STAFF
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CASE NO. TNT_G_16_02
72/16/76
LOBB, R. (Dr) 1
STAFF
resulting i-n an overall revenue requirement increase of
$5.21 mil-Iion. Mr. Terry describes adjustments for
updated forecasts as of September 30, 20L6, reducing the
revenue requirement by $514,2I4. He also adjusts salary
expenses, profit sharing and for the customer service
center. These adjustments reduce revenue requj-rement by
$6'7 9 ,34'l .
Staff Accountant Barbara Romano presents
adjustments that reduce revenue requirement for specific
Advertising Expenses, GeneraI and Admini-strative Expenses
Her recommended adjustmentsand injuries and damages.
total $318 ,911 .
Utility Analyst Mark Rogers will address the
Company's use of the Basic Discounted Cash FIow (DCF)
methodology for determining its proposed return on equity
(ROE). Mr. Rogers will present his methodology with a
recommended DCF ROE range of 9.252 9.56%.
Deputy Director and Audit Section Supervisor
Terri Carlock further discusses ROE and recommends a
point estimate of 9.25% and a weighted cost of capital of
7.10?. Ms. Carlock also recommends removing cash working
capj-taI from rate base. Rate base is reduced by
$1,131,'743 resulting in a revenue requirement reduction
of $134,941 .
Technical Engineer Mike Morrlson discusses the
Company's class Cost of Service methodo}ogy, weathero25
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CASE NO. TNT_G_15_02
L2/76/76
(Di) B
STAFF
normalization, and mainline extension updates. Given the
inaccuracy of the Company's cost of service study, Mr.
Morrison recommends that the Companyrs revenue
requj-rement be allocated in proportion to the normal-ized
revenue currentl-y being coll-ected from each rate c1ass.
He further recommends that the Commission accept his
weather normal-ization methodology as a more accurate
representatlon of normal- annual gas consumption than that
proposed by the Company. The increased consumption from
his methodology reduces the required annual revenue
increase by $2.02 mi1l1on.
Mr. Morrison recommends that the Company,
Commission Staff, and the Company's stakeholders hold
workshops in order to develop a suitable Load Study and
Cost of Servj-ce methodology for use in the next rate
case. He also recommends that mai-nl-ine extension tariffs
be modified to reflect updated rate of return.
Utility Analyst Stacey Donohue addresses the
Company's Demand (DSM) proposal. Her
calcul-ati-ons and costtesti-mony focuses
effectiveness, the
Slde management
on avoided cost
Conservation Potential Assessment
(CPA) , and the
savings 1n the
very
first
smaIl amount of forecasted energy
year and every year of the five-year
recommends several modifications toperiod. Ms.
the Company's
Donohue
cost effectiveness calculations for variouso25
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measures
aligned
and proposes the Company's DSM portfol-io be
with standard
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CASE NO. INT-G-76_02
72/1.6/16
LOBB, R. (Di) 8a
STAEE
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CASE NO. INT-G-!6_02
72/76/76
(Di) 9
STAFF
Idaho Commission DSM expectations.
Util-ity Anal-yst Bentle y Erdwurm addresses rate
design issues incl-uding residential and general servj-ce
increase incustomer charges, i-ncluding a proposed
cusLomer charges and an associated decrease in base rate
commodity charges.
proposal to comblne
schedul-es (Schedule
He afso addresses the Company's
RS-1 and Schedul-e RS-2)
rate schedule and rate design for the large
transportation cl-asses.
Consumer Investigator Johnathan Farley
addresses tariffs submi-tted with the Company's
the Company to file both
. He al-so address theclean copies
of current line extension tariffs and
the two current residential rate
into a single
volume and
application and
legislative and
outdated nature
the need for
recommends that they be updated through Company
application. Finally, Mr. Farley addresses Gas
Rules and recommends that the Company work with
integrate the rules into service tariffs.
Consumer Investigator DanieI Klein wifl address
varr_ous consumer
convenience fees,
performance, the
customer notice,
issues including payment methods,
pay stations, Customer Service Center
new Customer Information System,
customer rel-ations and credit and
coll-ectlon activity reports.
Safety
Staff to
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Mr. Kl-ein recommends the Company eliminate
convenience fees for its resi-dential customers and cover
the
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CASE NO. INT_G-16_02
72/L6/76
LOBB, R. (Di) 9a
STAEF
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CASE NO. INT_G-76_02
L2/16/16
LOBB, R. (Dl) 10
STAFF
cost of accepting payments at authorized pay stations.
Mr. Klein recommends that Staff work with the Company
after this case to determine the cost of eliminating
these fees, and how the costs coul-d be recovered by the
Company.
The Fixed Cost Collection Mechanism
O. Can you please summarize your position on the
Company's proposed ECCM?
A. Yes. The Company has failed to provide
sufficlent evidence to justify implementing an FCCM at
this time. The Company has no history of energy
efficiency programs, and its proposed Demand Side
Management (DSM) programs do not produce savings this
year or over the next five years that might justify such
a mechanism. Further, the Company has not provided
evj-dence of declining per-customer consumption,
quantified any long-term lost fixed margin, oL provided
any associated financial impact that justlfies such a
mechanism. I, therefore, recommend that the Commission
deny the Company's request for an FCCM in this case.
O. What does the Company's proposed FCCM actually
do?
A. The Company's proposed FCCM would guarantee the
Company recovers a specified fevef of annual fixed
operating costs regardless of volumetrlc sales. Theo25
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total 1evel of fixed costs subject to recovery increases
for every new customer added to the system.
O. Why has the Company reguested the FCCM?
CASE NO. INT-G_76-02
L2/L6/76
(Di) 10a
STAFF
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CASE NO. INT-G-16_42
L2/16/76
LOBB, R. (Di) 11
STAFF
A. The Company maintains that implementing its
an alreadyproposed DSM programs
decreasing usage that
cost col-l-ection margin
wiIl exacerbate
first year and over the
DSM program?
A. The estimated
wiIl further decrease the fixed
flrst five years of the proposed
incremental therm savings are
the first year, and
per customer. The Company also
maintains that there are other factors, such as weather
and the economic conditions, that can have short term
effects on natural gas deliveries.
O. Has the Company provided any evidence to show
the effect of its proposed DSM programs on fixed cost
coll-ection margin?
A. No, not directly. While the Company has shown
the l-evel- of fixed cost revenue collected through each
therm sold, and the projected annual- therm savings in the
first five years of its DSM program, it has not provided
the estimated amount of Iost fixed margin.
O. What is the estimated therm savings 1n the
9'7,825 or 0.032 of
496, 496 incremental
RS therm sales in
year five. This very
therm savings or 0.15U of
modest reducti-on 1n sales
RS sales in
is assumed
to occur even when the DSM di-sincentive is removed
through a FCCM under the Company's proposal.
a. How does the proposed DSM program of IGCo25
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CASE NO. ]NT-G-76_02
12/16/16
LOBB, R. (Di) 12
STAFF
compare to other Idaho util-ities that have requested
fixed cost adjustment mechanisms (FCA) ?
A. Both Idaho Power and Avista had mature DSM
programs long before requesting an FCA
Power showed actual and forecasted DSM
from 0.14% to over 0.62 of totaf sales
(FCCM).
savJ-ngs
for al-l
request.
to 1.1% of
Idaho
ranging
customer
Avista
total-
groups 1n
showed DSM
the five years prj-or to its
savings ranging from 0.52
electric sales and 0.18% of total therm safes from al-I
customer groups 1n prior years. These programs were
generating many times the savings that IGC forecasts, and
without an FCCM.
O. IGC also states that its consumption per
customer is declining. Has the Company provided any
evi-dence to show the decline?
A. No, it has not.
O. The Company identified economic conditions as
having short term impacts on natural gas deliveries. Has
the Company quantified the short term impact of such
conditions ?
A. No. It has not.
O. What effect does the addition of new customers
have on al-fowed fixed cosL recovery under the Company's
FCCM proposal?
A. The Company's proposed FCCM incrementallyo25
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increases the total level- of fixed costs the Company can
collect from customers each year. Rather than
reimbursing the Company for
CASE NO. INT_G_1.6_02
t2/1.6/16
LOBB, R. (Di) L2a
STAEE
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CASE NO. INT-G-16_02
L2/76/76
LOBB, R. (Di) 13
STAEE
total fixed costs as approved
the Company
by the Commissron in a
col-Iects throughcase,general rate
an addltional-
new customer
The
l-evel of fixed cost per customer
the FCCM,
for each
added in between rate cases.
Commission has no opportunity to determine
incurred until a general rateif these costs are actually
case is filed. In the meantime, the
these incremental costs through its
has it been slnceO. How long
general rate case?
A. The Company's last rate case was filed over 30
years aqo. While it is remarkable that the Company has
not had to file a general rate case for such a long
period of time, it does raise questions regarding whether
automat-ic recovery of unsubstantiated fixed cost is
appropriate in between rate cases.
O. Do you have any other concerns regardi-ng the
Company's proposal to i-mplement a FCCM in this case?
A. Yes. The Company justifies its FCCM primarily
on the basis of removing the disincentive for
implementing DSM. However, the Company proposes to
recover l-ost fixed margin from GS customers but offers no
DSM programs f or that customer cl-ass.
In addition, a FCCM assumes that the underlying
cost of service, and therefore fixed costs al-located to
Company recovers
proposed ECCM.
the Company's last
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CASE NO. INT-G-76-02
L2/L6/16
LOBB, R. (Di) l4
STAFF
each class, is relatively accurate
FCCM should not be implemented to
fn other words, dn
col-l-ect a specified
those costs areIeve1 of fixed costs from the RS cl-ass if
more appropriately asslgned to another cl-ass. Given that
the current l-evel of revenue coll-ected from each cfass
was established without cost of service over the last 30
years, and Staff witness Morrison has testified that
underlying information is not avail-able at this tj-me to
properly establ-ish current cost of service, I believe it
1s inappropriate to establ-j-sh an FCCM in this case.
O. Has Staff made any proposal-s in this case that
reduce the level- of fixed costs recovered in the
commodity rate?
A. Yes, Staff has proposed to increase the RS
customer charge from an average of $3.83 per month to
$5.50 per month. Staff has also proposed to increase the
GS customer charge from an average of $4.50 per month to
$9.50 per month. This increases fixed cost recovery
through the RS customer charge by 44%, and fixed cost
recovery through the GS customer charge by 111?, while
significantly reducing fixed cost recovery through the
commodity rate.
O. What shoul-d the Commission do in this case?
A. f recommend that the Commission deny the
Company's ECCM request until it has a more mature, widelyo25
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available DSM program. And even then, the Company shoul-d
be required to
CASE NO. ]NT-G_16_02
L2/t6/L6
LOBB, R. (Di) 74a
STAFF
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CASE NO. INT-G_16_02
L2/76/16
LOBB, R. (Di) 15
STAFF
provide a cost of service
allocates class specific
in an FCCM. Fina11y, the
study that more accurately
fixed cost subject to recovery
provide
new and
o.
historic evidence
Company should be required to
that fixed cost recovery for
necessitates an FCCM.existing
What do
customers
to approve an
A. The
FCCM
you recoflrmend if the Commission chooses
for IGC?
Commission should adjust the Company's ROE
downward to reflect reduced risk through
recovery of embedded flxed costs for new
automatic
and existing
customers, and the elimination of weather
vol-atility-related lost fixed margin from year
O. Does that conclude your testimony in
A. Yes it does.
to year.
this case?
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CSB Reporting
(208 ) 890-s198
LOBB (X)
Staff
(The following proceedings were had in
open hearing. )
MR. KLEIN: We tender the witness for
cros s -examinat ion
COMMISSIONER RAPER: We'11 start at the
same place today all
cross-examination of
day. Does the Company have any
this witness?
MR. WILLIAMS: Thank you, Madam Chair.
CROSS-EXAMINAT]ON
BY MR. WILLIAMS:
u
A
O
Good morni-ng,
Good mornj-ng.
I'm going to
testimony.
Okay.
And on lines
Mr- Lobb
ask you a question on page 1
of your direct
A
nY
referencing
sponsored by
methodology,
13 through
by Mark
7J, you were
the analysis done Rogers and
Terri Carl-ock and the methodology, the DCF
established a reasonabl-e range of 9.25 to
9.56. Do you see that?
A I see that.
O And would you agree that Staff's point
estimate, Ms. Carlock is recommending that bottom number,o otrLJ
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CSB Reporting(208) B9o-s198
LOBB (X)
Staff
9.25 percent?
A
o
were involved
case; correct?
A
O
testimony where Staff
that a 9.5 percent ROI
I'm sorry, ROE?
Yes,
A11
that is her recommendation.
right. Now, in November of 2076, you
in the Avista settl-ement of their rate
Thatrs correct.
And in that settlement, you filed
recommended for settlement purposes
proposes
A ROE, yeS,
O And yet, a
a point estimate
was a reasonable ROI pardon me,
that's right.
month l-ater in this case, Staff
of 9.25 percent. Are there
market differences that would to testify in one
al-so a month l-ater
lead you
and thenproceeding that 9.5, Staff's,
going to 9.25 that
AIn
that's a reasonable point est j-mate?
the Avista case, I was testifying with
respect to the entire settlement package.
a OkaY.
A Okay, if we had gone to hearing, our
proposal on ROE may have been significantly different,
but as part of the settlement package and the testimony
in support, I supported the ROE that we agreed to as part
of that entj-re package.
O Okay; so page 12 of your testimony, youo25
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note that Avj-sta has a fixed cost adjustment mechanism or
a rate decoupling mechanism, so my question on that, in
this case, you're recommending that if the fixed cost
adjustment mechanism is adopted by the Commission and
given to the Company that there be a 25 basis point
haircut for the Company in this case; yet, ln the Avista
case, the Staff recommended 9.5 as a reasonable ROE, so
my question is, if Avista did not have rate decoupling,
wouldn't it make sense that their ROE woul-d have been
another 25 basis points higher than 9.5?
A Could you show me in my testimony where I
recommended a 25 basis point haircut?
O I'm not puttj-ng my finger on it, but maybe
j-t's in Ms. Carl-ock's testimony, but do you recal-l- that
or not?
A I don't recall any basj-s point reduction
specifically associated with either aIIowi-ng or not
allowing an FCCM.
O Okay; so on page 10 of your testimony,
line 8, you state that the Company has failed to provide
sufficlent evidence to justify a fixed cost coll-ection
mechanism, and I'm reading that in your testimony there
as the evidence that you think the Company should produce
is essentially some fost revenues related to DSM
j-nvestment,' would that be a correct surnmary of that?
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CSB Reporting
(208 ) 890-s198
LOBB (X)
Staff
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CSB Reporting(208) 890-s198
LOBB (x)
Staff
A I think it's a combination of informatlon
the Company should provide to show that over the years,
they have been significantly damaged by lost fixed
market. Rel-ative to other utiliti-es, with multiple rate
cases over time, the Staff had an opportunlty to look at
the impacts of reduced consumption per customer. We were
abl-e to identify, in fact, some of the cases were driven
by the effects of reduced consumption per customer, so we
were abl-e to look and look at their hi-story over time.
that impacts
prior cases,
DSM effects
They were able to definitively show how
their earnings. They had made requests in
prior rate cases, with respect to forecasted
that were embedded, that they wanted to embed
could handle thesein their forecasted test year
sorts of losses. The Company
fact, when Intermountain fil-ed
They did provide some
that certainly wasn't
CASE.
no information on declining consumption
its direct case, there was
per customer.
rebuttal, but
so they
has not shown that. In
information in the
provided as part of the direct
O But my question is, and I think this is
part of your answer, is you agreed that a fixed cost
col.l-ection mechanism can be justifj-ed on more than just
conservation investment; correct?
A Wel-lo25
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CSB Report.ing
(208 ) 890-5198
LOBB (x)
Staff
O There are other
A Wel-l-, true, and
misleadinq to tie it all to DSM
originally began the process
cost adjustment mechanj-sms,
the disincentive for demand
factors; right?
I think it's a l-ittle
and I think when we
of looking at FCCMs or fixed
we were looking at removing
side management,
it shifts risk for
and that was
al-l- kindsthe focus, but in reality,
but
of factors, I mean, weather conditions, the economy, and
the effectI think one of the things that we've seen is
of the economy on fixed cost recovery and consumption per
customer.
It's a
from consumption,
so it shifts the
decoupling mechanj-sm that decouples
then it recouples to consumption,
recovery of fixed costs within classes
to various customer groups, so I think the bottom line is
it shifts risk from investors to customers, increases
volatility for weather, things that
investors over
have normally been
time, in fact, forthe responsibility of
your company for the
consumption has been
l-ast 30 years.
Evidence on the record shows that customer
declining since the
Company has not shown
'80s, since
a significant
for a variety of
1980, and yet, your
impact on earnings
reasons.
over that time period
O Okay; so Mr. Lobb, I want to go back to25
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CSB Reportlng
(208 ) 890-s198
LOBB (X)
Staff
that l-ast question and I do apologize, it was not your
testimony, it was Ms. Carlock's testimony, which I think
you referred to, but in her testimony, and I'm going to
read to you, Staff recommends the point a point
reduction of 25 basis points resulting in a return on
equit.y of 9 percent rather than 9.5 percent if the fixed
cost col-lection mechanism was in place, so back to my
Avista question, with Avista having a 9.5 percent awarded
ROE in November, had they not had decoupling, would it
have been reasonable for Staff to recommend a 9.15
percent ROE?
A I think outside of a settlement, we very
Iike1y could have in a rate case, in a litigated rate
CASE.
MR. WILLIAMS: Madam Chair, I have no
further questions.
COMMISSIONER RAPER: Thank you.
Mr. WilIiams.
MR. STOKES: We have no questions, Madam
Chair.
MR. PURDY: I have no questions, Madam
Chair.
MR. RICHARDSON: No questions, Madam
Chair.
COMMISSIONER RAPER: Mr. Otto?25
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CSB Reporting
(208 ) 890-s198
LOBB (x)
Staff
MR. OTTO: I do have two questions, Madam
Chair.
CROSS-EXAM]NATION
BY MR. OTTO:
O Good morning, Mr. Lobb.
A Good morning.
O Eirst, af the fixed cost adjustment
applled only to the residential cl-asses in which
Intermountain Gas is proposing DSM programs, so here
that's the resldential- class, So if that were true and
the Company implemented a more robust DSM portfolio,
would that change your perspective on the appropriateness
of the fixed cost mechanism?
A Perhaps, but, again, I don't believe the
flxed cost adjustment mechanism j-s about DSM necessarily,
partlcularly in this case. The Company's proposal- is for
a fixed cost adjustment mechanism that incents them to
provide DSM that other utilities in Idaho have provided
without a fixed cost adjustment mechanism, so it's kind
of we simply can't it seems to me that the Company is
sayr_ng
they've
we simply can't do that and won't do t.hat and
recovery
already sald
for it, but
that if we don't get fixed cost
the fact is the level- of DSM, eveno25
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CSB Reporting
(208 ) 890-s198
LOBB (X)
Staff
with the fixed cost ad;ustment mechanism, is relatively
smal-l compared to the impact of a fixed cost adjustment
mechanism for other factors, weather, whatever el-se.
I think there's real questions about the
cost effectiveness of DSM programs. Avista had
program
wasn't
Intermountain doesn't necessarily
a gas DSM
it
company.
those economies of
for years. They discontinued 1t because
cost effective, because avoided cost gas prices
are so 1ow that there are questions about the cost
effectiveness of DSM going forward. They have economies
of scal-e. They're an electric and gas
have
scale, so I thlnk
cost effectiveness
Intermountain Gas
there's questions about DSM
going forward, the ability
in Idaho to perform those
so I'm not sure that an FCCM necessarily has
programs'
of
programs, and
to be pinned
or the DSM program, the quallty of the DSM program,
necessarily drives the fixed cost adjustment mechanism.
O T have one follow up-question there.
Isn't it true that Avista has now reinstituted their gas
program
at their
programs
reduced
have in
finding it to be cost effectlve recently?
A Well-, we're certainJ-y looking very closely
cost effectiveness calcul-ations in that, the
that theytve undertaken. I know that they've
their savings forecast somewhat over what they
the past to try to incorporate programs oro25
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CSB Reporting
(208 ) Be0-s198
LOBB (Com)
Staff
measures that are more cost effective.
O And then the l-ast question I have is in
your opinion, regardless of what
about the fixed cost collection
support Intermountain Gas going
cost-effective DSM?
A I would.
MR. OTTO: That's
have.
the Commission deci-des
mechanism, would you
out and acquiring
concepts of rate
that l-i-ne of
Northwest Industrial
related, and frm
all the questions I
COMMISSIONER RAPER: Any questions from
the Commissioners? Commissioner Kjellander.
EXAMINAT]ON
BY COMMISS]ONER KJELLANDER:
O Mr. Lobb, just so I make sure f'm asking
the right person, you are serving as Staffrs general
policy witness today?
A Yes, I am.
O Erom a broader policy perspective,
yesterday there was a line of questioning from
Amalgamated Sugar that looked at the
shock and gradualism, and in some of
questioning with Mr. Gorman from the
Gas Users, his response in part as ito25
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CSB Reporting(208) 890-s198
LOBB (Com)
Staff
paraphraslngr so I apologize if I missed some of that,
his response in part was that if you decide to move
closer or to delay the implementation of cost of service
for Amal-gamated Sugar, instead of just having the cost
shifting or cost recovery among that class of customers,
it should be spread across all classes of customers. I'm
wondering from a policy perspective, what's that take in
order to try and justify something l-ike that from your
perspective? What are the elements that need to be on
the table that woul-d help a Commisslon try to move in
that direction if in fact that's a path the Commission
moves forward on?
A WeIl,
Company's filing in
that it attempts to
I think one of the things about the
this case is the number of things
achieve i-n one fe1l
you
the
many
but
can't have one rate case in 30 years
swoop. I mean,
and implement
concept of gradualism and f don't know what how
rate cases the Company plans to have 1n the future,
there's a lot of pieces and parts to this case and it
doesn't just deal- with the large
It deals with combining RS-1 and
industriaf customers.
RS-2. It deals with
significant
beyond what
service. It deals
proposed increases in customer charges wel-I
we see in other companies.
deals with fu1l move to cost of
with the ECCM. The Company is looking
It
a 25
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LOBB (Com)
Staff
at a program to track fixed cost investment in between
rate cases, so f don't know what type of opportunity
we're going to have for gradualism. We have differences
in the cost of service study with the Company and to the
extent that Amalgamated --
a one-time move. It's the
I mean, their move is kind of
$0.30 per therm demand charge.
towards aClearly, Staff has
demand charge.
supported a partial move
When you don't have any and all of a
sudden you implement one, other rates go down and so j-f
your savings are not as great on the commodity piece,
then your rates go up, because you're paying a higher
demand charge. We support the concept of demand charges
for large industrial customers. Load factor is
important. We believe in the implementatlon of in the
cost recovery of capltal, so I don't know if I answered
your question.
COMMISSIONER KJELLANDER: No, I think you
did. Thanks.
COMMISSIONER RAPER: Any other questions
generated from the Commissioners?
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LOBB (Com)
Staff
EXAMINATION
BY COMMISSIONER RAPER:
O I have a couple. With regard to a DSM
program in advance of allowing a fixed cost recovery
mechanism, how long wou1d Staff be comfortabl-e to have a
DSM program in place? f mean, do you foresee a time
frame within which if you saw some progress and benefj-ts
of a DSM program that Staff could then support fixed cost
recovery for Intermountain Gas?
A
discuss it with
implemented.
companies well-
mechanism like
doesn't weather normalize,
is yes, we would certainly
I think this
chance for the Company
adjustment mechanism.
may get to say yeah or
We'd certainly like an opportunity to
the Company bef ore j-t's actually
mean, we had discussions with other
in advance of their request for a
this and so we talk about the fixed cost
I
adjustment mechanism that Avista has. It excludes
things, certain j-tems, from recovery and for new
customers. Itrs a three-year pi1ot. It does have it
of situation right now where this
so the answer to your question
consider that.
r_s a take-it-or-leave-it type
is our this is the
a fixed costto implement
This is the only chance the Staff
nay on that without talking to thea25
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LOBB (Com)
Staff
Company about what they plan to do, how they plan to do
it, really whether it fits what we thj-nk they need to be
doing with respect to demand side management and what the
impacts are overafl. Like I say, it doesn't just hinge
on the demand side management program that they
implement. It also has other far-reaching effects, rate
volatility impacts, those sorts of things from year to
\ 16 a r
O So -- but there's not, 1ike, a time frame
that you can
you mentioned
state? You don't want to see like f 1ke
of activity or
out there?
A
the piIot, you don't want to see two years
four years of activity, it's just sort of
f don't have any time frame in mind where
I would say if they reach this certai-n level of DSM
activity, then we would support a fixed cost adjustment
mechanism as they propose. I don't have any time line on
that. I think one of the things we're real-Iy looking at
1s Avista's pilot FCA program associated with the gas
slde of the industry. We've had electric in place for a
Iong tj-me. We understand that. We recently changed to
remove the weather normalization aspect. There's going
to be a lot of rate vol-atility associated with that.
Sometimes rates are going to go down and sometimes rates
are going to 90 up, and I think one of the things we'reo25
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LOBB (Com)
Staff
tracking right now is the deferral from 2075 to 2076.
201,5 was a pretty warm year. We had some
pretty big
going to be
deferrals as a result of weather, so
deferring those costs, the
customers had because of l-ower reduced
savr_ngs
weather
l-ower
you're
that
i-n those
years or better weather in those years,
consumption, and now that is going to be shifted to this
year and the recovery is golng to be next year for l-ast
year, and so we're going to be kind of pancaking. If you
have two bad years in a row, you're going to be pancaking
rates for prior years, especially if you have a cap.
Avista al-so has a cap in theirs, a three percent cap. I
think the revenue that they deferred is in the 8-10
percent range, so you're going to be moving those costs
down the line, So we're kind of j-nterested and concerned
about how that's going to affect rates in the future.
O Okay, one more question, subject change,
and it goes to what Commissioner Kjellander was saying,
you as the generalist, so if you want to push this off to
one of your other experts, but you're generally
considered an expert in all the fields, so if your
experts that are other witnesses, regarding load factor,
you mentioned load factor, but not with regard to
Amalgamated specifically, my understanding of the
evidence is that the reason that Staff proposed somethingo25
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Staff
other than the cost of service study that the Company
data; isproposed is because there is not l-oad factor
that correct?
A We had l-oad factor data for the large
industrial- customers .
O Right; so that goes to my questi-on,
though, Ioad factor data takes the right equipment on the
customers to be abl-e to analyze that and determine how
costs shoul-d be al-focated. It's not Staff's proposal, is
it, to install to incur the costs of installing
equipment on the other customers simply to get a cost of
service study that has more data, is it?
A Well, our l-oad study request is basically
with regard to the RS and GS classes. There isn't l-oad
data for those classes. Those cl-asses are the ones
taking the hit
actually being
customers under
factor data for
what the demand
in terms of shifting costs. Costs are
shifted away from Iarge industrial
the Company's proposal. We do have load
the large industrial c1ass, so we know
is for each of those customers and how
costs are caused generally by demand.
I mean, the simple fact
if you have a high demand and you donrt
is mathematical-1y,
use a lot of
energy on
much cost
a consistent basis, then you don't recover as
with respect to the cost that you cause as youo25
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otherwise woul-d. I don't know if I explained that very
wefl, but the fact is we agree that the large industrj-af
customers, we have cost causatj-on information whlch is
capacity, peak day load, and that's what the demand
charge is designed to recover is costs associated with
capacity, providing capacj-ty, which isn't necessari-1y
supported by volumetric standards.
O Okay, is it standard within the industry
to have, within the natural gas industry to have, load
factor data on all customers in order to assure the
validity of a cost of service study?
A Itfs very common in the el-ectric industry
for sure. They do sampling data, so they go out and they
have sample data to determine what the load factor is for
the various cfasses, so they can determine on peak day
what is the responsibility of the residential class
versus the total, what's the responsj-bility of a
commercial cl-ass versus industrial- cl-ass, So it gives you
a very good idea of cost causation and responsibility of
the various classes with respect to the amount of
facilities that are in place to serve peak day. Peak day
to a big extent drives i-nvestment by electric and gas
utilities.
COMMISSIONER RAPER: That was more than
one. My apologies for that, but thank you for your
CSB Reporting(208) 890-s198
LOBB (Com)
Staff
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CSB Reporting(208) 890-s198
LOBB (Com)
Staff
explanation. That' s al-l- f have.
fs there any redirect?
MR. KLEIN: Just a moment.
(Pause in proceedings. )
MR. KLEIN: We're good, thanks.
COMMfSSIONER RAPER: Okay, Mr. Lobb, thank
you for your testimony and time.
(The witness left the stand. )
COMMISSIONER RAPER: Staff can call its
next witness.
MR. KLEIN: Staff cal1s Donn English.
DONN J. ENGLISH,
the instanceatproduced as a witness
having been flrst duly
truth, and nothing but
testified as follows:
sworn to tell
of the Staff,
the truth, the whol-e
examined andthe truth,was
MR. KLEIN: Mr. English didn't f il-e direct
testimony in this case. There was testimony fiJ-ed by
Staff witness Barbara Romano. Ms. Romano is no longer
employed by the Commission and so Mr. English is going to
be sponsoring her testimony, so I will ask him a slightly
different set of questions.
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CSB Reporting(208) 890-s198
BNGL]SH (Di)
Staff
DIRECT EXAMINATION
BY MR. KLEIN:
record?
O Coul-d you please state your name for the
A My name is Donn
And by whom are
English.
you employed and in what
capacity?
A Irm employed by the Idaho Publ-ic Utilities
Commission as a senior auditor.
O In that capacity did you work with Barbara
Romano?
A Yes, I did. I reviewed aII of her audit
plans and work in this case.
O And have you reviewed her testimony in
this case?
A I have.
O And are you prepared to sponsor that
testimony here and be cross-examined on it?
Yes, I am.
Are there
There are
any changes to that testimony?
no changes, but I wou1d l-ike to
caveat some information that was provided in rebuttal- by
Mr. Dedden of the Company. There were two expenses in
Barbara Romano's exhibits that were doubl-e counted and
A
O
A
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ENGLISH (Di)
Staff
there was one expense that we did remove that was later
reimbursed, so in total, it was $1,598 that we woufd
concede from our adjustment.
O Do you have any other changes?
A None other than that
O Subject to that caveat, if I were to ask
you the same questions in Ms. Romano's testimony today,
woul-d your answers be the same?
Yes, they would.
MR. KLEIN: I ask that the testimony of
spread on theBarbara Romano adopted by Mr. English be
record as presented here today and that
exhibits be admitted into evidence.
her accompanying
A
COMMISSIONER RAPER: Without
Ms. Romano's testimony sponsored by Mr. Donn
be spread upon the record as if read, along
101 and 202.
obj ection,
Bnglish will
with Exhibits
(Staff Exhibit Nos. 101 & 102 were
admitted into evidence. )
(The following prefiled direct testimony
of Ms. Barbara Romano sponsored by Mr. Donn English is
spread upon the record. )
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CASE NO. INT-G_16-02
12/76/16
ROMANO, B (Di) 1
STAFE
record.
is 412
O. Please state your name and address for the
. My name is Barbara Romano. My business address
W. Washington Street, Boise, Idaho 83102.
. By whom are you employed and in what capacity?
A
A
Commission
I am employed by the
(Commission) as an
Idaho Public Utifities
auditor in the accounting
section.
O. What is your educational and professj-onal-
background?
A. I graduated from Saint Mary's College of
California with a BS degree in Accounting and an MBA in
Business. I have 30+ years of financial- and operational
accounting experience. I have worked for both profit and
not-for-profit organizations including seven years as an
Accounting Manager with the Deaf and Disabl-ed
Telecommunications Program in Cal-ifornia (under the
supervision of the California Publ-ic Utilities
Commission) performlng financial and inventory audits of
over 500 telephone companies. In my current assignment,
I am responsible for auditing utilit.y cases fil-ed with
the Idaho Public Utilities Commission.
I have served as a board member on the
President's Advisory Board for Idaho State University and
as a board member and treasurer for the Women ino25
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Transltion Project. I have taught both undergraduate and
graduate courses in Accounting and Economics for the
University of Phoenix, Boise Campus.
O. What is the purpose of your testimony?
A. The purpose of my testimony in this proceeding
is to present Staff's position on:
1. Sal-es and General- Advertising Expenses,.
2 . Management Expenses,'
3. Miscellaneous and Other Expenses;
4. Injury and Damage Expenses;
5. Encoder Receiver Transmitters (ERTs) and
Meters related to Pl-ant-In-Service, Accumulated
Depreciation, and Depreciation Expense; and
6. Gross Revenue Conversion Factor.
O. Are you sponsoring any exhibits with your
testimony?
A. Yes, I am sponsoring Exhibit Nos. 101 and 102.
SAIES AIiID GENERJAT AD\IERTISING EXPENSES
a. Please explain Staff 's position on Sal-es and
General Advertising Expenses.
A. Staff reviewed the Company's proposed Sal-es and
General Advertising Expenses to ensure that they only
included expenses that directly benefit the Company's
customers and are used and usefuf in providlng safe and
reliable utility service. After revlewing the Company's
CASE NO. ]NT-G-16_02
L2/76/76
B (Di) 2
STAFF
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Sales and General- Advertising Expense accounts,' sampling
Invoices and supporting documentation, I believe many of
the Company's cl-aimed expenses satisfy these tests and
should be included for recovery through rates. For
example, Staff all-owed many costs associated with
advertisements and/or products associated with Parade of
Homes reminding ratepayers that installing gas appliances
in place of el-ectrical appliances could result in
savings. Also, Staff allowed costs associated with co-op
advertising agreements with local businesses. These ads
again remind the ratepayer of the low cost of usj-ng
naturaf gas instead of electricj-ty to heat their homes.
On the other hand, Staff determj-ned that some of the
Company's proposed expenses are not safety related and do
not directly benefit the Company's customers. Staff
recommends that these expenses be disallowed, and that
the Company's proposed revenue requirement be adjusted
downward to reflect their removal-.
O. Would you please describe Staff's recommended
adjustments to Sales and General Advertising Expenses?
A. Yes. Staff recommends removing $190,980 in
Sal-es Advertising and Admj-n/General Advertising Expenses
as shown in Exhibit No. 101 for 2076 test year expenses.
This amount incl-udes:
1. $17,681 in Sales Advertising Expenses
CASE NO. INT-G_16_02
1.2/16/1.6
ROMANO, B (Di) 3
STAFE
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CASE NO. INT_G-16_02
t2/16/16
ROMANO, B (Di) 4
STAEF
(Account 913.0), consisting of $13,430 in expenses
representing 18.9% of total- actual costs January through
September 2076, and $4,257 in expenses representi-ng 18.9%
of forecasted costs for October through December 2076;
2. $173,299 in General Advertising Expense
(Account 930.1) and Miscellaneous General Expense
(Account 930.2) , consisting of $729,'738 in expenses
representing 45.12 of total- actual costs .Tanuary through
September 2016, and $43,561 j-n expenses representing
45.7% of forecasted costs for October through December
2076.
To calculate the amount of the expenses to be
Company's actual
Staff then determined
removed, Staff fj-rst audited the
expenses through
what percentage
removed because
directly benefit customers. Lastly,
percentage of actual- expenses removed
expenses for the last quarter of the
September 20L6.
of those actual expenses should be
they were not used and useful- and did not
Staff applied the
to the forecasted
2016 test year to
complete the amount of the total recommended adjustment:
$190, 9Bo.
O. Has the Company already removed similar
expenses from its case?
A. Yes, the Company removed $256,321 in expenses
for charitable donations, civic, political- and relatedo25
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CASE NO. INT-G-15_02
72/16/76
ROMANO, B (Di) 5
STAFF
activj-ties as part of their Miscellaneous Expense
Adjustment (Exhibit 15, page 22) . When
Company's books, Staff dlscovered that
Staff audited the
the
claimed additional amounts that shoul-d have
Company had
been removed
as shown on Exhibit No. 101
WouId you please
Yes. Exhibit No.
to my testimony.
describe Exhibit No. 101?
101 il-l-ustrates Staf f 's
O
A
ad3ustments to proposed Sales and General-
Expenses for the 2076 test year
Schedule 1 of Exhibit No. 101:
totaling
Advertising
$190, 980.
this exhibit shows the
calcul-ation of the percentage of actual- adjustments to
the total amount of expenses, and applies that percentage
to the Company's forecasted amounts for October through
December 2076. Schedul-e 2 summarizes the expenses that
make up Staff's adjustments based on Staff's audit of the
Company's actual- expenses through September 2016.
Schedule 3 further details and supports the amounts
listed on Schedule 2.
O. Pl-ease explain your rational-e for this
adj ustment.
A. Whil-e Staff acknowl-edges and supports the
Company' s
events in
participation in community organizations and
Idaho and accepts that these activities create
goodwill for the Company, these
inappropriately included in the
expenses are
Company's revenue25
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CASE NO. ]NT-G-]-6_02
t2/76/16
ROMANO, B (Di) 6
STAFF
requirement. Expenses that enhance the Company's image
in the community or do not directly benefit the
ratepayers or enhance the delivery of services, such as
donations to charities or sponsorships at charitable
events and golf tournaments shou1d be excl-uded from
rates. Ratepayers should not be forced to support
organizations whose ideology they may not agree wlth by
including these expenditures in customers' rates.
O. Is Staff's position consistent with Staff's
positions
A.
and Commission decisions in other cases?
Yes. Since Case No. WWP-E-98-11 and the
Commission's resul-ting Order No.
and the Commission agreed that a
930 should be removed from test
28091, Staff has argued
percentage of Account
year expenses to refl-ect
the disallowance of expenses for lobbying, enhancing the
Company's image in the community, and maximizing
shareholder value. These types of expenses are
consistently treated as standard regulatory adjustments
and are removed from revenue requirement in all rate
cases.
O. Please explain Exhibit No. 101, Schedul-e 2,
Iine 1
A. Exhibit No. 101, Schedule 2, Iine 1 is an
adj ustment
year actual-
that eliminates $32,765 from the 2016 test
expenses for monies spent on golf-relatedo25
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CASE NO. INT_G-16_02
t2/1.6/76
ROMANO, B (Di) 1
STAFE
activities and sponsorships. Participation 1n these
activities does not benefit the ratepayer or enhance
ratepayer or employee safety, and customers shou1d not be
required to pay for these golf-related costs in their gas
rates. Golf-rel-ated expenses have been routinely removed
from revenue requirement calculations for fdaho's other
utillties.
O. Pl-ease explain l-ines 2 and 3 on Exhibit No.
101, Schedule 2.
A. Exhibit No. 101, Schedule 2, Iine 2 ts an
removes $53,566 from the 2076 test yearadjustment that
actual expenses
contributions to
Exhibit No. 101,
removes $15,000
the Company paid in donations or
charities supporting
Schedul-e 2, 11ne 3 is
donated to the American
Iocaf events.
an adlustment that
Heart
Staff commendsAssociati-on's annual Heart Wa1k. While
the Company for contributing to these fine organizations,
it is inappropriate for the Company to charge those
expenses to customers through rates. Customers who wish
to support these or other charitabl-e organizations may
vol-untarily do so on their own. But they shoul-d not be
forced to pay for these costs in gas rates.
O. Please explain line 4 on Exhibit No. 101,
Schedule 2.
A. Exhibit No. 101, Schedule 2, line 4 is theo25
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CASE NO. INT-G_L6-02
12/16/16
ROMANO, B (Di) B
STAFF
adjustment to remove
Company paid to the
cities. Chambers of
$18,150 from test year expenses the
Chambers of Commerce of several Idaho
Commerce advocate for businesses on
i-ssues that impact the businesses' ability to
compete in the market. But here, where the
monopolistic utility, the Chambers' actions
succes s fully
Company is
should not impact the Company's success. As with
donations and contributions, Staff recommends removing
these expenses because they do not benefit ratepayers.
Chamber of Commerce expenses have been routinely removed
from revenue requirement cal-culations for Idaho's other
utilities.
O. Please explain line 5 on Exhibit No. 101,
Schedul-e 2.
A. Exhibit No. 101, Schedule 2, line 5 is an
a
adj ustment
$11 ,4'73 1n
charities
funds for
that removes, from
gas grills that the
actual- expenses,
donated to
or rafffe to raise
test year
Company
auctionthroughout Idaho for
that charity. Again,while Staff commends the
Company
beli-eves
those expenses to
O. Pl-ease
and 7 on Exhibit
for contrj-buting to these
it is inappropriate for
organizations, Staff
the Company to charge
through gas rates.
adjustments found at lines 6
customers
explain
No. 101,
the
Schedul-e 2
A. Exhibit No. 101, Schedule 2, Iine 6 removes,o 25
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from test year actual expenses, $3,414 in expenses the
Company incurred through donations to Idaho Boys and
Girls Clubs and Girl Scout organizations. Exhibit No.
101, Schedule 2, line 7 removes, from test year actual
expenses , $2,800 in expenses for supplies that the
Company donated to Boise's Paint the Town event. Any
customer desiring to contribute to these or other
organizations may voluntarlly do so on their own.
Customers should not be required to pay for these costs
in gas rates.
0. Please explain the adjustment at line B on
Exhibit No. 101, Schedule 2.
A. Exhibit No. 101, Schedule 2, line B is Staff's
recommended, $143,168 total adjustment to Advertising
expense Accounts 913, 930.1 and 930.2 for actuaf expenses
incurred from January through September 2076. Staff's
recoflimended adjustment of $190,980 in Sales Advertising
and Admin/GeneraI Advertising Expenses as shown in
Exhibit No. 101 for 2016 test year expenses, consists of
the $143,168 shown on Exhibit 101, Schedu]e 2, line B,
plus an additional- adjustment of $41,872 applied to the
Company's forecasted amounts for the last three months of
2016, dS shown on Schedul-e 1 of Exhibit No. 101.
!{ANAGEMENT EXPENSES
a. Please explain Staff's review and concern
CASE NO. INT-G_16_02
72/L6/76
ROMANO, B (Di) 9
STAEF
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rel-ated to the Company's proposed Management Expenses.
A. During Staff's audit, I asked to review the
Company's expense reports of alI management personnel. I
reviewed the expense reports of sixteen Company managers,
and fuJ-1y scrutinized the reported expenses for the
perj-ods June through December 2075 and January through
June 2016. As a resul-t of my review, Staff determined
that certain managers had reported extraordinary or
unnecessary expenses that shoul-d not be recovered from
customers through rates. Staff afso audited the
managerial expense accounts to identify any other obvious
expenses, not included in the management expense reports,
with which Staff might disagree.
The review consisted of two steps. First, I
determined if any of the expenses were unreasonable and
shoul-d be removed from the test year. Second, I
determined if any of these expenses were associated with
non-regul-ated operations or affiliate operations.
O. What did you determine from your review?
A. I determined that the managerial expense
accounts contained expenses for employee Christmas party
meal-s and entertainment, and donations to charitable
organizations. Staff recommends removing $79,072 of the
2076 test year expenses consistent with Commission
precedent set forth in Order No. 29838. This amount
CASE NO. INT-G_16_02
t2/76/76
ROMANO, B (Di) 10
STAEE
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consists of $17,2L2 in actual expenses j-ncurred January
through September 2076, and $7,800 in expenses that are
expected to be lncurred from October through December of
2016 based on expenses that were actually incurred during
the same months in 2015. Exhibit No. L02 detall-s this
adjustment. These expenses are not an ordinary or
necessary cost of providing utility service to customers,
and are excessive and unreasonabl-e to charge to
customers. Staff did note that the Company's proposed
revenue requirement does not include some of these
unnecessary 2076 test year actual expenses, such as
expenses relating to the Arid Club. Staff confirmed that
its reconimended adjustments are in addition to those made
by the Company, and not incl-uded in the Companyrs
original adjustment. Exhiblt No. 1-02 summarizes the
remaining expenses Staff bel-ieves to be inappropriateJ-y
charged to customers. Staff recommends these expenses be
removed from the Company revenue requirement.
MTSCELI,A}IEOUS A}iID OTHER EXPENSES
O. P1ease explain Staff's posltion on
Miscel-Ianeous and Other Expenses.
A. The Company voluntari-Iy removed $256,327 from
revenue requirement for expenses related to Arid Club
Dues, Donations, and Civlc, Political and Rel-ated
Activitles. The Company's adjustment can be seen on
CASE NO. ]NT-G-76_02
72/L6/76
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CASE NO. ]NT_G_76-02
72/15/76
ROMANO, B (Di) 12
STAFF
Company Exhibit No. 15,
Miscellaneous and Other
Staff revi-ewed bothpage 22.
Expense accounts, sampling
fnvoices, and supporting documentatj-on, and confirmed the
Company ad;usted:
1. $108,926 in actual reported expenses for
January through June 20L6 This amount consists of $2,123
in Arid Cl-ub expenses (Account 426 .5) , $ 3 6, B 5 9 in Civic
and PoIitical Activities expenses(Account 426.4), $68,926
in Donations (Account 426.7), and $418 in other
expenses (Account 426.5); and
2. $\41 r395 in forecasted expenses for July
through December 2076. This amount consists of $1,410 in
Arid Club expenses (Account 426.5), $112,591 in Donations
(Account 426.7) , and $33,394 j-n expenses for Civic and
PoIitical Activities (Account 426.4) .
Staff 2016 test year costs combine with Company
adjustments for a net zero in Other Expense costs. Staff
accepts the Company's adjustment to remove theses costs.
IN.'I'RY A}ID DA},IAGE EXPENSES
O. Did you review the amounts spent for Injurles
and Damages included in the case?
A. Yes. I revj-ewed the Company's Response to
Staff Production Request No. 17, which incfuded alI
Injuries and Damage claims from 2070 through August 20L6.
Claims prior to 2016 were reviewed only to determineo25
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CASE NO. INT-G-L6_02
L2/1"6/76
ROMANO, B (Dr) 13
STAFF
historical- levels for comparison to 2076 amounts. They
would not impact rates because they were incurred prior
to the test year. Clalms incurred durlng 2016 were
reviewed more carefully. Most Injuries and Damage claims
originate because of negligence of Company personnel- and
are accidental in nature, therefore an argument could
easily be made that aII expenses for Injuries and Damages
shoul-d be excluded from rates. However, when reviewing
Injuries and Damages, Staff focuses on the largest claims
that are the most egregious and non-recurring in nature.
This approach leaves a baseline l-evel- of Injuries and
Damages in rates to account for the smaIl, routine
accidents that unavoidably occur when you have a large
number of employees workj-ng in the fiefd.
O. Do you propose an ad;ustment. to Injuries and
Damages ?
A. Yes. I propose
one specific cl-aim. After
an adjustment of $107,239 for
sensitive costs, this
revenue requirement by
JDl, Col-umn 9 .
O. Pl-ease explain your adjustment to remove this
cl-aim.
A. An fntermountain Gas customer had separate
service meters to a house and a shop on their property,
gros s
adj ustment
$179,148
up for taxes and revenue
reduces the Company's
as shown on Exhibit No.
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CASE NO. INT_G_16-02
72/76/76
ROMANO, B (Di) L4
STAEE
and requested service be discontinued to only the shop.
The Company employee responding to the request mistakenly
turned off the incorrect meter, shutting off service to
the house instead. The customer's pipes then froze
causing extensj-ve water damage. Before responding to the
service call, Intermountai-n Gas Company employees should
know that the customer had two meters, the exact "l-ocation
of the meters, and the service that was to be
discontinued. It would be inappropriate to include this
costly settlement in rates because the mistake was
avoidable. Additionally, after this settlement, the
Company reviewed its procedures and updated its practices
to avoid having another incident like this occur in the
future. Staff expects that a mistake like this one,
causing extensive damage to customer property, would be a
non-recurring event and therefore appropriately removed
from the test year.
ENCODER RECEI\ZER TRANSMITTER I'NITS (ERTS) AI{D METERS
O. Pfease explain Staff 's position on ERT Unj-ts
and Meters rel-ated to Plant-In-Service Investment,
Accumul-ated Depreci-ation and Depreciation Expense.
A. Staff independently revj-ewed the ERT Units and
Meters because they were being replaced earlier than
expected,
resul-t of
and depreciation rates were increased as a
this change. It was necessary to review the25
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CASE NO. INT-G-76_02
72/76/1,6
ROMANO, B (Di) 15
STAEF
process, and
the prudence
interviewed the Company's
personnel, and
to verify proper accounting treatment and
of costs included in rates. Staff
Meter Shop
into service are part of
program or
u.
entail ?
for new service.
What does the Company's ERT replacement program
A. The Company started its ERT replacement program
in 2014, and the program is scheduled to be completed 1n
20L1. By way of background, the original ERT units
(Model- 40G) were put into service with an estimated life
of 20 years. Under the ERT replacement program, the
Company returns the original ERT units to its Meter Shop
as they are replaced with new ERT units (Mode1 100G).
The Company then retires the origi-nal ERT unit cost from
Pl-ant-In-Service and Accumulated Depreciation accounts.
The original units are shipped to a recycle company for
disposal of the hazardous lithium battery. There is no
salvage value associated with the original ERT unit, and
the cost of removal is included 1n the ERT Instal-l-ation
account.
New model- meters are install-ed for new
services, ot to replace a fail-ed meter at an existing
service. Meters that faif in the fiefd are returned to
Purchasing, Accounting, and
learned that al-l ERT units put
the Company's ERT replacement
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CASE NO. INT_G_76_02
72/76/76
ROMANO, B (Di) L6
STAEF
the Meter Shop to
meter is put back
needed. If the meter
to be i-nstalled as
be refurbished. If refurbished, the
into inventory
cannot be refurbished, it is
retired from Plant-In-Service and Accumulated
Depreciation accounts.
O. Did Staff review the Plant-In-Service ERT Units
and Meter accounts?
A. Yes. Staff reviewed and tested
PIant-In-Service ERT Units and Meter accounts and found
them to be accurate as presented. Staff reconcil-ed the
respectlve Accumulated Depreciation accounts to the
Depreciation accounts and didn't find exceptions. Staff
confirmed that the Company is using the
Commission-approved depreciation rates of 74.22% (ERT
Units) ; 11. BBZ (ERT Installation) ; and 1. B9% (Meters) ;
2.37? (Meter Instal-lation) . Staff reviewed the Company's
ERT Replacement Program contract wlth Itron and confirmed
that costs incurred to date fol-l-ow the contract pricing
schedule. Staff befieves the Company fairly presented
its actual- and forecasted costs for Plant-In-Service ERT
Units, ERT Instal-l-ation, and Meters and Meter
InstalIation.
GROSS RTVENT'E CO}{NTERSION FACTOR
a. Please explain Staff's review and
recommendation on the Gross Revenue Conversion Factor.o 25
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A. In order to set a revenue requirement, a
utility must "gross up" its net operating lncome to
account for tax liabilities and other fees and taxes that
will change as a resul-t of a change j-n revenue. In this
case, the Company has proposed a Gross Revenue Conversion
Factor of 1.67055. Based on review of documentation
provided by the Company for the Test Year Ending December
31, 201,6, Staff agrees with the Company's proposed Gross
Revenue Conversi-on Factor. Staff confirmed that the
Company used the most recently approved assessment rate
for the Commission Fees, and that the Uncollectib1e
Expense percentage represents a reasonable approximation
based on historical averages. After verifying these
revenue sensitive inputs, Staff accepts the Company's
proposed revenue conversion factor.
O. Does this conclude your direct testimony in
this proceeding?
A. Yes, it does.
CASE NO. INT_G_76_02
t2/76/76
ROMANO, B (Di) 11
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CSB Reporting
(208 ) 890-s198
ENGLISH
Staff
open hearing. )
English for cross-examination.
Company have any?
MR.
MR.
MR.
MR.
Chair.
COMM]SS]ONER RAPER:
MR. OTTO: Much to
have no questions for Mr. English.
COMMISS]ONER RAPER:
questions from the Commj-ssion?
(The foll-owing proceedings were had in
MR. KLEIN: Thank you, and we tender Mr
COMMISSIONER RAPER: Thank you. Does the
WILLIAMS: No questions.
STOKES: No questions, Madam Chair.
PURDY: I have no questions.
RICHARDSON: No questions, Madam
Mr. Otto?
my disappointment, I
Thank you.
Thank you. Are there
COMMTSSIONER KJELLANDER: NO.
COMMISSIONER RAPER: No redlrect necessary
from Staff's attorney, So thank you, Mr. EngIish, for
sponsoring the testimony
THE WITNESS:
water up here for the next
(The witness
MR. KLEIN:
I will leave this cup of
person.
l-eft the stand. )
Staff calIs Joe Terry.
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CSB Reporting
(208 ) 890-s198
TERRY (Di)
Staff
JOSEPH TERRY,
produced as a wj-tness at the instance of the Staff,
having been first duly sworn to tel-l- the truth, the whole
truth, and nothing but the truth, was examj-ned and
testif ied as f oll-ows:
D]RECT EXAMINATION
BY MR. KLEIN
Pl-ease state your name for the record
My name is Joseph Terry.
By whom are you employed and in what
capacity?
A I'm employed by the Idaho Publ-ic Util-ities
Commission as a senior audltor.
O Are you the same Joe Terry who filed
direct testimony wi-th Exhibits 103 through 106 on
December 15th, 2016, along with corrected testimony on
Eebruary 9th, 2071?
A Yes.
O And after you filed the corrected
testimony on Eebruary 19th, 2071 , did you also cause to
be filed on February 24th Revised Exhibit 103?
A Yes.
a Do you have any changes t.o your corrected
O
A
O
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CSB Reporting
(2oB ) B9o-s198
rERRY (Di)
Staff
direct testJ-mony, the February 9th testimony, or to any
of the exhibits that you filed?
A I have four corrections to change numbers
Eebruary 24th
on page 2, line
which needs to be
24Lh testimony or
first changes are
to match the February
Exhibit No. 103. The
16, where
changed to
5,287, 634
we have the
5,2L2,325
needs to be
number 4, BB 4,006
and then on l-ine 7J, the number
changed to 4,953,315, and then on
page 9, on line
to 576, 4'7 9, and
23, the number 112,91 6 should be changed
then on line 25, the number L,743,113
shoul-d be changed to 814,855.
O Are there any other changes?
A No.
0 If I were to ask you the same questions
that are presented in your revised direct testimony with
those changes, would your answers be the same here
today?
A Yes.
MR. KLEIN: With that, I would move to
spread Mr. Terry's revised dj-rect testimony on the
record, along with his exhibits attached to that
testimony and the most recently updated Exhibit 103 and
have that admitted.
COMMISSIONER RAPER: With no objectj-on,
Mr. Terry's direct testimony will be spread upon thea25
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record as if read, and Exhibits 103 through 106 will be
admitted to the record.
(Staff Exhibit Nos. 103 - 106 were
admitted into evidence. )
(The fol-l-owing prefiled direct testimony
of Mr. Joseph Terry is spread upon the record. )
CSB Reporting
(208 ) 890-s1"98
TERRY (Di)
Staff
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CASE NO. INT_G-16_02
02/--/16
TERRY, J (Di) 1
STAFF
O. P1ease state your name and business address for
the record.
A. My name is Joseph Terry. My business address
is 412 West Washington Street, Boi-se, Idaho.
O. By whom are you employed and in what capacity?
A. I am employed by the Idaho Public Util-ities
Commi-ssion as a Senior Auditor.
O. What is your educational- and professional
background?
with the Commission
State University with a
in 2001. f have worked
and in that time have
A. I graduated
degree in
from Boise
bachelor' s accounting
si-nce 2077
worked on severaf rate cases, including United Water,
Rocky Mountain Power, and several smal-l- water company
CASCS.
O. What is the purpose of your testimony?
A. The purpose of my testimony is to present
Staff's recommended revenue requirement for Intermountain
Gas Company (the Company, Intermountain Gas). In it, I
will provide an overview of each of Staff's adjustments
to the Company's proposed expenses, rate base, and rate
of return. I al-so will detail- adjustments to: (1)
reflect an update to the Company's forecasted test year,
which the Company provided through a response to a
production request; (2 ) adjust salary expenses forO25
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CASE NO. INT_G-I6_02
02 / -- /76
TERRY, J (Di) 2
STAFF
nonunion empfoyees; (3) remove the profit sharing portion
of the Company's retirement plan; and (4) reclassify part
of the Customer Service Center to plant hel-d for future
use.
O. Are you sponsoring any exhibits with your
testimony?
A. Yes, I am
(Summary of Staff's
Wages Nationwide to
Sa1ary Adjustment),
sponsoring Staff
Recommendatlon) ,
Exhibit. Nos. 103
104 (Comparlson of
Supporting
Customer Service
Idaho), 105 (Schedule
and 106 (Schedu]e of
Center Pfant Hel-d for Future Use)
srAFF'S RECOMMEIIDED REVENTE REQUTREMENT
a. What is Staff's recommended revenue requirement
increase for the Company?
recommends aA. Staff
of $5,272,325,
$4,953,375 l-ess
revenue requirement increase
proposed increase of
$10,165,700.
O\IERVIEgV OF
See Exhibit No. 103, Column 10.
or approximately 1.
than the Company's
92. This amount is
STAFF I S RECOMMEIIDED ADiTSII,IENTS
O. Pl-ease outline Staff's recommended adjustments
to the Company's proposed revenue requirement components,
and identify who wilI testify about each adjustment.
A. Proceeding from left to right, Exhibit No. 103
sets forth the Company's proposed revenue requirement as
modified to reflect an updated forecast Ehat the Company25
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provided through dj-scovery. The exhibit then specifles
Staff's recommended adjustments to each of the Companyrs
proposed revenue requi-rement components. The exhibit
then concl-udes with Staf f ' s ul-timate recommendations as
to each component and the overall revenue requirement
increase.
Tracking through the exhj-blt,
"Cofumn/Adjustment 7," adjusts the Company's proposal to
refl-ect actual expenses and rate base through September
30, 2076 and an updated three-month forecast that the
Company provided through discovery. The next Cofumn
provides an adjustment for an error the Company
discovered with its asset retirements, as wel-l as an
adjustment for Investment Tax Credits.
Adjustment 2 decreases the Return on Equity
from 9.92 to 9.259". Staff witnesses Rogers and Carlock
will testify in support of this adjustment.
Adjustment 3 removes working capital from the
rate base calcul-atlon. Staff witness Carfock will
testify in support of this adjustment.
Adjustment 4 adjusts nonunion salary expense.
I will testify in support of this adjustment.
Adjustment 5 removes the lZ profit sharing
contribution to the Company's retirement plan that is
based on target profitability. I will testify in support
CASE NO. INT-G-]-6_02
02/--/76
TERRY, J (Di) 3
STAFE
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CASE NO. INT-G-16_02
02/--/76
TERRY, J (DT) 4
STAFF
of this adjustment.
Adj ustment
associated with the
6 removes plant-in-service
Customer Service Center. I will
testify in support of this adjustment.
Ad;ustment 7 is a series of adjustments
supported in Staff witness Romano's testimony.
Adjustment B removes some expenses arising from
injuries and damages. Staff witness Romano will- testify
j-n support of this adjustment.
Adjustment 9 is the normalization adjustment.
Staff witness Morrison will testify 1n support of this
adj ustment .
STAFF POSITION ON THE TEST YEJAR
O. What test year did the Company propose in this
case ?
A. In its Application, which the Company fil-ed on
August 72, 201,6, the Company proposed a 2076 test year
consisting of six month of actual results (January L,
2016 to June 30, 20\6) and six months of forecasts (July
7, 20L6 to December 31, 20L6).
O. Do you have concerns with the use of forecasts
in this case?
A. Yes. Other than the need to set rates on
actual, verifiabl-e numbers, the flaw with the use of
forecasts is thal it is impossible to know if a forecasto25
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CASE NO. INT-G-16_02
02/--/1,6
TERRY, J (Di) 5
STAFF
is accurate until after the forecast period has
The Commission recognized this concern in Order
29838, p. 7 (UWI-W-04-04), where the Commission
passed.
No.
stated:
To facilitate an adequate review, Companydata should be provided in time to
i-ncorporate the information in the prefiled
testimony of Staff and other parties. Thiswill facilitate the hearing and decision
processes by having similar time period andj-nformation for Staff and intervenor prefiled
testimony, the Company's rebuttal, and at thehearing. Using recent, actual data for thehearlng will reduce if not eliminate the needto argue over forecasts.
0. In 1i-ght of the Commission's prior remarks, did
Staff take any action with regard to the test year
forecasts ?
A
Company
Company
Yes. On November 2, 2016, Staff served the
with Production Request No. 718, which asked the
to provide
September 30,20t6,
November,October,
to this request on
updated test year
through September
for the remaining
used this update
requirement.
We have
specifically considered to
actual- data by FERC
along with updated
and December. The Company responded
November 23, 2076, producing an
data with actual- expenses and rate base
30, 2076, and providing new forecasts
three months of the year. Staff has
as the basis for its test year revenue
severaf Productlon Requests that were
be continuing requests for
account as of
forecasts for
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CASE NO. INT-G-16_02
02/--/16
TERRY, J (Di) 6
STAFE
updates to be
but the only
that lncl-uded data past September 30, 2016, is Company
Request No. 155 referencing salaryResponse to Production
inf ormati-on.
O. What impact did the September 30, 2016 update
have on the Company's case?
A. This update reduces the Company's overall
request by $574,274 as shown on Exhibit No. 103,
Adjustment l, l-ine 43.
O. Does this adjustment raise any concerns with
received as the information was completed,
information we received prior to November 23
to expenses and rate base i-tems that the Company
through September 30, 2016?
Yes. In certain areas, one woul-d expect the
update which provided the Company's actual-
and rate base through September 30, 20L6 - to be
close to Company's forecast for this period as
in the Application. But the updated actuals
respect
forecast
A
Company' s
expenses
extremely
expressed
revealed
accurate
O.
Company' s
actuals,
service should
that the Company's forecast
in these areas than would be
Please provide
forecast shou]d
but was not.
The
was somewhat less
expected.
where thesome examples
have been close to the updated
Company's forecasted amounts for plant-in-
have been cl-ose to the updated actual25
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CASE NO. INT-G-16_0202/--/16 TERRY, J (Di) 1
STAFE
numbers. But the update
forecast inaccuracy, in
reveafed that the largest
either expenses or rate base, was
plant-in-service.
a Local Distribution
in the Company's forecast for
Intermountain Gas is
Company (LDC) and, therefore, most of its plant-in-
service 1s gas distribution plant and these projects
shoul-d be easier to forecast. Additionally, accumulated
depreciation is a calculatj-on based on current plant-in-
service. Plant-in-service and accumulated depreci-ation
are both based on the 13-month average. That means that
any adjustment later in the test year will have a
proportionally lesser effect on the rate base. Both the
pJ-ant-in-service and accumulated depreciation forecasts
were reduced by similar amounts, which respectively
lowered the amounts in those accounts by $1,2L6,581 and
$1, 308, 528. Depreciation expense 1s reduced by $268,492,
which was the third largest operating expense adjustment.
O. Were there any other Company forecasts that
departed
A Yes.
from the actual- updated numbers?
Administrative and General Expense j-s
that shoufd be a relatively constant
expenses are normally ongoing costs for
Intermountain' s Administrative and
another category
number, ds these
a company. But
General Expense was the
categories be updated.
largest of all the
This creates some
expense
doubt about the25
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accuracy of the Company's forecasting methodology.
O. Does Staff propose an adjustment to the
Company's forecasted expenses for October December
2076?
A. Yes. Ad;ustment 4 adjusts salaries and
incorporates a reduction to the Company's forecasted
annual salary expense. In addition, Adjustment 7 (which
is supported by Staff witness Romano) incorporates a
reduction to the Company's forecasts for specific
expenses related to Sales and General Advertising, along
with mlscellaneous expenses discovered during Staff
witness Romano's review of the Company's Management
Expense Reports. In liqht of the Company's updated
adjustment to actual-s, and the new forecast, Staff has
not proposed any further adjustments for the October to
December, 2016 period because such adjustments would only
minimally impact the Company's proposed revenue
requirement.
O. Were there any other adjustments made to
expenses and rate base after the initial update?
A. Yes. In 2075, the Company implemented new
depreciation rates as a result of Order No. 33260 in Case
No. Int-G-14-02. At the concl-usion of the case, the new
depreciation rates were entered into the Company's
financial accounting software, but the auto-retj-rement
CASE NO. INT_G_76_0202/--/76 TERRY, J (Di) B
STAFF
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CASE NO. INT-G-15_0202/--/16 TERRY, J (Di) 9
STAFF
dates for the amortizable assets were not updated. This
caused an over-depreciation of
were seL to reti-re in 2075 and
Production
notified Staff of the error and
Amended Response to
O. Were there any other parts
in itsA. Yes. Additionally,
incl-uded the full value of fnvestment
amortizable assets that
2076. The Company
corrected it in its
Request No. 178.
them over the life of
to this adjustment?
filing, the Company
Tax Credits rather
the assets asthan amortizing
required by IRS
the tax credits
Section 46(f) (2). Failure to normalize
could resul-t in the loss of the credi-ts
to the Company.
O. Was there
not included j-n your
A. Yes. The
working capital. r
Carl-ock is proposing
from rate base. The
minor, lowering it by
supplied adjustment.
O. What is the
updates ?
any part of this adjustment that is
exhibit ?
Company
did not
incl-uded $6,245 in cash
lncl-ude this, because wltness
to remove all- cash working capital
effect on revenue requirement was
for a total decrease
an additional $113 than the Company
overal-l- effect of the September 30
A. These updates increased net income by $576,419,
and increased rate base by $385 ,660,
of $814,855.in revenue requiremento25
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O. Does Staff recommend an adjustment to the
Companyrs forecasted rate base?
A. No. In five of the previous six years before
2016, the Company failed to spend its entire capital
budget. On average, the Company has over-budgeted by
9.88? during that time frame. Because of this
over-budgeting, including the Company's budgeted amounts
in rate base may artificlally increase the return on
capital that customers pay through rates without any
guarantees that rate base is accurate or that plant is
actually used and useful.
That said, Staff does not recommend that the
Commj-ssion adjust the Company's forecasted rate base.
Staff reviewed the Company's forecasted capital expenses
for October through December. While Staff cannot accept.
the Company's forecasts as accurate, dny adlust.ment made
to additional plant placed in service late in the year
has a very minimal- impact on the Company's revenue
requirement. Because the Company used a 13-month average
rate base, dny adjustment to plant in service in December
only reduces rate base by 1/13ttt of that amount because it
woul-d only be in service for one month out of the test
year. Staff calculated the impact of a five percent
reduction to the Company's capital expense for the fourth
quarter of 20L6, and i-t reduced the Company's revenue
CASE NO. INT_G_76_02
02/--/76
TERRY, J (Di) 10
STAEF
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CASE NO. INT_G-76_02
02/--/16
TERRY, J (Di) 11
STAFF
requirement by
Staff does not
in this case is
l-ess than L/700th of a percent. Whil-e
support the use of forecasts, the impact
minimal. Therefore Staff does not
propose an adjustment to the remaining three months of
forecasted rate base.
STAI'F'S POSTIION ON SAI,ARIES
O. What are the initial
salary level-s in this case?
A. Salary expense is the
expense category. This is not
diligence is required to review
that, when compared to the only
Avista Corp, the Company's labor
total revenue was higher; 7.052
concerns dealing with the
Companyrs third largest
a concern per se, but due
this category. I
other LDC in the state,
cost as a percentage of
vs 4 .15% .
O. Does the Company's salary expenses appJ-y to
different classes of employees?
A. Yes. About half of the base salary
half to
note
expenses
unlonare related to nonunion employees and
employees.
0. Did you
from the nonunion
evaluate the union salary separately
salary?
A. Yes. Union employees
negotiated with the Company that
over a period of time. This is
negotiatj-on, and the transaction
have a set contract
sets the salary amounts
an arm's length
is separate from thet25
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CASE NO. INT-G-16_02
02/--/16
TERRY, J (Di) L2
STAFE
Company operati-ons.
O. Has the Company provided
salaries ?
A. Yes. In its Confidential
any analysis of
Response to
66, the Company provided a wage
Hewitt.
any concerns with the study's
Hewitt study minimizes the
salaries. For example,
approxi-mately 90% of the
hand, I performed an
Bureau of Labor
Production Request No.
study performed by Aon
O. Did you have
concl-usions ?
A. Yes. The Aon
effects of regional markets on
the study states that Idaho is
national- average. On the other
analysis based on data from the
geographic
0.
Company's
A
stated in the
3, the study
differentials.
Statistics (BLS) that shows, oD average, for al-1
occupations, Idaho is 84.46e" of the nationa1 average.
And my sampling of likeIy professions (See Exhibit No.
104) shows that Idaho is 86.68? of the national average.
Both of these ldaho-based averages are l-ower than the 902
Company's study from AON Hewitt.
suggests the Company not apply
of average
Yet on page
Do you have your own proposal for analyzing the
salary level-s ?
Yes. The Aon Hewitt study recommends utiliztnq
surveys by Towers Watson and Mercer, two human resourcesI25
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consulting groups. I propose adding the BLS data from
the most recent year as a third data point. Using aII
three surveys provides information on industry averages
whil-e accounting for regional pricing.
Towers Watson and Mercer annually surveys
employment characteristics, including salary costs, oD a
nationwide scal-e. In addition, these two surveys
separate industries to create industry-specifj-c
information. For the Towers Watson and Mercer surveys, I
used the 50% percentile (which was the stated goal in the
Aon Hewitt study). Both surveys provide differing
information based on the J-evel of expertise provlded by
some employee classifications. Eor example, there is a
different wage for an entry level- financial analyst and
an analyst with more experience or expertise.
On the other hand, BLS survey data generally
does not differentiate between classes in one employee
cfassification, except by usj-ng different percentiles in
a classification. Therefore, in the BLS data, I used the
75t.h percentile. This also helps refl-ect the long tenure
that Intermountain Gas tends to have with its employees.
O. How did you determine the classifications?
A. In some cases, the Company provided the
classification it has used in the past. In others, I
used the job description provj-ded in the Response to
CASE NO. INT-G-76_02
02/--/76 TERRY, J (Di) 13
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CASE NO. ]NT-G-1.6_02
02/--/76
TERRY, J (Di) 74
STAFF
Production Request No. B, and compared that with the job
descriptions in the surveys.
Some classifications were not readily
comparabJ-e to one of the categories provided in these
individual surveys. In those instances, as opposed to
making assumptions that coul-d be incorrect, I did not
include them in this analysis.
O. How many cl-assifications were lncluded for your
analysis ?
A. For the Towers Watson survey, I used 21
cl-assi-fications. For the Mercer survey, I used 79
cl-assifications. And for the BLS survey, 24
cl-assif ications.
O. What
A. For
Company's base
some employee
were the resufts
the Towers Watson
salary was above
cl-assi f ications
of your analysis?
data, I found that the
the industry average in
l_n
others. Overall, compared to
and below average
the Towers Watson Survey
the Company
Exhibit No.
was above industry average by $441 ,2'10. See
105, Column 6, line 26.
nearJ-y every employee c-IassificatlonIn
Mercer survey, I found the Company was bel-ow the
average. This tota1ed to $364,326. See Exhibit
Column J, line 26.
For the BLS data, I found that the Company's
in the
industry
No. 105,
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base salary was simil-ar to the Towers Watson data in that
some employee classificatlons were above the industry
average and below j-n others. Overall-, compared to the
BLS survey the Company was above industry average by
$384,114. See Exhibit No. 105, Column 8, line 26.
O. How did you calcufate your recommended
adjustment for salary expenses?
A. My analysis produced three different resul-ts
depending on the survey. My purpose in using all three
surveys was to have all of them weighted against each
other to achi-eve a more accurate result. Because the
Mercer and Towers Watson surveys omit regional pricing
data, I reconrmend weighting the BLS data double. Doing
so would reduce salary expense by $273,723. See Exhibit
No. 105, Col-umn B, line 28. After gross up, this would
reduce the Company's proposed revenue reguirement by
$274,296. See Exhibit No. 103, Col-umn 4, line 43.
STAI'F POSITION ON RETIREMENT BENEFITS
O. Please describe the retirement benefits the
Company offers to its employees.
A. For nonunion employees, the Company offers a
traditional 401(k) plan in which the Company matches 50U
of an employee's contribution up to the first 62, for a
maximum employer match of 32. Additionally, the Company
contrj-butes 5% of j-ncome for all eligible employees,
CASE NO. INT_G-16-02
02/--/16
TERRY, J (Di) 15
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CASE NO. ]NT-G_76_02
02/--/76
TERRY, J (Di) L6
STAFE
regardless of whether or not the employee voluntarily
contributes to the 401 (k) . The Company also contributes
an additional- LZ in profit sharlng if the Company reaches
its profitability target.
Union employees participate in a multi-employer
pension plan through the United Association of Journeyman
and Apprentices of the Plumbing and Pi-pe Fitting Industry
of the United States and Canada (Local-s 296 and 648).
Intermountain Gas pays a negotiated amount per each hour
paid to a union employee based on the funding status of
the p1an. The hourly amount i-s open for renegotiation
during the month of August within any contract year.
O. Do you accept the level of retirement benefj-ts
offered by
A.
the Company as reasonable?
With the exceptj-on of
contrj-bution mentioned above, I
retirement benefits package
serving
the LZ profit sharing
accept the Company's
reasonable and comparableAq
to other utilities Idaho and the region
O. Do you propose an adjustment to remove the 1U
profit sharing contribution?
A. Yes. Employee payments or benefits that are
based on criteria that are not properly aligned with the
interests of customers shoul-d be removed from rates. The
Commission, and other ldaho utilities, have a long
ratesstanding precedent of removing from customero25
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employee benefits that are based on shareholder va1ue.
fntermountai-n Gas has already removed from its revenue
requirement the portion of the employee incentlve plan
that is awarded if net j-ncome targets are met. The
Company should have al-so removed the portion of its
retirement benefits package that is provided to employees
for creating additional sharehol-der val-ue. My adjustment
removes $90,106, the amount the Company has accrued for
this benefit, from the Company's case. This adjustment
reduces the Company's overafl revenue requirement request
by $90,602 as shown on Exhlbit No. 103, Column 5.
STAFF POSITION ON CUSTOMER SERVICE CENTER ADWSTMENT
O. Please describe the analysis that went into
reviewing the Customer Service Center.
A. By way of background, as stated by Company
Wi-tness Chiles the customer service center was buift in
20L0 in Meri-dian, ID to consol-idate customer service,
credit and collections, customer development and
programs, and scheduling for alI the brands. InitiaIIy,
I reviewed the al-l-ocation manual and afso reviewed
entries for the total costs and the cost allocated to
Intermountain Gas. From there I went on site and viewed
how the new Oracle Customer Care and Billing (CC&B)
system worked and reviewed a sample of calls made. f
afso reviewed the tralning methodol-ogy as wel-l- as the
CASE NO. INT-G-16_0202/--/t6
TERRY, J (Di) 71
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CASE NO. INT_G_76_0202/--/76 TERRY, J (Di) 1B
STAFE
Company' s
establish
O.
and is not
currently
wlred for
not in use
expansr-on.
at this point
This portion
level- needed
Company
of the
in time,
of the
method for forecasting the number of calls to
proper staffing 1evels.
Where there any concerns from this analysis?
There was one primary concern. When on the
tour of the building
observed
in whlch the Customer Service Center
is housed, I
the building
that there was a large section of
that was empty. Discussions with
witness Chiles indicate approxlmately one thlrd
building is
building
the pipes
Customer
is only heated above
from freezrng in the
Servi-ce Center has
to keep
winter. In addition, the
been lowering empJ-oyee head
years as stated in Company
page 5.
Gas give a reason for the
the
count over the last several
witness Chiles' testimony on
O. Did fntermountain
unused space in the Customer Service Center
in which the Customer
bullding?
the Company
Servicedesigned the buildlng
Center is housed, one
A. Yes. Mr. Chiles stated that when
the building be Leadership in
Design (LEED) certified. The
Company's goals was to have
Energy and Environmentaf
Company found j-t would be
of the
Iess expensive to build the entire facility to be LEED-
certi-fied than to build only the Customer Service Center
LEED certifi-ed, and then expandpart of the building ASo25
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CASE NO. INT_G_16_02
02/--/76
TERRY, J (Di) 79
STAEF
into the new area if needed. I verified that the
building in which the Customer Service Center 1s housed
was LEED certi-f ied in 20L0.
O. What is your reconrmendation?
A f recommend that the portion
the unusedplant-in-service associated building space be
removed from plant-in-service and placed into
pJ-ant-held-for-future-use and not incl-uded in rates.
This would al-so remove that portion of the depreciation
from the revenue requirement.
O How do you propose calculating this adjustment?
A. Using the Company's Response to Production
Request No. L39, I found that the amount of net book
value of the building and the Iand used for the Customer
Service Center is $5,615,255, and the depreciation
associated with the building is $83,407. See Exhibit No.
L06, l-ines 4 and 8. These costs are allocated based on
number of customers and Intermountain Gas' percentage is
34.6eo. See Exhibit No. 706, line 76. The amounts
al-located to Intermountain Gas is $1,942,818 in book
val-ue and $28,859 in depreclation. See Exhibit No. 106,
l-ines 6 and 8. Because one third of the building is
that one third ofcurrently not being used, I recommend
Intermountain's share of the building and land's net book
removed from rate base. Eurther,value , ot $641 ,626, be
of the
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one third of Intermountain's proposed depreciation for
the building r or 99,620, should be removed from
depreciation expense. See Exhibit No. 706, lines 10 and
11. My recommended adjustments woufd reduce the
Company's proposed revenue requirement by $86,487. See
Exhibit No. 103, Adjustment 6, line 43.
a. Does this conclude your direct testimony in
this proceeding?
A. Yes, it does.
CASE NO. INT-G-76_0202/--/L6 TERRY, J (Di) 20
STAFF
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CSB Reporting
(208 ) 890-s198
TERRY (X)
Staff
open hearing. )
cross-examination.
Mr. WiIliams.
BY MR. WILLTAMS:
(The following proceedings were had in
MR. KLEIN: And we tender him for
COMMISSIONER RAPER: Thank you.
MR. WILLIAMS: Thank you, Madam Chair.
CROSS_EXAMINATION
you turn
severaf
O Good morning, Mr.
A Good morning.
a So on page 10 of
to that, and leadi-ng up
areas r_n your testi-mony
Is that
Terry.
your testimony, if coul-d
to this, there are
where you criticize the
a correctCompany' s forecastj-ng.
characterization, kind of a general characterization?
A Yes.
O Okay, and then specifically on line 15 you
sdy, "While Staff cannot accept the Company's forecasts
as accurater" nonetheless, above that on line 12, you
sdy, "Staff does not recommend that the Commission adjust
the Company's forecast," so is that kind of a backhanded
way of saying that their forecast was accurate?o 25
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CSB Reporting
(208 ) 890-s198
TERRY (X)
Staff
correction impi-ies that maybe
the forecast. This was just
recommend any adjustments at
Company has already provlded.
September 3Oth
some flaws in
we do not
A The correction made on the
there were
stating that
this time beyond what the
O So that woul-d be a recommendation to
accept the rate base forecast?
A Vac
MR. WILLIAMS: f have no further
questions, Madam Chair.
MR. STOKES: We have no questions, Madam
Chair.
MR. PURDY: No questi-ons, Madam Chair.
MR. RICHARDSON: No questj-ons, Madam
Chair.
MR. OTTO: No questions, Madam Chair.
COMMISSIONER RAPER: Any questions from
the Commissi-oners? Any redirect?
MR. KLEIN: No.
COMMISSIONER RAPER: Thank you, Mr. Terry,
for your time and preparation.
THE WITNESS: Thank you.
(The witness l-eft the stand. )
MR. KLEIN: Staff calls Michael- Morrison
to the stand.o 25
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CSB Reporting
(208 ) 890-s198
MORRTSON (Di)
Staff
MICHAEL MORR]SON,
at the instanceproduced as a witness
having been first duly
truth, and nothing but
testif ied as f ol-Iows:
BY MR. KLE]N:
record?
of the Staff,
the truth, the whole
examined and
O Could you please state your name for the
sworn to telI
the truth,WAS
DIRECT EXAMINAT]ON
I am Michael Morrison, M-o-r-r-i-s-o-n.
By whom are you employed and in what
A
O
capacity?
A I'm employed by the Idaho Public Util-ities
Commissj-on as a Staff engineer.
O And are you the same Michael- Morrison who
fil-ed direct testimony in this case and caused to be
fil-ed well, Iet restate that. Are you the same
Michael- Morrison who fil-ed direct testimony and Exhibits
108 through 111 in this case and caused to be filed a
revised Exhibit 110?
A Iam.
O Do you have any changes to your testimony
here today?o 25
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CSB Reporting
(208 ) 890-s198
MORRTSON (Di)
Staff
page 22,
back up
read 1 6
A Yes, I do.
O Please go ahead.
A What's that?
O Please go ahead.
A Okay, Iet's see,
Iines B through 10
to page 20, l-ine 15, the
percent.
if you take a l-ook at
we11, correction, let's go
79 percent figure should
O Do you have another change?
A Yes, I do. Page 22, lines B through 10,
currently it reads, "I used the Company's weighted
heating degree days as a weather predictor. " Change this
to, "The Company did not provide the fuII range of
heating degree days used in its analysis. I used data
for the date ranges provlded by the Company. "
O And why are you making this change?
A Witness Blattner in her rebuttal testimony
discusses this error and so I am correcting that error.
COMMISSfONER RAPER: Can you I'm sorry,
Mr. Klein, but can you restate the correction of that
sentence for me one more time, please?
THE WITNESS: The correction is, "The
Company did not provide the full- range of heating degree
days used in its analysis. I used data for the date
ranges provided by the Company. "25
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CSB Reporting(208) 890-s198
MORRTSON (Di)
Staff
O
model using the
A
O
COMMISSIONER RAPER: Thank you.
BY MR. KLEIN: Did you ever re-run your
full date range?
Yes, I did
And are you proposing any changes to the
revenue all-ocation that you
Exhibit 110?
No, I'm not. When I re-ran it, the
is extremely small.
What is the dlfference?
billing
proposed
determinants or
an
difference
A
o
A It' s about 0 .4 percent rel-ative to my
previous estimate.
0 If you were to update the
affect the Company?
A If I were to update it and
consumption, how
woul-d that
small change, but it would cut against the
it's a very
Company.
a Meaning what?
A It means that it wou]d indlcate that the
Company's consumed consumption was
previous estimate.
O Do you have any more
A Yes, I do. I would
Exhibit No. 110 in order to reflect
updated revenue requj-rement in 103.
O And we've done that
larger than my
changes?
like to revise
witness Terry's
already; correct?a 25
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CSB Reporting(208) 890-s198
MORRTSON (Di)
Staff
A Yes, we have.
O We submitted a revised exhibit. If I were
to ask you, subject to those changes if f were to ask
you, the same questions as are contained in your direct
testj-mony today, would your answers be the same?
A They would be the same.
MR. KLEIN: And with that, I move to
spread Dr. Morrj-son's testimony on the record and admlt
his exhibits.
COMMISSIONER RAPER Sorry, I was waiting
exhibits. That was myfor you to say the
deIay, I apologize.
numbers of the
Morri-son' s testimony,
record as if read and
Mr. Morrison' s test j-mony, Dr.
excuse me, will be spread upon the
Exhibits 108 through 111 will be
entered into the record.
MR. KLEIN: Thanks . I shoul-d have
referenced the exhibit numbers
admitted into
COMMISSIONER RAPER: You're good.
(Staff Exhibit Nos. 108 111 were
evidence. )
(The followlng prefiled direct testimony
Morrison is spread upon the record. )of Dr. Michael
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O. Pl-ease state your name and address for the
record.
A. My name is Mike Morrison. My business address
i-s 412 West Washington Street, Boise, Idaho.
A. By whom are you employed and in what capacity?
A. f am employed by the Idaho Pubfic Util-ities
Commission (Commission) as a Staff Engineer.
O. Pl-ease give a brief descrlption of your
educational background and experience.
A. I received a Bachelor of Science degree in
Chemical- Engineering from the University of Southern
Cal-ifornia in 1983, a Master of Science degree in
Mechanical Engineering from the Universi-ty of Idaho in
2002, and a Doctor of Philosophy in Geophysics from Boise
State Unlversi-ty in 2074. I have been a regi-stered
professional engineer in Idaho since 1998. I have
completed graduate l-evel courses in statistical methods,
experimental design, and mathematical- inversion. I
attended the Electrlcal Utility Basic Practical
Regulatory Program offered by New Mexico State
University's Center for PubIic Utilities.
Between 1988 and 2009, I held a number of
engineering positions at Micron Technology, Inc. For
seven years, I was responsible for implementing
statistical methods and systems throughout the Company,
CASE NO. INT-G-76_02
12/L6/16
MORRTSON, M. (Di) 1
STAFF
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CASE NO. ]NT-G-76_02
L2/L6/76
MORRTSON, M. (Dr) 2
STAEF
and I devel-oped and taught numerous courses i-n industrial-
statistics, data analysis, multi-ple regression,
experimental design, reliability modeling, and
statistical process control-.
I began work at the Idaho Publ-ic Utj-Iities
Commissi-on in 2074.
a. What is the purpose of your testimony?
A. I will address the Company's cost-of-service
methodology, and the Company's proposed base rate revenue
requirement allocatlon among its customer cl-asses. I
will also address the Company's adjustments to its
billing determinants, including its proposed weather
normal-ization adjustments and adjustments to customer
counts. f wil-l- conc1ude my testimony with a discuss j-on
of the impact that the Company's proposed Rate-of-Return
wil-l- have on its l-ine extension policies.
0. Please summarlze your testimony.
a discussion ofA. I w111 begln with
cost-of -service methodology :
the Company's
The Company did not conduct
a l-oad study, excluded two rate classes, and is proposing
cost all-ocators that are both novel- and inappropriate.
The Company's methodology will not result in a fair
all-ocation of the Company's revenue requirement among its
rate classes and, absent a l-oad study, it is not possible
to develop a suitable alternative revenue al-l-ocation25
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CASE NO. INT-G-16_02
t2/16/16
MORRTSON, M. (Dr) 3
STAFE
methodology. I propose that the Company, Commission
Staff, and the Companyrs stakehol-ders hofd workshops in
order to develop a suitable load study and cost-of-
service methodol-ogy. Until- a satisfactory cost-of-
service study is completed, I propose that the Company's
revenue requj-rement be al-located in proportion to the
normal-j-zed revenue currently being collected from each
rate class.
I wil-l- also propose an alternative to the
Company's weather normalization adjustments. The
Company's adjustments were obtained using selected
coefficients from a model that is unstable. My
adjustments, on the other hand, are based on a whole
model that is
Additionally,
subclasses is
much more robust than the Company's model.
my analysis of the Company's GS-1
more detailed than the Company's.
I wil-I conclude by di-scussing the relationship
C service line and mainsbetween the Company's Sectj-on
extenslon policies and its rate base. These policies
were last updated over 30 years a9o, and currently
specify a 72.5% Rate-of-Return on the Company's
investment in line and mains extensions. I will
recommend that the Company's service line and mains
extension policies be updated to reflect the Rate-of-
Return authorized by the Commission.25
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THE COMPA}IY I S COST.OF.SERVICE STUDY
O. What is the purpose of a cost-of-service study?
A. A cost-of-service study al-l-ocates the Company's
revenue requirement to the Company's rate classes in
accordance with the princlple of cost causation. The
cost causation principle states that costs should be
borne by the class that causes them to be incurred.
Costs incurred in the service of a single class, or its
individual members, should be all-ocated di-rectly to that
cl-ass,' however, because much of the Company's plant
serves multiple classes, a cost-of-service study is
necessary to determine the fraction of costs that are
caused by each c1ass.
O. What is a load study, and why is it a necessary
component of a cost-of-servj-ce study?
A. A l-oad study determines peak usage, by cIass,
of system components that cannot be directly allocated.
This j-nformation is used to develop al-l-ocators that are
requj-red by the cost-of-servj-ce study in order to
al-Iocate shared plant costs, O&M costs, and some
administratj-ve costs, to each cfass.
In general, plant equipment is deslgned to meet
the maximum load that wil-l- be placed on individual- pieces
of pJ-ant equipment, so costs are caused by the need to
meet system peak. An obvious example is a transmission
CASE NO. INT_G-16_02
t2/1-6/16
MORRTSON, M. (Di) 4
STAFF
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main, which provi-des gas to all customers in an area. A
load study is required to determine the fraction of the
main that is being used by each cl-ass at system peak.
Without such peak consumptj-on j-nformation, it isn't
possi-bIe to allocate these costs fairly in a manner that
is consistent with the principle of cost causation.
O. Whlch allocators are derived from data obtained
by a load study and how are they used?
A. Two general types of al-l-ocators are developed
using l-oad study data: Coincident peak (CP) allocators
and non-colncident peak (NCP) allocators. Coincident
peak all-ocators are calculated using each cl-ass' share of
system peak demand, and are used to allocate plant that
is used simultaneously by multiple cl-asses. Coincident
peak all-ocators are most often used to allocate the costs
of transmissj-on and storage facllities.
By deflnition, the system wj-1l only experience
a single annual peak day, and it is possible for test
year system peak to occur on an extra-ordlnary day that
does not truly represent how each class causes the
Company to incur costs. To avoid a potentially unfair
al-location of transmission and storage costs, CP
al-locators are usually determined using data from
multiple peak days. A common CP allocator, the 3CP
allocator, is calculated using information from the
CASE NO. INT_G-1.6_02
L2/L6/76
MORRTSON, M. (Di) 5
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systemrs three highest monthly peak days.
Non-Coi-ncident Peak all-ocators are used to
allocate distribution pIant, with the rationale that
large segments of the distribution plant are designed
primarily to meet the loads of particular classes. For
example, distribution plant serving residential- areas
will supply gas primarily to residential customers, and
distribution plant serving an industrial park wiII
probably serve a combination of commerclal- and industrial
needs. Because these Local components of the
distribution system no longer serve al-l- customer classes,
it wou1d be improper to all-ocate these costs based on
their share of system peak demand. fnstead, distributlon
plant is usually allocated using a NCP alfocator computed
using each class's own peak.
When usage is mixed in J-arge portions of the
distribution system, it may also be appropriate to use a
peak and average allocator. Such an allocator is
particularly appropriate for large distributi-on mains,
which often serve diverse needs. As 1ts name suggests,
the peak and average all-ocator is created by combining an
al-l-ocator based on each class's contribution to system
peak wlth an allocator based on each cl-ass's share of
average system consumption. Peaks and averages are
usually weighted using system load factor.
CASE NO. INT-G-16_02
t2/1-6/16
MORRTSON, M. (Dr) 6
STAFF
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0. Pl-ease describe the Company's l-oad study, and
the affocators that it uses to assign transmission and
storage costs to its rate classes.
A. The Company did not conduct a l-oad study.
Instead, the Company devised alfocators from monthly
bi11j-ng data. Somewhat misleadingly, the Company refers
to these as "Peak Day A1locators."
To bd clear, the Company created these
al-locators by combining peak day information from its
approximately 150 industrial- and transportation
customers, who are equipped with meters capable of
recording daily demand, wlth the monthly billing
information from its approximately 340,000 Residential
and general service customers who are not so equipped.
To create its allocator, the Company subtracted the peak
usage of its industrial and transportation customers from
its measured system peak, and then all-ocated the
remaining quantity in proportion to the remaining class'
bil-led consumption. Thus, for the Company's three core
cl-asses, allocatlon is effectively based on average
January consumption rather than peak day consumption.
Without the results of a load study, it is not
possible to accurately assess the Companyrs proposed
al-locator; however, it is likely that the Company's
allocator, which combines actual January 1st peaks of
CASE NO. INT-G-76_02
t2/16/76
MORRTSON, M. (Di) 7
STAFF
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CASE NO. INT-G-1,6_02t2/t6/76
(Di) B
STAFE
some cl-asses with the average daily January consumption
of other classes, will unfairly allocate costs.
I al-so note that the Company assumed a peak day
of January L,
possible that
transportation
20L6. This is a holiday, and it is quite
some of the Company's industriaf and
customers were not operating at full
that plant-related costs coul-d
current Encoder
ERT
capacj-ty on this d"y, so
be unfairly shifted to the Company's residenti-a1 and
general service customers. As I explained earlier, the
Company's test year consists of actual- data for January
through June, and forecast data for the months July
through December. fn previous years, the Companyr s
in December andsystem peak has occurred on various days
January, so it j-s not actually possible
to know that January l, 2076 will be its
day -
for the Company
test year peak
The Company is replacing its
Receiver Transmitter (ERT) meters with meters capable
from each ofof recording hourly consumption information
its customers. A relatively small number of these meters
could be used to obtain the peak information needed to
develop accurate CP and NCP allocators.
O. What are customer-related costs, and how are
they typically classified and all-ocated?
A. Customer-refated costs are costs that increaseo25
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CASE NO. ]NT_G-76_02
12/16/16
MORRTSON, M. (Di) 9
STAFE
incrementally with the
that are not directly
consumption or demand
the system. Such
with a particular
directly allocate
customer's c1ass.
addition of each new customer, and
rel-ated to the increased
that the customer might place on
almost always identifiabfe
so it is appropriate t.o
costs are
customer,
Customer-related costs to that
The costs of meters
cl-assified as customer-related, because
identifiabl-e with individual customers,
consumes any gas.
O. What are
the Company propose
services and other
are typically
they are clearly
and because the
Company incurs these costs whether or not the customer
distribution servi-ces, and how does
the costs of distributionallocating
rel-ated costs ?
A. Distribution servlces are the pipes used to
distribution mains.connect customers to the Company's
Because each distributlon service serves one customer,
distribution services are properly classified as
customer-related costs, and should be directly al-l-ocated
to that customer's cl-ass. Nearly one-quarter of the
Company' s rate base , or $ 14 9 , 255 , 628, is inc1uded in
Federal- Energy Regulatory Commission (FERC) Account 380,
distribution services. Another $83,527,0L'7 of the
Company's rate base is included in accounts related to
expenses incurred connectj-ng customers to its system,o 25
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CASE NO. ]NT_G_1.6-02
72/76/76
MORRTSON, M. (Di) 10
STAEE
e.g. meters, regulators, ERT devices, and equipment
installations (EERC Accounts 381 through 385) .
I agree with the Company's proposal to cl-assify
its distribution services and rel-ated accounts as
customer-related costs, but disagree with its method for
allocating them among its customer classes. Rather than
directly allocating these costs to the appropriate
classes, the Company proposes allocating these costs
using a weighting scheme that is based on the costs of
meters used by each class. The Company refers to thls as
its "Meters Study. "
O. Why is this methodology inappropriate?
A. Of course, it would be best for the Company to
al-locate these costs directly. Unfortunately, the
Company has not maintained the records that are necessary
for direct allocation. The Company explained in its
response to Production Request No. 202 that
"Intermountain's accounting records have never provlded
the functi-onality to track plant and accumul-ated
depreciation by rate cl-ass for EERC accounts 380, 381,
382, 383, 384, and
We note
385." See Exhibit No. 108.
that meter costs
meters used by some GS-1
times as much as baseline
vary wldely, with the
costing more than 76
residential meters, and the
meters used by T-5 customers costing almost 38 times as
customers
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CASE NO. INT_G-l-6_02
t2/16/76
MORRTSON, M. (Di) 11
STAFE
much as baseline residential meters. The Company's
"Meters Study" is an appropriate methodology for
all-ocating meter costs,
evidence supporting the
indicative of the costs
but the Company provided no
notion that meter cost is
of providing a pipe from the
to a customer.Company' s distributlon main
Absent the necessary cost accounting
information, the next best methodology for al-l-ocating the
costs of distribution services would be to use an
al-locator based on the relative costs of installlng
distribution services for each class. Simil-arly, we
would expect the costs of regulators to be allocated in
proportion to the costs of regulators used by each c1ass,
for the costs of ERT devices to be al-l-ocated in
proportion to the costs of ERT devices used by each
c1ass, and so-on. The information required to create
these aflocators is readily available through the system
that the Company uses to estimate line extension costs.
O. Please explain the Company's proposal to
cl-assify a portion of its distribution mains (EERC
Account 31 6) as customer-related costs.
A. Because it has not conducted a load study, the
Company does not have the class peak information that is
typically
Instead,
used to determine appropriate allocators.
the Company proposes cfassifying 41.762 of itso25
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CASE NO. INT-G-16_02
1,2/t6/16
MORRTSON, M. (Di) L2
STAEF
$164,694,644 distrlbution mains rate base as customer-
related, and the remaining 52.842 as demand-related. The
Company's rationale for its Customer/Demand
cl-assification is that its distribution mains serve two
functions: Connecting customers to the Company's gas
supply system, and supplying customers at peak.
Therefore, the Company argues, a portion of the costs of
its distribution mains shoul-d be allocated in proportion
to the number of customers in each class.
a. Why do you disagree with the Companyrs proposal
to classify a portion of its distribution mains plant as
customer-rel-ated?
A. As di-scussed earlj-er, classification of
customer-rel-ated plant costs is generally limited to
those incremental costs that can be identified with
By
ir
individual customers.definition, malns serve
multiple users, and
any portion of the
Afso, ds discussed
Under the
$310 , 452,639 of the
service (52%) would
is not appropriate
as customer-rel-ated
to classify
costs.
connecting
already captured
services that are
SO
mal-ns
earl-ier, the costs of
customers to the distribution system is
in the $149,255,628 of its distribution
classified as customer-related costs.
Company's al-l-ocation method,
Company' s $596, 055, 557 plant-in-
be cfassified as customer-reIated,o 25
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and not based on allocators that accurately reflect the
way that each class causes the Company to j-ncur costs.
O. Do you have any other concerns with the
Company's proposal to classify a portion of its
distribution mains as customer-rel-ated costs?
A. Yes. Even if f accepted the premise that a
portion of distribution mains should be cl-asslfied as
customer-rel-ated, the Company's methodology for
determining the customer-related portion is incorrect.
The Company used the minimum intercept method to
determine its 41.762/52.84% sp1it. In this method, the
Company used regression modeling to determine the cost of
a hypothetical- | zero-capacity system. The costs of this
system were then classified as customer-refated. The
bal-ance of the system's actual costs were then classified
as demand.
fn order to determine the cost of a
hypothetical- | zero-capacity system, it would be necessary
to use capacity as a modeling factori however, the
Company used nominal pipe diameter, rather than capacity,
in its regression model. Nominal plpe diameter is a poor
proxy for capaci-ty: For a gi-ven operating pressure, the
square of pipe diameter (cross-sectional area) is a much
better measure of the pipe's carrying capacity than
nominal diameter. Eurthermore, the proper regression
CASE NO. ]NT-G_76_02
72/76/76
MORRTSON, M. (Di) 13
STAFF
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CASE NO. INT_G_76_02
t2/76/76
(Di) 74
STAFE
methodology requires that that each pipe
number of feet. The Company used
type be weighted
no weighting
nomlnal 7.25Company' s
steel pipe
of nominal
1-31 ,B4l feet of
recel-ves as
2.00 inch
by the
method,so the
inch diameter
6, 672, 833 feet
Another concern is re]ated
much weight. as its
diameter steel pipe.
to the quality of
its regressiondata used by the Company to develop
models. Determining a zero system cost requires project
l-evel- information for all data used in the analysis. The
Company explained that in 2013, it adopted a new IT
System, and that pro j ect l-evel- electronic data was not
available for prior years. Neverthel-ess, the Company
used aggregated annual data for the years 1959 through
2075 in its analysis. Thus, the Company's analysis was
not able to distj-ngulsh between mains that are st1ll i-n
servj-ce, those that have been fulIy depreciated, and
those that have been retired. A substantial portion of
the data included in the Company's analysis represents
the valuation of systems acquired by the Company, rather
than the actual- bosts of installing this pipe. Eor
example, the Company explained that most, or possibly
all, of the dol-Iar value of 3.5 million feet acquired in
1959 1s based on the book values of assets acquired when
the Company was formed. This mixture of actual- costs and
book valuation is not approprlate for determining theo25
1115 MORRTSON, M
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CASE NO. INT-G-76_02
1.2/76/16
MORRTSON, M. (Di) 15
STAFF
cost of a zero-capacity system. Unfortunately, the
Company lacks sufficiently detail-ed data to enable the
Company to properly perform the sort of analysis and
cl-assif ication that it proposes.
O. Please explain the use of plant-j-n-servi-ce in
the Company's
A. As
cost-of -service methodology.
noted earlier, the Company does not maintain
the records necessary to determine net plant-in-service,
either by account or by customer class, so the Company's
cost-of-service model all-ocates gross, rather than net,
rate base. Gross rate base includes every item of
unretired plant, including depreciated plant,
Contributlons in Aid of Construction, and other plant not
paid f or by the Company's j-nvestors.
After allocating gross plant-in-servlce, the
Company prorates the Company's revenue requirement in
proportion to each cl-ass's share of gross
plant-in-service.
0. V[hy is this a problem?
A. The purpose of a cost-of-service study is fair
al-locatj-on of the Company's revenue requirement amongst
its rate cl-asses. This includes an opportunity to earn a
fair Rate-of-Return on the Company's own j-nvestment in
plant; however, only a fraction of the Company's gross
plant-in-service represents Company investment. To a25
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CASE NO. INT_G-16_02
t2/16/16
MORRTSON, M. (Di) L6
STAFF
greater or lesser degree, each plant account incfudes
Company investment, depreciated plant, and customer
contributions. Thus, the use of gross plant-j-n-service
introduces factors other than the Company's actual-
lnvestment into the Company's allocatlon methodology.
O. Which classes did the Company exclude from its
cost-of-service study?
A. The Company exc1uded
melt classes, IS-R and IS-C.
its two interruptible snow
The Company
includedthese classes are small, and has their
consumption and revenues in its analysis of its
resldential- and general servi-ce classes. The Company
also provided no information about its schedul-e H-1,
Ketchum/Sun Val1ey Area Hook-up Fee.
O. Why should the Company's interruptible snow
mel-t cfasses have been included in the Company's
cost-of-service study?
A. The Company proposes applying the same rates
its interruptible snow melt classes as it does to
customers in the corresponding firm residential and
general service cl-asses. The Company's interruptible
snow melt classes were established by Commissj-on Order
No. 31089 in rate Case No. INT-G-09-03. In that case,
the Company explained that by interrupting these
customers' consumption during times of peak demand, it
to
has stated that
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CASE NO. INT-G-76_02
72/t6/16
MORRTSON, M. (Di) 71
STAFE
would be able to defer the
to meet system peak- The
because the foad factor of
substantially from that of
were justified 1n order to
snow melt systems were not
costs of upgrading its system
Company afso explained that
snow melt applications differs
other uses, separate cfasses
assure that customers with
subsidized by other customers.
can be curtaifed by
customers do not
of meeting
its response to
stated that "The
to continue to
Because their consumption
the Company, inte::ruptible snow meft
cause the Company to lncur the costs
incremental increases in peak load.In
Production Request No. 702, the Company
snow mel-t tariffs have al-Iowed customers
add thls equipment without necessitating the investment
in millions of dollars of capacity upgrades to serve the
snow mel-t load under peak day conditi-ons. " See Exhibit
No. 109.
Given these benefits, their differing load
characteristics, the Company's abillty to curtail their
consumption, and thelr existence as a separate class, the
fundamental principle of cost causation requires that
interruptible snow melt customers and other customers be
treated as separate classes for the purposes of cost
causation and ratemaking. Although the interruptibl-e
snow mel-t classes represent a fairly smal-l- portion of the
Company's saIes, they were deemed sufficiently importantt25
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CASE NO. INT_G-16-02
t2/76/76
MORRTSON, M. (Di) 1B
STAFF
for the Company to separate them into their own rate
classes in 2009.
0. What are your
Company' s interruptibl-e
IS-C?
recommendations regardi-ng the
snow melt schedules, IS-R and
the load study and cost-of-service workshops that I am
proposing. Until- then, f recommend that costs be
allocated to these cl-asses in proportion to the
normalized revenue currently being collected from these
two classes. My proposed al-location is summarized in
Exhibit No. 110.
IIEJA,THER ATiID CONST'MPTION NOR!4ALIZATION
A. As noted earlier, the
load study, and did not include
interruptibl-e snow mel-t cl-asses
study, so it is not possible to
classes fairly based on the cost
recommend that the IS-R and IS-C
0. What is
normal-ization?
A. Weather
consumption to the
an average weather
were cooler than normal, w€ would
to be greater than it would have
Company did not conduct a
information about its
in its cost-of-servlce
allocate costs to these
causation principle. I
classes be included in
the purpose of weather and consumption
normalization adjusts test year gas
consumed in
test year
consumption
l-evel that would have been
year. For example, if the
expect gas
been in an averageo25
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CASE NO. INT-G_I6_02
L2/L6/L6
MORRTSON, M. (Di) 19
STAFF
weather year. Weather normalization 1s a
part of consumption normalization, which
consumption for changes in other factors,
in the numbers of customers in each rate
O. Describe the Company's weather
very important
adj usts
such as changes
cfass.
normalization
methodology.
A. The Company created consumption models for its
using statistical multiple
results of these models to
RS-1, RS-2, and GS-1 classes
regression, and then used the
estimate per-customer consumption for each c1ass. Each
month's resul-t was then multiplied by the forecast number
of customers for that month. Reca11 that the Company's
test year is a hybrid that uses actual data for the
months January through June, and predicted data for the
months July through December. For the months January
through June, the Company adjusted actuaf consumption
data; however, for the months JuIy through December, the
Company predicted monthly consumptlon using its model-.
The Company's models use weighted monthly
heating degree days (HDD) as a weather variable, a trend
variable, and an autoregressive term as predictors. A
peculiar feature of the Company's model is its use of
different weather coefficients for different months.
O. Do you agree with the Company's regression
methodology?o 25
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CASE NO. INT_G_16_02
t2/16/L6
MORRTSON, M. (Di) 20
STAEE
A
using
i-n the
effect
. No. Although the
autoregressive terms,
Company's models were created
these terms were not included
calculation of monthly consumption. The general
underestimate theof this omission was to
Company's monthly consumption estimates.
The use of autoregressive terms 1n a predictive
weather normafization mode1 is inapproprj-ate. One
obvious problem is that they can cause the model to
become grossly unstable when used to make predictions
beyond the time period of the data used to create the
model. I repeated the Company's test year calculations
using the Company's full model, including its
autoregressive terms. The resulting consumption
estimates were unrealistically high: The Company's GS-1
model- predicted test year consumption that was 7 6e" higher
than its GS-1 customers actually consumed.
UnfortunateJ-y, the Company's solved the model
instability problem by omitting the autoregressive terms
from 1ts monthly calculations, resulting in
underestimates of annual consumption.
There is also a technical problem with the use
of autoregressive terms for weather normalization:
Although models containing autoregressive terms are
appropriate for some controf and signal processing
applications, their use in weather normalization violateso25
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CASE NO. INT-G-16-02
72/L6/76
MORRTSON, M. (Di) 2L
STAFF
regression I s
The
relationship
fundamental independence assumption.
regression model assumed a linearCompany' s
between Heating Degree Days and consumption;
relatj-onship ishowever, as we can see in Figure l, the
clearly non-1inear.
Fig. 1: RS-2 Consumption per Customer
:t&l
1ffi
tdr]
120
!00
80
t)l I
JO
20
0
*#FoSffiw"
Q%
;
*s d a Rs-tiz_
q 6
0 200 1fi) 6m 8{n 10OO 12-OO 1.lO0
HOD
O. Pl-ease describe
normalization modeling.
A. I used standard
your approach to weather
regressr_on techniques of the
statistical methods
wel-l character|zed,
sort taught in intermediate college
methods are robust,courses. These
and in common use. They are al-so grounded in a
makes them amenable tomathematical foundation that
objective eval-uation. I used Ramsey and Schafer's L997
textbook, The StatisticaL SJeuth, as a reference.
Like the Company, I used multiple regression to25
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CASE NO. INT-G_16_02
L2/76/76
MORRTSON, M. (Di) 22
STAFF
develop monthly consumption model-s for each cl-ass.
Unl-ike the Company, I analyzed each of the Companyr s GS-1
subclasses (small commercial, large commercial,
compressed natural 9as, and irrigators) separately, and
then aggregated the resul-ts. The consumption patterns of
these subclasses differ sufficiently to warrant separate
treatment.
The Company did not provj-de the fu1l range of
heatlng degree days used in its analysis. I used data
for the date ranges provided by the Company. I also
included calendar year as a covariate.
The Company's method for forecasting system
growth is based on historical- relationships between the
numbers of active building permits and customer growth in
each portion of its service territory. This approach is
reasonabJ-e, and I accepted Company's RS-1, RS-2, and GS-1
forecast totals,' however, because the Company did not
forecast GS-1 growth by subclass, I al-focated the growth
projected by the Company to its smal-l- commercial and
large commercial subclasses.
I used backward/mixed stepwise regression to
develop models of per-customer consumption for the
Company's RS-1 and RS-2 customers, as weff as separate
models for each of its GS-1 subclasses. My cri-teria for
inclus i-on/exclus ion
adjusted R2 0.02.
from the model- was a change in
Non-l-inearity in the relationshipo25
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CASE NO. INT-G-76_02
72/16/16
MORRTSON, M. (Dr) 23
STAFE
between consumption and heating degree days was modeled
using quadratic and cubic curvature terms.
The resul-ti-ng models were simpler, but much
more robust than those deveJ-oped by the Company. With
the obvious exception of the irrigation subclass, the
number of monthly heating degree days was an excellent
predictor of consumption for the RS-1, RS-2, and GS-1
classes.
different
As mentioned earl-i-er, the Company's model used
consumption coefficients for each month.
this approach is not j-nherently incorrect, itAlthough
resul-ts unnecessarily complicated model. The
model uses 15 different factors. The RS-2Company's RS-2
mode1 developed as I have described uses just four
factors.
O. How do your ad;ustments compare with those
proposed by the Company?
A. Overall, my normalized consumption estimate for
the Company's core customers (RS-1, RS-2, and GS-1) is
approximately 2.15% greater than that proposed by the
Company. My estj-mates for the residential RS-1 and RS-2
classes are 1.54% and 2.12% greater, respectively, than
the Company's. My estimate for the aggregated GS-1 class
is 2.38% greater than that proposed by the Company.
Overal-l-, ily estimate of test year gas operating revenue
an an
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is 2.02% greater than the Company's. My estimate of the
Companyrs base rate revenue (gas operating revenue l-ess
the cost of gas) is 2.62% greater than the Company's
estimate. I have summarized my proposed rate
determinants in Exhibit No. 111. A summary of my
proposed revenue requirement all-ocation can be found in
Exhibit No. 110.
THE COMPA}IY I S LINE A}ID MAINS EXTENSION POLICIES
0. How are the Company's service l-ine and mains
extension policies affected by the Company's Rate-of-
Return?
A. The Company's fine and mains extension policies
are discussed more fully by Staff witness Farley. The
al-lowance represents the maximum investment that the
Company is aflowed to make when connecting a new customer
to its system. As such, it represents a significant
fraction of the Company's distributlon plant-in-service.
As I have explalned, the Companyrs accounting system does
not distinguish between the Company's investment and
customer contributions to those accounts, So it is
imperative that the Company's tariff accurately reflect
the Rate-of-Return authorized by the Commission.
Currently, the tariff is predicated on a 72.5% Rate-of-
Return, and the Company has not updated its tariffs to
reflect its proposed Rate-of-Return. As explained by
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CASE NO. ]NT_G-76_02
1.2/16/16
MORRTSON, M. (Di) 24
STAFF
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Staff witness Farley, the Company has resisted Staff
requests to update the formulae in its -l-ine and mains
extension policies to refl-ect its proposed Rate-of-
Return.
O. What are your recommendations regarding the
Company's line and mains extension policies?
A. The Company's service l1ne and mains extension
policies should be updated immediately to refl-ect the
Commission authorized Rate-of-Return.
CONCLUSIONS A}ID RECOMMEIIDATTONS
O. Pl-ease summarize your recommendations regarding
the Companyrs cost-of-service study.
A. Because the Company did not conduct a foad
study, it was unable to develop system peak allocators
that wou1d permit a fair all-ocation of the Company's net
plant-in-service to its rate cl-asses. Eurthermore, the
Company excluded its interruptible snow melt customers
from its cost-of-service model-. I recommend that the
Company be required to conduct a load study that includes
all of its classes.
The Company proposes that the costs of
services, meters, regulators, ERTs, and refated accounts
be allocated using factors derived from relatlve meter
costs. This is inappropriate. The costs of service
l-j-nes should be allocated uslng the rel-atlve costs of
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CASE NO. INT-G_16_02
72/t6/76
MORRISON, M. (Di) 25
STAFF
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CASE NO. INT-G-1,6_02
1,2/16/16
MORRTSON, M. (Di) 26
STAFE
providing
regufators
costs, and so on. Absent the
service lines to each class, the costs of
should be aLlocated using relative regulator
cost accounting information
these costs, acceptable
using the Company's records
required to directly all-ocate
all-ocators could be developed
of line extension costs.
The Company is also proposing an inappropriate
classification of over 412 of its mains as
customer-related. Typically, most distribution-related
costs that cannot be directly all-ocated are allocated
using non-coincident peak, or peak and average
affocators. Cumul-atively, the Company is proposing that
52e" of its $407,663,'702 distribution-related rate base be
classified as customer-related.
I propose that the Company, Staff, and other
stakeholders convene a series of workshops in order to
develop a load study and update the cost-of-service study
in order to incorporate improved allocators obtained from
the load study and from analysis of the actual costs
j-ncurred by the Company when connecting new customers.
A11 schedules, including the Company's interruptibl-e snow
melt and Ketchum/Sun Va11ey area hookup schedules, shou1d
be incl-uded in the process.
O. Please summarize your recofirmendations regarding
the Company's weather normalization methodology.o 25
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A. The Company's weather normalization adjustments
were deriwed using autoregressive models that incfude
autoregressive terms. Al-though these terms were used to
model- the data, they were not used in the Company's
adjustments to January - June test year adjustments, or
in its July - December forecasts. As a resul-t, the
Company's estimates underestimate the weather normalized
consumption of its RS-1, RS-2, and GS-1 classes.
I used a simpler and more robust modeling
methodology. My proposed billlng determinants are
summarized in Exhibit No. 111.
O. What are your recommendations regarding the
Company's Line and Mains extension policies?
A. The Company's Service Line and Mains extension
policies should be updated immediately to reflect the
Commission authorized Rate-of-Return. Additionally, as
explained by Staff witness Farley, the factors and
assumptions used in the derivation of these schedules
were last updated in 1986. I propose that these
schedules be updated in a separate rate case.
O. Do you have any other observations and
reconimendations?
A. Yes. The Company explained to Staff that the
Company had considerabl-e difficulty obtaining data
necessary for cost aflocation and weather normallzation.
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CASE NO. ]NT-G-16_02
72/L6/76
MORRTSON, M. (Di) 21
STAFF
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CASE NO. INT-G-16_02
72/16/76
MORRTSON, M. (Di) 28
STAFF
As noted earl-ier, the Company does
to determinej-nformation necessary
or customer contributions by class for
related FERC accounts. This relatively
not keep the
costs, depreclation,
any of its plant
coarse level of
information is adequate for determination of the
Company's overall revenue requirement, but is inadequate
for best practice revenue requirement allocation. There
was also considerabl-e difficulty obtaining the data
necessary to fu11y eval-uate the Company's weather
normalization methodology and its mains study. The
Company explained that because of system upgrades in 2002
and 2073, detailed data was unava j-l-able. I recommend
that the Company adopt data retention policies that
assure that this information is available when needed for
ratemaking purposes.
O. Does that conclude your testimony?
A. Yes, it does.
o 25
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LL+
CSB Reporting(208) 890-s198
MORRTSON (X)
Staff
(The following proceedings were had in
open hearing. )
MR. KLEIN: We tender him for
cros s-examinat ion .
COMMISSIONER RAPER: Does the Company have
any cross for Dr. Morrison?
MR. WILLIAMS: We do
CROSS-EXAMINAT]ON
BY MR. WILLIAMS:
v
A
n
Good morning, Dr. Morrison.
Good morning.
So in preparing your weather normalj-zation
Company' s pri-or weather
from 1986?
testimony, did you
normalization Case
review the
u-1034-\34
A Yes, I did.
O And in that
normal heating degree days.
accepted by the Commission;
A I agree that
1986 case, the Company used
the methodology using normal
accepted by the Commj-ssion.
That methodology was
do you agree with that?
normal heating degree days,
heating degree days, was
O Okay, and essentiafl-y when we tal-k about
the methodology as opposed to the expanded customer baseo25
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CSB Reporting(208) 890-s198
MORRTSON (X)
Staff
and data sizes, the Company used basicall-y that same
norma1 heating degree day methodology in this case; would
you agree with that?
A No, f would not.
O And why woul-d you not agree with me?
A There's a couple of reasons. First, the
Company doesn't even have a heating degree day factor in
their model. There's nothing corresponding to the ol-der
HDD65 factor. Instead, they're using separate factors
for each month, Sor for example, January has a heating
degree day factor. Eebruary has a heating degree day
factor. Second, and this is rea1ly import.ant, they use
an autoregressive term in their model. Their model uses
an autoregressive term, which means that any prediction
made from that model must be made using an autoregressj-ve
forecast, they omit
causes their
you're way beyond my question, Dr.
Morrison
A WeII, you asked if I accepted the
term, and then when
that autoregressive
consumption
O But
methodology.
o
A
not.
they do their
term and that
No, I asked if 1t was same methodology.
It is not and I just explained how j-t was
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CSB Reporting
(208 ) 890-s198
MORRTSON (X)
Staff
0 Okay, it's not the same methodology as
1986?
AIt is absolutely not.
KLEIN: I'd l-ike Dr. Morri-son to beMR
abl-e to fulIy answer the question,
THE WITNESS: We11,
modification includes
if possible.
they -- their
him to answer mv
tlme on redirect
questions,
to give the
too. He'II have
answers that hls
woul-d like
plenty of
counsel
MR. WfLLIAMS: Madam Chair, I
wants him to, but he
He's giving a speech
beyond where my quest j-on is.
so I appreciate the courtesy
r_s way
now and
of him answering my questions.
THE WITNESS: PIease restate the
question.
MR. WILLIAMS : There wasn I t a questi-on .
You were just continuing.
COMMISSfONER RAPER: For the benefit of
everyone, y€S, Dr. Morrison, if you will please answer
the questions asked and standardJ-y, Mr. Williams, I know
you know full- wel-l that we allow some el-aboration on
answers and those things were al-l-owed of your witnesses
as weIl, so some elaboration is standard, but Mr. Klein
and Mr. Costello wifl have an opportunity on redirect to
get at the additional information that they want to beo25
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CSB Reporting
(208 ) 890-s198
MORRTSON (X)
Staff
part of the record, so with that in mind
THE WITNESS: The Company did not follow
the prevlous
MR. WILLIAMS: T havenrt asked a
question.
COMMISSIONER RAPER: Dr. Morrison, it is
Mr. Wil-liams' turn to ask a question.
THE WfTNESS: Excuse me
O BY MR. WILLIAMS: Dr.
agree that the Company has been using
normafization model regularly in the
heating degree days in its annual PGA
bi-annual IRP filings?
A f have never reviewed
itrs not in my
v
you aware that
conslstently in
And if you're not aware,
A I'm not.
O Okay. Now, in this case
different methodology that calculates an
year; would you agree with that?
A That 1s correct.
you propose a
Morrison, do you
its weather
way it calculates
filings and
those filings and
testimony.
I know it I s not in your testimony, but are
they use their weather normafization model
their PGA filings and their IRP filings?
you're not.
average weather
O Okay, and are you aware that NOAA uses ao25
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CSB Reporting
(208 ) 890-s198
MORRTSON (X)
Staff
30-year data set to calculate normal heating degree days
for weather normalizatj-on purposes as opposed to an
average weather year?
A NOAA provides a 3O-year heating degree
day.
O okay.
A What it's used for is up to the customer,
the Company perhaps, but it might be appropriate.
a So NOAA uses heating degree days and they
use 30 years of data for that?
A That is correct.
O Okay,
to calcufate
al-f right, and Avista uses a simil-ar
normal heating degree30 years
weather normalj-zatj-on; would you agree wlth
days in thelr
that ?
weather year alternative
for the period 1989
weather; would you
A Yes
O But your
model used only
through 2003 to
agree with that?
13 years
calculate
average
of data
average
A That's actually what I fixed.
0 Well, you changed your testimony, qulte to
our surprise, but your model- uses 13 years. Did you look
at the Company's model? Did they use l-3 years' data as
wel-l-? It was given to you, wasn't it?
A I didn't use 13 years in my modef. As Io25
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CSB Reporting
(208 ) 890-s198
MORRTSON (X)
Staff
stated, I used the ful1 data range that the Company
provided.
is when
30 years
model- ?
ran your
heating
weather
0
you
of
But that's not my question. My
averaging mode1,
question
did you use
that
A
U
A
degree day data input into
The Company provided me
No, that's not my question.
I stated in my testimony that I used the
ful-l range of data used by the Company.
O And what was the range used
What were the years, the months and years,
in your mode1?
used in your
model ?
A I used October 1989 through December 20L5
as provided to me by the Company.
O Well-, the Company provlded you a lot more
of that data, but you chose to use a partial- subset of
that data; would you agree with that?
A No, I would not.
MR. WILLIAMS: Okay, I would l-1ke to give
Mr. Morrison screenshots of his model. This has been
marked Exhibit No. 46 and, Mike, Lf could you hand those
out to the Commissioners and then the witness.
(Mr. McGrath distributing documents. )
a 25
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CSB Reporting
(208 ) 890-s198
MORRTSON (X)
Staff
(IGC Exhibit No. 45 was marked for
identification- )
BY MR. WILLIAMS: So
been provided what's been premarked
that correct?
A That is correct.
the Company
which was
and the model
Dr. Morrison, you've
as Exhibit No. 46; is
response to a production
the top. ft's
O And what this alleges to be is screenshots
from what what I woul-d characterrze as
your model produced in
name 1s atrequest
"PR13-36 Workpapers_
with that?
Morrison Normal-i-zatlon. xlsx. " Do
you agree
A That looks about right.
O So this, agaln, is your model-, but it's
the data that the Company provided to you and Figure 1 --
and, Madam Chair, with your indulgence, I'm also going to
need to put Ms. Blattner on later to al-so reference where
this came from, but for purposes at this point, Figure 1
shows the formul-a that calculated the sum heating deQree
days.
A Uh-huh.
O And that formula that does the summatj-on
is in the box along the top and it's also in Figure 3,
the same sum, and this particular sum function says, and
this is your model, it says sum heating degree days25
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starting on line 3, col-umn
formula that it says after
then we skip over, there's
C, and you see that in the
the it says "SUMIF" and
a comma, it says "$l-C$3" and
that's telling
and then1989,
formula that says
166, May of 2003?
the model to start
there' s
summing October of
it says stop summinga col-on
Eigure
degree
and
at C$166 and thatfs on
stops counting heating
correct ?
A And to refer back
O No, I'm asklng you
what the model- does?
A No.
O Okay,
to my corrections
a question. Is this
your mode1 does not have this
from October 1989, line 3, to fine
3, and line 166, your model-
days in May of 2003;
formul-a that is in your that
in your modef, that is incorrect,
your testimony?
for a minute.
sum
This
we sdV, that I say, is
then? This was not your modef; is that
A May I -- can I elaborate
COMMISSIONER RAPER: You may answer his
question.
THE WTTNESS: This is the error that f
corrected that Ms. Bl-attner brought up in
testimony that I corrected. The model did
mode1 no longer says this.
a BY MR. WILLIAMS: But this
her rebuttal
say this. The
1s your model.o 25
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This is not the Company's mode1, So
you this formula, this
I corrected it. No,
sum f ormul-a.
Company gave
give me the
No, that's your formula,'
It was the formula that
a And you probably put
and you dragged it down and for some
stopped at line L66 and it didn't go
was June of 2003?
that they had used in
A
are you saying the
sum formul-a?
the Company did not
right ?
I corrected.
0
A
A Yeah, I was attempting to
data that the Company provided with the
In the process,
had said
I tried to use the data
your cursor on sum
reason your cursor
to line 767 | which
reconcil-e the
Company' s model-
ran9es
one of
that the
Company their
consul-tant reviews, but I attempted to reconcile that and
I fail-ed to turn that back. I falled to correct that
after I had got done attempting to do that
reconciliation, so yes, that so, y€s, this is an
error. It is an error.
O ft's a significant error, isn't it,
materially; right?
A 0.4 percent.
O So Dr. Morrison, the Company was rea11y
confused when they got your model back and their model
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MORRISON (X)
Staff
SUMS
goes
all
it goes beyond
from l-ine 767 to
fine 166. The Company's model
300 or whatever it is and it sums
f mean, their model does that?
isn't correct.
30 years;
A
o
right ?
That
Pardon me?
COMMISSIONER RAPER: Dr. Morrison, if you
can lean up to the microphone cfoser to you, please.
THE WITNESS: Sorry.
COMMISSIONER RAPER: Thank you.
THE WITNESS: Yeah, their model- used 77,
approximately 7!, yearsf worth of data in modeling it and
that shou]d be we should realize that that is
completely separate from the issue of the data that was
used to determine the normal weather year. f used
most of the data that I used in my model overlaps the
Company's modef. I used 2075. They only ended at 2014.
Otherwise, my date ranges are the same. In order to
compute the normal- weather here, I used al-f of the data
provided by the Company, since I asked for all of the
data that they used to compute their normal weather year.
I assumed that they only used the same 26-year range that
I used, because they never provided me anything like a
3O-year range that they are now cl-aj-ming they used.
O BY MR. WILLfAMS: Wef I, doesn't lj-ne t6'7,
June of 2003, and I assume this model- goes on to 2015,o 25
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Staff
didn't they
A
oz
A
provi-ded
range October
I mean, this is in your model.
They provided a 26-year data
MR. KLEIN: Ifm going to object
THE WITNESS: They provided a 26-year data
1989 through December 2076.
MR. KLEIN: Ifm qoing to object to thls
continuing l-ine of question. There was an error in the
original information that was sent over. He caught it.
He corrected it. He's admitted the error has been
corrected and it's been changed on his testimony.
COMMISSIONER RAPER: Mr. Wi11iams, do you
have a response to that before f rule one way or another?
O BY MR. WILLIAMS: So Dr. Morrisonr ds
we're quantifying this error, and it's Exhibit No. 40,
Ms. Blattner, she quantifi-es this error as $3.5 mi11ion,
provide
They
that data to you?
I assume you disagree with
COMMISSIONER RAPER:
that calculation?
Mr. Wil-l-iams, are you
roughly
going to respond to the objection
MR. WILLIAMS: I'm
this out.
obj ection?
made by Mr. Klein?
sorry, we were talking
COMMISSIONER RAPER: Dld you hear the
MR. WILLIAMS : Madam, I didn ' t, but I ' l-Io25
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Staff
concede, so I'm wrong, he's right.
COMMISSIONER RAPER: It might impact your
Iine of questioning.
MR. KLEIN: I move to dismiss.
MR. WILLIAMS: Madam Chair, I was doing
too many things at one time. I apologize.
COMMISSIONER RAPER: If Mr. Klein can
restate the objection.
MR. KLEIN: f was just pointing out that
he admitted there was an error in the orlginal
information provided to the Company. He corrected the
error and j-t's been changed in his testimony and I don't
think we need to go any further with this.
MR. WILLIAMS: Okay. The part of the
objection I disagree is we don't need to go any further
on this.
COMMISSfONER RAPER: So to the extent that
his testimony has
this document, I
Klein has stated.
changed and impacted the viability of
think we've qone that route, ds Mr.
rf you are questioning his current
a val-id line of questioning that
I agree with Mr. Kl-ein that he has
perhaps the numbers and what is
Exhibit No. 46 is no longer the
state of his testimony.
testimony, then that's
you have, but I do
already admitted that
reflected in your now
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Staff
MR. WILLIAMS: Okay, all right.
O BY MR. WILLIAMS: So Dr. Morrison, have
you reviewed Ms. Blattner's Exhlbit No. 40 where she
cal-culates the dofl-ar impact of this error at $3.5
mil-lion?
A
a)Y
the Company
A
o
nV
is provided
A
u
question about
your estj-mates?
A
Okay, and your answer
on these workpapers?
That is correct.
No, I haven't.
Okay. Were you aware of this error before
filed its rebuttal testimony?
No, I was not.
Okay; so in production request No. lJ, the
Company asked you specifically for your model, your
workpapers that created your normal-ization estimates and
specifically asked you to note the time period used to
develop your estimates. Do you remember that question?
A Yes, I do.
Excel spreadsheets.
O fsnrt there
something Iike that is
was the information
Okay,'
noting
Did
so why didn't you answer the
the time period used to
you think that was
It is noted. ft's just
a higher standard when
in answering I mean, arentt
j ust
simply
develop
trivial ?
in the
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Staff
these legitimate production requests?
MR. KLEIN: Objection, calls for a 1ega1
conclusion.
a BY MR. WILLIAMS: Did you answer the
question specifical-ly to note the time period used to
develop your estimate? The question calls for that.
A Yeah, they are in the Excel spreadsheet.
O And your answer was see the Excel-
spreadsheet ?
A Something to that effect.
O Do you know of any other utility or any
commission that calculates average weather years uslng
I'm sorry, any other util-ity commission that cafculates
average weather years instead of calculatlng heatlng
degree days to normalize weather?
A Please rephrase the question.
O Do you know of any utility or any utility
regulatory commission that calcul-ates average weather
years, which is your methodology, instead of calculatlng
heating degree days, which I will charactertze as the
Company' s methodology,
A When I
to normal-ize weather?
refer to an average weather year, T
monthsam referring to a weather year
of average heatlng degree days;
degree day term for each month.
that consists of L2
1n other words, a heating
That is the way NOAA25
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Staff
calculates 1t and that's the way
calculates it, and I believe the
O We11, I would
utility or commission that uses
set to normalize weather?
A For what purpose?
O To normafize weather.
everybody else
Company did that,
do you know of any
a vintage 13-year
too.
data
A Are you
are you talking about
talking about the weather model or
the average heating degree days?
heating degree days.
and the data provided
To cal-culate normal
No, the norm is 30
nY
A
to me by the
years and I
me.
Water with
Company indicates
used the same data
O Do you
respect to
that they only used 26
range they provlded to
remember providlng a l-etter to Suez
their weather normal-ization
models?
A Yes.
l-etter.
f've handed
signature to
this letter,
O So I'm going to hand you a copy of that
(Mr. McGrath distributing documents. )
BY MR. WILLIAMS: So Dr. Morrison, whatII
you
the
you
is an April 4th, 2016, Ietter under your
general manager of Suez Water, and in
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Staff
normafization, and if you would turn
of that or the back side, there's a
to the second side
summary and Irm going
from this, but yousectionsto read a couple underlined
start out by saying you have
the Company's selection and
weather normal-izationr so do
has done the same thing?
A Actua11y, not
O Okay; so you
another llne, you say, "The
a number of concerns about
exclusion of data from their
you feel the Company here
rea11y.
further on I've underlined
omission of the Company's
most recent three years in its commercial analysis was
particularly troubl-esome. " Yet,
the omission of a substantlally
in this case, we have
longer period of more
you not find thatrecent data that is in your mode1. Did
troubl-esome?
A Coul-d you please rephrase the question?
I'm not sure what you're saying.
O The question 1s you were criticizinq Suez
Water for the omission of the most recent three years of
data and you find that troubl-esome. Yet, in your model,
you stopped looking at data in 2003, so we have almost a
L2-year period of more recent data that wasn't incl-uded
in your weather calculations; is that not also
troublesome?
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line of questioning. Agaln, he's talking about this
fumble thumb error of dragging and dropping data in a
spreadsheet. Mike caught it. He corrected it. He's
testified to it in his testimony, and I think we need to
move on.
THE WITNESS: I wouldn't mind answering
the question, unless Karl, is that okay?
COMMfSSfONER RAPER: To the extent that
the line of questioning is regarding now outdated data
that has been admitted by Staff witness, it no longer
pertalns. Itrs superfluous, so ask any questions you
want, but if the witness has admitted that there's a
portion of testimony that no longer applies for him --
MR. WILLIAMS: Okay, and Madam Chair,
we'l-l- need some opportunity to do some responses to this.
I appreciate the ability of that and I only say that
because this is a huge issue for the Company. This is a
huge revenue issue and we need to make sure that the
record is straight on that.
COMMISSIONER RAPER: Responses in regard
to you said that you will need an opportunity to
provide responses?
MR. WILLIAMS: I need -- when Ms. Blattner
takes the stand, there's a couple of questions that I
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l-ine with Dr. Morrison.
COMMISSIONER RAPER: Sure.
O By MR. WILLIAMS: So Mr. Morrison Dr.
Morrj-son, we're about ready to get into one of my
favorite areas of cross-examination, statistical
analysis.
A This is going to be fun.
COMMISSIONER RAPER: Dr. Morri-son, please
be aware that you need to be close to the mic. Thank
you.
O BY MR. WILLIAMS: So on page 22 of your
testimony, you testify that you used stepwj-se regression
to develop models for residential- consumption, and are
you aware of the multiple shortcomings associated with
stepwise regression that have caused most recogni-zed
statisticians to strongly recommend against its use?
A I am aware of many shortcomings and I'm
aware that many statisticians have warned that you not
use it in a manner that risks shortcomings.
O A11 right, and on page 23 of your
testimony, you state that you used a cubic term to
evaluate heating degree days, so I ' 11 state this question
first, how my expert gave it to me and then second, how
Ithink I interpret it, so l-et me do both questions. Why
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do you believe heating
variable for explaining
to burn more therms in
degree days cubed is a
a customerrs response
furnace,his or
relevant
to wanting
and so the
for cubing1ay transl-ation 1s what's the
her gas
bus ines s reason
data ?
A The data is not linear and in order to
correct the non-linearity of the data, i-t's very accepted
and it's accepted in l-ots of different references books
to transfer the data using a polynomial- transformation.
Now, a polynomial transformation would be a polynomial
infinite series. It's got to stop somewhere, but we use
a polynomial and it's a fundamental kind of algebra.
It's called fundamental- theorem of algebra. It's that
fundamental, that if you use enough polynomial terms, you
can approximate any shape.
I truncated the polynomial series at
line 3 or at the third unit, which was the cubic term.
That provides an approximation of the curvature, this way
a better rel-ationship between the Company's heating
degree days and the actual- therm consumption rather
than -- weII, that's what I did was I used that Taylor
series, so my Taylor series is approximating the
Company's actual- function. That is a non that is the
way to address non-Iinearity of data.
O But you still haven't addressed my25
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question, and before I get to that, following along your
answer, I mean, if we quad or took this analysj-s to the
fourth, fifth, or sixth degrees, don't we always get a
better donrt our results just become more and more
pure validating what we just did?
A Valldating what aspect of what we just
did?
0 The results. I mean, a better fit, don't
we always get better fits of the exact same data when we
can move through a progression of squaring and cubing to
the tenth degree?
A Yeah, and this is really important to
understand is that more terms you throw at a model, you
can make a model fit any data if you throw enough terms
in it, so by throwing in a quadratic and a cubic in my
model, I used four terms, the Company uses 11.
O Okay; so my original question, what was
the business reason wanting to do that other than seeing
a better fit?
A Business reason?
mean, when
a business
you build a model,
don't you need to put reason behind why you
did something'.
A I used a statistical- reason and I guess if
f 'm building a statistical mode1, f use a statistical-
O Yes. I
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reason. If I were building some kind of econometric
model, I might use a business reason.
O So you donrt come back on your models and
test them agalnst, you know, the business case, is this
really doing a better job of trying to evaluate a
customer's response to a weather variable?
A Oh, of course I do.
O Okay.
A Of course f do. Thatfs R-squared. My
R-squares were all .994 or .99'l I which means my models
matched the customer consumption 99.4 to 99.7 percent of
the time, meaning there's only about a 0.3 to 0.6 percent
that didn't match.
a So did you provide a backcast?
A Yes, I did. That's precisely what I just
talked about. That is the R-squared is a backcast.
O Did you perform any statistical tests to
determine if the error terms from your regression models
were uncorrelated?
A Yes, I did.
O And what was those tests -- well, whaL
was did you do the Durbin-Watson test?
A Yes, I did.
O Okay, and what was the resul-t of that?
A The result without putting the polynomial
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term that I tal-ked about and incidentally, the
Company's modef uses an autoregressive term, Irm using a
polynomial term, so that's a fundamental difference
between mine and the Company's. In the Company's
methodology, it is absolutely imperative that you perform
the Durbin-Watson test, because the Company's methodology
is in fact adjusting the data in order to get residuals
that meet the assumptions of the Durbin-Watson test. I
didn't use the same methodology, so f was using the
Durbin-Watson test just to take a look to get a general
idea for how welf f met the fundamental- assumptions of
regression.
O Okay. Now, if the Company accepted your
regression analysis, but stayed with the precedent that
has been used historically for the Company for a vari-ety
of purposes, which 1s normal heatlng deqree days to
normal-ize weather instead of your average weather year
methodology, are you aware that your regression model
wou1d then forecast a l-ower therm usage than the
Company's model?
A I don't understand how my average weather
year methodology deviated.
O Wel-l-, earlier I asked you if your
methodology, if you would agree that it was an average
weather year methodology and I thought I heard you agree
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with that.
A f agreed that the way that f computed an
average weather year was consistent with that of the
Company, so f woul-d see no difference here.
O But l-et's say the Commission rejected your
newer, experimental methodol-ogy on weather normalization
and stayed with what the Company has been using since
A DidI--
O Let me finish my
with the same methodology, but
regression analysis instead of
it woul-d resul-t in l-ower therm
A Can you tel-l- me what was
question and stayed
then instead used your
theirs,are you
the
aware that
usages than Company' s ?
experimental
methodology thatabout my methodology?
NOAA did, and I only
was all the data the
I used the same
applied it to 26 years, because that
Company gave me.
O So l-etIs strike the word "experimental"
from your methodology,
the Company.
A f used
gave me. The results
0 Ifm not
about methodol-ogies.
A I used
compute the heating degree
your different methodology than
the same 26 years that the Company
shoul-d be identlcal-.
talking about years, I'm talking
the same methodology for my
days, I used the same
to
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methodology
the Company
question.
models, are you only normalizing
or does your mode1, in essence,
usage ?
A The purpose of my
test year usage.
as the Company used, using the data set that
submitted- I donrt understand the
O Dr. Morrison, when you apply your weather
fo:: changes in weather
O If you are forecasting test year usage
instead of just weather, doesn't your model then have the
effect of normalizing for more than ;ust changes in
weather?
A As does the Company's, yes.
O So Dr. Morrison, I want to turn to your
cost of service testimony now.
A Certalnly.
O So it's a fair well, would it be a fair
characterization of
the Company's cost
Company did not do
A No,
also forecast test year
model is to forecast
your testimony to say that you reject
of service study 1n whole because the
a load study?
incomplete.
expect that answer; so Dr.
that's
O I did not
Morrison, oD page 2 of your testlmony, you state that
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is not possibl-e
al-l-ocation" i is
testimony?
A
v
can't
study
have a
you
is that
to develop a suitabl-e alternative revenue
that a correct reading of that
That is a true statement.
Okay, and one of the reasons you say you
could not have done your
load
own cost of service
you didn't have a study and you didn't
l-oad study because the Company
installed; isessentially smart meters
didn't have
that correct?
A No. I said that they dld have smart
meters install-ed and, therefore, they could. The smart
reason that they could not have done a l-oad study given
al-l those meters that are in place.
O So 1t's your testimony here that the
meters are capable of measuring 24 hours
one-hour increments, so they have hourJ-y
for every one of those 80,000 customers.
Company has
system that
inf ormati-on
A
u
production request that explored that with
A No, when f was out with Mr.
showed me his he showed me the meters.
of data in
consumption data
There was no
you had a
the Company?
McGrath, he
I asked him
smart meters instal]ed on their residentiaf
could have given them daiJ-y hourly load
chose not to use that?and the Company
That is correct.
That's your testimony, and
o 25
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MORRTSON (X)
Staff
about the ERT meters. He said we currently have 80,000
of these.
capable of
think, 44,
that it was
entire date
100G series
picking
45 days
24/7,
range,
smart
hourly data
that's
for that
what the
He tol-d me that
up he
worth of
that it capable of
so the
they have the telemetry
said they coul-d plck up, I
data that it coul-d hol-d and
meters
Company has
do and that's what the Company
wants to recover in this case.
O A11 right; so if back to thewe go
study,
cost
A
nY
was adopted by
A
Company's 1986 cost of servj-ce
smart meters when they did that
they didn't.
there was a
cost of service study and I
this is a revised testimony
they didn't have
of service study?
cost of service study that
l-ot of controversy about that
bel-ieve that the reason that
from Kohlmeier was so that
No,
But
this Commission in 1986; correct?
There was a
they could include better cost of service information
u
study; right?
A
o
So you reviewed the 1986 cost of service
I reviewed a1l- that' s stil-l- available.
And so maybe it wasn't perfect, but j-t at
among customerleast did some job of allocating costs
classes ?
A It did a jobo25
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MORRISON (X)
Staff
O Okay, and that was accepted by the
Commission in l9B6?
A That was accepted by the Commission,
yeah.
a So your recommendation today in this case
is that that 1986 cost of service study 1s something that
should be relied on more reasonably in this case than the
cost of servi-ce study that the Company did in this case
that essentially was that same methodol-ogy?
A Could you find that in my testimony,
please ?
0 f'm not. I'm asking you f mean, it's a
natural resul-tconclusion from your testimony. It's the
of your
cost of
recommendation that this Commi-ssion reject this
service study. The only resul-t
now because of your
spread revenues is
service study. Do
A Let
recommendation that
that can occur
you uni-formly
that 1986 cost ofthat they go back
you disagree with
to
that ?
me see if I understand the question.
What you're asking is whether the Company should continue
using that 1986 cost of service study?
O Not at aII. My question is, is it not the
natural result of your testimony today to reject this
cost of service study to essentially default to the 7986
cost of servj-ce study because you recommend a uniform25
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MORRISON (X)
dL^ccJLdII
percentage increase?
A To the extent to which large changes in
felt thatallocation woul-d cause rate shock, okay, I
until we get a good cost of service study that 1t was
continued the sameincumbent on us to do something
that were usedrough
cost of service study that's based on
are derived from a l-oad study or some
data.
O Do you remember how many customers there
were, the Company had, in 7986?
A I didn't live in Idaho at the time, but I
believe it's something in the order of 85,000.
O Do you recall- how many customers the
Company --
A In the order of 340-350,000 now.
O So it's your testimony, then, that a cost
that
of service study based on
a better, more reasonable
the one done wi-th 34 0, 000
at aI1,
until we could get a
actual- f acts, that
sort of load
Iess than 100,000 customers is
method of allocating rates than
customers?
al-locations
Company wants
ol-d when the
avail-abl-e to
to continue a
no. My testimony
methodology that
far better. That
is that the
is 31 years
data is
used that
A Not
data today
the Company and it shoufd have
AS
better data 31 years l-ater in its cost of service studyo25
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MORRTSON (X)
Staff
The older I
have this, but
please for
to update its
Company to please upgrade
of service methodology in
in 31 years we have better
and conti-nue
the Order,
data, better
than relying
don't have the reference, you probably
back in 1986, there was an admonitj-on to
the
cost
so I believe that
technology.
on something
oY
that Staff
electric in
We should be using that rather
that is very old.
So Dr. Morrison,you would
number ofhas historically in a
particular, developed
When they have load data.
agree with me
CASES,
cost of service
studies ?
A
u
meters, lots
studies for
Okay, but I
of util-ities
a lot of years, rj-ght,
essentially telemetered
doing cost of service
so the l-oad data that
or smart, but before
mean, before they had smart
have been
you
they
want is
data;
were available, there was other ways to get l-oad
correct ?
A Yes, typically the company and I'm lust
throwing these out for reference, but the company woul-d
put about 600 meters on selected, generally randomly
selected, residences or when I say "companyr " f'm not
referrlng to thls particular company, but they would go
through and they would put meters on around 600
residences and general service customers in order to25
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CSB Reporting(208) 890-5198
MORRISON (X)
Staff
obtain a statistically valid estlmate of what that
those load factors by class were.
O So before there were smart meters, it's
your testi-mony that a company, let's use an electric
utility, would say it looks like today is going to be the
peak load day, so 1et's ro11 the meter readers out to
hourly be sampling meters?
A No, they did it all year, it was all- year.
That's why there were only around 600 or so.
a So there were dedicated meter readers to
residential customer meters on an hourly basislooking at
throughout
A
daily, but
the year?
They didn't
the meters were
or more worth of data.
0 So Dr.
that it's your belief
capability of capturing
because you've looked at
request that data, then,
study?
A r did.
O And what
do it hourJ-y. They did it
capable of recording a month's
Morrison, you testified earlier
that the Companyrs meters have this
this data on a residential basis
these meters. Why didn't you
and do your own cost of service
was the Company's response?
A Nothing.
I'm sorry, what?o 25
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MORRTSON (X)
Staff
A They didn't respond.
O Are you aware that the 80,000
you're referring to are in Boise?
A The information I got was that
things
peaks,
meters
it was
being implemented
a true statement
across the entire system, but if that's
MR. WILLIAMS: Could I just have a moment,
Madam Chair?
COMMISSIONER RAPER: Sure.
(Pause in proceedings. )
MR. WILLIAMS: Madam Chaj-rman, Do further
questions
COMMISSIONER RAPER: Thank you. Northwest
Industrial Gas Users?
CROSS-EXAMINATION
BY MR. STOKES:
O Good morning. Can you teII me what a l-oad
study is, tel-I me what that is?
A Yes, I do.
O Can you tel-l- me what it is?
A A load study is a method to determj-ne
like the typically it's different kinds of
like non-coincident peaks or coincident peaks, and25
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MORRISON (X)
Staff
itfs the data thatrs necessary to find those. It also
woufd find load factors for different classes with it as
welI.
O Okay, and it's your testimony that the
Company did not conduct a load study; correct?
A
r)Y
service study
A
talked about
They
Okay,
Absent a
this in my
did not conduct a foad study.
did Staff perform some cost of
in this case?
l-oad study and I f ve said --
testimony, but absent a load
to conduct a factual-Iy -- a
f tve
study, it's
fact-based
not possibl-e
cost of service study
O Would you agree that the
its cost of service study with the total
and the peak day contrj-bution for large
transportation customers ?
A They dld.
O Okay, and then they used
Company started
peak day demand
industrial and
that to allocate
the cost to the residentiaf and small commercial-
customers r' correct?
A
estimated the
Wel-l-, they only had peak day and they
they only had peak day for their LV,
customers, but they estimated everything
RS-1, RS-2, GS, the i-nterruptible customers,
T-3,
else
all-
T-4, T-5
for the
of that were estimated using average for the month ofo25
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(208 ) 890-s198
MORRTSON (x)
Staff
January.
O And is the reason for that because the
large industrial and transportation customers have the
smart meters on every
small- commercials and
one of them and the residential and
some of these other schedules don't
have these smart meters on all the
A I don't know what the Company's reason for
not using the smart
meters
meters that it already -- the 80,000
that it already has. I'm sorry, you'dor so smart
have to ask
u
you're aware
residential-
the Company that.
Can you name for me every gas utility that
of that uses smart meters on every
and commercial- customer?
A Every is a reaIly big word.
O Wel-I, every company you're aware of .
A A large enough sample in order to derive
data for the load study, that woul-d be Avlsta is the only
other regulated utility in our
O And out of their residential and small
commercial customers, what percentage of smart meters are
installed, roughly?
A You know, I'm relying on Avista's
testimony from Miller, from MiIIer in the last rate case,
and they sald that they gathered their information from
the meters that are on houses, so f don't actually know25
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MORRTSON (X)
Staff
if it's
little bit,
the exact percentage.
MR. KLEIN: Mike, could you speak up
maybe move cl-oser to your microphone?
a
Thank
you.
O BY MR. STOKES: So is it fair to say that
you criticize the cost of service study because the
Company created allocators for resldential and small
commerclal customers for monthly billing data?
A I think the biggest problem that I've got
with the Company's cost of service study, f mean, we've
honed in on that one aspect, but the biggest problem Irve
got is the fact that they are classifying so much of
their system to customer. That actually is the far
Iarger effect here. I mean, they have effects that I
mean, f'm critical of a cost of service study that's
inaccurate or that we don't have facts for a l-ot of
inf ormati-on.
Tn
cases, it would cut in favor of small customers, big
some cases, mv
cut in favor of
testimony indicates that
the Company. fn someit probably would
customers, residential-
that the biggest issue
classification and not
ask your question.
O Okay, in
customers, so
that I have is
I want to point out
their customer
this fine of reasoning, but now
your testimony, you indicate thato25
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MORRTSON (X)
Staff
instead of using monthly billing data,
install a small number of smart meters
the Company could
on residential and
commercial customers to obtain peak info; is that
correct ?
A That's correct.
0 So for the 340,000 small- resj-dential and
commercial customers, how many smart meters wou1d that
be?
A 600, like I said before.
O So 500 smart meters woul-d do it?
A That's a pretty typical number that's used
for a load study when companies do a load study, and
statistically, that gi-ves you a sample that gives you a
95 percent confidence interval, which is the reason it's
used.
O So 600 meters for 340,000 customers?
A Uh-huh, yeah, that's the beauty of
statistics is that you can do that kind of thing.
O Wel-1, j-snrt there a reaf risk that the
sample woul-dn't be representative of the entire class?
A You need to take a random sample, some
kind of stratified random sample wou1d do the job easily
at this point.
u
A
Just averages; right?
Well, like I say, you know, you do get too25
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the point where I mean, that's the 95 percent
confidence interval that says that you have a five
percent risk. If you want a better sample, 7,200 wil-I
give you about a 98 percent, I think, confidence
interval, so it depends on how confident you want to be
that you've got a good l-oad study, and typically people
have picked on that 600 sample. It gives a 95 percent
and that's a magic number for a lot of people, 95 percent
confidence number, but, you know, that would be, like I
sdy, the gold standard. Thatrs typically what you see
nationwj,de when they do l-oad studies.
O So is any -- again, are you aware of any
gas util-ities that have smart meters on every residential
and commerclaf customer?
A Like I say, I refied on Miller's testimony
in the Avista rate case, he and f don't have that in
front of me. I don't want to misquote it, but my reading
of that is that they have them on substantially every
customer in their terrJ-tory. Now, f don't know how
they're using them exactly, but I don't know if itrs 100
percent.
O What does one of these meters cost?
A You know, you' 11 have to take a l-ook at
the 100G that they're installing right now, the 80,000 at
issue. I don't know the exact number. Itrs in the order
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MORRTSON (X)
Staff
a 25
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CSB Reporting(208) 890-s198
MORRTSON (X)
Staff
of $60.00 and the Company i-s asking to recover that right
now. They've been installing them for some ti-me.
O So is it your recommendation that the
Company install smart meters for every residential and
smal-l- commercial- customer?
A No, that's what the Company is asking to
do
MR. STOKES: Nothing further.
COMMISSIONER RAPER: Mr. Purdy.
MR. PURDY: I have no questions for Dr.
Morrison. Thank you.
COMMISSIONER RAPER: Thank you. Mr.
Richardson.
MR. RICHARDSON: No questions for Dr.
Morrison, Madam Chair.
COMMISSIONER RAPER: Mr. Otto.
MR. OTTO: No questions, Madam Chair.
COMMISSIONER RAPER: Thank you. Do the
Commissioners have any questions? I won't put Commander
Kjellander's response on the record. I actually have a
couple.
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MORRISON (Com)
Staff
EXAMINAT]ON
BY COMMISS]ONER RAPER:
a So f heard you, Dr. Morrison, answer in
response to Mr. Williams that a foad study was not the
only thing missing from the cost of service study
performed by the Company that made that study deficient.
What efse would you have been looklng for? I heard you
say that customer cl-assification, you have a problem with
their customer classification, and can you elaborate on
that ?
A
can okay,
Gorman sald
a
A
asked had
Company's
and one of
that method
I'd like to refer,
yesterday, is that
AbsoluteJ-y.
Okay. Yeah, one
do with allocating
distribution system by
the responses that he
is controversial-. In
Yes, and I woul-d like to refer, Lf I
to
if I can, to what Mr
okay?
of the questions he was
a portj-on of the
customer and by demand,
read for us was that
also read for us, it explai-ned the
that controversial method. It's a
methodology, which is to allocate
the Company's mains by demand, and
that f take is that it shoul-d all
another p1ace, which he
contra argument for
much more standard
substantially all of
that is the position
be or substantially aI1o25
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CSB Reporting(208) B9o-s198
MORRISON (Com)
Staff
of it al-l-ocated by demand. There may be some little
pieces that they may be able to shift, but the Companyrs
something likeal-l-ocation
50 percent
allocating
in the NARUC manual-
that example
they get down
a cost of service study
customer as opposed to
and if you take a look even
references, they have an
shows a 20 percent-80 percent
to the bottom of the example in
sp11t.
al-l-ocates far too much
manual, not a 50-50
It just simply
to the residential class
bel-ieve that thatrs
there utilities that you
by customer actually aflocates
of their plant to
demand,
that he
it al-l- by
example and
sp11t when
the NARUC
money
don't
all,but even if one were
appropriate methodology,
that they use to determine the coefficients for that is
based on an insufficient amount of data. I shouldn't say
insufficlent amount of data. It's poor quality data.
O So I al-so heard you Sdy, I believe it was
in answer to Mr. Stokes, that it
your words, to have a valid cost
a l-oad study. I understand that
Do you know, one, whether that is
to include a load study in a cost
and the GS class, So I
an approprlate methodology at
to believe it to be an
the Company's regression method
was not possible, in
of service study wi-thout
to be your testimony.
the industry standard
of service study and,
are aware of that have
that di-d not incl-ude
two, are
util-izedo25
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MORRISON (Com)
Staff
load data?
than
done a load
already got
rea1ly need
that data,
A So I think foad data is more important
I said specifically that the Company should have
study, but if you're a company that
a l-ot of l-oad data from j-ts met.ers,
todoa load study, per se.
already have that
has
you don't
You already have
data from otherso if you
methods, then
study, but you
every cost of
study that was
they've agreed
sdy, you know,
31 years old,
been 31 years.
smart meters to
that load data.
presented
to accept
three or
and that, I to my point is it's
you don'L necessarily need to do a l-oad
should have that load data
service study that f've seen
impliclt in
from the
state. It's either they accepted the company's load
with in the rate case or
an earlier l-oad study that was,
four or five years old, but not
guess, goes
to do a loadIt's time
gather the
I dldn't
study or use their
data that can be used to get
say that second part in the
testimony.
0 Okay, thank you. One last sort of
convoluted question, I guess, the methodology used by the
Company
of them
regarding cost of service, part of your crj-tique
seems to be that they don't have all of the
information that they ought to have, but part of the
crltlque of your testj-mony seems to be, and I go to Mr.a 25
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MORRISON (Com)
Staff
Wi1liams' questions regarding a default to 1986 data, so
it seems to me in my more simplistic, l-ess statistj-cal-
mind that both studies, to some extent at least, are
basing their data on or basing their analyses on old data
and old setup, because as I understand your positj-on,
your afl-ocation per class you want to remain constant to
the way that it is, but those things were set up 30 years
ago as well, a1so. Can you reconcile that for me?
A Yes. My position has got two portions to
it. No. 7, I think it's critical that we get al-l-ocation
right after 31 years, and I think that rather than
adopting
I think
a flawed mode1 and causing what could be some
you've heard that there's some customers that
could possibly experience rate shock and rather than
adopting a flawed model and then adopting and then
going through doing the right work and getti-ng the model-
right and having to go through and rechange or to change
it, what f'm proposing that we do is that we continue
with the existing al-location until- we have the data for a
l-oad study and can do a proper cost of service study, and
I would hope that the Commission woufd have the Company
do that within the next couple of years, so I'm only
proposing that this stay in place for a couple of years
until- we have the data to do it right, so I understand
that what I'm proposing has a lot of problems with it.25
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MORRISON (Com)
Staff
Well, f'm proposing the best thing that I can given the
information Irve got.
a The other was already on the record.
A That's fine.
O So my conversation with Mr. Lobb was that
there weren't smart meters on all customers to be able to
perform a full-
confirmed that
what I hear you
meters on some
saying is that
residential- and
that
there's some B0-90,000
general service customers,
the load studies and load
l-oad study, and I thought that he had
they were on industrial customers, but
so is then you believe
data could be gained by no
meters by the Company?
addltional investment in smart
only
those LV and
A I think if they put the next 600 smart
meters in the right places, then there would be no
additional investment aslde from that which is already
recover thoseanticipated.
smart meters'
The Company is asking to
costs anyway, so I'm asking
that answer
that they be
put 1n
about
the right places. Did your question
what Mr. Lobb had stated? The Company
provided the data, the l-oad factor data, for
transportation customers. They did not provide any of
the data from the 80,000 or so smart meters that are
currently i-nstal1ed.
O So then I guess it is implied by yourt25
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recoflrmendation of a different methodology that the
fai1ure to use foad data in the cost of service study
proposed by the Company, the deficiencies of that
approach are more flawed than admittedly deflciencies in
using your proposal of cl-assifications that existed from
30 years ago even though the difference in customers was,
what, 90,000 customers to 300,000 customers?
A I'm proposing it as an interim solution.
I think some other witnesses have proposed other interim
solutions, including lust maintain the current rate
spread, which as long as you don't change as long as
you don't combine any classes, I think it's functj-ona1ly
the same, but if you do combine classes, then there might
be some issues with that, so I think there's some other
proposals out there from some of the other j-ntervenors
that are very similar to what I said, although the
detail-s are probably not identical.
COMMISSIONER RAPER: Okay, thank you, I
appreciate the explanation. That is all I have. fs
there redirect by Commission Staff?
MR. KLEfN: I would like to conduct some
redirect, I think, but there's been a l-ot flying around
here and if f coul-d take ;ust a quick recess, five or ten
minutes, to collect my thoughts and then come back.
COMMfSSIONER RAPER: If there's no
CSB Reporting(208) 890-s198
MORRISON (Com)
Staff
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objection, I think we are well overdue for a recess. Is
Okay, with
after 11:00.
there any objection
that, we will recess
to allowing 10 minutes?
for 10 mlnutes untif 10
(Recess. )
COMMISSIONER RAPER: We will go back on
the record, and we were in
the beginning of Commission
Morri-son.
MR. KLEIN:
the middle, I believe, or at
Yes, thank you, Madam Chair.
RED]RECT EXAMINATTON
BY MR. KLEIN:
O Dr. Morrison, durj-ng the
cross-examination, you were asked about the Company's
approach to weather modeling and how it fol-lowed the
method approved by this Commission in the U-1034-734
case. Do you recall- that?
A Yes, I do.
O And that case, that was j-n 1985 and it
used a regressj-on methodology that was developed by
Mr. Kohlmeier; correct?
A That is correct.
O Okay. Now, you were asked some questions
about that methodology and the Company's current
Staff's redirect of Dr
o 25
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methodology and your methodology and so I wanted to
explore that a 1ittle bit more. Eor the current case. do
you know whether the Company's model was used to forecast
future therm sales for the months of July through
December of 20L6?
A They dld use their model to forecast JuIy
through 20L6 therm sal-es.
O Do you know when the Company fited its
case?
A I believe it was August of 2016.
the Company fil-ed its case inso if
August
actual
O And
of 2076, do
consumption
time frame to plug
Art
know whether it woul-d have had
for the July through December
its model-?
not have had either consumption
information.degree day
if 1t dldn't
you
data
into
woul-d
information or heating
O And so
information, it woul-d
have that actual
have had to predict sales for those
months ?
A That is correct.
a The Company is indicating that its model
fol-lows the Kohlmeier methodology. Do you know whether
Mr. Kohl-meier used his model to predict future therm
sales ?
A Mr. Kohlmeier did not use the model too25
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predj-ct future therm sales.
OSo
to predict future
following is it
before?
A No.
if the Company used the Kohlmeier model
therm sales in this case, is it
doing something that Kohlmeler did
In fact,
says
therm
degree
sales
it's doing something that
his model is not designed to
sal-esr So what his model
Kohl-meier specifically
do. His modet adjusts
does is takes heating
those to adjust therm
does not use the model
day
from
coefficients on1y, uses
existing months. It
future sales.to predict
MR. KLEIN: May I approach the witness
with an exhibit?
COMM]SSIONER RAPER:Certainly.
the witness. )(Mr. KIein approached
MR. WILLIAMS: So coul-d I have that
exhibit marked as a Staff exhiblt for identification,
please ?
(Staff Exhibit No. 723 was marked for
identification. )
O BY MR. WILLIAMS:Dr. Morrison, have you
exhibit ?had a chance to look through
have.
that
A
U
Yes, I
So what I've handed you is a new Staff
exhibit and essentially what it is is an excerpt from ano25
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exhibit that Ms. Blattner had submitted with her
testimony. ft was Exhibit 39 to her testimony, but that
was a big exhibitr so I've cut it down quite a bit for
purposes of this examination, and what 1t does 1s it
contains a part of Mr. Kohlmeier's testimony and exhibits
from that prior that 1986 case; is that essentially
what it is?
Yes,
v{ill
this is right out of Kohl-meier.
you please turn to the last page of
that exhibit?
A
O
A
0
Certainly, ffm there.
And I'd like to direct your attention to
read that for us?
the primary purpose
have already
sal-es . tt
the very l-ast sentence and could you
A Sure. "Also note that
of the models is to adjust sales that
occurred rather than to predict future
exhibit?
identification. )
MR. KLEIN: May I approach with another
COMMISSIONER RAPER: Sure.
(Mr. KIein approached the witness.)
(Staff Exhibit No. \24 was marked for
O BY MR. KLEIN: Mr. Morrison, have you had
a chance to look through that exhibit?
A Yes, f have.25
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a And what f've handed you is, I guess,
Staff's it' s going to be 1abeled Staf f Exhibit No.
L23.
COMMISSIONER RAPER: 124.
MR. KLEfN z L24, thank you.
O BY MR. KLEIN: And essentially what that
is, it's an excerpt from Intermountain Gas Companyrs
response to Staff's second set of discovery responses.
Do you see that?
A Yes.
O Now, part of this contains the Company's
response to discovery
witness Bl-attner.
A Correct
O And if
A By page
piece of paper?
a Let me
bottom.
request 21, which was sponsored by
you'll go to the top of page 4.
4, are you referring to the fourth
see here. Well, itrs page 4 aL the
A Page 4 at the bottom, so is this what
you're referring to here?
O Correct, and could you read the very last
sentence ?
A "Also included as fPR 27 Final Models.pdf'
are the final- model-s used by Intermountain for weathero25
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Staff
normalization. "
O Okay. Now,
back of this document?
A Yes.
O It's about
A Four pages
coul-d you please ffip to the
four pages from the back.
from the back. Yes
And you can see what we've done is
PR 27 final models or at l-east some of
referred to in response 21?
o
reproduced the
them that were
A Yes.
a Okay. Now,
the earlier exhibit that I
testimony?
A Yeah, right here.
a And on that exhibit could you go to the
page labeled page 9 at the top right-hand corner?
would you please also l-ook at
gave you with Mr. Kohlmeier's
I have it.
And then if you could, once you're on page
the section of Mr. Kohl-meier's testimony
"Final Regression Models by Rate CIass."
Yes,I'm looking at the
so l-et's compareO Okay;
9, go
where
A
o
down to
it says,
A tabIe.
the GS models from
the Company's exhibit
Eirst of aII, what do
are the GS models for?
and from Mr. Kohlmeier's exhibit.
the GS models do, roughly? What
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A
consumption
o
Wel1, the GS models are used to predict
for the GS class.
And does doctor or
by month?
No, he does not.
And what about the
does Mr. Kohlmeier use
a coefficient
A The Company does.
different weather coefficient for
Company?
The Company computes a
each month.
O Wellr so for example, if you look at the
coefficient for the GS class j-n December on the Company's
mode1, please teII me what that is.
A The December coefficient from the Company
is 282.47.
O Okay, and the Company then if you look
at Mr. Kohlmeier's exhibit, he does in fact have a
coefficient for the GS cl-ass for December, doesn't he?
A Yes. ft means something different, but he
does have a December coefficient.
O Okay, what was his coefficient for the GS
class in December?
A Wel-l-, it's .435781 .
O I'm 1ost. Where I'm looking dt, Dr.
Morrison, the Kohlmeier data that I'm referring to is on
page 9 of Exhibit 39.
A You're looking at December?
A
O
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0 r'm
of numbers running
I'm at line 71 .
looking at December. There's a string
down the left-hand side of the page,
Line ll , correct , 282.4L.
Okay; so just to back up, and so what was
A
tt
the Company's
A I think we I'm not sure that you
directed me to the GS model-s when you told me to go four
pages back. Itrs on the very last page.
O You're right.
A It's on the very last page.
O Very last page of the second production
request, there's a page that says, "GS Models."
A
a
you go down
A
0 .42ss33.
o
such a large
coefficient
A
methodology,
things.
O
That's correct.
Okay, apologize
there to December,
For December the
for that, and, again, if
you have what coefficient?
coefficient is
Do you have an explanation for
difference between the Company's
and Mr. Kohlmeier's coefficlent?
why there's
December
The Company did not use the same
so the coefficients represent very different
And is that the case even though 30 years25
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have passed since the other case?
A
percent change
a -- my mental-
600 difference,
You know, you might expect to
over 30 years, but you're not
arithmetic says it's, 1ike, a
SO see that
see a 10
going to see
factor of
kind ofyou would never
coefficient.change in a weather I'd also point out that
HDD55 coefficients, and
They have incorporated
Kohlmeier has separate HDD45 and
then coeffici-ents for each month.
both of these coefficients together and it would take me
a long time to explain what they did, but it's reaIIy
different from what Kohl-meier did.
O In looking at the Company's GS model-, that
l-ast page, I see a variable called AR(1) .
A Yes.
O Vflhat is that?
A That is an autoregressive term.
O What is an autoregressive term used for?
A Well, autoregressive the use of
autoregressive terms is quite controversial. I need to
step back. That is probably -- for this particular
applicatlon, it is very controversial. It is very
appropriate for some applications, but for this
particular application for normal-j-zaLion, it's very
controversla1, but essentially what an autoregressive
term does, it's as if the previous month's consumptiono25
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causes this month's consumption; in other words, what
we're saying when we talk about an autoregressi-ve term is
that December's consumption to a very large degree,
notice that the autoregressive term is as blq as the
other terms in the model, but to a very large degree,
December's consumption causes January's consumption to
happen, not just predicts it, but causes it to happen.
O So we do have an autoregressive variable
in the Company's GS model?
A That is correct.
0 If you look at Mr. Kohlmeier's model, is
there an autoregressive term?
A He did not use an autoregressive term in
his model. I would like to state he did adjust he did
some adjustments and properly so. He adjusted some error
in the model using an autoregressive procedure when he
was all done formulating this model so he could do
statistical tasks, and he does talk about that in here,
but he did not use it in anything l-ike the way the
Company did.
O So the Companyrs
model differ in their use of an
model and Mr. Kohlmeier's
autoregressive term?
A They differ
autoregressive term.
MR. KLEIN:
in their use of an
May I approach the witness25
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with another exhibit?
COMMISSIONER RAPER: Yes.
(Staff Exhibit No. 125 was marked for
identification. )
O BY MR. KLEIN: I just handed you what's
been marked as Staff's Exhibit 125 for identification and
it is an excerpt from Intermountain Gas Company's
response to the Staff's sixth discovery request. Do you
see that?
A I do.
O If you look at response to request No.
720, which was sponsored by witness Blattner, therers a
reference to a file called, "PR 720 Usage
Calcul-ation. xl-sx. "
A That's
O And at
it says, "The Company
normal heating degree
at usage per customer.
correct.
the top of
applied the equations to
to arrive
page 2 of this exhibit,
regressr-on
days and forecast trend
The
Cal-cul-ation. xl-sx' provides
f il-e 'PR L20 Usage
an illustration of how the
regression formulas were applied. " Do you see that?
A Yes, I do.
O So if you'1l turn to the end of this
exhibit, you'11 see a hard copy of the spreadsheet for
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A Yes, it's smal-l- print. It l-ooks like an
eye chart.
O In this spreadsheet, do you see an
autoregressive term used in the forecast?
A No, there is no autoregressive term in
this forecast.
O So let me back up, so i-s this the way it
works: After running the model, the Company used its
coefficients to predict consumption for the months of
July through December of 20L6?
A That's the purpose of the mode1 is to
generate coefficients that should be used in the
consumption forecast. Thatrs the way they used it, yes.
O And then provlded Staff with this
computation in this spreadsheet?
A That is correct.
o
autoregressive
A
the forecast and that causes
and the spreadsheet doesn't have an
in the forecast?
They did not lncl-ude the autoregressive in
their forecast to
Okay,
term
underpredict consumpt.ion .
O And to be cl-ear, the
model- used an autoregressj-ve term?
A That is true and look
Company's regression
at the the size
of that is very large compared to some of these othero25
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coefficients,
that's a very
for example,
same sf.ze,
modef, then
those months
so the autoregressive term is .445813,
large thing to omit when you take a look,
at January consumption, whj-ch is about the
.455898, so if you omit that term from the
you're
that
going to underestimate consumption for
you
the
forecast the data, which were the
and if you remember, one of my
to a 16
Iast six months of year.
O So if you fook at that autoregressive
coefficient, the AR(1), in the Company's GS model- on this
exhibit
A Yes.
O how much forecast consumption was
excluded from the prior month's estimate?
A Well-, that. depends . Remember, the
autoregressive term uses the previous month's estlmate to
compute the current month's estimater so that woul-d
depend on what the previous month's estimate was, so for
some months, it might not be a very large effect. For
some months, it coul-d be a very large effect. I don't
have wel1, I'm going to take that back. When I put
the previous months' estimates into the model, the model-
became unstable,
corrections that
It actually deal-s
you get when you
I made was a 79 percent
with the magnitude of
put the autoregressive
the error
percent.
that
term in the25
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mode1. Now, if you exclude that autoregressive term, the
model becomes stable, but it underpredicts consumption.
O So I want to be clear, again, the
regression model used an autoregressive term, but the
Company didn't include the autoregressive term in the
forecast ?
A That is absolutely correct.
a Okay, when you are talking about how much
consumption is excluded, why don't you take a look at the
exhibit that I handed you that has the response to the
second production request.
MR. WILLIAMS: Madam Chair, so f haven't
objected essentj-a11y to what is very extensive
surrebuttal- testimony, because I think this the number
one important issue in the case and I think it's
important for both sides to clearly explain their
positions on this very important polnt, so I'm wil-l-ing to
allow I mean, we're way beyond any of the
cross-examination on this witness and he is effectively
surrebutting my witnesses, and so as I stated earl-ier and
what I intend to do when my witnesses come back up 1s
have the opportunity to respond to basically the l-ast
half hour, so it's, I guess, not so much an objection.
It's just we need to get this right and we'd appreciate
the similar indulgence, if you wi11.
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COMMISSIONER RAPER: Mr. W111iams, I
recognize that you have been indulging on what may not be
redirect of this wi-tness 1n the interest of having a ful-l-
record for this Commission to make its decision on. I
appreclate your induJ-gence in that and to the extent that
you are providing that to Staff, it w111 be provided to
you on rebutta1 with your witnesses.
everyt.hing
sandbagging
need to put
and to the extent
afield, then feel-
MR. W]LL]AMS:
that is going on,
and I'm happy to
Because these exhibits and
f mean, it's clearly
do that, but Irm goi-ng to
witnesses on to respond to this and we're
going to need some additional time this evening to
prepare for that and so
COMMISSIONER RAPER: Well, I would take
exceptJ-on to the term sandbagging.
MR. WILLIAMS: Okay.
COMMISSIONER RAPER: T thinK that the
information that is being provided is of assj-stance to
decision with a ful-l record.the Commission in makj-ng a
MR. WILLIAMS: And thus, f have not
objected to it.
COMM]SSIONER RAPER:I appreciate that,
that it gets too farthat you believe
free to
Mr. Klein, understanding
object at a
that you are
given point and,
belng giveno25
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latitude in order to create a full record for the
Commission to be abl-e to make a well-reasoned declsion.
MR. KLEIN: And I wil-I just respond to
that. I disagree to the extent we're being I mean,
this is absolutely proper redirect examination. The
Company on its cross-examination of this witness went
into autoregressive terms, went into cost of service,
went into weather normallzatj-on, the past case. It
opened every singJ-e door for me to redirect thls witness
on the questions that f'm asking about. I mean, it's
absolutely proper and but I do understand there's a
view that you're belng lndulgent and that's great, but I
disagree with that. I thlnk 1t is absolutely proper
redirect and I do agree that we do need to have a
complete record.
COMMISSIONER RAPER: Al-l- right, with that,
go ahead and continue your redirect.
O BY MR. KLEIN: So f was last referring you
to the final page of the
second production request
A Yes.
O and we
exhibit with the Company's
response
were talking about the amounts
of forecast
ild
consumption
to look at
that may
the AR (1)
have been exc]uded and
by
l-ike you
Iooking at
term there and teIl me
that, Lf you look at that autoregressiveoaq
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coefficient for the GS model-, can you tell the forecast
consumption excluded a certain percentage of the prior
month's estimate?
A WelI, this is yeah, this comes out to
about 44-and-a-ha1f percent of that. I would have to in
fairness, I would have to say that it also has been
excluded from some of their other coefficients there, so
long as they were using the entire model- to create their
prediction, it might not be that far off, but they
didn't. They excluded something and it's something that
definitely causes them to underpredict.
0 Another just I want to turn to another
toplc and this is when we were talking about the data and
whether 30 years was used or some lesser amount of data
was used and whether there was an error. I mean, we've
al-I acknowledged, you've acknowledged, there was an error
made
A Uh-huh.
O -- but I want to talk a little bit about
that, not the magnitude of the error or anything like
that, but the data set, why you selected the data set
that you used, how that happened. I'd l-ike to explore
that with you.
A In production request No. 2J, I asked for
all data and workpapers used by the Company to produce
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MORRISON (ReDi)
Staff
this model- and what they
data and so and that
were some issues getting
worth of
it. There were some other issues,
data set from October 1989 through
data.that was 30 years'
wasn't. We talked
the data that they
26 years' worth of
of that. Now, there
They had to amend
but they provlded me
2016. Now, they said
gave me was
was in part
that data.
a
My math said it
about that and eventually that is all
ever provi-ded me was for that data
range, so I used the same data range that the Company
represented they used in the model. That did not include
30 years of heating degree days. I believe that this is
the data that the Company used in their modeI, however.
0 And when you say you referenced request
2'l and that is in the exhibit that I've given you that is
the second production request of the Commission Staff,
and if you'Il turn to request No. 27, it's on the page
marked page 3, just read what that says.
A Yes, it says, "Forecast, or Normal degree
days were used to calculate usage'r --
O No, flo, I'm Iooking at response to request
No. 21. It's the very bottom request on page No. 3.
f t' s 1abeled page 3.
A f'm sorry. Okay; so very bottom, so I
said, "Pfease provide the data and workpapers used to
develop the regression equations descrj-bed on pages 3-5o25
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MORRISON (ReDi)
Staff
of Ms. Blattner's testimony. "
O And, again, how much data, how many years
of data, is your understanding the Company says it's
using now?
A They're saying they're using 30.
O How many years did they provide you?
A A little shy of 26, October 1989
through yeah.
I Would it have been possible for you to
Company's work without having the ful1duplicate the
range of data?
A I coul-dn't duplicate 30 years' worth of
work without 30 years' worth of data. I believe that the
Company probably used the 25 years' worth of data that
they gave me, but f 'm a l-ittle I don't completely
understand their claim that they used 30 years when they
only provided 25, so I think I used the same data that
they used, and it is the data they gave me and it's the
data that they tofd me was used to do all- the
calculations in the workpapers.
O And this is both consumption data and
heating degree data?
A Consumptlon data, heating degree data. It
included economic data. It included both HDD45 and
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was proposing. It inc1uded there was a lot it was
very thorough. It just didn't have a 3O-year date range
l-ike they're claiming I should have used.
O When did you flrst suspect there might be
missing data?
A WeII, their response to the first
production request incfuded no consumption information,
so that was a reaf tip-off there, there was no
consumpti-on information in their first response. When
they provided me the second response, they did have
consumption information generated from their SQL server.
It wasn't actually billed heating degree days I'm
sorry, it wasnrt bifled consumption. They provided that
and when I took a Iook at the data range, the data range
seemed to me to be completely unreaf with the data that
they had.
There were some issues with how far the
data range went. For example, in November and September
of 2016, the data set they provided to me included
heating degree days for December I'm sorry, for
September, October, November and December; in other
words, four months after they provided me the heating
degree days, they had heating degree days for those four
months; in other words, they were making a prediction and
that's what they were giving me, so I had some misgivings
MORRISON (ReDi)
Staff
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MORRISON (ReX)
Sta ff
about the data that they had used and f contacted them
about that.
a And when you contacted them, did you
receive the 30 years' worth of data?
A No, I dld not. Again, I have no reason to
believe that they used 30 years' worth of data. They
never provided it to me after multiple requests.
MR. KLEIN: That's all.
MR. WILLIAMS: Madam Chair, could I have a
couple follow-up questi-ons?
COMM]SSIONER RAPER:
to
Any
have
objection by
foIlow-up?
all sald it's in
Commission Staff for the Company
MR. KLEIN: No, if
the j-nterest of getting
we might as wel1.
wetve
everything out on the record, so
COMMISSIONER RAPER: Thank you. Thank you
for indulging the
appreciate that.
Companyr s
Go ahead,
attorney on that.
Mr. Willlams.
I
RECROSS_EXAMINATION
BY MR. WILLIAMS:
O Dr. Morrison, you testified
d9o, or maybe it was a long time dgo, that
one of the errors that you identified was
a little while
the Company,
that the25
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Company was actually using forecasted data in their
models, speci-fically you referenced the case being filed
in August of 2076 and data for July of 20!6 bej-ng
couldn't possibly have been actual- data, so my question
is wasn't that data trued-up to actual- in the September
true-up?
A No.
O okay.
A They provided me the data in September.
September 29Lh is the date that they provided me the
data, and the data incl-uded heating degree days. That's
something that you measure at a weather station and do a
on. That's detailed in production request
actual 21 incl-udes data for the entire range,
through December of 2076 and they provided
the data that
they provided
in September of 2016. This is
they said that they used. It is the data
computation
28, but the
October 1989
me the data
in response to production request
O So the lnformation
No. 21.
they gave you on
for JuIy of 2016 was
that was also in the
heating
exactly
original
degree data?
data that they
in August of 2076?
degree days in September
the same
filing
A This wasn't. We're talking about heatlng
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Staff
August of 20!o
did, please let
O
confusion here
model and then
So we're you know, I
is we're talking about
data. If they
think some of the
the regression
weather
think if we turn
A I don't believe they filed anything in
regarding heating degree
me see it.
normal-ization model
talking about
and those are
wetre the
two different thlngs.
A That's not correct.
0 Normal heating degree days, excuse me.
A Normal- heating degree days, the Company
has said repeatedly that it used a 3O-year date range. I
have no evidence that they used 30 years.
O Eor calculatlng heating degree days, can
you show us in the record where the Company has said that
they used 30 years?
A That's in Ms. Blattner's testimony, in her
rebuttal testimony.
O Okay; so we'Il check on that, but for
purposes of your
last
regressr_on
page this
analysis, I
exhibit that you handed out,
fntermountainr s second production
to the very
which is response to
and it's the GS modelsrequest
about,do you have that
A Could you
that you were talking
front of you?
little more specific?
it out.
tnpage
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A Yeah, but he handed me a l-ot of stuff .
COMMISSIONER RAPER: It's Exhibit 724.
MR. WILLIAMS: 723?
COMMISSIONER RAPER: 124.
a BY MR. WILLIAMS: Exhibi-t 724, last pa9e,
GS models.
A 124, l-ast page, GS models, okay.
a Again/ wetre talking about a regression
model nowi correct?
A This is the Company's regression modeI.
0 Okay, and where it says "Samp1e," it's,
l-ike, the third l-ine down, 2003M10 to 2074M72
A You know, I'm going to do you a favor here
and I'm going to correct you in a way that is favorable
to the Company, how is that?
O Well, can I finish my question first?
A Sure.
O A11 right, is this the sample that the
Company used in developing its regression modef?
A This is what they have tol-d me they used
in the development of the regression model. This is the
j-nformation I have about the regression model.
MR. WILLIAMS: okay. No further
quest j-ons, Madam Chair.
COMMISSIONER RAPER: Are we done with this
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witness? Okay, Dr. Morrison, thank
extensive testimony. Thanks to the
indulgence in getting a ful1 record
you for your
attorneys for thelr
developed.
MR. KLEIN: Thank you.
COMMISSIONER RAPER: You are excused.
(The witness left the stand. )
COMMISSIONER RAPER: We're at the noon
hour and that was a lot.I think probably
If everybody will
it's a good
return by,
hour-and-15
time to break for lunch.
say, 10 after 1:00,
mj-nutes, so we will
you.
that gives us
adj ourn until-
about an
af ter l-unch. Thank
(Lunch recess. )
25
t791 COLLOQUY