Staff Comments.pdf

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LISA D. NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5733
HECEIVED IT)FILED
2unz JUN I 9 PM 3: 1 a
IO!\HO PUBLIC
UnLi1JES COMMISSiON
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
INTERMOUNTAIN GAS COMPANY FOR
AUTHORITY TO INCREASE ITS RATES FORSERVICE. CASE NO. INT -O2-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Lisa D. Nordstrom, Deputy Attorney General, and in response to the Notice
of Application, Notice of Modified Procedure and Notice of Comment Deadline issued in Order
No. 29042 on June 3 , 2002, submits the following comments.
On May 23 2002, Intermountain Gas Company (Intermountain; Company) filed its
annual Purchased Gas Cost Adjustment (PGA) Application (Application) with the Commission
for authority to place into effect new rate schedules that will decrease its annualized revenues by
$52.5 million. If its Application is approved, Intermountain states that customer rates will
decrease on average by 24%. The Application also proposes retaining an over-collection of $8.
million (an additional 4.7%) to promote rate stability. The Company requested an effective date
of July 1 , 2002.
STAFF COMMENTS JUNE 19 2002
THE APPLICATION
Intermountain Gas seeks to pass through to all of its customer classes a $52.5 million
revenue decrease in gas-related costs resulting from: 1) a net decrease in costs for
Intermountain s natural gas interstate transportation; 2) an updated customer allocation of gas-
related costs pursuant to the Company s Purchased Gas Cost Adjustment provision, and 3) the
inclusion of temporary surcharges and credits for one year relating to gas and interstate
transportation costs from Intermountain s deferred gas cost account.
The Company proposes to provide the $52.5 million reduction by implementing the
following permanent change and temporary credit to its tariff rates for natural gas service and
sales:
Permanent Adjustment
. INT-01-3 Elimination of Temporary Surcharges/Credits
Base Rate Change
Fixed Cost Collection
($40 994 177)
($ 1 007 635)
($ 478 316)
Temporary Surcharges and Credits : Deferred Gas Costs (Intermountain Gas PGA
Account 186)
Market Segmentation
Northwest Pipeline FERC settlements
Fixed Gas Cost Misc.
Variable Cost Collection Adjustment
Recovery of the Amount Deferred from Case No. INT-01-
($ 2 369 508)
($ 1,490 349)
$ 16 073
($ 9 800 811)
$ 3 505 756
Intermountain Gas proposes to allocate deferred gas costs from its PGA Account No. 186
balance to its customers through a temporary price adjustment effective during the 12-month
period beginning July 1 , 2002 and ending June 30, 2003. As of June 30, 2002, Intermountain
Gas estimates it will have a negative variable gas cost balance in the amount of$10 038 839.
The Company proposes to refund this amount via a per therm credit to all customers.
Intermountain Gas recommends the following annualized change in rates per customer class to
reflect the combined effect of both permanent and temporary adjustments:
STAFF COMMENTS JUNE 19 2002
Customer Class Revenue Proposed Proposed Proposed
Average Decrease Average Decrease Average Price
$ /Therm % Change $/Therm
RS-1 Residential ($ 7,414 546)($0.20818)(21.8%)$0.74544
RS-2 Residential ($25 310 212)($0.20524)(24.2%)$0.64330
GS-1 General Service ($18 892 039)($0.20419)(25.6%)$0.59509
LV -1 Large Volume *631 513)($0.20203)(31.4%)$0.44213
* T-l tariff price plus the Weighted Average Cost of Gas (WACOG) $0.35295
W ACOG = total commodity cost of gas -T total purchase therms
Transportation Revenue Proposed Proposed Proposed
Average Increase Average Increase Average Price
(Decrease)(Decrease)$/Therm
$ /Therm %Change
T -1 Transportation ($221 884)($0.00600)(5.7%)$0.09975
2 Transportation ($ 49 044)($0.00202)(7.1%)$0.02656
STAFF AUDIT
$3.5 Million Deferred from Case No. INT-OI-
In Case No. INT-01-, the Commission required Intermountain to continue to defer
505 756 of expenses pending further review. Order No. 28783 at 10. The continued review
was necessary because it was difficult to determine if Intermountain s natural gas marketing
agent, IGI Resources (Resources), had charged Intermountain a reasonable price for certain spot
gas purchases. Staff and the Company have completed the review and determined that while it is
not possible to determine the exact cost to Resources of gas it resold to Intermountain, the
purchase prices paid by the Company were in a reasonable range. Staff recommends that the
Company be allowed to recover the amount deferred from last year with interest calculated at the
Company s short-term investment rate authorized by the Commission. Since July 2001
Resources has been purchasing gas for Intermountain in a manner that is appropriate and cost-
effective for customers.
Current Record-Keeping and Information Retention
The Company s record-keeping and information retention have improved dramatically
since last year. The Commission ordered Intermountain to "maintain documentation of the
STAFF COMMENTS JUNE 19, 2002
decision-making process IGI Resources uses when it purchases gas for the Company.!d. at 12.
Staffhas reviewed the documentation provided and is pleased with the Company s and IGI
Resources ' efforts to show how resource management decisions are made.
For example, Resources submits monthly reports to Intermountain showing current and
expected needs, gas prices and a proposed strategy to meet the needs in the most efficient and
cost-effective manner. When decision-makers hold a meeting regarding the needs of the system
the meeting and discussions are documented and the presentation materials retained. Finally,
Intermountain keeps copies of bids received from formal RFPs and other purchasing
opportunities along with analysis explaining resource management decisions. All of this
documentation provides the required auditable information and assurance to Staffthat the
Company is indeed making decisions based on available information and expertise.
Audit of Current Period Gas Expenses
The current period gas expenses include costs for gas purchases, transportation, storage
and for financial hedges to fix the price of gas for customers. Staffhas audited these expenses
and they appear to be reasonably incurred. During the audit, Staff discovered:
1. The Company entered into financial hedges to fix the price of gas for customers last
winter and spring. The price protection provided by the hedges cost $14.9 million in addition to
the actual gas purchased.
2. The surcharge put in place last year will over-collect approximately $6.8 million
dollars from customers through June 2002. Because the surcharge was based on normalized
revenues, the Company collected more than authorized when the weather was colder than
normal. The over-collected amount will be returned to customers with interest through the
proposed credit.
3. The Company continues to pursue capacity releases and segmentation credits that
benefit customers.
4. The Company received a favorable FERC settlement of $1.49 million dollars from
Northwest Pipeline that will be passed on to customers.
5. IGI Resources performed an RFP to solicit bids for the short-term needs of
Intermountain s customers. The RFP resulted in the Company gaining favorable prices for its
short-term needs that were not covered under other contracts.
STAFF COMMENTS JUNE 19 2002
6. IGI Resources solicited bids for Intermountain s financial hedges. While there is not
time for a formal RFP process when searching for financial transactions, Resources contacted
several reputable suppliers and secured the least expensive options. These contracts were
adequately documented.
7. The Company has correctly calculated the amounts of the proposed permanent
adjustments and the temporary surcharges and credits for the next PGA period.
W ACOG AND PRICE STABILITY
Given the price volatility and significant rate increases experienced over the last two
years, Staff made every effort to ensure that only the price of gas was included in rates. In Case
No. INT-01-1 Staff performed an investigation into gas prices and continued to question the
Company s gas purchases. Staff and the Company worked together to improve documentation
risk management, and planning practices to further assure customers that all parties involved
were working in their best interest and the Company was making no additional profits from the
high price of gas.
Staffs review of the 2002 PGA is no different. However, there appears to be a
significant difference in this filing that has not been encountered in previous filings. The
Company is requesting that the weighted average cost of gas (W ACOG) in rates remain at
35295/therm even though the Company s data indicates that the W ACOG should be
$.
3200/therm. Every other PGA in the past two years established a W ACOG based on the
Company s expected cost and did not include any anticipated over-collection.
The Company requests authorization ofthe higher $.35295 W ACOG rather than the
3200 W ACOG to provide price stability for customers over a longer period. Staff agrees that
over-collection this year could offset a portion of a potential rate increase next year. However, it
may not eliminate all increases that could occur. Likewise, over-collection will not guarantee
overall lower natural gas rates in the future.
We know today that customers will receive approximately $10 million in temporary
credits that will expire in 2003. Therefore, rates will increase by approximately $10 million
unless gas prices decline or an over-collection is available to offset the loss of the credit next
year.
STAFF COMMENTS JUNE 19 2002
If the W ACOG remains at $.35295 and the cost of gas matches the price forecast in the
Company s filing, then the Company will over-collect. Even though this over-collection will
offset some of the expiring credit, customers' rates will likely increase due to W ACOG changes
next year. If the W ACOG is left at $.35295 and the price of gas declines to the $.3000/therm
range as indicated by more recent price forecasts, the Company will over-collect and customers
could see an additional decrease next year. However, neither the Company nor Staff knows
exactly what the price will be for the next year or what the forecast will be in the 200312004
PGA. Therefore, it is unlikely that prices will remain stable regardless of the W ACOG pricing
methodology in this case. What is certain is that customers will pay the actual cost of gas over
the next two years independent of the W ACOG established this year.
The Company does not wish to change the $.35295 W ACOG at this time. The Company
stated that it will continue to watch market indicators and if prices decline substantially for the
future (2003/2004), it intends to file an "out-of-period" PGA to lower the W ACOG. The
Company further discussed with Staff the possibility of establishing a fixed date of September
30th for a thorough review of over-collections and market prices. This review could result in a
further rate decrease prior to the winter heating season. The Company is also willing to provide
Staffwith ongoing forward market information to allow Staff to monitor the market along with
the Company.
Staff agrees that customers desire rate stability and Staff recognizes that Company hedges
in 200212003 resulted in stable prices that currently are below market. However, just as
prudently incurred hedge prices would be included in the W ACOG when they are higher than
market prices, hedge prices should be included in the W ACOG when they are lower than market
pnces.
When considering whether to allow Intermountain Gas to charge higher rates this year in
order to keep rates lower next year, the Commission should keep in mind that Intermountain Gas
customer base is not static. Intermountain Gas' Integrated Resource Plan filed in April 2002
estimates a residential "baseline" growth of about 10 000 customers per year for the next several
years due to new construction and conversions to gas. The Company s residential customer
growth rate has averaged 5.5% per year for the past five years. In addition, many of the
customers on the system this year may not be on the system next year. The result is a mismatch
between customers who overpay this year and customers who underpay next year.
STAFF COMMENTS JUNE 19 2002
Given the size of the anticipated over-collection, the minimal impact on rate stability, the
non-static nature of the customer base, and the uncertainty of forward market prices, Staff
recommends that the Company further reduce rates by lowering the W ACOG to $.3200/therm
consistent with the costs anticipated in the Company s filing. Lowering the W ACOG will
provide an average 28% savings to customers today and is consistent with past PGA practices
that establish the W ACOG based on the Company s anticipated actual cost of gas. Staff further
believes that $.3200/therm is a reasonable W ACOG given the more recent price forecasts
indicating that actual costs for 200212003 could be closer to $.3000/therm.
Even though customers' rates could increase due to W ACOG changes in the 2003/2004
PGA cycle, customers will continue to only pay rates that reflect the actual cost of gas. The
reduction will also assure customers that all costs and savings are directly passed through when
they occur.
CONSUMER EVALUATION
Intermountain Gas' PGA Application filed on May 23 2002 contained both the customer
notice and press release. Customers were notified of the Application by bill stuffer and will have
until June 26, 2002 to file comments with the Commission.
Staff reviewed the customer notice and press release and determined that both complied
with the notice requirements ofIDAP A 31.21.01.102. However, neither of these documents
explicitly addressed Intermountain Gas' proposal to over-collect $8.2 million to promote rate
stability next year. Although the Commission Staff had some concern that customers were not
fully apprised of the proposed over-collection, the notices were allowed to stand without
revision. The Commission addressed the issue in a press release issued on June 3 , 2002, stating
The Company maintains that the over-collection can avoid or lessen a future price increase next
year. "
As of June 2002 the Commission has received eight e-mailed comments from
customers. All of the customers who commented supported the proposed decrease in rates.
Seven of the eight customers commented on the Company over-collecting to hedge against the
possibility of future gas cost increases. Two were in favor of the over-collection and five were
opposed because, as one customer stated
, "
Rates should only increase when they need to, not so
that someone else can hold my money in a bank account for the 'what if' reason." Another
STAFF COMMENTS JUNE 19, 2002
comment reflected a similar sentiment: "If it costs them $3., let's go with a rate that pays
them $3., and we ll worry about next year next year.
Between July 17 2001 (the effective date of the Company s previous rate increase) and
June 2002 the Idaho Public Utilities Commission s Consumer Assistance Staffhas received
223 complaints and inquiries regarding credit and collection issues. Of that number, 159 were
concerning disconnection of service and 33 were from customers who were asked to pay a
deposit either to reconnect service or to keep service. This was an increase over the same 2000-
2001 time period when Staff received 121 complaints and inquiries regarding credit and
collections issues, of which 86 concerned disconnections and only 15 involved deposits.
Together, these figures dramatically emphasize the impact recent rate hikes have had on
customers and their ability to pay higher utility bills. Customers who did not make payments
during the winter moratorium period found themselves faced with exceedingly high bills in
March when the disconnection moratorium expired. Faced with a growing number of past due
accounts, Intermountain Gas increased collection activities to make payment arrangements
whenever possible and, if necessary, disconnect service. The Company now typically requests
payment of a deposit as security on an account before reconnecting service. Staff anticipates that
current policies regarding collection efforts and deposit demands will continue. Although
Intermountain Gas' collection policy is now less liberal , it meets the requirements of the
Commission s Utility Customer Relations Rules.
Although rates will decrease as a result of the Company s proposal, there will continue to
be customers who cannot pay their bills. Therefore, Staff recommends that Intermountain Gas
maintain its education efforts and continue providing customers with conservation information in
an ongoing effort to help customers reduce their energy needs. For example, as recently as the
latest billing cycle, the Company included a pamphlet describing energy conservation tips along
with the notification of the proposed rate decrease in customers' bills.
Intermountain Gas is working on a plan to adjust level pay amounts for customers who
participate in that program. The Company has approximately 47 000 customers participating in
the level pay program. Approximately 40 000 customers are considered "regular" level pay
customers. Their level pay amounts are adjusted annually during the months of April, May and
June. The remaining 7 000 customers, referred to as "anniversary" level pay customers, have
their level pay amounts recalculated in the month they originally signed up for the program. To
STAFF COMMENTS JUNE 19 2002
decide the best course of action, the Company must consider many variables, including how to
adjust anniversary level pay amounts for customers who currently have sizable negative
balances. The Company has told Commission Staff that due to the complexity of the
programming involved, it does not anticipate completing its plan until June 21 2002. The
Commission Staff recommends that the Company be required to provide its final plan to the
Commission for review prior to its implementation.
STAFF RECOMMENDATIONS
Staff recommends that the Company:
1. Reduce the W ACOG to $.3200/therm and re- file all appropriate tariffs.
2. Be allowed to pass through to customers the proposed permanent adjustment and the
proposed temporary surcharges and credits as filed.
3. Be allowed to recover the $3.5 million of deferred costs from last year with interest at
the current authorized rates and methodology.
4. Continue to record and retain copies of information used to make important decisions
regarding the purchase of gas and financial transactions.
5. Continue to file updated W ACOG projections monthly through September 2002 and
quarterly thereafter.
6. Continue to file monthly summaries of its purchased gas transactions and related
deferred balances.
7. Maintain its education efforts and continue providing customers with conservation
information in an ongoing effort to help customers reduce their energy needs.
8. Provide its final plan for adjusting level pay amounts for customers who participate in
the level pay program to the Commission for review prior to its implementation.
STAFF COMMENTS JUNE 19 2002
Respectfully submitted this
Technical Staff: Alden Holm
Dan Graves
Michael Fuss
LN:i :/umisc/commen ts/in tgO2. 31nahnhdgmfussdes
STAFF COMMENTS
tJ-/1 day of June 2002.
Lisa D. Nordstrom
Deputy Attorney General
JUNE 19, 2002
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 19TH DAY OF JUNE 2002
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF IN CASE
NO. INT-02-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
MICHAEL E HUNTINGTON
VP GOVERNMENTAL AFFAIRS
INTERMOUNTAIN GAS COMPANY
PO BOX 7608
BOISE ID 83707
MAIL - mhunting(q),intgas.com
MORGAN W RICHARDS JR
MOFFATT THOMAS ET AL
PO BOX 829
BOISE ID 83701-0829
MAIL - mwr(q),moffatt.com
MIKE McGRATH
INTERMOUNTAIN GAS COMPANY
PO BOX 7608
BOISE ID 83707
MAIL - mmcgrath~intgas.com
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CERTIFICATE OF SERVICE