U-1034-99 Lebens Testimony.pdf

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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
INTERMOUNTAIN GAS COMPAN
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Case No. U-1034-99
PREPARED TESTIMONY OF JEFFREY K. LEBENS
Q. Please state your name, business address and position with
Intermountain Gas Company.
A. My name is Jeffrey K. Lebens. My business address is 555 South Cole
Road, Boise, Idaho. I am the Controller of Intermountain Gas Company.
Q. Briefly describe your educational and work background.
A. I graduated from the University of Washington in June of 1972 with a
Bachelor of Arts degree in Business Administration with a major
emphasis in accounting. I began work with Arthur Andersen & Co. in
December of 1971 as a staff accountant in Seattle, Washington. I was
licensed as a Certified Public Accountant in March of 1973. l1y work
with Arthur Andersen & Co. was principally involved with audit of
published financial statements covering a wide range of industries, but
with some specialization in public utility audits. In December of
1976, I began my employment with Intermountain Gas Company as Manager
of Accounting Services and was elected Controller in July of 1979.
Q. Please describe your responsibilities as Controller.
A. As Controller, I have the overall responsibility for the supervision,
direction and control of general accounting, customer accounting,
financial reporting, corporate taxation and data pr0cessing.
Q. What is the purpose of your testimony in this case?
A. Mr. Worthan has previously testified in this case as to the need for a
mechanism to stabilize revenues. The purpose of my testimony is to
propose an accounting mechanism that will protect the ratepaying
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1. The gross margin cost adjustment for the net change in the
annualized gross margin per therm sold.
2. The gross margin surcharge adjustment per therm delivered as
determined by the accumulated balance in the unrecovered revenue
stabilization account.
Schedule 3 is Sheet 4A of the General Service Provisions and would
reflect the allowed gross margin as established by the most recently
approved general rate case. The allowed margin as well as the minimum
and maximum level would be shown by month and accumulating to an annual
sum.
Q. What is the purpose of the Gross Margin Surcharge Adjustment detailed
in Section 20.8 of your proposed addition to the General Service
Provisions?
A. This Section details the actual working of the unrecovered revenue
stabilization account. Each month the cumulative actual gross margin
will be calculated and compared to the cumulative maximum and minimum
allowed by this Commission and set forth on Sheet No. 4A. The
unrecovered revenue stabilization account will then be adjusted to
reflect the actual deviation below the approved minimum gross margin or
above the approved maximum gross margin.
Q. Could you i.lustrate the effect of this adjustment?
A. Yes. The minimum gross margin derived from the application of the
Revenue Stabilization Clause to the case as filed is $31,731,000. The
maximum gross margin is $36,233,000. This is shown on Schedule 3 of
Exhibit 5. Assume actual gross margin realized during the twelve
months following this Case to be $37,000,000.
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Maximum Gross Margin
Actual Gross Margin
$36,233,000
37,000,000
Cumulative Credit to Unrecovered
Revenue Stabilization Account $ (767,000)
If the actual gross margin realized were $31,000,000, the calculation
would be as follows:
Minimum Gross Margin
Actual Gross Margin
$ 3 1 , 731 ,000
31,000,000
Cumulative Debit to Unrecovered
Revenue Stabilization Account $731,000
Of course there would be no entry if the actual gross margin realized
fell between the maximum and minimum.
Q. Would the Company pay interest on any refunded amounts?
A. Yes. Section 20.8 provides for interest at the short-term borrowing
rate approved by the Commission in the last general rate case.
Interest would accrue on recoveries at the same rate.
Q. How would the balance in the account be refunded or recovered?
A. Once each year the balance in the account will be divided by the amount
of therms estimated to be delivered under the applicable rate schedules
during the twelve months the rate change will be in effect. The
resulting rate change will be applied on a uniform cents per therm
basis to each rate schedule identified on Sheet No. 3A.
Q. What is the purpose of the Gross Margin Cost Adjustment detailed in
Section 20.7 of your proposed addition to the General Service
Provisions?
A. The adjustment just described provides for recovery or refund of
deviations from approved gross margin after the fact. The Gross Margin
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Cost Adjustment is a mechanism to allow prospective adjustments to
gross margin based on variations in sales levels.
The Company case is designed to produce an average gross margin cost of
14.378 cents per therm based on an allowed gross margin of $34,908,000
and a sales estimate of 242,775,000 therms. If the sales volume
declined, for example, to 237,000,000 therms in the year after this
Case is finalized, an average gross margin cost of 14.729 cents per
therm would be required to produce the same allowed gross margin.
Section 20.7 provides a current adjustment to applicable rate schedules
to recover the increased average gross margin cost of .351 cents per
therm in my example.
A prospective adjustment of this nature will tend to reduce charges to
the Unrecovered Revenue Stabilization Account and will eliminate the
need to file a general rate case based solely on reduced volumes. As
was set forth in Mr. Worthan' s testimony, actual volume levels below
the amount used to determine rates have been the single largest cause
of our recent revenue deficiencies and general rate cases. If the
Commission approves this Revenue Stabilization Clause and the Company
can operate within allowed expense levels, there would be fewer general
rate case applications, saving both the Company and the Commission a
great deal of time and expense.
Q. Why have you chosen to adjust rates on a uniform cents pertherm basis?
A. A uniform cents per therm basis is simple and easy to calculate. Since
any rate change under the Revenue Stabilization Clause will be smaii
relative to sales volume, it also provides an equitable means of
allocating the cost. If this Commission prefers an allocation based on
cost of service, the Company is capable of making the necessary
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calculations. It is, however, my opinion that a cost of service
allocation would not differ significantly from a uniform cents per
therm allocation.
Q. What adjustments to your Exhibits would be necessary as this Commission
approves its order in this Case?
A. To the extent a different gross margin was determined to be reasonable,
Schedules 2 and 3 would need to incorporate the new gross margin.
Q. Mr. Lebens, doesn't this Revenue Stabilization Clause reward the
Company for inefficiency and guarantee a profit?
A. Definitely not. As was shown by Mr. Worthan, any operation and
maintenance costs of the Company exceeding the amounts allowed by the
Commission would not be recovered through this mechanism. The Revenue
Stabilization Clause is only affected by volume changes.
Q. Does this conclude your direct testimony?
A. Yes, it does.
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