950306.docx

DECISION MEMORANDUM
TO:COMMISSIONER SMITH
COMMISSIONER NELSON
COMMISSIONER HANSEN
MYRNA WALTERS
TONYA CLARK
STEPHANIE MILLER
DAVID SCHUNKE
KEITH HESSING
MADONNA FAUNCE
DON HOWELL
BEVERLY BARKER
GARY RICHARDSON
WORKING FILE
FROM:SCOTT WOODBURY
DATE:MARCH 6, 1995
RE:CASE NO. SVE-G-95-1
CERTIFICATE APPLICATION
On February 24, 1995 Star Valley Energy, Inc. (Star Valley Energy; Company), an Idaho corporation, filed an Application with the Idaho Public Utilities Commission (Commission) requesting a Certificate of Public Convenience and Necessity to operate as a natural gas corporation and public utility in the State of Idaho, and authority to construct facilities required to provide natural gas service to the town of Salmon, Idaho.  Reference Idaho Code § 61-526; IDAPA 31.01.01.111.  The principal office of Star Valley Energy is located at 1829 Meadow View Avenue, Rexburg, Idaho 83440.
Star Valley Energy was organized for the purpose of providing natural gas service to rural communities in Idaho, California and Wyoming, which are currently located remote from natural gas pipelines, through the use of liquified natural gas.  The Company proposes to construct and operate a natural gas distribution system wholly within the city limits of Salmon, Idaho.  Natural gas will be supplied to the town distribution system via a liquid natural gas (LNG) storage tank (capacity of 50,000 gallons or less) and vaporizer system.  These facilities will be located outside the city limits.  Gas supplies will be transported to the Company’s Salmon facilities by truck from area suppliers located in Wyoming and western Colorado.  The Company reports that LNG has been transported on the road for over 50 years with no fires or serious injury to date.  This is due, in part, the Company states, to the double wall design of the LNG tanker and the non-explosive nature of LNG.
As projected by the Company, estimated volumes for the town of Salmon, including residential, commercial and light industrial users is 6,023 gallons of LNG per day (512 mmbtu/day) on an annualized basis.  Peak winter demand will be approximately 18,500 gallons of LNG per day (1572 mmbtu/day) and summer demand will be approximately 1600 gallons of LNG per day (136 mmbtu/day).  It is anticipated that 400 to 500 customers will elect to convert to natural gas in the town of Salmon under various incentive programs such as zero and low interest loans for conversion costs, rebates or new appliances and furnaces, and free service hook-ups for the first year of system operation.
The Company projects that service may be extended in the future to include alternative fuels for vehicles.  This would include compressed natural gas (CNG from LNG technology) and liquid natural gas for larger users such as school buses, trucks and farm machinery.  
Detailed piping and instrumentation diagrams of the proposed facilities, including the LNG storage tank, vaporizer, glycol heater, and town distribution system, are included with the Application.  The total estimated cost to install the proposed natural gas distribution system, LNG storage and vaporization system to serve the town of Salmon, Idaho is $1,500,000.  This includes $793,700 for a town-wide distribution system, $498,800 for the LNG storage and vaporizer facilities, and $207,500 for customer conversions, incentives and start-up costs.  Star Valley Energy will provide $300,000 in capital from the corporation with the remaining project costs being financed through either industrial revenue municipal bonds, small business administration loans, or with conventional business loans through local financial institutions.
Anticipated annual operating revenues and expenses for the proposed project are as follows and are based on anticipated sales volumes of 180,950 mmbtu/year:  
Gross operating revenue
Fuel cost
Transportation costs
Operating and maintenance expenses
$1,435,000
600,000
220,000
490,000
The following is a summary of the expected all-in component costs of the proposed LNG project for the town of Salmon, Idaho:
Gas supply
Transportation
Distribution system
  (includes LNG tank/vaporizer)
Customer conversion costs
Profit and overhead
$3.30 to $3.40/mmbtu
$1.20 to $1.28/mmbtu
$2.67/mmbtu
$0.06/mmbtu
$0.45/mmbtu
The distribution system cost includes all needed capital facilities in Salmon, as well as depreciation, operation and maintenance, and taxes.
As proposed by the Company, natural gas service rates will be as follows:
Residential customers
Commercial customers
$7.90/mmbtu
$7.50/mmbtu
Dependent upon the receipt of appropriate regulatory approval the Company estimates that construction will begin in the summer of 1995 with estimated completion before the winter heating season of the same year.  Star Valley Energy states that it will open and operate an office in Salmon which will include four full-time employees.  They will be comprised of two maintenance technicians, one secretary and one manager.
Commission Decision
Staff has yet to perform an analysis.  Staff has more questions at this time than answers.  Establishing good lines of communication has been difficult.  How does the Commission wish to process this Application?  It appears that Staff will need a minimum of 60 days to even formulate a reasoned opinion as to viability, etc.  Notice of Application now and eventually Modified Procedure with public meeting (hearing) in Salmon?
Scott Woobury
vld/M-SVE-G-95-1.sw