950518.docx

DECISION MEMORANDUM
TO:COMMISSIONER NELSON
COMMISSIONER SMITH
COMMISSIONER HANSEN
MYRNA WALTERS
STEPHANIE MILLER
DAVE SCHUNKE
RANDY LOBB
MADONNA FAUNCE
RICK STERLING
TONYA CLARK
GARY RICHARDSON
WORKING FILE
FROM:SCOTT WOODBURY
DATE:MAY 18, 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 community of Salmon, Idaho.  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.
As reflected in the Company’s Application, Star Valley Energy was organized for the purpose of providing natural gas service to rural communities in Idaho, California and Wyoming that do not have access to natural gas pipelines.  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.  The Company states, this is due in part, 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 LNG storage, vaporization system and natural gas distribution system 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 Salmon:
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 $7.90/mmbtu for Residential customers and $7.50/mmbtu for Commercial customers.  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 1995-1996 winter heating season.
Commission Notices of Application, Intervention Deadline and Initial Comment Deadline were issued on March 14, 1995.  The deadline for filing a request for intervention was May 5, 1995.  The deadline for filing written comments was May 18, 1995.  No requests for intervention were received.  Commission Staff was the only party to file comments (attached).
For reasons outlined in its comments, Staff concludes that the Company’s filing is premature and recommends that the Commission deny the Application.  In its comments, Staff states the following:
Commission Staff believes the Application of Star Valley Energy, Inc. for a Certificate of Public Convenience and Necessity (Certificate) is deficient based upon a review of the Company’s Application and its responses to Staff’s subsequent production requests.  Reference Rule 111, Commission Rules of Procedure.  . . .
It appears to Staff that the Certificate Application of SVE has been submitted prematurely.  The Company has not performed a market study.  The Company has not obtained letters of commitment for gas, transportation or capital.  The Company has not obtained local permits.  The Company has not completed final engineering designs.  The Company states that  it intends to first obtain a Certificate before proceeding to make firm commitments or initiate detailed studies.  The Commission, Staff contends, should not grant Certificates based on speculative plans and cursory analysis.  To do so would put potential customers at risk.  The Commission should be provided with assurance by SVE that the Company has minimized the risk to itself and ratepayers.  One way of providing that assurance is for the Company to demonstrate a record of satisfactory service in other areas.  Star Valley is unable to do that.  A second means of providing assurance is to conduct thorough research and analysis, and subsequently, to prepare detailed plans for the system design and operation.  Star Valley has also failed to do this.  This, Staff contends, is particularly crucial for new utilities who have no track record of service.  Finally, whatever financial and operational risk that cannot be avoided should be borne as much as possible by the Company  — not the customers.
A Certificate should not be considered the “first stop” on the way toward formation of a new utility.  To the contrary, it should more likely be closer to the “last stop.”  The Commission should expect applicants to demonstrate their commitment to proposed projects, both financially and by preparing thorough, sound plans.  The Commission should be unwilling to grant a Certificate that potentially could be used by SVE to provide false security to potential new customers, the city of Salmon, or lending institutions.
Because of risks, unanswered questions and lack of an operating record, Staff believes an informed decision on SVE’s operations cannot be made.  A Certificate of Public Convenience and Necessity to operate as a natural gas corporation and public utility in the State of Idaho should not be issued until SVE can demonstrate that they are a viable company that can deliver a reliable, economical product capable of competing in the Salmon market.  While the Company’s proposal may indeed ultimately satisfy the public convenience and necessity criteria, there simply is too little information available at this time to support such a finding.  . . .
Staff in its comments specifically addresses the following areas:  Market Study, Economic Analysis, LNG Storage, LNG Supply, LNG Transport, Financing, Customer Incentive Programs, Detailed Engineering Designs and Cost Estimates, Permits, Easements and Land Acquisition, and Tariffs.  
COMMISSION DECISION
Star Valley Energy requests a certificate to operate as a natural gas corporation and public utility.  Star Valley Energy requests Commission authority to construct and operate facilities required to provide natural gas service in Salmon, Idaho.  
●  Based upon the filings of record what are the Commission’s thoughts regarding Star Valley’s Application?  Has Star Valley Energy demonstrated that granting a certificate at this time will advance the rights and interests of the general public and the Salmon community?  What are the Commission’s thoughts regarding further procedure?

JR\M-SVE-G-95-1.SW2Scott D. Woodbury