20020826_248.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
BILL EASTLAKE
LYNN ANDERSON
RANDY LOBB
DON HOWELL
ALDEN HOLM
MICHAEL FUSS
DAVE SCHUNKE
TERRI CARLOCK
GENE FADNESS
BEV BARKER
TONY A CLARK
WORKING FILE
FROM:LISA NORDSTROM
DATE:AUGUST 21, 2002
RE:IN THE MATTER OF INTERMOUNTAIN GAS COMPANY'2002
INTEGRATED RESOURCE PLAN. CASE NO. INT-02-
On April 19, 2002, Intermountain Gas Company (IGC; Company) submitted its 2002
Integrated Resource Plan (IRP) with the Idaho Public Utilities Commission (Commission). The
Company s filing complies with the Commission s direction in Order No. 24342, Case No. GNR-
93-2 (reference PURPA ~ 303(b)(3), Energy Policy Act of 1992). On May 30, 2002, the
Commission issued a Notice of Application and Modified Procedure and established a written
comment deadline. Order No. 29039. The Northwest Industrial Gas Users and Commission Staff
were the only parties to file comments, to which Intermountain Gas responded on August 20, 2002.
In its prior Order in Case No. GNR-93-, the Commission adopted the following
statement of Commission policy regarding PURP A ~ 303 (b )(3) and integrated resource planning for
gas utilities:
DECISION MEMORANDUM
POLICIES ADDRESSING INTEGRATED RESOURCE PLANNING.
01. Purpose and Process . Each gas utility regulated by the Idaho Public Utilities
Commission with retail sales of more than 10 000 000 000 cubic feet in a
calendar year (except gas utilities doing business in Idaho that are regulated by
contract with a regulatory commission of another State) has the responsibility to
meet system demand at least cost to the utility and its ratepayers. Therefore, an
integrated resource plan shall be developed by each gas utility subj ect to this rule.
02. Definition.Integrated resource planning. Integrated resource planning
means planning by the use of any standard, regulation, practice, or policy to
undertake a systematic comparison between demand-side management measures
and the supply of gas by a gas utility to minimize life-cycle costs of adequate and
reliable utility services to gas customers. Integrated resource planning shall take
into account necessary features for system operation such as diversity, reliability,
dispatchability, and other factors of risk and shall treat demand and supply to gas
consumers on a consistent and integrated basis.
03. Elements of Plan. Each gas utility shall submit to the Commission on a
biennial basis an integrated resource plan that shall include:
a. A range of forecasts of future gas demand in firm and interruptible
markets for each customer class for one, five, and twenty years using
methods that examine the effect of economic forces on the consumption of
gas and that address changes in the number, type and efficiency of gas
end-uses.
b. An assessment for each customer class of the technically feasible
improvements in the efficient use of gas, including load management, as
well as the policies and programs needed to obtain the efficiency
improvements.
c. An analysis for each customer class of gas supply options, including:
(1) a projection of spot market versus long-term purchases for both firm
and interruptible markets; (2) an evaluation ofthe opportunities for using
company-owned or contracted storage or production; (3) an analysis
prospects for company participation in a gas futures market; and (4) an
assessment of opportunities for access to multiple pipeline suppliers or
direct purchases from producers.
d. A comparative evaluation of gas purchasing options and improvements
in the efficient use of gas based on a consistent method for calculating
cost-effectiveness.
DECISION MEMORANDUM
e. The integration of the demand forecast and resource evaluations into a
long-range (e., twenty-year) integrated resource plan describing the
strategies designed to meet current and future needs at the lowest cost to the
utility and its ratepayers.
f. A short-term (e., two-year) plan outlining the specific actions to be
taken by the utility in implementing the integrated resource plan.
04. Relationship Between Plans . All plans following the initial integrated
resource plan shall include a progress report that relates the new plan to the
previously filed plan.
05. Plans to Be Considered in Rate Cases. The integrated resource plan will be
considered with other available information to evaluate the performance of the
utility in rate proceedings before the Commission.
06. Public Participation. In formulating its plan, the gas utility must provide an
opportunity for public participation and comment and must provide methods that
will be available to the public of validating predicted performance.
07. Legal Effect of Plan.The plan constitutes the base line against which the
utility's performance will ordinarily be measured. The requirement for
implementation of a plan does not mean that the plan must be followed without
deviation. The requirement of implementation of a plan means that a gas utility,
having made an integrated resource plan to provide adequate and reliable service
to its gas customers at the lowest system cost, may and should deviate from that
plan when presented with responsible, reliable opportunities to further lower its
planned system cost not anticipated or identified in existing or earlier plans and
not undermining the utility s reliability. In order to encourage prudent planning
and prudent deviation from past planning when presented with opportunities for
improving upon a plan, a gas utility s plan must be on file with the Commission
and available for public inspection. But the filing of a plan does not constitute
approval or disapproval of the plan having the force and effect of law, and
deviation from the plan would not constitute violation of the Commission
Orders or rules. The prudence of a utility s plan and the utility s prudence in
following or not following a plan are matters that may be considered in a general
rate proceeding or other proceedings in which those issues have been noticed.
Order No. 24342.The Commission subsequently modified the requirements for Natural Gas
Integrated Resource Plans in 1997 to shorten the planning horizon to five years to match the
Company s planning horizon and available market products. Order No. 27024. The Commission
also eliminated the requirement that gas IRPs include formal evaluations of costs and benefits of
potential DSM programs pursuant to Case No. GNR-93-, Order No. 24981. Order No. 27098.
DECISION MEMORANDUM
Instead, the Commission found that "a general explanation with each IRP filing of whether there are
cost effective DSM opportunities will be sufficient" Id.
THE INTEGRATED RESOURCE PLAN
According to the IRP's Executive Summary, the IRP is meant to describe the currently
anticipated conditions over the five-year planning horizon, the anticipated resource selections and the
process for making those resource decisions. IRP at 1. IGC estimates that its average increase in
residential and commercial customers between the first quarters of fiscal year 2001 and 2002 to be
5%. Id. During fiscal year 2001 , 50% of the throughput on IGC's system was attributable to
industrial sales and transportation. Id.
Peak Day Load Growth.IGC developed peak day sendout studies and load duration
curves under design weather conditions to determine the magnitude and timing of future deficiencies
in firm peak day delivery capability. Residential, commercial and industrial peak day sendout was
matched against available resources to determine which combination of new resources would be
needed to meet IGC's future peak day delivery requirements at the best possible cost Id. at 2.
Residential, commercial and industrial peak day load growth on IGC' s system is forecasted over the
five-year period to grow at an average annual rate of 4%.
Regional Studies.Certain geographic regions within IGC's service territory were
analyzed based upon the anticipated or known need for distribution system upgrades within each
specific region. Id. at 4.
Anthony.
The Idaho Falls Lateral Region serves a number of cities between Pocatello north to St
The residential, commercial and industrial load served off this region represents
approximately 14% of the total Company customers and 18% of the Company s total winter sendout
during the winter of2001-2002. Id. IGC hopes to work with industrial customers in this region who
use alternative fuels to mitigate small, short duration peak day distribution delivery deficits.
However, the projected delivery deficits are of such magnitude that "looping" of the existing system
is warranted, adding the necessary firm delivery capacity to that area. Id.
The Sun Valley Lateral Region represents approximately 4% of the total Company
customers and 3% of the Company s total winter sendout during the winter of200l-2002. Id. at 5.
When forecasted peak day sendout in this region is matched against the existing peak day
distribution capacity (120 000 therms), a peak day delivery deficit occurs during 2003 and increases
DECISION MEMORANDUM
thereafter. Id. Growth along the Sun Valley Lateral Region warrants an upgrade to the existing
pipeline system since its limited industrial load does not currently have the capability to switch to
alternative fuels as a means of mitigating peak day sendout. Id. at 6.
The Canyon County Region represented approximately 12% of the total Company
customers and 14% of the Company s total winter sendout during the winter of 2001-2002. Id.
When forecasted peak day sendout in this region is matched against the existing peak day
distribution capacity (600 000 therms), a peak day delivery deficit occurs during 2006 and increases
thereafter. Id. This region s diverse industrial customer base does not currently have the capability
to switch to alternative fuels as a means of mitigating peak day sendout and IGC is currently
exploring optional means of enhancing this region s distribution capability. Id. at 7. IGC is also
awaiting the outcome of a planned natural gas fired electric generation plant in the Canyon County
Region as the construction of this facility can potentially provide synergies to the design oflGC'
distribution facilities in that region. Id.
NORTHWEST INDUSTRIAL GAS USERS' COMMENTS
On July 31 , 2002, the Northwest Industrial Gas Users (NWIGU) filed comments
commending Intermountain Gas' efforts to enhance its Supervisory Control and Data Acquisition
(SCADA) system. NWIGU Comments at 2. The NWIGU indicated that Intermountain is currently
investigating technology enhancements that would allow industrial customers to securely access real-
time natural gas usage data via the Internet. They believe that this information will lead to more
efficient use of natural gas and enhance price signals to customers that purchase gas on the open
market. The NWIGU urged the Commission to approve the proposed IRP, and in particular, the
efficiency opportunities provided by real-time industrial usage information. Id. at 3.
ST AFF COMMENTS
In comments filed on August 2, 2002, Staff indicated that Intermountain s 2002 IRP
minimally satisfies the technical requirements of Commission Order No. 25342 as modified by Order
Nos. 27024 and 27098 , and recommended acceptance for filing. Staff further stated that its
recommendation should not be interpreted as approval ofthe plan, or as a judgment ofthe prudence
of any transactions undertaken as part of the plan. Staff Comments at 7.
Staff reviewed the Company s forecasted growth proj ections and found them to be in the
range of reasonableness, even though the Company s conversion rate appeared to be somewhat
DECISION MEMORANDUM
optimistic. Id. at 3. While Staff believes the four energy efficiency programs mentioned in the IRP
may be well intentioned, Staff noted the amount of energy efficiency improvement achieved or the
extent of Intermountain s participation therein appeared to be somewhat limited. Id. Staff expressed
concern that the IGC High Efficiency Gas Equipment Finance Program does not require any
minimum efficiencies and that Intermountain s name is absent from the list of partners and
participants on the "Rebuild Idaho" program s website. Although Staff verified the Company
participation in the Gas Te~hnology Institute (GTI), Staff was unable to find any additional GTI
funding by Intermountain other than that directly collected from customers and passed through to
GTI. Staff further indicated that the IRP does not assess technically feasible improvements by
customer class nor does it evaluate the limited programs that are provided.
Although the Company s resource optimization spreadsheet model appears to properly
evaluate the Company s existing resources, the IRP does not include an extensive analysis for
alternative supply basins, contract considerations, or market available instruments. Id. at 5. While
Staff acknowledges that the shortened five-year planning horizon will skew resource decisions
toward the existing long-term contracts, Staff does not believe the allowance of a shorter planning
horizon should not be used as an excuse for the Company to avoid exploring market available
alternatives. Id. Because the Company is currently purchasing several financial hedging instruments
that are not included in the Company s IRP, Staff expects at a minimum that the Company would
consider market alternatives when it addresses resource optimization in future IRPs. Id. at 6-
INTERMOUNTAIN'REPLY COMMENTS
On August 20, 2002, Intermountain filed reply comments that addressed three of the
issues raised in Staff s Comments. First, the Company noted that it has taken action to correct the
administrative clerical oversight" that caused Intermountain s name to be absent from the list of
partners and participants on the "Rebuild Idaho" program website. An attached letter from the Idaho
Department of Water Resources stated that in spite ofthe lack of an official agreement, the Company
has operated in the capacity of a partner" and "cooperatively provided specific assistance and
services to the Rebuild Idaho Partnerships since September 2000.
The second issue addressed in the Intermountain Reply Comments was its cooperative
program with Wells Fargo Bank to finance high-efficiency heaters. Although Staff was informed by
Intermountain Gas representatives that "the program would finance a minimally efficient appliance
DECISION MEMORANDUM
much the same as an efficient one " the Company believes the implication that the Wells Fargo
program finances inefficient natural gas equipment distorts both the program and the marketplace.
Intermountain argued that according to 24 HV AC dealers in their service territory, more than 70% of
the natural gas space heaters sold and installed are at least 90% efficient as compared to the 78%
efficiency standard mandated by the Energy Policy Act of 1992.
In response to Staff s recommendation that the Company s IRP should include a more
extensive analysis of alternative supply basins, Intermountain noted that natural gas from basins
which normally supply the Midwest and/or California are not price competitive. Moreover
Intermountain stated that it does not have access to transportation capacity to deliver such supplies
into Idaho.
COMMISSION DECISION
Does the Commission wish to acknowledge receipt (filing) of the Company s 2002
Natural Gas Integrated Resource Plan? If so, does the Commission wish to acknowledge that the
filed plan satisfies the requirements set forth by the Commission in Order No. 24342?
v:)
~~
&J~
Lisa Nordst om
M:INTGOlOl Jnl
DECISION MEMORANDUM