20030121_368.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
CO MMISSI 0 NER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
COMMISSION STAFF
LEGAL
FROM:LISA NORDSTROM
DATE:JANUARY 15, 2003
RE:IN THE MATTER OF THE INVESTIGATION INTO THE PURCHASE GAS
ADJUSTMENT (PGA) MECHANISM AND THE NATURAL GAS
PURCHASING POLICIES OF INTERMOUNTAIN GAS COMPANY. CASE
NO. INT-Ol-
In the year 2000, Intennountain Gas Company filed two Purchase Gas Adjustment
(PGA) increases. Intennountain Gas customers observed their winter rates increase by 60% in
one year. While a PGA increase is not uncommon, two increases in less than a year are unusual
and the total increase to customers was unprecedented. On February 7, 2001 , the Commission
issued a Notice of Investigation in Order No. 28632 directing Staff to investigate Intennountain
Gas' PGA mechanism and purchasing policies.
ST AFF REPORT
Staff filed its report on May 25, 2001 and detennined that natural gas wholesale
market prices skyrocketed after three years of unseasonably wann weather, decreasing storage
inventories, increased demand due to growth and increased reliance on natural gas for electric
generation, increasing competition for Canadian natural gas, and a colder than nonnal winter.
Staff found that the high wholesale prices for natural gas were unexpected and unprecedented.
Staff was unable to find any material that predicted increases of that magnitude.
Staff believes the Company has since taken some steps to minimize the volatility of
gas prices to customers. Intennountain Gas provides a diverse gas portfolio with purchases from
all available supply basins. The Company has taken advantage of capacity releases and off-
DECISION MEMORANDUM
system sales. It has an extensive amount of storage to take advantage of seasonal differences
between summer and winter gas prices.
After reviewing other possible gas purchase mechanisms, Staff continued to believe
that the existing PGA mechanism is the best system to ensure customers pay the lowest price for
the natural gas commodity. The mechanism is readily auditable, provides no perceived
regulatory disincentives, sends the correct price signal to customers, allows the Commission the
flexibility to detennine the price to customers, and assures customers that they will pay no more
than the Company pays for the procurement of natural gas.
In light of changes occurring in the natural gas industry in recent years, Staff
believed it more important than ever for the Commission and the Company to communicate and
document Company activities. The Company must be willing to provide the Commission an
increased amount of infonnation to assure customers that the Company is using all available
expertise to optimally minimize natural gas procurement costs. As a result of the investigation
Staff made the following recommendations:
Maintain the existing purchase gas cost adjustment mechanism.
Improve documentation and increase communication between the
Company, the Commission, and Staff. At a minimum the Company
should retain the following infonnation:
All graphs, visuals and charts used in discussions to make gas
procurement and hedging decisions;
Articles, letters, memos, reports, notes, etc. detailing the current
gas market and/or projections;
Summary of risk management meetings between IGI and
Intennountain; and
Written decisions resulting from each risk management meeting
that is signed by a corporate officer.
The Company should document and report all new contracting
arrangements and initiate a bidding process for new gas contracts as
existing contracts expire.
The Company should be directed to file its required Integrated Resource
Plan (which it has since done) and provide additional annual updates in
addition to the required biannual filing.
DECISION MEMORANDUM
The Company should be directed to provide to Staff the most complete
current infonnation and services for the following:
A complete statement of qualifications for IGI Resources;
complete list of the services that IGI Resources provides to
Intennountain Gas Company;
complete list of other available services offered by IGI
Resources not currently utilized by Intennountain Gas Company;
and
A complete list of services and qualifications the Company finds
necessary in a marketing service provider.
The Company should investigate all conservation opportunities and
develop cost-effective programs that could be offered to all customer
classes.
INTERM 0 UNT AIN' S REPL Y
On June 1 , 2001 , Intennountain Gas filed a reply indicating that the Company
concurred with Staff s finding that the PGA should be maintained. Intennountain Gas further
agreed to consult with Staff to provide the level of documentation necessary to assist Staff in
reviewing the Company s ongoing gas purchasing decisions. The Company also stated that it
would continue documenting all new contracting arrangements and bid new gas contracts as
existing contracts expire.
COMMISSION DECISION
Based on the findings of Staff s report, does the Commission wish to issue an Order
adopting Staffs recommendations and close out the case?
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JJ.
~~~
Lisa D. Nordstro
M:INTGOIOI In
DECISION MEMORANDUM