20080902_2346.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSIONER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:KRISTINE SASSER
DEPUTY ATTORNEY GENERAL
DATE:AUGUST 28, 2008
SUBJECT:IN THE MATTER OF INTERMOUNTAIN GAS COMPANY'S 2008 PGA
CASE NO. INT -08-
On August 15 , 2008, Intermountain Gas Company filed its annual Purchased Gas
Cost Adjustment (PGA) Application requesting authority to increase its annualized revenues by
$54.3 million. Application at 2. The PGA mechanism is used to adjust rates to reflect annual
changes in Intermountain s costs for the purchase of natural gas from suppliers - including
transportation, storage, and other related costs. See Order No. 26019. Intermountain s earnings
will not be increased as a result of the proposed changes in prices and revenues. The Company
requests that its Application be processed by Modified Procedure and that its rates become
effective on October 1 , 2008.
THE APPLICATION
With this Application, Intermountain Gas seeks to pass through to each of its
customer classes a change in gas-related costs resulting from: (1) a decrease in costs billed to
Intermountain pursuant to the Settlement of the General Rate Case filed by Gas Transmission
Northwest Corporation ("Gas Transmission Northwest" or "GTN"); (2) the procurement of
discounted interstate transportation on Northwest Pipeline GP ("Northwest" or "Northwest
Pipeline ); (3) benefits included in Intermountain s firm transportation and storage costs
resulting from Intermountain s management of its storage and firm capacity rights on pipeline
systems including Northwest Pipeline, GTN and TransCanada s BC system; (4) an increase in
Intermountain s Weighted Average Cost of Gas, or "WACOG"; (5) an updated customer
allocation of gas-related costs pursuant to the Company s Purchased Gas Cost Adjustment
DECISION MEMORANDUM
provision; and (6) the inclusion of temporary surcharges and credits for one year relating to gas
and interstate transportation costs from Intermountain s deferred gas cost accounts. Application
at 3-
The Company calculates that if its Application is approved, residential customers
using natural gas for space heating alone could experience a $7.90 increase on their monthly bill
(15% increase per therm). Residential customers using natural gas for both space and water
heating could experience an increase of $12.30 on an average monthly bill (18% increase per
therm). Commercial customers could realize a $55.30 increase in monthly billing (18% increase
per therm).
Intermountain Gas proposes increasing the W ACOG from the currently approved
$0.63583 per therm to $0.78484 per thermo The Application asserts that worldwide demand for
energy, coupled with constraints on production, has driven the price of all energy to record highs.
The Company maintains that its proposed W ACOG includes the benefits to Intermountain
customers generated by the Company s management of significant natural gas storage assets.
More specifically, the Company procures natural gas during the summer season for withdrawal
and use during the winter when prices would otherwise be higher. Additionally, the Application
states that, in an effort to further stabilize the prices paid by customers during the upcoming
winter period, Intermountain has entered into various hedging agreements to lock-in the price for
significant portions of its underground storage and other winter "flowing" supplies. Application
at 6. Although current commodity futures prices dictate the use of a $0.78484 per therm
W ACOG, the Company continues to remain vigilant in monitoring natural gas prices. If forward
prices for natural gas materially deviate from $0.78484 per therm, the Company is committed to
return to the Commission prior to this winter s heating season to amend these proposed rates.
Pursuant to Order No. 30443 , Intermountain included temporary surcharges and
credits in its PGA rates last October. Exhibit No., Line 26 reflects the elimination of these
temporary surcharges and credits. The Company includes a fixed cost collection adjustment
pursuant to the provisions of its PGA tariff which provides that proposed rates will be adjusted
for updated customer class sales volumes and purchased gas cost allocations. Application at
Intermountain proposes to pass back to its customers the benefits generated from the
management of its transportation capacity totaling over $9 million. Id.Exhibit No.7. Further
the Company proposes to allocate deferred gas costs from its Account No. 186 balance to its
DECISION MEMORANDUM
customers through temporary price adjustments to be effective during the 12-month period
ending September 30, 2009, as follows: (1) fixed gas costs credit of $8.5 million attributable to
the collection of interstate pipeline capacity costs, the true-up of expense issues previously ruled
on by the Commission, refunds attributable to the Settlement of GTN's General Rate Case and
mitigating capacity release credits from Intermountain s upstream capacity; and (2) deferred gas
cost debits of $18 million attributable to variable gas costs since October 1 , 2007. Application at
8. Intermountain proposes to collect the balances via a per therm surcharge and credit. Id.
Intermountain states that a straight cents per therm price increase was not utilized for
the LV -1 tariff. The proposed increase is fixed cost related and, since there are no fixed costs
recovered in the tail block of the LV -1 tariff, a cent per therm increase relating to fixed costs was
made only to the first two blocks of the LV -I tariff. Each block of the proposed T - 3 and T-
tariffs include a uniform cents per therm increase for unaccounted for gas recovery.Id.
Additionally, these industrial tariffs were updated to reflect the elimination of the T-l and T-
tariffs.! Order No. 30599.
The proposed increase to the T-5 Tariff Demand Charge is fixed-cost related and
reflects the removal of a fixed-cost temporary credit currently included in the T-5 Demand
Charge. Also, the T -5 Commodity Charge includes a uniform cents per therm increase for
unaccounted for gas recovery. Application at 9.
Intermountain asserts that customers have been notified regarding Intermountain
Application through a customer notice and press release. Id. Intermountain states that the
proposed overall prices changes reflect a just, fair, and equitable pass-through of changes in gas-
related costs to Intermountain s customers. Finally, the Company requests that this matter be
handled under Modified Procedure pursuant to Rules 201-204 of the Commission s Rules of
Procedure.
ST AFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure with comments
due by September 25, 2008.
I Intennountain Gas currently offers four industrial tariff options: LV -1 - Large Volume Finn Sales Service; T -3 -
Interruptible Distribution Transportation Service; T-4 - Finn Distribution Only Transportation Service; and T-5 -
Finn Distribution Service with Maximum Daily Demand.
DECISION MEMORANDUM
COMMISSION DECISION
Does the Commission wish to process this case under Modified Procedure pursuant
to Commission Rules 201 through 204 with comments due September 25, 2008?
:f:f~a. ~4RAKrist' e A. Sasser
Deputy Attorney General
M:INT-O8-03 ks
DECISION MEMORANDUM