20200218_mh1.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:MATT HUNTER
DEPUTY ATTORNEY GENERAL
DATE:FEBRUARY 13,2020
SUBJECT:IN THE MATTER OF INTERMOUNTAIN GAS COMPANY'S
APPLICATION FOR AUTHORITY TO REVISE ITS GENERAL SERVICE
PROVISIONS RELATED TO THE INSTALLATION AND EXTENSION
OF NATURAL GAS MAINS AND SERVICES;CASE NO.INT-G-20-01.
On January 27,2020,Intermountain Gas Company ("Intermountain"or "Company")
applied to the Commission for authority to revise the Company's General Service Provisions
related to the installation and extension of natural gas mains and services ("Line Extension").
BACKGROUND
In the Company's last rate case,Case No.INT-G-16-02,the Commission found it
"reasonable and appropriate"for Intermountain to update its Line Extension tariff to reflect the
rate of return approved in the rate case.Order No.33757.The Commission noted the updated
tariff should accurately reflect the degree to which customer contributions associated with Line
Extensions depend on rate of return.Id.Beginning in December 2017,the Company began
working closely with Commission Staff to update the Line Extension tariff in response to Order
No.33757.
THE APPLICATION
The Company proposes to replace its General Service Provisions Section C and update
Section A of the General Service Provisions to refer to Section C.Application at 4.The
Company would to use an embedded cost methodology approach to calculate the Allowable
Investment'for residential and commercial Line Extension projects.Id.at 5.Intermountain states
The Allowable Investment is the portion of a Line Extension funded by Intermountain.
DECISION MEMORANDUM 1
that this method "will help to ensure that the investment in gas facilities for each new customer
will be similar to the embedded costs of the same facilities for existing customers that are
reflected in the Company's approved base rates."Id.The customer will pay any costs in excess
of the Allowable Investment as a customer advance.Id.
The Company's proposed tariff calculates the Allowable Investment for residential
applicants by first calculating the estimated annual therm usage of the customer,then multiplying
the estimated annual therm usage by the Allowable Investment Factor2.Id.at 6.The estimated
annual therm usage is calculated using a formula incorporating the square footage of the
residential customer's home (if the home is gas heated),and the annual therm usage of the
home's gas appliances.Id.at 5 and Exhibit 2.
To calculate the cost to install a Service Line3,Intermountain proposes multiplyingthe
on-property Service Line length by the Service Line Cost per Foot4.Application at 6 and Exhibit
2.For a Mains extension,the Project Cost "is calculated by estimating the costs of the gas
facilities required to serve the gas load of the requesting applicant."Application at 6.Under the
proposed tariff,the applicant for a Line Extension pays the difference between the Allowable
Investment and the Project Cost.Id.at 7.
The Company states it anticipates filing an annual tariff advice to update the Allowable
Investment Factors,the Service Line Cost per Foot,and the construction overhead charge.Id.
Under the Company's proposal,a customer who paid for a Line Extension would be
eligible for a vested interest refund if additional service points are added to the project within
five years of the date of installation.Id.This would occur when a service point not used in the
original calculation connects to the Main extension within a five-year period after the extension.
Id.When this occurs,the original applicant or developer would be eligible for a vested interest
refund not to exceed the original upfrontpayment.Id.
2 The Allowable Investment Factor is derivedfrom the Present Value (PV)of the embedded cost of Mains and
Services in the Company's tariff.The PV calculation uses the Commission-approved Weighted Average Cost of
Capital as the discount rate over the life of the plant.Allowable Investment Factors for Service and Main are
included in Section C,Section 4.3 of the Company's proposed tariff.
3 A Service Line is an underground gas pipeline and required fittings that extend downstream from a Main,or
branches from an existing Service Line to the location of the meter.
The Service Line Cost per Foot is derivedby calculating a three-year average of service line costs divided by the
feet installed during the same years.See Application,Exhibit 5.
5 Main is the underground pipeline,and required fittings,used for the distribution of natural gas upstream of Service
Lines.See Application,Exhibit 2.
DECISION MEMORANDUM 2
The Company proposes refunding applicants who paid a customer advance between the
May 1,2017 effective date of Order No.33757 and the effective date of the final order in this
case.Application at 7.The reason given by the Company for this refund is "the amount of time
that has elapsed between the reduction of Intermountain's [rate of return]in case No.INT-G-16-
02 and the filing of this case."Id.The refunds would be calculated by comparing the original
project and the resulting allowable investment to the proposed Allowable Investment calculation
method at issue in this case.Id.If the comparation shows the customer advance paid under the
previous tariff was higher than the customer advance would have been under the proposed tariff,
the customer would be refunded the difference-less any refunds already remitted.Id.
The Company states the proposed tariff would result in a slightly higher Allowable
Investment for projects that include both a Main and Service extension,due largely to increased
costs over time and Intermountain's reduced weighted average cost of capital in Case No.INT-
G-16-02.Id.at 8.For projects that include only a service extension,the footage that will be
allowed without any investment by the customer is less due to declining customer usage.Id.
Intermountain states it will issue notice of the Application to its affected customers
during the week of February 3,2020.Application at 9.The notice letter will be sent to "those
developers,builders,and HVAC contractors that may be affected by the proposed changes to
inform them of the Company's request."Id.
The Company requests an effective date of April 1,2020 for its proposed tariff,and
requests that its Application be processed under Modified Procedure.Id.
STAFF RECOMMENDATION
Staff notes the proposed Line Extension tariff differs significantly from the tariff
currentlyin effect.In order to give interested persons an opportunity to intervene in the case,
Staff recommends the Commission issue a Notice of Application and a Notice of Intervention
Deadline-settinga March 11,2020 deadline to intervene.
Relatedly,Staff recommends suspending the proposed effective date for the tariff.An
April 1,2020 effective date does not provide enough time for Staff and the public to review and
comment on the Company's proposal.Also,the Company indicated in its Application that it
would need time to update its computer system if the Commission approves the proposed tariff.
Application at 9.Therefore,Staff recommends suspending the proposed effective date for the
tariff for 30 days plus five months,under Idaho Code §61-622.
DECISION MEMORANDUM 3
COMMISSION DECISION
1.Does the Commission wish to issue a Notice of Application and a Notice of
Intervention Deadline-settinga March 11,2020 deadline to intervene?
2.Does the Commission wish to suspend Intermountain's proposed effective date of
April 1,2020 for the tariff for a period of 30 days plus five months,under Idaho Code §61-622?
Matt Hunter
Deputy Attorney General
L\Lega1\GAS\INT-G-20-Ol\memos\INTG2001 dec memo mh docx
DECISION MEMORANDUM 4