170616 IMG reconsideration.pdf

Case No. INT-G-16-02, Order No. 33789
Contact: Matt Evans
[phone] or 520-4763
www.puc.idaho.gov
Commission grants Intermountain Gas
petition for reconsideration of rate case
BOISE (June 16, 2017) – The Idaho Public Utilities Commission has granted Intermountain Gas
Company’s petition to reconsider aspects of a recent order that led to a slight rate increase.
A petition for reconsideration allows any party to contest a Commission order.
Intermountain Gas’s petition stems from a case that was resolved in late April and resulted in a rate
increase of 1.58 percent for the approximately 335,000 Idahoans served by the company. The
company had requested a 3.7-percent increase.
Its reconsideration petition cited four concerns with the ruling.
Two of those concerns focus on the weather data used to project energy usage, one pertains to the
Commission’s decision to disallow nearly $1.4 million in expenses that exceeded the five-year
average and the fourth concern is related to the Commission’s disallowance of $704,000 in non-
executive incentive compensation.
The use of weather data had the biggest impact in Intermountain Gas’ first rate case before the
Commission in more than three decades.
In its order approving a smaller rate increase than the company sought, the Commission found fault
with the weather normalization model Intermountain Gas used to forecast its revenue
requirements and expenses.
Weather normalization is used to determine how much energy a customer would consume under
average weather conditions. Since energy consumption increases when the weather is hotter or
colder than the normal climate, weather normalization eliminates these fluctuations and their
impact on consumption. This allows utilities to project the amount of energy they need to purchase
over long periods, and the revenue required to recover those expenses through rates.
The Commission’s order said Intermountain Gas did not provide a reasonable explanation of the
methodology used to determine weather normalization, making it impossible to determine whether
its model accurately forecasted customer consumption.
“The Company was unable to show that the methodology is reasonable, appropriate and
reproducible,” the Commission said.
As a result, the Commission used a model developed for this case. It used nearly 14 years of data
and decreased the associated revenue requirement by $2,024,597.
Intermountain Gas objected, saying the Commission’s analysis overstated revenue.
The company said it had used the industry standard, 30-year average of weather and consumption
data - the same methodology employed in its last rate case, in 1986. Using data from a shorter
timeframe led to a calculation that the average weather year was “significantly colder” than it
would have been if 30 years of weather data had been used, the company said.
In the 1986 rate case, however, the Commission encouraged the company to improve its weather
normalization model and said that it would reserve its decision on the model’s “appropriateness”
until its next rate case.

Intermountain Gas’ reconsideration petition also took issue with the Commission’s decision to
disallow $704,000 in incentive compensation for non-executives. The company said the expense
was the result of employees meeting goals for net income, cost control and customer satisfaction,
but the Commission said the company failed to demonstrate how customers directly benefited from
it.
The final issue addressed in Intermountain Gas’ reconsideration petition was the disallowance of
$1.38 million in affiliate costs, out of a total of $15.5 million in affiliate costs listed in its initial
request for the rate increase.
Affiliate costs are directly or indirectly charged to Intermountain Gas by its affiliates. In this case,
most of the $15.5 million in affiliate costs claimed were assessed by Intermountain Gas’ parent
company, MDU Resources, in 2016. MDU provides services to Intermountain Gas such as payroll,
procurement and administrative services.
The Commission said Intermountain Gas did not meet the higher standard required of utilities
seeking recovery for costs assessed by an affiliate. A utility must do more than merely show that
such expenses were incurred, the Commission said; it must also prove that expenses between
affiliates are reasonable.
Some expenses were deemed reasonable, however, leading the Commission to adopt a five-year
average of affiliate costs rather than a single year. The average was $1.38 million less than the
requested amount, leading the Commission to disallow that amount.
Intermountain Gas was the only party to petition for reconsideration of the order. Petitions must be
filed within 21 days of the date the order was issued.
Once a petition is filed, the Commission has 28 days to issue an order indicating whether it will
reconsider parts of the order being contested and, if reconsideration is granted, the way in which
the matter will be reconsidered.
In granting Intermountain Gas’ request, the Commission said reconsideration is limited to the four
issues addressed in the petition.
The Commission directed company representatives, commission staff and any other interested
parties to confer within 14 days to attempt to narrow the issues addressed, discuss settlement
opportunities and agree on a schedule.
The Commission has a limited timeframe, dictated by Idaho Code, within which it reconsiders its
original findings. Once an order on reconsideration is issued, that decision can be appealed directly
to the Idaho Supreme Court.
The commission’s order and other documents related to the case can be found at
www.puc.idaho.gov. Under the “Natural Gas” heading, click on “Open Cases,” and scroll down to
Case No. INT-G-16-02.