20000627sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
DON HOWELL
STEPHANIE MILLER
DAVE SCHUNKE
RANDY LOBB
ALDEN HOLM
MADONNA FAUNCE
WORKING FILE

FROM:

DATE: JUNE 27, 2000

RE: CASE NO. INT-G-00-01 (Intermountain Gas)
PURCHASE GAS ADJUSTMENT (PGA) TRACKER
$36.4 MILLION (28%) REVENUE INCREASE—SURCHARGE

On May 19, 2000, Intermountain Gas Company (IGC; Company) filed an Application with the Idaho Public Utilities Commission (Commission) for authority to place into effect new rate schedules that would result in an overall increase of approximately $36.4 million (28%) in its annualized revenues. The increase reflects a change in the Companys cost of gas and the elimination and/or imposition of a number of temporary gas and transportation cost adjustments, surcharges and credits. The Company in its filing also proposes to balance out its Purchased Gas Cost Adjustment (PGA), Account 186. The PGA Account is a deferral mechanism for over- and under-collections and for realized savings on spot market gas purchases.
The proposed adjustments reflected in the Application include changes in costs billed IGC by Williams Gas Pipeline-West (WGP-W) and other transportation companies, the elimination of temporary surcharges and credits (INT-G-99-01), an increase in the Companys weighted average cost of gas (WACOG), the benefits generated from the Companys segmentation of its firm capacity rights on WGP-Ws system, the inclusion of temporary surcharges and credits relating to gas and transportation related costs from the Companys deferred gas cost account (PGA Account 186), and an updated customer allocation of gas-related costs.
The Application proposes implementation of the following permanent and temporary changes, adjustments, surcharges and credits to IGCs tariff rates for natural gas service, sales and transportation:

Permanent Adjustments:
 INT-G-99-01 Elimination of Temporary Surcharges/Credits ($2,267,042)
 Change in WGP-W rates/charges $ 369,305
 Change in storage costs $2,414,847
 Cost of Gas Supply $22,042,806
Temporary Surcharges or Credits
Deferred Gas Costs (IGC PGA Acct 186)
 Variable Cost Collection Adjustment ($ 816,540)
 Uncollected Gas Costs $17,307,308
 Market Segmentation ($2,408,551)
Fixed Gas Cost Misc ($ 40,176)
Expansion II Refund ($ 166,565)
As computed by the Company, the total requested increase in revenue on an annual basis is $36,435,392 or 27.66%. The net increase in sales gas revenues is $36,223,723 or 28.62%. The increase in T-1 transportation service revenues is $304,854 or 7.01%. The net decrease in T-2 transportation service revenues is ($93,185) or (14.32%). The annualized change
in rates by class of service per Company calculation is as follows:

Gas Sales
Revenue Avg Increase (Decrease)
/Therm Avg Increase (Decrease)
% Change Proposed Avg Price
$/Therm
RS-1 Residential
$6,548,887
17.811¢
27.95%
$0.81534
RS-2 Residential
$16,334,687
14.672¢
27.34%
$0.68341
GS-1 Genl Svc
$ 13,340,149
15.151
30.74%
$0.64442
LV-1 Large Vol. *
* T-1 tariff price plus the Weighted Average Cost of Gas (WACOG), $0.28673
(Compare WACOG INT-G-99-01: $0.18252)
WACOG = total commodity cost of gas  total purchase therms

Transportation
Revenue Avg Increase (Decrease)
/Therm Avg Increase (Decrease)
% Change Proposed Avg Price
$/Therm
T-1 Transp.
$304,854
0.628
7.01%
$0.09589
T-2 Transp.
($ 93,185)
(0.430)
(11.75%)
$0.03230
With the exception of the Industrial class, IGC proposes to allocate the change in rates to each of its customer classes in accordance with its Purchased Gas Cost Adjustment tariff and approved cost-of-service methodology. (Ref. Case Nos. INT-G-95-1, INT-G-88-2, U-1034-137). Because there are no fixed costs currently recovered in the tailblock of IGCs T-1 tariff and because the proposed increase in the T-1 tariff is related to fixed costs (except for TF-1 commodity charge), a cents-per-therm increase is made only to the first two blocks of the T-1 tariff. All three blocks of IGCs proposed T-1 tariff have been adjusted to include WGP-Ws firm transportation TF-1 commodity charge. The proposed increase in the T-2 tariff (except for TF-1 commodity charge) is fixed cost related and, therefore, a cents per therm increase was made only to the T-2 demand charge. The commodity charge component of the T-2 tariff was adjusted to include WGP-Ws firm transportation TF-1 commodity charge.
Intermountain Gas requested that its Application be processed under Modified Procedure, i.e., by written submission rather that by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. The Company has requested an effective date of July 1, 2000.
Notices of Application and Modified Procedure in Case No. INT-G-00-01 were issued by the Commission on May 30, 2000. The deadline for filing written comments was June 23, 2000. The Commission’s Notice contained the following language:
Given the size of the PGA rate increase requested in this case and the rate shock that may result from immediate implementation, comment is specifically solicited from Commission Staff and the Company as to whether the PGA methodology would be compromised by a phase-in of the increase over time. Any phase-in proposals should also be submitted. Related ramifications including fairness and equity should also be addressed.

The Commission Staff was the only party to file formal comments. (Attached). Numerous letters from Company customers, including the City of Pocatello, were also received (attached). Based on its investigation and analysis, Staff recommends approval of the Company’s Application. Customers filing comments were nearly unanimous in their opposition to the proposed increase.
Staff Comments
Commission Staff in its comments notes that the Company: (1) has maintained transportation cost as part of the demand charges; (2) has no longer secured hedges for the cost of gas; (3) has pursued capacity release and segmentation (the capacity release of a segment of IGC’s transportation rights); and (4) has reduced the management fee it pays to its affiliate IGI Resources, Inc. for management of all gas supplies and transportation. Staff notes that its audit of gas supply, capacity release, tariff allocations and PGA changes revealed no irregularities.
Staff notes that in making the calculations of interest on the deferred account, the Company used monthly calculations based on 31 days per month for each month in the period. In addition, for the year 2000 the Company used 365 days instead of 366 days to calculate interest. This results in an overcharge of $8,393 included in the variable cost calculation adjustment. Staff proposes that the overcharge be accounted for as a credit in the PCA deferral account and not as a dollar adjustment in this case.
Based on figures provided by the Company, Staff calculates that the Company’s weighted average cost of gas (WACOG) increased by $24,609,101. This accounts for roughly 60% of the requested increase. Staff reviewed the Company’s projected gas costs for the 2000-2001 period that provide the basis for the WACOG increase and compared it to the current prices and other projections of future market gas prices. Staff also evaluated the ramifications of extending the deferral account amortization period from one to two years. Recent increases in gas spot prices have Staff concerned that the proposed WACOG adjustment requested in this case may not be sufficient in the upcoming year. Because of the continuing upward trend in natural gas prices Staff believes any effort to amortize the deferral account over a multi-year period is extremely risky. Intermountain’s gas sales and cost projections for the upcoming year (2000-2001) are based upon an average gas cost of $2.8673 per MMBtu. However, current natural gas spot and future prices are well above $3.50 per MMBtu. Explanations given for the increase in price during an off-season time are varied. There appears to be general agreement that the root cause is increased demand for gas during the “off season.” Of specific note is the opening of the Alliance Pipeline which has allowed low-cost Canadian gas to be transported to markets in the Mid-west where gas prices are generally much higher. Additionally, there has been an increase in the number of natural gas fired turbines for electric power generation which has increased competition for gas supply during the summer months, a period which historically has been used by gas companies to purchase and store gas at low prices for use during the winter months when demand and prices are generally higher.
As of June 19, 2000, Staff’s Consumer Assistance Division notes that the Commission received and placed in its formal case file 22 written comments from customers, 21 of which opposed the proposed rate increase. The following quote, Staff states, captures the essence of comments:
“A 27% increase in residential cost of natural gas is an unconscionable amount. At a 3% increase in living costs per year for senior citizens, increases of this magnitude send people to welfare.”

Another customer stated,

“Guess we pay high gas bill and not eat or vice-a-versa.”

Commission Staff details the Company’s continuing efforts to help its customers. Intermountain Gas participates in two fuel funds, Project Share and Project Warmth, to assist low-income customers that need help paying their gas bills. Project Share is directed to the same territory as Idaho Power Company and Project Warmth is the same area as Utah Power & Light territory. In addition to the fuel funds, Staff notes that there are other programs to help needy families such as LIHEAP. Intermountain Gas also participates in the Gatekeeper Programs that targets elder citizens needing assistance.
The Consumer Division notes that Intermountain Gas offers a level payment plan that allows a customer to pay their average annual usage with equal monthly payments. The payments may be adjusted annually to allow for usage or rate increases or decreases. Approximately 25% of Intermountain Gas customers take advantage of this level payment plan. The Company has other special level payment arrangements to help customers manage their utility payment in extraordinary circumstances. To make special arrangements, Staff notes that the customers should contact customer service at Intermountain Gas.
Staff recommends that the proposed increase be approved as submitted by the Company. Staff also recommends that the Company continue to submit quarterly summary of purchased gas transactions and related PGA deferral balances and provide gas cost information. The Company has agreed to update the Commission on the status of the PGA account and natural gas prices through periodic meetings.
Commission Decision
Intermountain Gas in this year’s annual gas tracker requests an increase of approximately $36.4 million (28%) in its annualized revenues. Approximately 60% of the requested increase ($24,609,101) is due to higher gas costs. Based on its analysis, Staff believes that the cost of gas will remain high and may go even higher. Staff recommends that the requested increase be approved. Does the Commission agree?
Staff calculates an $8,393 overcharge related to miscalculation of interest on the deferred PGA account. Staff recommends that a credit in the Company’s PCA balancing account be made in lieu of an adjustment to the proposed increase. Does the Commission agree?
Staff also recommends that the Company be required to continue submitting quarterly summaries of purchased gas transactions and related deferral balances and provide gas cost information. The Company agrees to keep the Commission apprised of the status of the account and natural gas prices through periodic status reports. Does the Commission agree that such continued reporting is required?

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DECISION MEMORANDUM 5