intg001.swgna.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF INTERMOUNTAIN GAS COMPANY FOR AUTHORITY TO CHANGE ITS PRICES. )
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CASE NO. INT-G-00-1

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on May 30, 2000, submits the following comments.
On May 19, 2000, Intermountain Gas Company (IGC; Company) applied for authority to implement new rates for the Company’s annual Purchased Gas Cost Adjustment (PGA) tracker. The Company requests an overall increase of approximately $36.4 million (28%) in its annualized revenues.
In this Application, Intermountain seeks to pass through to each customer a change in gas related costs resulting from: 1) an increase in the Company’s Weighted Average Cost of Gas (WACOG); 2) a net increase in costs for natural gas interstate transportation; 3) an updated customer allocation of gas related costs pursuant to the Company’s Purchased Gas Cost
Adjustment (PGA); 4) inclusion of temporary surcharges and credits for one year related to gas and interstate transportation costs. Intermountain also seeks to eliminate the temporary surcharges and credits included in its current prices during the past 12 months, pursuant to Case
No. INT-G-99-1. The aforementioned changes would result in an overall price increase to Intermountain’s RS-1, RS-2, GS-1 and T-1 customers, and a decrease to Intermountain’s T-2 customers. Intermountain’s earnings will not be increased as a result of the proposed changes in prices and revenues

STAFF AUDIT
The Commission Staff has reviewed the Company’s filing and performed a limited audit. Staff found 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) as per the Staff/Intermountain Gas Company agreement, the Company pays IGI Resources, Inc. a reduced management fee of $.04 to manage all gas supplies and transportation. Staff’s audit of gas supply, capacity release, tariff allocations and PGA changes revealed no irregularities.
Staff met with Company personnel on June 9, 2000 to discuss the PGA account, natural gas prices and the possibility of setting a multi-year period to amortize the deferral account. The issues discussed in this meeting, as well as proposed actions to be taken by the Company, are included later in these comments.

STAFF ADJUSTMENTS
In making the calculations of interest on the deferred PGA account, the Company used monthly calculations based on thirty-one 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 Collection Adjustment. Staff proposes to credit the deferral account for next year for that amount.

TRACKER IMPACT
The overall effect of the IGC proposed changes would be an increase in Idaho revenues of $36,435,392. The net increase is made up of:
Permanent Adjustments:
INT-G-99-01 Elimination of Temporary Surcharges/Credits ($ 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 Adjustments ($ 816,540)
Uncollected Gas Costs $ 17,307,308
Market Segmentation ($ 2,408,551)
Fixed Gas Cost Msc. ($ 40,176)
Expansion II Refund ($ 166,565)

Net Adjustments: $ 36,435,392
Any over/under collections will be trued up in the next tracker.
Staff computed the annualized increase/(decrease) by class of service per therm in the following manner:

Average Average Average
Incremental Incremental Proposed Price
Gas Sales Revenue $/MMBtu % Change $/MMBtu
RS-1 Residential $ 6,548,887 1.7811 27.95% $8.1534
RS-2 Residential $16,334,687 1.4672 27.34% $6.8341
GS-1 General Service $13,340,149 1.5151 30.74% $6.4442
T-1 Transportation $ 304,854 0.0628 7.01% $0.9589
T-2 Transportation $ (93,185) (0.0430) (11.75%) $0.3230

PERMANENT ADJUSTMENT
The tracker permanent adjustment reflects a decrease to eliminate temporary surcharges or credits from last year’s tracker, Case No. INT-G-99-1, an increase in charges for transportation, an increase in storage costs, and a major increase in the Weighted Average Cost Of Gas, (WACOG) from $1.8252 per MMBtu to $2.8673 per MMBtu. These four items add up to an increase of $22,559,916.

TEMPORARY SURCHARGES OR CREDITS
The temporary surcharges/credits reflect the true up of prior period costs deferred in Intermountain Gas Company’s PGA 186 accounts. The surcharges/credits are broken into fixed gas and transportation costs, variable gas and transportation costs, uncollected gas costs, shared revenue, and transportation refunds.
The largest adjustment contributing to the increase in costs is the Uncollected Gas Costs (costs above the WACOG in Case No. INT-G-99-1) at $17,307,308. Of that amount, $14,425,677 was actually incurred through April 2000. The remaining $2,881,631 is the estimated Uncollected Gas Cost for May and June. After reviewing the average cost of gas for May ($2.8437 per MMBtu) compared to the amount of gas sold in May 1999 (normalized 1,387,470 MMBtu), we estimate the amount to be added to the Uncollected Gas Costs is $1,413,137 in May. The projected cost of gas for June, based on the Index Price of $3.7698 per MMBtu, compared to the amount of gas purchased in June 1999 (753,655 MMBtu) would add $1,465,564, to the Uncollected Gas Costs for a total of $2,878,701. It appears there is sufficient reserve built into the estimate to avoid shortfalls through June 2000.

ENGINEERING EVALUATION
Based on figures provided by the Company, Staff calculated that the WACOG increased by $24,609,101 (Application, Exhibit No. 4). 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 current prices and other projections of future market gas prices. Staff also evaluated the impacts of extending the deferral account amortization period from one to two years. It was hoped that extending the amortization period would split the large proposed increase into two smaller increases in each of two years.
Natural Gas Prices
The proposed increase in WACOG adjustment is due to higher gas costs. The Company has calculated an increase in the WACOG from $1.8252 per MMBtu to $2.8673 per MMBtu is required to balance out the deferral account for the twelve month period ending June 30, 2000.
Staff found the Company’s projections to be reasonable at the time the Application was prepared. Attachment 1 shows 1999-2000 index prices for Rockies and Sumas natural gas, the major sources for gas purchases by the Company. The index prices reflect an average trading price for natural gas contracts completed in the last five trading days of the previous month. This graph shows that the actual cost of gas for the 1999-2000 season was consistently higher than the WACOG setpoint. Consequently, a large adjustment in the WACOG for the 2000-2001 season is to be expected. Staff further notes that spot prices continued to increase in the first two weeks of June, exceeding $4.00 per MMBtu. These recent increases in gas spot prices have Staff concerned that the proposed WACOG adjustment may not be sufficient in the upcoming year. Consequently, another large adjustment to address shortfalls in the deferral account may be required next year.
The explanations given for this 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 Midwest where gas prices are generally much higher. In addition, there has been an increase in the number of natural gas-fired turbines for electrical power generation which has increased competition for gas supply during the summer months. Historically demand has been low during the summer months, which has allowed companies to purchase and store gas at low prices for use during the winter months when demand and prices are higher. The increased competition between gas purchases for electrical generation and for injection/storage has reportedly contributed to the recent increase in demand and rise in prices.
This increase in demand is currently being reflected in natural gas future prices. A graph showing the NYMEX future prices for the July 2000-June 2001 period is given in Attachment 2. The decline in prices over time is anticipated as efforts to expand gas supply come to fruition.
Amortization of Deferral Account
Staff sought means to amortize the deferral account over a multiyear period. However, the continuing upward trend in natural gas prices makes this option very risky to implement. 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. If this higher cost continues for the next year, the Company will need an additional large increase to recover WACOG-based deferral account expenses.
As an example, Staff calculated the potential end of year impact on customers if the gas price paid by Intermountain is $3.680 per MMBtu (AECO gas spot price, June 5, 2000). Using Company projected gas purchases and adjusting for seasonal increases, Staff determined that at this gas price level, an additional increase in rates of 34% to 36% might be required next year. Staff acknowledges that this does not bode well for natural gas customers. Amortizing the deferral account over a multiyear period would further exacerbate the situation; customers would likely need a very large increase to true-up the account at a later date. Consequently, Staff regrettably has determined that the higher cost of natural gas necessitates recommending approval of the requested increase as submitted.

CONSUMER EVALUATION
When Intermountain Gas filed its Application in Case No. INT-G-00-01 on
May 19, 2000, both the customer notice and the press release were included as a part of the filing. Both documents met the requirements of Rule No. 102, Notices to Customers of Proposed Changes in Rates. Utility Customer Information Rules (IDAPA 31.21.02.102).
Obviously, the request for an increase of approximately 27% is not popular with the residential customers of Intermountain Gas. As of June 19, 2000, the Consumer Assistance Division had received comments from ten (10) customers protesting the increase. In addition to those informal telephone comments handled by Staff, the Commission received and placed in its formal case file twenty-two written comments from customers; twenty-one of which opposed the proposed rate increase. The following quote captures the essence of the 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 & not eat or vice versa." One customer commented that he was in favor of the increase because he believes that Intermountain Gas has kept rates very low.
Unfortunately there is not a lot that can mitigate the increase in rates, but Intermountain Gas is committed to helping its customers as much as possible. Intermountain Gas participates in two fuel funds; Project Share, and Project Warmth, to assist low-income customers that need help paying their gas bills. The utility has a drive in December of each year to encourage their customers to donate to these. Although the Company cannot currently take monthly donations included in the utility payment, the address for each fund is provided and customers may send their donation directly to the specific fund or include a separate check with their Intermountain Gas payment. For Project Share, there is also an option to make a pledge that is automatically deducted from the customer's bank account. Project Share is directed to the same territory as Idaho Power Company and Project Warmth is in the same area as Utah Power and Light's territory. In addition to the fuel funds, there are other programs to help needy families such as LIHEAP. Unfortunately when the rates go up, the LIHEAP benefit amount doesn't correspondingly increase. Intermountain Gas also participates in the Gatekeeper Programs that targets elderly citizens needing assistance.
The Company 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 Company's customers take advantage of level payment plans. Intermountain Gas also has other special level payment arrangements to help customers manage their utility payment in extraordinary circumstances. To make special arrangements, the customer should contact Customer Service at Intermountain Gas.

STAFF RECOMMENDATIONS
Staff has found that the requested increase is due primarily to a higher cost of gas in the market place and that gas prices will likely remain at the current higher price over the next twelve months. Moreover, future price projections indicate that costs could go even higher next year. Therefore, Staff recommends 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 Deferral Balances and provide gas cost information. Further, Staff and the Company have agreed to review the Deferred Account and the Cost of Gas every quarter for the next year or until the next PGA to stay abreast of any changes the Commission may need to be aware of. The Company has agreed to update the Commission on the status of the account and natural gas prices through periodic meetings.

CONCLUSION
Staff recommends that the Company’s Application be approved with an effective date of July 1, 2000.

Dated at Boise, Idaho, this day of June 2000.

_______________________
Scott Woodbury
Deputy Attorney General

Technical Staff: George Fink
Nancy Harman
Alden Holm

GF:NH:AH:SW:va:i:wpfiles/umisc/comments/intg001.swgna

COMMENTS OF THE
COMMISSION STAFF 8 JUNE 22, 2000