intg002.lnahnhmfuss.doc

LISA D. NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5733

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 INCREASE ITS RATES FOR SERVICE. )
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CASE NO. INT-G-00-2

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Lisa D. Nordstrom, Deputy Attorney General, and in response to the Notice of Application, Notice of Public Workshops and Hearings and Notice of Modified Procedure issued on November 9, 2000, Order No. 28561, submits the following comments.
On October 27, 2000, Intermountain Gas Company (Company) filed an Application with the Idaho Public Utilities Commission for authority to place into effect new rate schedules that would result in an overall increase of approximately $35.8 million (27%) in revenues. Intermountain Gas supplies natural gas to approximately 200,000 customers in southern Idaho. The Company requested an effective date of December 1, 2000. In Order No. 28561, the Commission suspended the Application for fifteen days to December 16, 2000 to allow examination of the proposal and to conduct public hearings.
In its Application, Intermountain Gas Company seeks to increase the Company’s Weighted Average Cost of Gas (WACOG), and impose a temporary surcharge for seven months related to deferred gas costs. The proposed increase is in addition to all credits and surcharges relating to Case No. INT-G-00-01. The combination of the two PGA requests would result in an average overall price increase since last winter to Intermountain’s RS-1, RS-2, GS-1, and Large Volume customers of approximately 56%. Intermountain Gas Company’s earnings will not change 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 chosen not to secure financial instruments to hedge for the cost of gas; (2) has corrected the problem encountered during INT-G-00-01 with interest calculations on PGA deferrals and credited the deferral account appropriately; and (3) continues to pay IGI Resources, Inc., a management fee of $.004 per therm to manage all gas supplies and transportation. Staff’s audit of gas supply and contracts revealed no irregularities.

PROPOSED PGA TRACKER IMPACT
The overall effect of the Company’s proposed changes in this case would be an increase in Idaho revenues of $35,818,646. The net increase is made up of:
Permanent WACOG Adjustment $26,476,341
Temporary Variable Cost Collection Surcharge $ 9,342,305
Net Adjustment $35,818,646

Staff computed the annualized increase by class of service per therm in the following manner:
Proposed Monthly Proposed Incremental Proposed Increase Customer Incremental Increase Price Proposed Per Class Revenue $/Therm $/Therm Change Customer RS-1 Residential $ 5,815,945 0.18434 0.99968 22.61% $ 8.87 RS-2 Residential $ 16,678,713 0.18434 0.86775 26.97% $ 11.19 GS-1 General Service $ 12,842,089 0.18434 0.82876 28.61% $ 48.66 LV-1 Firm Service $ 481,899 0.18434 0.56286 48.70% $ 3,346.52 Total $ 35,818,646 0.18434 0.87109 26.84%
Any over/under collections will be trued up in the next tracker. The tracker adjustment associated with current gas purchase prices reflects an increase in the Weighted Average Cost of Gas (WACOG) of $.28673 per therm to $.42296 per therm. Wholesale gas costs continue to surge in excess of the WACOG amount. One reason is due to the tightening of supply available to meet the growing demand for gas.
The temporary surcharge reflects a true up of prior period costs deferred in Intermountain Gas Company’s PGA Deferred Account No. 186. Normally, these items are comprised of gas and transportation costs, uncollected gas costs, shared revenues and transportation refunds. Since these items were recently reviewed earlier this year, all of these items are already included in current rates except for mounting deferred costs due to uncollected gas costs. Those deferred costs are estimated to be $9,348,974 by the end of November 30, 2000. Based on current gas prices, it appears that these estimates are reasonable. By deferring the implementation of a rate increase to December 15, 2000, Staff estimates there could be an additional $3,200,000 in the deferral account. If gas commodity costs continue to rise, additional significant costs will continue to accrue in the deferral account even with the proposed change in the WACOG.

STAFF ANALYSIS AND RECOMMENDATIONS
(1) WACOG Increase
This rate increase is based on the continued increases in gas prices on the wholesale market. The market prices continue to rise and are currently at a level that is higher than requested by the Company. There is some evidence that the price could possibly come down by the next heating season, but futures prices do not currently reflect that decrease.
If the Commission denied the requested WACOG increase, the Company would defer the full increase in gas costs in Account No. 186 for later recovery. If denied, a price signal would not be sent at a time when customers can change their gas usage. It should also be noted that the amount deferred to a later date might not be paid by the customers incurring the cost. This creates an inequity that is material when the deferral is very large. Staff believes it is important to send a correct price signal to customers now so they can adjust their use accordingly. Staff has concerns that if the WACOG increase is not granted, significant increases will be needed next year. If the WACOG is not increased now, and gas prices remain at the $6.00/MMBTU level, customers could face an estimated increase of $90,000,000 in July 2001. Staff supports the proposed WACOG increase in this case.

(2) Deferral of Current Costs in Account No. 186
Staff recommends that the Commission require the Company to continue deferring the amounts already accrued in Account No. 186 until the next PGA Tracker. If the Commission decides to continue deferring these costs, the average increase in this case for gas costs to customers will be less than 20%. The related Staff-recommended amounts and percentages of increase are as follows:
Proposed Monthly Proposed Incremental Proposed Increase Customer Incremental Increase Price Proposed Per Class Revenue $/Therm $/Therm Change Customer RS-1 Residential $ 4,299,016 0.13626 0.95160 16.71% $ 6.56 RS-2 Residential $ 12,328,531 0.13626 0.81967 19.94% $ 8.27 GS-1 General Service $ 9,492,585 0.13626 0.78068 21.14% $ 35.96 LV-1 Firm Service $ 356,209 0.13626 0.51478 36.00% $2,473.67 Total $ 26,476,341 0.13626 0.82301 19.84%
By continuing to defer these costs, the Commission will still be able to send a price signal to customers with the gas cost increase, but the impact will be smaller at this time. Staff recognizes that the market gas prices have continued to rise to higher levels than those projected by the Company, resulting in additional deferral amounts that will be subjected to later recovery. Based on prices as of November 30, 2000, the WACOG for Intermountain could be as high as $6.00/MMBTU. Staff calculates that if the WACOG remains at $6.00 through July, there could be another increase of up to $37,000,000 (including the current deferral). Nevertheless, Staff believes it is reasonable and prudent to delay this portion of the request given the magnitude of the recommended increase and the increase already approved. Regardless of the Commission's decision on this issue, an average gas price of $6.00/MMBTU will still result in at least a $28,000,000 deferral by the end of June 2001.

(3) Interest on Deferrals
The gas industry has changed dramatically since the PGA was established. Since the PGA started, the Company has directly passed all gas costs on to the customers with interest accrued on both deferred debit and credit amounts. This practice has historically benefited both the Company and customers. However, at this time Staff proposes that the Company accrue no interest on the amounts in the deferral accounts from November 30, 2000 through the next PGA Tracker expected in July 2001. Even though elimination of interest for this period will be a change from current practice, Staff believes it is reasonable as a prospective interim measure until the PGA process can be evaluated within the current gas industry. Staff is concerned that the Company currently has little incentive under the existing PGA mechanism to assure least cost acquisition of natural gas. The elimination of interest on the deferral account provides an interim incentive, until a more formal PGA review is undertaken, for Intermountain Gas to explore innovative means to obtain the most cost effective gas acquisition and document these activities. Allowing the accrual of interest is not a mandatory requirement. Staff believes that absent the PGA process, the Company would not get recovery of the current increasing gas costs without a rate case. In such a case, the Company would not earn interest on the gas expenses.
This is the second large increase in less than a year. These increases individually are larger than any other PGA price change experienced. As demonstrated by the letters and testimony in this case, both the July 2000 increase and the proposed increase will place a significant burden on many customers - adding interest in addition to rapidly rising costs just increases that burden. Staff believes elimination of interest is a token way to share some of the burden of the dramatically increased gas costs to be currently passed on to customers. If all the Company’s projections are correct, the interest foregone will total approximately $314,819 through June 2001.

(4) Review of the PGA Process
Given the current conditions in the market place and the impact on natural gas customers, Staff believes it is time to conduct a formal review of the PGA mechanism. More specifically, a review is warranted to evaluate the need for incentives to assure that the Company secures gas at the lowest possible cost for its customers. The Company contends that they do have an incentive because they may lose market share if customers switch to other energy sources if prices rise. However, under the existing mechanism, the Company passes all gas costs on as if they were reasonable and prudent, with little opportunity for Staff to determine if there are more reasonable alternatives. Staff also believes that a formal review could result in rewards for both the customers and the Company through profit sharing and administrative savings. Another reason for a review is to provide the Company an opportunity to develop a mechanism to comply with the Commission’s Order No. 28109 in Case No. INT-G-99-01 when the Commission said,
“We direct the Company to develop a means of better verifying for itself and the Commission the cost savings that it attributes to its relationship with IGI Resources”. The affiliate relationship between Intermountain and Resources changed recently when Resources was sold to BP Amoco. Staff believes these changes must be reviewed to make sure the customers benefit from the relationship. Finally Staff believes that attributes (such as benchmarking or sharing) included in Avista's PGA mechanism could potentially benefit Intermountain's customers if they are incorporated in Intermountain's PGA mechanism. This is especially true in light of the volatile market conditions.

5) Level Pay Modifications (Customer Deferral Option)
The current Level Pay Program provides an individual the opportunity to average their payments for natural gas over a twelve-month period beginning in April. Approximately 20% of the Company’s customers are enrolled in the current Level Pay Program. Customers participating in the program build a credit balance during the summer and deplete that balance throughout the heating season. Anyone who starts the program after April currently pays a calculated level payment for the remaining months of the level pay year until April, when there is a true up for over and under payment amounts. The level pay year then begins again.
Staff recommends that an anniversary date Level Pay Program be put in place allowing customers to begin their level pay on any day of the year and pay a level pay amount calculated on a twelve-month period. The Commission recently approved a request by Idaho Power to offer its customers an unrestricted anniversary date budget payment plan. The anniversary date Level Pay Program would allow customers the opportunity to join the Level Pay Program today and defer or level out their natural gas bills over the next twelve-month period. Participation in the program should be limited to those residential and small commercial customers taking service year round. Customers who connect and disconnect on a seasonal basis would not be eligible to participate. Staff recognizes that customers starting a level pay plan at times other than the spring or early summer will not build up a credit balance to carry them through the heating season. A change in cash flow may be experienced by the Company; however, Staff believes the overall annual impact will be minimal and only occur in the first year. If the Company believes this impact is significant, the next rate case is the appropriate time to address such working capital requirements.
Customers desiring to participate in this program or any other special payment arrangement would be required to call the Company to make the arrangements. The Company could offer the anniversary level pay plan as part of its special payment arrangements until its billing system can be modified. The Company should be required to include language on bills advising customers of the availability of level pay and special payment plans along with information on how to sign up.

CUSTOMER COMMENTS AND NOTICES
Intermountain Gas sent Customer Notice inserts beginning with the October 30 billing and ending with the November 30 billing. The notices included with the bills on October 30 and October 31 contained slightly different language from later notices. The corrected version was subsequently sent to those customers.
The request for an increase of approximately 27% is not popular with the affected customers of Intermountain Gas. As of December 1, 2000, the Consumer Assistance Staff had received telephone comments from three (3) customers. In addition to those informal telephone comments handled by Staff, the Commission received and placed in its formal case file two hundred seventy two (272) written comments from customers. Comments were received from customers throughout Intermountain Gas's service territory. About half (136) of the written comments were from customers in Boise and the surrounding area. There were 66 comments from Pocatello area customers and an additional 49 comments from customers in the area that includes Idaho Falls.
All oppose the proposed rate increase. A few of the comments indicated that although some increase might be justified, the entire requested increase should not be granted. Many of the earlier comments contained the misunderstanding that rates were rising 60%. Some went on to add the 60% to the earlier increase, arriving at a total increase of 90%.
The following quote captures the tenor of the comments. "We've heard that you are considering a 29% raise in natural gas. One raise was already granted in July of 27%. This seems to be rather outrageous. Please don't approve this last raise as it will place quite a hardship on many natural gas users." Another comment stated: "I am on 'level pay' to keep my gas bill lower. I do not know what this will do to my bill each month. I do know that a great amount of 'fixed income' people will not be allowed the proper heat they deserve or need. Please do not allow such a high increase."
Numerous concerns were expressed in the written comments received by the Commission. Many thought that price gouging by the suppliers was the cause of the increase in rates, and that excess profits were being reaped at the expense of Intermountain Gas customers. Other comments stated that the shareholders of Intermountain Gas should absorb the increase rather than the customers. Many comments included the fact that this will be the second large increase for the company in one year. Still others felt they had been misled by advertisements that promoted switching to gas appliances as a way to save money because natural gas was more cost effective than electricity. Now that prices have increased after the customer switched to natural gas, customers feel that the advertisements were made in bad faith. Many of the comments mentioned only getting a 3% cost-of-living raise, and the sometimes double-digit rise in costs in other areas such as gasoline, groceries, health insurance, prescription drugs and other utilities that have been granted increases this year.

TRADITIONAL CONSUMER PROTECTION PRACTICES AND ASSISTANCE MECHANISMS
In addition to the above-mentioned Level Pay Program, Intermountain Gas offers special payment arrangements to help customers manage their utility payment in extraordinary circumstances. Special payment arrangements can be tailored to the unique needs of a particular customer and can include spreading payments over several months. Payments can either be levelized, as in the Level Pay Program, or include payment of the current bill plus a fixed amount towards arrears. To make special arrangements, customers should contact Customer Service at Intermountain Gas at 1-800-548-3679.
Although Staff has made several recommendations that it believes reduce the impact on Intermountain customers, we recognize a significant burden remains. Therefore, the Staff has identified other forms of assistance that may further mitigate the proposed increase. For low-income customers of Intermountain Gas, there are programs available, such as LIHEAP (Low Income Home Energy Assistance Program), Project Share, and Project Warmth.
Project Share and Project Warmth (fuel funds) are funded by voluntary contributions from energy utility customers that help pay the low-income customer's heating bill. Project Share is available to customers located in the same territory served by Idaho Power Company and Project Warmth is available in the area served by Utah Power & Light. Generally speaking, these programs will make a one-time payment on behalf of a qualifying customer to the utility in a calendar year. For Project Share, the customer qualifies for programs based on income and the number in the family. The guidelines for Project Warmth are more lenient than Project Share. In addition to low-income customers, the money may be used to help customers who make too much money to qualify for assistance from Project Share or LIHEAP.
In addition to the fuel funds, LIHEAP, a federally funded program, is available. LIHEAP is administered by the Idaho Department of Health and Welfare, who subcontracts with Community Action Agencies located throughout the state for delivery of services. Qualification for the program is based on income and the number of family members. The benefit, which is individually calculated for each family, averages about $231 this year. Community Action Agencies began taking applications for assistance on December 1. Unfortunately, when energy rates go up, the LIHEAP benefit amount doesn't correspondingly increase.
No electric or gas utility may terminate service or threaten to terminate service during the months of December through February to any residential customer who declares that he or she is unable to pay in full for utility service and whose household includes children (under age 18), elderly (age 62 or older), or infirm persons. This winter protection period is frequently referred to as the "Moratorium". Customers that have not established a Winter Payment plan would need to make arrangements or pay the balance in full on March 1. Rule No. 306, Termination of Residential Gas and Electric Service-Winter Payment Plan (IDAPA 31.21.01.306.01). However, for the families that use this protection, the full amount not paid during the moratorium period becomes due after March 1. Customers that find themselves in this situation may contact the Company for special payment arrangements.
For the working poor who make too much money to qualify for the LIHEAP or Project Share programs, the Winter Payment Plan might offer some relief during the winter heating months. No gas or electric utility may terminate service during the months of November through March if the customer establishes the plan prior to November 1. Although a customer may establish a Winter Payment Plan after November 1, the extended protection will not begin until the date the plan is established. Monthly payments under this plan are equal to one-half of the level pay amount for the customer. The customer would need to negotiate a new arrangement with the Company or pay the balance due on or after April 1, extending protection from disconnection one month past the Moratorium's ending date. For the 1999-2000 heating season, only one customer participated in the Winter Payment Plan. This could be attributed to the fact that a large amount (the total of one-half of the level payment amount for up to five months) will be due in full on or after April 1. It is Staff's belief that should a customer choose to participate in the Winter Payment Plan, the amount that becomes due after April 1 should qualify the customer for special payment arrangements with the Company.
Although not currently available in Idaho, other states use additional programs to help utility customers pay their bills. These include establishing universal service funds for low-income energy programs, low-income efficiency programs, debt forgiveness, lifeline programs and percentage of income payment plans. While these programs merit further examination, it would be more appropriate to consider them in the context of a generic proceeding where all interested parties could participate.

STAFF RECOMMENDATIONS
Recommendation that the Commission approve the WACOG increase needed because of
rising natural gas prices from producers.

2. Recommendation that the Commission continue to defer the approximately $9,300,000 that
is in Account No. 186, even though prices continue to increase.

Recommendation that the Commission not allow recovery of interest for the December
2000 – June 2001 deferrals.

Recommendation that the Commission open a case to review the current Intermountain Gas
PGA process.

5. Recommendation that the Commission direct the Company to begin an anniversary-based,
12-month, level pay plan to help customers with the winter heating season. Special payment

arrangements can be established on a case-by-case basis. The Company should be required
to include language on bills advising customers of the availability of level pay and special
payment plans along with information on how to sign up.

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

_______________________
Lisa D. Nordstrom
Deputy Attorney General
Technical Staff: Alden Holm
Nancy Harman
Michael Fuss

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STAFF COMMENTS 4 DECEMBER 6, 2000