20030224Order No 29199.pdf

Office of the Secretary
Service Date
February 24, 2003
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE INVESTIGATION
INTO THE PURCHASE GAS ADJUSTMENT
(pGA) MECHANISM AND THE NATURAL GAS)PURCHASING POLICIES OF
INTERMOUNTAIN GAS COMPANY.
CASE NO. INT-Ol-
ORDER NO. 29199
In the year 2000, Intermountain Gas Company (Intermountain; Company) filed two
Purchase Gas Adjustment (PGA) increases, resulting in a 60% increase in winter rates. While a
PGA increase is not uncommon, two increases in less than a year are unusual and the total
increase to customers was unprecedented. On February 7 2001 , the Commission issued a Notice
of Investigation in Order No. 28632 directing Staff to investigate Intermountain Gas' PGA
mechanism and purchasing policies. Staff s investigation found that the PGA should be
maintained - a conclusion endorsed by Intermountain in its June 2001 Reply Comments. At its
January 21 , 2003 decision meeting, the Commission requested that the Company and Staff
update their comments on this investigation.
In this Order, the Commission approves continued use of the PGA mechanism
subject to Staffs recommendations. The Commission also directs Intermountain to: 1) timely
notify its marketer, IGI Resources, that the Company will not extend the contract beyond March
, 2004 and 2) solicit bids from qualified gas marketers, including IGI Resources, for
comparable cost-effective services after that date.
STAFF REPORT AND UPDATE
Staff filed its Report on May 25, 2001 and determined that natural gas wholesale
market prices skyrocketed for a variety of reasons that were largely beyond the Company
control. These reasons included three years of unseasonably warm weather, decreasing storage
inventories, increased demand due to growth and greater reliance on natural gas for electric
generation, increasing competition for Canadian natural gas, and a colder than normal 2000-2001
winter. Staff found that the high wholesale prices for natural gas in 2000 and 2001 were
unexpected and unprecedented. Staff was also unable to find any material that predicted
increases of that magnitude.
ORDER NO. 29199
Staff further found that the Company has since taken steps to minimize the volatility
of gas prices to customers. To its credit, Intermountain Gas provides a diverse gas portfolio with
purchases from all available supply basins. The Company has taken advantage of capacity
releases and off-system sales. It also has an extensive amount of storage to take advantage of
seasonal differences between summer and winter gas prices.
After reviewing other possible gas purchase mechanisms, Staff continued to believe
that the existing PGA mechanism is the best system to ensure customers pay the lowest price for
the natural gas commodity. The mechanism is readily auditable, provides no perceived
regulatory disincentives, sends the correct price signal to customers, allows the Commission the
flexibility to determine the price to customers, and assures customers that they will pay no more
than the Company pays for the procurement of natural gas. In light of changes that have
occurred in the natural gas industry in recent years, Staff believed it more important than ever for
the Commission and the Company to communicate and document Company activities. Staff
argued that increased information sharing was necessary to assure customers that the Company is
using all available expertise to optimally minimize natural gas procurement costs.
In January 2003 Staff updated its seven original (underlined) recommendations as
follows:
Recommendation #1:Maintain the existing purchase gas cost adjustment
mechanism.Staff continued to recommend that the current purchase gas cost adjustment
mechanism be used.
Recommendation #2:Improve documentation and increase communication
between the Company, the Commission, and Staff.Intermountain Gas maintained all the items
specified by Staff for review. In the past year improved communication enabled Staff and the
Company to uncover "questionable capacity release activity" by the Company s current
marketer, IGI Resources. Staff believes the issues are resolved on a going-forward basis but will
continue to monitor the situation.
Recommendation #3: Staff will also review the initial documentation retained in
the next several months to informally discuss the process and make additional recommendations
for the Company to consider. Staff reviewed the documentation retained by the Company during
the last two PGA periods and noted that the Company worked well with Staff to improve the
Company s documentation of purchase decisions.
ORDER NO. 29199
Recommendation #4:The Company should document and report all new
contracting arrangements and initiate a bidding process for new gas contracts as existing
contracts expire. Staff indicated that the Company has documented and reported all its new gas
purchase agreements, which were awarded to the lowest bidder meeting certain requirements.
The Company also kept the documents used to select a provider.
Recommendation #5: The Company should be directed to file its required
Integrated Resource Plan immediatelv and provide additional annual updates in addition to the
required biannual filing. Staff indicated that the Company filed its 2002 Natural Gas Integrated
Resource Plan on April 19, 2002, which the Commission later accepted for filing.
Recommendation #6: The Company should be directed to provide to Staff: 1) a
complete statement of qualifications for IGI Resources; 2) a complete list of the services that IGI
Resources provides to Intermountain Gas Company; 3) a complete list of other available services
offered by IGI Resources not currently utilized by Intermountain Gas Company; and 4) a
complete list of services and qualifications the Company finds necessary in a marketing service
provider.According to Staff, the three-year term of the Procurement, Asset Management and
Administrative Service Agreement between IGl Resources and Intermountain Gas will be
completed on March 31 , 2003. Even though the contract includes annual extension language and
a 12-month termination notification requirement, Staff believes that completion of the 3-year
primary contract provides the Company with a realistic opportunity to evaluate other marketers.
While the Company provided some of the requested information in the past, Staff indicated that
the Company should update this information plus add any other information from IGl or its
competitors that the Company will use to evaluate contract renewal options.
Recommendation #7: The Companv should investigate all conservation
opportunities and develop cost-effective programs that could be offered to customers. A
deadline should be set prior to the 2001-2002 heating season to institute demand side
management programs that will offer cost-effective measures to all customer classes . Because
natural gas prices have declined considerably since the initiation ofthe investigation, Staff noted
that the cost/benefit considerations have changed significantly. While Staff recognized that cost-
effective opportunities will be more difficult to identify, Staff encouraged the Company to
diligently investigate conservation opportunities and report its findings in the ongoing IRP
process.
ORDER NO. 29199
INTERMOUNTAIN'S REPLY AND UPDATE
On June 2001 , Intermountain filed a reply to Staffs initial report indicating that
the Company concurred with Staff s finding that the PGA should be maintained. Intermountain
further agreed to consult with Staff to provide the level of documentation necessary to assist
Staff in reviewing the Company s ongoing gas purchasing decisions. The Company also stated
that it would continue documenting all new contracting arrangements and bid new gas contracts
as existing contracts expire.
On February 5 , 2003, Intermountain responded to Staffs updated report.The
Company continued to support use of the PGA mechanism as an efficient tool in managing the
natural gas cost component of our customers ' rates. Intermountain restated its commitment to
continue documenting and maintaining its natural gas purchasing policies and practices for Staff.
Noting that measures promoting the efficient use of natural gas for Intermountain s residential
commercial and industrial customers were included in its 2002 Natural Gas Integrated Resource
Plan, the Company stated that it will continue to endorse and encourage wise and efficient
energy use.
COMMISSION FINDINGS
The Commission has reviewed and considered the filings of record in Case
No. INT-Ol-, including the report filed by Commission Staff and the reply comments of
Intermountain Gas. The Commission also reviewed the updated documents submitted by these
parties.
We continue to find it reasonable to process this case pursuant to Modified
Procedure, i., by written submission rather than by hearing. Commission Rules of Procedure
IDAPA 31.01.01.201-204.
In its PGA investigation report, Staff made seven recommendations for our
consideration. We commend the Company for working with Staff and providing documents to
address their concerns. We find Staff s seven recommended changes will improve the
Commission s ability to monitor the PGA mechanism and Intermountain s purchasing activities
for the benefit of ratepayers. The Company did not object to these recommendations and thus
tacitly appears to accept them. Consequently, we direct the Company to implement Staffs
recommendations if it is not already doing so. With the implementation of these changes, we
ORDER NO. 29199
find it reasonable to continue use of the PGA mechanism to pass purchased gas costs through to
customers.
With the completion of the initial three-year term of the Intermountain-1Gl
Resources gas marketing agreement next month, we agree with Staff that this is an opportune
time to evaluate the qualifications and cost savings offered by other marketers. As a public
utility, Intermountain has the responsibility to keep the rates charged for the services it provides
just and reasonable.Idaho Code 9 61-301. This responsibility includes providing or otherwise
engaging quality, cost-effective marketing services for the benefit of the ratepayers who will
ultimately fund these necessary activities. Given that several years have passed since
Intermountain entered into this contract, we find it reasonable for Intermountain to assess all
qualified gas marketers to ensure that its ratepayers are receiving the best services and prices
currently available. The Commission also finds the "questionable capacity release activity
referred to in Staffs update does not inspire confidence in IGI's ability to maximize capacity
release revenue and minimize purchase costs for ratepayer benefit.
Intermountain s marketing contract with IGl will renew annually unless notice to the
contrary is given a year in advance. Thus, the Commission also directs Intermountain to: 1)
timely notify its marketer, IGl Resources, that the Company will not extend the contract beyond
March 31 , 2004 and 2) solicit bids from qualified gas marketers, including IGl Resources, for
comparable cost-effective services after that date. We further direct Intermountain to submit a
report detailing the qualifications, services offered, and remuneration required by the bidding
parties.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over this matter and
Intermountain Gas Company, a gas utility, pursuant to the authority and power granted under
Title 61 of the Idaho Code and the Commission s Rules of Procedure, IDAP A 31.01.01.000
seq.
ORDER
IT IS HEREBY ORDERED that Intermountain Gas continue to use the Purchase Gas
Adjustment mechanism with Staffs recommended changes.
IT IS FURTHER ORDERED that the Company should file and/or update the
following with the Commission: 1) a complete statement of qualifications for IGl Resources; 2)
ORDER NO. 29199
a complete list of the services that IGl Resources provides to Intermountain Gas Company; 3) a
complete list of other available services offered by IGl Resources not currently utilized by
Intermountain Gas Company; 4) a complete list of services and qualifications the Company finds
necessary in a marketing service provider; and 5) any other information from IGl or its
competitors that the Company will use to evaluate marketing contract options.
IT IS FURTHER ORDERED that Intermountain timely notify IGl Resources that the
Company will not extend the contract beyond March 31 , 2004 and solicit bids from qualified gas
marketers, including IGl Resources, for comparable cost-effective services after that date. We
further direct Intermountain to submit a report detailing the qualifications, services offered, and
remuneration required by the bidding parties.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
"'/
day of February 2003.
d&" .
MARSHA H. SMITH, COM IONER
ATTEST:
J e Jewell
Commission Secretary
O:INTGOIOI In2
ORDER NO. 29199