20030630Final Order No 29277.pdf

Office of the Secretary
Service Date
June 30, 2003
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
INTERMOUNTAIN GAS COMPANY FOR
AUTHORITY TO INCREASE ITS RATES FORSERVICE CASE NO. INT-O3-
ORDER NO. 29277
On May 7, 2003, Intermountain Gas Company (IGC; Company) filed its annual
Purchased Gas Cost Adjustment (PGA) Application requesting authority to implement new rate
schedules that would result in an overall increase of approximately $61 million (37.76%) in
revenues. The Company requested an effective date of July 1, 2003 for its proposed rate
schedules. On May 28, June 4 and 5, 2003, the Commission convened public workshops and
hearings in Boise, Idaho Falls and Twin Falls. The Commission also received written comments
from the public, Advanced Energy Strategies, Inc., the Commission Staff and the Company.
After reviewing the record in this case, the Commission partially grants and partially denies the
Application as set out in greater detail below.
BACKGROUND
A. Procedural History
On May 7, 2003 , Intermountain Gas filed its annual PGA Application requesting
authority, pursuant to Idaho Code 99 61-307 and 61-622, to increase its net revenue and
customer rates by approximately $61 million. The PGA account is a deferral mechanism for
over- and under-collections and for realized savings on spot market gas purchases. On May 14
2003 , the Commission issued a combined Notice of Application, Notice of Public Workshops
and Hearings, Notice of Modified Procedure and Notice of Comment Deadline. Order No.
29242. Pursuant to this Notice the Commission convened three public workshops and hearings
in IGC's service area. The Commission also required the Commission Staff, intervenors and
members of the public to file written comments on the Company s Application on or before June
, 2003. Order No. 29242 at 5. Further, the Commission required the Company to file any
reply comments on or before June 17 2003. On May 30, 2003 , the Commission granted Jeffrey
C. Brooks dba Advanced Energy Strategies, Inc.'s (AES) Petition to Intervene. Order No.
29249.
ORDER NO. 29277
B. The Application
IGC seeks to pass through to each of its customer classes the change in gas related
costs resulting from: (1) changes in IGC's firm transportation and storage costs resulting from
the Company s management of its storage and firm capacity rights on pipeline systems including
the Williams Northwest Pipeline (Williams); (2) an increase in IGC's Weighted Average Cost of
Gas (W ACOG); (3) an updated customer allocation of gas related costs pursuant to the
Company s purchased gas cost adjustment provision; and (4) the inclusion of temporary
surcharges and credits for one year relating to gas and interstate transportation costs from the
Company s deferred gas account. Application at 3-4. IGC also seeks to eliminate the temporary
surcharges and credits included in its current prices during the past 12 months, pursuant to Case
No. !NT -02- 3.1 The aforementioned changes will result in an overall price increase to I GC' s
residential, general services and large volume customers and a decrease to the Company
transportation customers. The Company states that its earnings will not be increased as a result
of the proposed changes in prices and revenues.
The Company proposes to implement the following permanent adjustments and
temporary surcharges to its tariff rates for natural gas service and sales:
Permanent Adjustments
Elimination of Surcharges and Credits from !NT -02-
. W ACOG Adjustment
$10 163 440
$47 034 183
Temporary Surcharges and Credits
Fixed Cost Collection Adjustment
Uncollected Gas Costs in Account 186
Market Segmentation
Miscellaneous Gas Costs & True Ups
217 435
$4,427 982
($2 366,437)
($504 575)
The total incremental revenue requested by IGC during the 2003-2004 PGA period is
$60 972 028 or a 37.76% increase. The following tables represent IGC's proposed changes in
rates per customer class.
1 In Case No. INT-02-, the Commission authorized certain surcharges and credits to be recovered from and
returned to customers over a period of one year. See Order No. 29068. These surcharges and credits were made up
of over-collected gas costs, changes in the fixed cost collection allocations and other miscellaneous gas items.
ORDER NO. 29277
Proposed Proposed Proposed
Customer Class Revenue Average Average Average PriceIncreaseIncrease %
$/Therm Change $/Therm
RS-1 Residential 384 066 23826 33.44%95075
RS-2 Residential 108 992 880 23129 37.90%84164
GS-1 General Service 025 514 23886 42.49%80100
LV-1 Large Volume 089 088 22058 53.91%62976
1 Tariff price plus the Weighted Average Cost of Gas (WACOG) $0.50305 per therm
WACOG = total commodity cost of gas / total purchase therms
Proposed Proposed Proposed
Transportation Revenue Average Average Average PriceIncreaseIncrease %
$/Therm Change $/Therm
1 Transportation 338 014 (0.00421)22%09554
2 Transportation 602 291 (0.00024)89%02672
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.
IGC asserts that the W ACOG reflected in its proposed prices is $0.50305 per therm
compared to $0.32000 per therm currently included in the Company s tariffs. IGC contends that
setting its W ACOG at this level is consistent with forward prices available through the use of
financial derivatives as of May 5 , 2003. See e.
g.,
Exhibit No.5. However, the Company
Application also stated:
As was again played out in the marketplace over the last several months, high
natural gas prices indicative of weakening supplies have spurred on additional
exploration and production and, as natural gas supplies become more
plentiful, market prices should decline. . . . Intermountain believes that current
futures prices, subject to the laws of supply and demand, are poised for further
softening.
Application at 5. Thus, the Company represents that it will remain vigilant in monitoring natural
gas prices and is committed to come before the Commission prior to this winter s heating season
with an Application to further amend these proposed prices, should they materially deviate from
the $0.50305 per thermo
See Case Nos. INT-95-, INT-88-2 and U-I034-137.
ORDER NO. 29277
To inform its customers of its proposal to increase rates, IGC issued customer notices
and a press release. The Notices were distributed by bill stuffers mailed with cyclical billings
beginning May 7 2003 and ending June 4 2003. The Company s press release was sent to daily
and weekly newspapers, major radio stations and television stations in IGC's service area.
In conclusion, IGC contends that the proposed overall price change requested among
the classes of service of the Company will not affect its earnings and is just fair and equitable.
THE PUBLIC WORKSHOPS AND HEARINGS
The first of three scheduled workshops and hearings was held in Boise on May 28
2003 in the Commission s Hearing Room.One Intermountain Gas customer attended the
workshop. No customers testified at the hearing. Additional workshops and hearings were held
on June 4, in Idaho Falls and June 5 , in Twin Falls. Two customers attended the Idaho Falls
workshop. At the hearing in Idaho Falls, Mike Huntington, Vice President of Marketing and
External Affairs for IGC, read a statement into the record regarding the Company s Application.
Tr. at pp. 8-10. In addition, one customer testified at the hearing. This customer testified that in
general he favored price stability that may come with the Commission granting the Company
Application. See Tr at pp.12-17. However, he also testified that the Commission and IGC
should do everything possible to limit the economic impacts that granting the Company
Application may cause. Id. In Twin Falls, no customers were in attendance at either the
workshop or hearing. Television and newspapers covered all three meetings and hearings.
WRITTEN COMMENTS
A. Public Comments
The Commission has received written comments from about 193 customers. None
favored the Commission authorizing the proposed rate increase. Two of the respondents stated
that if such an increase were warranted, only part of the increase should be granted. They further
recommended that the Commission review wholesale gas prices in six months and if they have
not declined, order further rate increases. One customer, a farmer, said that $8 600 in additional
unbudgeted costs that he would incur as a result of one rate case increase "will cut in a very thin
margin, possibly into a loss situation.Another commenter stated that IGC should work on
demand response programs including real-time pricing and response capability to create a
partnership between the Company and its customers to manage the impacts of natural gas market
volatility. Another customer strongly urged the Commission to require IGC to "embark on some
ORDER NO. 29277
substantial efficiency and conversation efforts to prevent the drastic effects price increases will
have on Intermountain Gas customers in the future. .
..
Failure to do this is shortsighted and
hurtful to the people of Idaho.Finally, several commenters noted that rather than tightening
their belts further to deal with this proposed rate increase IGC should shoulder some of the
burden in these tough economic times. We share customer concerns that IGC may not be
tightening its belt enough to reduce operating costs. Accordingly, the Commission assures
ratepayers that it will remain vigilant in monitoring the Company s operations to ensure they are
cost-effective and efficient.
B. Advanced Energy Strategies, Inc.
Intervenor, Advanced Energy Strategies, Inc. (AES) filed written comments on June
2003. AES asserts that IGC has done very little to proactively mitigate the effects that rising
natural gas costs have on its customers. AES contends this inaction is a business strategy
employed by IGC to purposely facilitate a rise in retail gas rates in order to increase incremental
revenues from captive customers. Furthermore, AES asserts IGC operates its facilities and has
marketing practices that provide a maximum benefit to the Company s OWflers at the expense of
residential and small commercial ratepayers who do not qualify for participation in transport gas
rate schedules. Specifically, AES raises concerns regarding three broad topics. First, AES
believes that IGC purchases and fills its storage facilities in Nampa, Idaho with relatively low
cost gas then sells it to customers at a new, higher retail price. AES posits that it is unclear
whether this additional revenue is flowed through to ratepayers.
Second, AES alleged IGC's promotion of energy efficiency programs does not result
in significant, measurable or quantifiable gas savings that might help to mitigate the impacts of
aggregate consumption in the national market. Thus, AES suggested the Commission review
IGC's current conservation practices and consider whether additional programs and measures are
warranted.
Lastly, AES contended it is possible that as the Company s gas costs rise so will its
profits. AES stated that this may not be the appropriate proceeding to consider IGC's approved
rate of return, but feels the Company s "internal hurdle rate of 12.5% represents an enviable
investment opportunity available to only a very few over the past three years.
In conclusion, AES contends that it has raised valid issues that can be used to more
closely examine IGC's practices.
ORDER NO. 29277
C. Staff Comments
1. Staff Audit
Staff conducted a detailed audit of the Company s gas costs incurred in the PGA
period under review. Staff verified IGC's profits would not increase if the Commission granted
the Company s Application. In addition, Staff states that it is currently conducting
comprehensive financial audit of IGc. Based on preliminary figures , Staff calculated the
Company had a net income of $4.2 million for the year ending September 2002. During the
same period, the Company earned 5.314% on its common equity.
During its audit Staff found that the Company took several actions to reduce the price
of gas for its customers. First, it sold a large portion of its Sumas gas, then purchased a similar
quantity of Rockies gas at a lower price. This resulted in reduced purchased gas costs. Second
Staff found that in 2002, the Company executed financial transactions to fix the price for a
portion of gas purchased for customers to protect them from significant upward swings in the
price of gas on the wholesale market. Third, Staff noted the Company now continues to actively
search for opportunities to market its extra pipeline capacity to maximize revenue. Staff found
that since last summer IGC's intermediary, IGI, has consistently bid out the Company s extra
capacity appropriately or purchased the capacity itself at the highest rate allowed.4 Fourth, Staff
found IGI had issued three requests for proposals to meet IGC's short-term gas supply needs that
have largely been cost-effective. Fifth, for the month of March 2002, Staff noted the Company
sold all of its gas priced at the first-of-the-month index and repurchased gas on the daily market.
This strategy proved effective as prices fell from the first-of-month highs to lower levels. Sixth
the Company did not renew a storage contract for some of its Canadian gas because the supplier
wanted a significantly higher price for that storage capacity. IGC's analysis showed it would be
cheaper to purchase the gas during the winter than to pay significantly more for storage. Even
though this appears to have been the best economic decision at the time, Staff pointed out that it
did not secure the price of gas through the winter and prices have increased significantly since
the decision was made. Finally, Staff found, as required by Commission Order No. 29199 , IGC
3 Staff reported the Company earned 5.897% for the year ending September 2002 when normalized revenues are
considered.
4 IGI Resources is a wholesale gas marketer that performs gas procurement and management services for IGc.
one time, IGI was affiliated with IGC. However, it was sold to BP Energy in 2000 by IGC's parent company,
Intermountain Industries.
ORDER NO. 29277
solicited proposals from several gas marketers to find the most reliable and inexpensive
management partner.
In its audit Staff found no inconsistencies or irregularities that would cause it to
recommend adjustments to the Company s proposal to recover deferred costs and temporary and
permanent surcharges and credits through its PGA. However, Staff encouraged the Company to
continue to use all reasonable transactions and strategies to reduce the price of gas for customers.
Based on the foregoing, Staff recommended approval of all the temporary credits and surcharges
proposed by the Company including the $4.4 million in uncollected gas costs and the $10.2
million increase due to the removal of the surcharges and credits from the last PGA case.
2. W ACOG
Staff noted that the majority of the rate increase the Company is requesting is due to
a proposed increase in its W ACOG. Staff reviewed IGC's transportation and gas procurement
contracts, the Company s gas price forecast, and national market price trends. Based on these
factors, Staff found that there have been significant increases in the demand for natural gas
coupled with market volatility and higher prices for the commodity. Thus, Staff found the
Company s proposed W ACOG reasonable given the current market conditions. However, Staff
also contended that setting the W ACOG lower than proposed was not necessarily umeasonable
particularly if gas prices for the 2004-2005 PGA cycle are expected to be approximately $0.45
per thermo
In conclusion, Staff recommended approval of the Company s proposed W ACOG.
Staff also recommended that the Commission require IGC to. continue to file its quarterly
W ACOG reports for the current gas year and to also file W ACOG reports for the projected 2004-
2005 gas year to allow Staff and the Commission to follow the same data and results the
Company should be monitoring.
3. Risk Mana2:ement and Price Stability
Staff reviewed the Company s Risk Management Committee s minutes and other
documented activities. Staff found that the Company has greatly improved documentation of
risk management activities.However, Staff noted that customers' rates clearly remain
unprotected from annual market volatility and questioned the overall effectiveness of these
activities. For example, RS-2 customers are still being asked for a 38% increase in rates. In fact
RS-2 gas costs will go up 57% over the last PGA cycle.
ORDER NO. 29277
Staff reported that in the 2002 PGA, the Company requested to keep the W ACOG
higher than its market forecasts to create a credit deferral for customers within the PGA. See
Order No. 29068 at 2. In May 2002, the Company presented both a 2002-2003 W ACOG
estimate of $.32 per therm and a 2003-2004 W ACOG estimate of approximately $.35 per thermo
The Company s 2002-2003 W ACOG turned out to be a very accurate. This accuracy was
improved considerably by a significant amount of financial hedging that secured the 2002-2003
gas prices. Unfortunately for customers, Staff noted that the Company did not secure the
forward prices for the 2003-2004 W ACOG in 2002. Staff questioned why 2003-2004 hedges
were not secured. The Company replied "the obligation of the Gas Management Committee is
not to project what prices will do nor is it the Committee s objective to 'beat' a projected
W ACOG, but rather to ensure IGC's gas supplies are purchased at a prudent price level."s Staff
did not disagree with this practice; however, it believes the Company should add an additional
element to its risk management activities that involves consideration for customer rate stability.
While Staff asserted that it continued to agree with its 2002 comments and the
Commission s decision not to artificially increase rates to build customer deferral reserves, it
stated that methodologies exist that could provide a more disciplined approach to minimize price
volatility for the Company s gas customers. Accordingly, Staff recommended that IGC be
required to file a more formal risk management policy with the Commission within 90 days.
Staff recommended that the Commission direct the Company to place special emphasis in this
filing on managing reliability, price, service quality, credit risk and customer rate volatility.
Staff also stated that the formal policy should include trigger points or volatility limits that could
be used to make hedging decisions or forward market purchases. Staff also believed that after
the initial filing, this formal policy could easily be incorporated into the Company s biannual
Integrated Resource Planning (IRP).
Lon2:- Term Gas Purchases
Staff also voiced concerns related to the Company s recent decision not to seek
formal proposals to meet its long-term gas needs. The Company responded that long-term
suppliers and producers are not responding to formal proposals any longer. Staff was not able to
ascertain the validity or reasonableness of this position because there have been no formal
proposals for Staff to review. Staff believes it is reasonable to ask the Company to perform at
5 Intermountain Gas response to Staff audit requests dated May 20 2003.
ORDER NO. 29277
least the same level of due diligence for long-term contracts as it does when it looks for short-
term arrangements. Staff contended that factors of reliability and credit worthiness should be a
part of the formal process documentation for long-term as well as short-term contracts. Thus
Staff recommended that the Company perform a formal Request for Proposals with closed bids
submitted to IGC for independent evaluation when searching out new long-term supply and
transportation arrangements.
5. Demand Side Mana2:ement
Staff encouraged the Company to continue its current programs, mass media and
Web site activities to promote the efficient use of natural gas. These media activities provide all
customers with valuable conservation information and provide individuals with ways to reduce
their own monthly energy bills. Staff also noted that in years past, natural gas demand side
management (DSM) was not cost effective until 2000-2001 when natural gas prices rose
dramatically.Staff alleged that prices are again reaching those levels.Thus, Staff also
recommended that the Company continue to explore new DSM opportunities for its customers.
Customer Service
Based on past experience with increases in rates, Staff estimated that complaints and
inquiries regarding Intermountain Gas will increase significantly in 2003-2004 if a rate increase
is granted. Similarly, IGC will see an increase in the number of customers that contact the
Company directly. During the 2001-2002 heating season, customers had a difficult time getting
through on the Company s Customer Service telephone line. Staffs review of IGC's Service
Levels and Abandoned Telephone Call data confirms this problem. Thus, Staff is concerned
about the Company s ability to handle an increased volume of incoming telephone traffic that
might be expected following a major rate increase.
Staff noted that IGC claimed to have taken steps this year that will allow the
Company to handle the additional incoming calls resulting from a price increase as proposed
here. Since 2002, three additional full-time customer service representatives have been hired and
two full-time, temporary positions were created. Also, three representatives in outlying local
offices have been identified as remote agents who can step in and answer calls during peak
calling times if needed. Customers can also communicate with the Company through the IGC
Website at www.intgas.com. IGC claimed their e-mail response time is within 24 hours.
ORDER NO. 29277
Staff also suggested the Company use a facsimile machine to receive complaints and
inquiries from customers who are unable to reach IGC by telephone during peak times. For
instance a recorded message could be played while customers are waiting on hold giving them
the option of sending a fax.
Consumer Assistance Staff recommended the Company offer an additional Level Pay
promotion in September of this year. A Level Pay promotion just before the winter would
encourage customers to sign-up for Level Pay in the fall, thereby averaging their projected
higher usage winter bills over a longer period of time. Staff believed this would help address
approximately one-third of the written comments from customers on fixed incomes who worried
that they could not afford a 38% increase in winter heating costs.
D. Intermountain Gas Reply Comments
First, the Company stated that it will continue to seek both formal and informal
proposals for gas supplies and will continue to document its efforts. However, the Company
reiterated that no long term producer or supplier who sells to IGC is willing to directly negotiate
a fixed price. Thus, the Company contended formal proposals are not feasible. In addition, the
Company stated that it continues to ensure that its supplies are aligned with secure, reliable
reputable and creditworthy producers and suppliers who it is comfortable will always provide
firm, uninterrupted gas supply for its core market needs. The Company also alleged that the
ability of its long-term suppliers to meet the benchmarks for creditworthiness and ability to
deliver firm, uninterrrupted supplies have all been established in the market and, thus, need not
be tested through a formal RFP process. The Company also stated that it will continue to file its
quarterly W ACOG reports for the current gas year and can also begin filing W ACOG projections
for the subsequent gas year as well.
The Company also stated that it has a formal Gas Management Risk Management
Policy and will continue to review and discuss gas management strategies that incorporate
Staff's recommendations. Reply Comments. However, the Company stated because it is
Policy and not a Procedure Manual, it needs to be flexible while still providing general direction.
IGC asserted that within 90 days it is willing to make documentation available to Staff regarding
these strategy reviews and their outcome as it pertains to any action taken by the Company.
ORDER NO. 29277
The Company also stated that it will utilize a facsimile machine to receive customer
inquiries beginning within the next several weeks. Finally, IGC also stated that it will perform a
September Level Pay promotion.
In response to AES's comments, IGC alleged its assertions wrongly speculate that
the Company engaged in questionable activities.IGC asserted, that contrary to AES'
comments, it is not profiting by a rise in retail natural gas prices. It contends this is shown by the
Company s practices and documented findings by the Commission Staff. The Company also
alleged, that contrary to AES' s comments, it promotes several avenues for the efficient use of
natural gas as described by its Integrated Resource Plan. Finally, IGC asserted that its profit
margin would not rise due to any Commission authorized increase in its W ACOG.
E. AES Rebuttal Comments
On June 19, 2003 AES submitted additional comments supporting its written
comments and attempting to rebut the Company s assertions regarding its conservation efforts
and practices.
The Commission notes that the Staff audit addressed many of the concerns raised in
the comments of AES. Staffs audit verified that the Company s earnings would not increase by
the pass through of purchased gas costs. Staff's audit also did not reveal any evidence that
supported AES' s allegation that the Company has certain practices its uses to generate profits at
the expense of its customers. Furthermore, the record demonstrates in this case that the
Company has taken some measures to reduce the price of gas it purchases for its customers.
COMMISSION DISCUSSION AND FINDINGS
A. Jurisdiction
IGC is a gas utility, that is engaged in the sale of and distribution of natural gas within
the State of Idaho.See Idaho Code 99 61-117 and 61-129.Thus, the Commission has
jurisdiction over this matter and IGC, pursuant to the authority and power granted under Title 61
of the Idaho Code and the Commission s Rules of Procedure, IDAPA 31.01.01.000 et seq.
B. W ACOG and Temporary and Permanent Credits and Surcharges.
According to Idaho law, utilities cannot increase their rates for service without a
finding by the Commission that the increase is justified. Idaho Code 9 61-622. Based on the
record, we find that gas prices have dramatically increased and the gas rates previously
authorized in Order No. 29068 are not adequate to compensate IGC for the prices it pays its gas
ORDER NO. 29277
suppliers. Consequently, we find the previously authorized rates to no longer be "just and
reasonable" as required by Idaho Code 9 61-502.
In setting the Company s W ACOG level the Commission weighed the Company
interests against the burdens that will be incurred by consumers due to a large increase in rates.
Based on the public comments, it is clear that a significant rate increase will be a hardship to
many IGC customers, particularly to those on fixed and/or low incomes. However, the
Commission must also consider the impact of market volatility and high prices for natural gas on
IGC as well as a potentially large deferral balance that could be generated if the Company
W ACOG is set too low. Setting the W ACOG at the level that best reflects what is expected to
occur in future remains the best course of action in this PGA. The Company states that its
proposed W ACOG of $0.50305 is reasonable. See e.Exhibit No., Total North American
Rig Count and November 03 - March 04 Strip Prices for AECO, Sumas and Rockies ' gas , pp. 1-
4. However, the Company stated that:
Natural gas prices charged by Canadian and domestic producers and suppliers
have risen considerably across the nation over the past several months. With
the recent rise in wellhead prices, the number of drilling rigs has increased.
Therefore, the Company believes that the wellhead price for natural gas will
ultimately decline as a result of recent increases in drilling and production.
Tr. at p. 9, ll. 2-10. See also Application at 5.
Since the Company s Application was filed, we note that gas prices have declined
about $0.02 per therm through October comparing prices in the Wall Street Journal from May 9
and June 27 2003. Wall St. J., at p. C12, May 9 2003; Wall St. J., at p. CI0, June 27 2003. In
addition, the publication "Natural Gas Week" June 2003 (p. 13) shows rig counts continuing to
Increase. These changes may prove to support IGC's statement.
The Commission authorizes an increase in the W ACOG. Based primarily upon the
Company s beliefthat prices will ultimately decline and secondarily on natural gas futures prices
and drilling data, the Commission finds it reasonable to authorize IGC to increase its W ACOG
from its current level of $0.32 per therm to $0.475 per thermo Although this W ACOG is not
large as the Company requested, we find that it is just and reasonable considering the interests of
ratepayers and the Company. Furthermore, by setting the W ACOG at this level the Commission
is not disallowing the recovery of legitimate expenses. Rather, should the forward prices
substantially deviate up or down from $0.475 per therm any difference will be deferred for later
ORDER NO. 29277
review and possible recovery consistent with the Company s PGA mechanism. In addition
should forward prices substantially deviate from $0.475 per therm prior to the winter heating
season, the Company is instructed to come before the Commission with an Application to
request that the rates be further adjusted.
The Commission also finds that the Company shall continue to file its quarterly
W ACOG reports for the current gas year and begin filing W ACOG projections for the
subsequent gas year.
IGC requests that the Commission authorize it to recover temporary and permanent
surcharges and credits through its PGA by eliminating them from its current prices during the
past 12 months, pursuant to Case No. !NT-02-3. Based on Staffs recommendation and the
record, the Commission finds that there are no inconsistencies or irregularities that require
adjustments to these amounts.Thus, the Commission finds these amounts to have been
prudently incurred. The Commission authorizes IGC to recover all of these temporary credits
and surcharges including the $4.4 million in uncollected gas costs and the $10.2 million increase
due to the removal of the surcharges and credits from the last PGA case.
IGC is thus authorized to increase its incremental revenue by $53 669 276 or a
33.24% increase for the 2003-2004 PGA period. The following tables represent the Commission
authorized changes in rates per customer class.
Customer Class
RS-l Residential
RS-2 Residential
GS-l General Service $
LV -1 Large Volume
* $
Revenue
399 135
105 360 388
71,433 235
996 038
Average Average
Increase Increase
$/Therm % Change
0.21021 29.50%
0.20324 33.30%
21081 37.50%
19253 47.05%
*T-l Tariffprices plus the W ACOG of $0.475 per therm
Transportation
T -1 Transportation
T -2 Transportation
ORDER NO. 29277
Revenue
338 014
602 291
Average Average
Increase Increase
$/Therm % Chan
(0.00421) -4.22%
(0.00024) -89%
Average
Price
$/Therm
9227
81359
77295
60171
Average
Price
$/Therm
09554
02672
IGC shall allocate the change in rates to each of its customer classes in accordance
with its Purchased Gas Cost Adjustment tariff, to be updated and filed on or before July 2003
and its approved cost-of-service methodology.
C. Risk Management Policy
In light of the large rate increase authorized by this Order and the market volatility
that persists in the natural gas market, the Commission finds it appropriate to investigate and
understand IGC's Risk Management Policy. While the costs (and ultimately the increased rates)
authorized by this Order are supported as just and reasonable, we question why some prices were
not locked in to hedge against the current market volatility, particularly in light of the
Company s position in the previous year s PGA case. In that case (!NT-02-3), the Company
requested that the Commission authorize its W ACOG at a level that would allow it to over-
collect what it predicted would be gas related costs incurred from July 2002 until July 2003.
Order No. 28578 at 4. The Company proposed this over-collection believing that prices for
gas were trending upward for future PGA periods. !d. The Company believed that "by allowing
the W ACOG to remain at the $0.35295 per therm level, a future price increase can be avoided or
mitigated during the July 2003 PGA period (one year from now) by offsetting future increases
with savings generated by Intermountain s currently hedged supplies.Id.
Thus, because of uncertainty as to the Company s policy and the inconsistencies
described above, the Commission directs IGC to prepare and file a formal written Risk
Management Policy with the Commission within ninety (90) days from issuance of this Order.
The Commission directs the Company to place special emphasis in this filing on managing
reliability, price, service quality, credit risk and customer rate volatility. This formal policy
should also include trigger points or volatility limits that could be used to make hedging
decisions or forward market purchases. In addition to this requirement, the Commission also
strongly encourages the Company to continue to increase its documentation regarding its
purchases and other decisions.
To facilitate continued review of and support for the Company s actions, IGC shall
continue to record and retain copies of information used to make important decisions regarding
See Case Nos. INT-95-, INT-88-2 and U-I034-137.
ORDER NO. 29277
the purchase of gas and fmancial transactions. Thus, the Company shall continue to file montWy
summaries of its purchased gas transactions and related deferred balances with the Commission.
-- ----
D. Proposals for Long-Term Gas Supplies
IGC alleges that no long-term producer or supplier is willing to directly negotiate a
fixed price. While this may be true, we find there is justifiable concern that price does not seem
to be adequately addressed in documenting the long-term gas proposal process or the risk
management policy and strategy. Thus, we direct IGC to include long-term supply issues in the
formal Risk Management Policy it files with the Commission. The Commission also encourages
IGC and interested parties to meet to discuss concerns and potential alternatives related to long-
term supply and risk management.
E. Demand-Side Management
The Commission encourages IGC to not only continue but to improve its current
programs, mass media and website activities to promote the efficient use of natural gas
especially following this large rate increase. These media activities provide all customers with
valuable conservation information and provide individuals with ways to reduce their own
montWy energy bills. The Commission agrees with Staff s position that in years past natural gas
demand side management (DSM) was not cost effective. However, that changed in 2000-2001
when natural gas prices rose dramatically. Natural gas prices have again risen to similar levels.
Conservation and DSM programs are powerful tools Idahoans can use to mitigate the impact of
this rate increase as well as ones that may occur in the future. In fact, the Commission has
always believed that cost-effective DSM resources are generally least-cost resources and are of
significant value to the Company, its customers and to the general community. We expect IGC
to operate efficiently most especially during times like these where drastic increases in wholesale
gas costs are a real possibility. Thus, IGC must look at all possible avenues to reduce costs to
minimize the rate shock to customers as much as possible. In closing the Commission strongly
encourages the Company to continue to explore and develop new conservation and DSM
opportunities for its customers.
F. Customer Service Issues
The Commission finds that part of providing adequate service is being prepared to
handle a large volume of complaints and inquiries regarding this rate increase. We, therefore
adopt the Staff's recommendation that the Company shall use a facsimile machine to receive
ORDER NO. 29277
these queries and grievances in addition to its customer service telephone lines and Website. The
Commission also strongly encourages the Company to continue to work diligently to improve its
ability to timely address its customers' questions and complaints.
In addition, to assist customers in budgeting, the Company shall perform an
additional Level Pay promotion in September 2003 so that customers have the opportunity to
sign up before the winter heating season. Customers who choose to sign up for Level Pay in the
fall will have their projected higher usage winter bills spread over a longer period of time.
ORDER
IT IS HEREBY ORDERED that Intermountain Gas s Application is partially granted.
The Company shall file tariffs in conformance with an incremental rate increase of $0.155 per
therm to achieve a W ACOG of $0.475 per thermo The new tariff rates shall be effective on July
, 2003.
IT IS FURTHER ORDERED that the current costs in Account No. 186 shall also be
recovered through the Company s new PGA tariff, effective July 1, 2003, as proposed by the
Company s request for recovery of temporary and permanent adjustments to surcharges and
credits.
IT IS FURTHER ORDERED that the temporary surcharges and credits included in
the Company s current prices during the past 12 months, pursuant to Case No. !NT -02-3 are
eliminated.
IT IS FURTHER ORDERED that ninety days (90) days from issuance of this Order
Intermountain Gas shall file a formal, written Risk Management Policy with the Commission.
This filing shall place special emphasis on managing reliability, price, service quality, credit risk
and customer rate volatility. In addition, this formal policy should also include trigger points or
volatility limits that could be used to make hedging decisions or forward market purchases.
Finally, this filing shall also address the Company s long-term supply issues and opportunities.
IT IS FURTHER ORDERED that Intermountain Gas shall continue to file its
quarterly W ACOG reports for the current gas year and also begin filing W ACOG projections for
the subsequent gas year.
IT IS FURTHER ORDERED that Intermountain Gas shall continue to file with the
Commission monthly summaries of its purchased gas transactions and related deferred balances.
ORDER NO. 29277
IT IS FURTHER ORDERED that Intermountain Gas utilize a facsimile machine in
order to take customer inquiries and complaints in addition to its customer service line and
Website.
IT IS FURTHER ORDERED that Intermountain Gas initiate a Level Pay promotion
in September 2003.
IT IS FURTHER ORDERED that Intermountain Gas notify its customers of the rate
changes approved in this Order. The Company shall also advise its customers of how to obtain
assistance from state and local natural gas customer assistance programs.
THIS IS A F!NAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. !NT -03-
may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any matter decided in this order or in interlocutory Orders previously issued in this
Case No. !NT -03-1. For purposes of filing a petition for reconsideration, this order shall
become effective as of the service date. Idaho Code 9 61-626. 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.
ORDER NO. 29277
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this .3
.,..
day of June 2003.
Il.~,
MARSHA H. SMITH, COMMISSIONER
ATTEST:
Je D. Jewell
Commission Secretary
O:INTGO30 Ijh3
ORDER NO. 29277