20050930final order no 29875.pdf

Office of the Secretary
Service Date
September 30, 2005
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF INTERMOUNTAIN GAS COMPANY
FOR AUTHORITY TO CHANGE ITS
PRICES (2005 PURCHASED GAS COST
ADJUSTMENT)
ORDER NO. 29875
CASE NO. INT -05-
On August 8, 2005, Intermountain Gas Company (Intermountain Gas; Company)
filed its annual Purchased Gas Cost Adjustment (PGA) Application with the Idaho Public
Utilities Commission (Commission) requesting authority to place new rate schedules in effect as
of October 2005 that will increase its annualized revenues by $67.6 million (27.2%). The
PGA mechanism is used to adjust rates to reflect changes in the costs for the purchase of gas
from suppliers, including transportation, storage, and other related costs of acquiring natural gas.
The Company contends that its earnings will not be increased as a result of the proposed changes
in prices and revenues.
The Commission issued a Notice of Application and Modified Procedure on August
, 2005. Order No. 29856. Pursuant to Rule 125, IDAP A 31.01.01.125, Commission Staff
conducted two public workshops, one in Pocatello on September 12, 2005, and one in Boise on
September 13, 2005.The Commission received written comments from AARP Idaho
Community Action Partnership Association of Idaho (CAP AI), Commission Staff, 34 individual
customers, and reply comments from the Company. After reviewing the comments and record in
this case the Commission approves the Company s Application as more fully set forth below.
THE APPLICATION
With its Application, Intermountain Gas seeks to pass through to each of its customer
classes a change in gas-related costs resulting from: (1) changes in the Company s firm
transportation and storage costs resulting from the Company s management of its storage and
firm capacity rights on pipeline systems, (2) an increase in the Company 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 cost account.
ORDER NO. 29875
According to its Customer Notice, if its Application is approved, the Company states
that rates for residential customers using natural gas for space heating only will increase an
average of 25.5%. Rates for residential customers using natural gas for space and water heating
will increase an average of 27.4%, and rates for commercial customers will increase an average
of 28.4%.
Intermountain Gas proposes increasing the W ACOG from the currently approved
$0.55492 per therm to $0.73219 per thermo The Company states that over the past year natural
gas prices have more closely followed the price of crude oil, as hedge funds and traders have
become increasingly indifferent as to which commodity provides btu' s to the marketplace, and
that both crude oil and natural gas prices are at historic high levels. The Company states that the
price levels in its Application are forward prices currently available through the use of financial
derivatives as of July 29, 2005. The Company states that, although current commodity futures
prices dictate the use of $0.73219 W ACOG, it continues to remain vigilant in monitoring natural
gas prices and is committed to come before the Commission prior to this winter s heating season
to amend these proposed prices, if the forward prices materially deviate from the $0.73219 per
thermo
CO MMENTS
A. AARP Idaho
AARP Idaho is a nonprofit, nonpartisan membership organization for people 50
years and older. It has approximately 162 000 members representing all segments of the socio-
economic scale. AARP asks that as the Commission deliberates it keep the interests of
residential customers, especially those on fixed and low incomes, in mind. It states that older
Americans are particularly susceptible to extremes in temperature, and that any degradation in
utility services can pose serious health concerns. The organization cites and quotes information
from the U.S. Department of Energy regarding dramatic price increases in natural gas and
electricity as a result of the supply disruption associated with Hurricane Katrina. It urges a close
look at Intermountain s gas procurement process, and a thorough review and evaluation of all
information and data offered to justify the Company s proposals. AARP also requests that the
Commission ensure that adequate low-income assistance is available to help reduce energy
burdens on those customers.
ORDER NO. 29875
AARP recommends the adoption of "automatic program enrollment." By this the
organization intends that customers who participate in any means-tested financial assistance
programs, such as LIHEAP, Medicaid, TANF, welfare assistance, Food Stamps, etc. would be
automatically enrolled in Idaho s low income energy assistance program(s). The organization
also states simply that funding for energy assistance programs should be expanded to meet
growing customer needs.
B. Community Action Partnership Association of Idaho (CAP AI)
Citing poverty statistics in the State of Idaho, demand for energy assistance, and the
increasing energy rates and prices, CAP AI asserts that it is critical "to take substantive steps
toward a deeper analysis and course of action toward addressing poverty in Idaho, and those
exacerbating factors, such as increasing utility costs." CAP AI states that Intermountain Gas
Company is unique in that it does not have a low-income weatherization program in place.
Acknowledging that its concerns may fall outside the scope of this proceeding, the organization
proposes that the Commission initiate a separate proceeding for the purpose of assessing
Intermountain s attempts to address the needs of its low-income customers.
C. Commission Staff
Staff reviewed the Company s filing and gas purchase contracts to verify that the
Company s earnings will not increase because of the filing, that the deferred costs are prudent
and to determine the reasonableness of the W ACOG request. Staff discussed: (1) the effects of
the one-time 15-month deferral period resulting from the timing adjustment ordered in last year
PGA; (2) the Company s new gas contracts for purchases and storage; (3) Intermountain s 2004-
2005 financial hedge transactions; (4) market prices and factors affecting the W ACOG; (5) the
Company s newly developed Gas Supply Risk Management Program and the $696 276 recovery
hold back from the 2004 PGA; and (6) customer relations issues. Staff recommended approval
of the Company s Application including approval of the proposed WACOG of$.73219, recovery
of the $696 276 reserved in last year s PGA case, and collection of the deferred amounts as
requested. Additionally, Staff recommended that the Company continue to file its quarterly
ACOG projections and monthly deferred costs with the Commission, and that the Commission
open a separate docket to evaluate customer deposits, Company contributions to fuel funds, and
conservati on/weatherizati on pro grams.
ORDER NO. 29875
In order to better align the price changes from the PGA with the time the gas was to
be used, the Commission in Order No. 29540 from the 2004 PGA directed the Company to file
the 2005 PGA by August 15 2005, with an effective date of October 1 2005. This has the effect
of having a one-time I5-month deferral period for this 2005 PGA. The deferral period in 2006
and forward will once again be 12 months. Although the additional three months of deferred
costs added substantial amounts to this increase, the same recovery, Staff contends, would have
been sought from customers no matter when the Company filed its Application. With the August
filing date the Company and Staff will have more reliable data in which to estimate winter gas
commodity prices.
The Company, Staff notes, was able to acquire a contract for additional gas storage
facilities for the next 35 years. The additional storage allows the Company to purchase gas in the
summer when prices have traditionally been lower and use the gas during the winter when gas is
traditionally higher. Although gas price volatility has made the summer-winter price spreads less
predictable, the storage continues to provide operational flexibility that allows the Company to
save money by avoiding certain high-priced peaks during the winter. Staff reviewed the analysis
performed by the Company in acquiring this additional storage and agrees that the additional
storage does reduce the costs that will ultimately be passed on to customers.
Staff notes that Intermountain Gas used two different hedging strategies during the
PGA year. First, the Company compared first of month gas prices to what it believed would be
the daily prices for the coming month, trading its monthly price for a series of daily prices if
forecasted to be lower. This technique was done six times throughout the year, and overall
resulted in a savings over the first of month pricing. The second type of hedging strategy used
by the Company involved a traditional financial instrument to fix the price of gas for any given
month or months. The Company utilized this method once during the year. In December it
executed fixed price hedges for 900/0 of the January 2005 gas purchases. The Company provided
detailed documentation and analysis to justify its decision. Overall , the Company s financial
hedges provided a benefit of$II5 033.06 to customers for the PGA year.
The Commission in the 2004 PGA, Order No. 29540, directed Intermountain Gas to
develop better risk management policies and practices, and reserved $696 276 for future
determination and possible adjustment pending the filing of an updated risk management plan.
Staff worked with Intermountain over the last 15 months to assist the Company in developing a
ORDER NO. 29875
more appropriate risk management/hedging policy, and on September 1 , 2005, the Company
filed its Gas Supply Risk Management Program with the Commission. The Risk Management
Program is an ongoing effort that Staff and the Company expect to enhance and refine as the
program is evaluated in connection with the marketplace. Staff recommended that the $696 276
previously set aside be included for recovery in this case. Staff will file separate comments
associated with the Risk Management Program to specifically address the individual aspects of
the program.
Staff pointed out that customer complaints relating to the Company s collection of
deposits were up significantly in 2005, and attributes this in part to a rule change in 2003
regarding deposits. Staff believes that the combination of higher rates, a substantial rate
increase, and deposit collection policies creates a situation where space heating only customers
may be disproportionately affected by higher rates.Additionally, Staff reports that
Intermountain Gas, as compared to other Idaho energy companies, has a disproportionately small
contribution level to low-income assistance programs, and has no low-income weatherization
program whatsoever. Staff recommends opening a docket to specifically address these issues.
D. Individual Customers
The Commission received approximately 34 written comments from customers. All
but one customer opposed any increase. More than half of the commenters identified themselves
as low-income and senior citizens on fixed incomes. Many of the commenters addressed the fact
that many of their utility bills, not just natural gas, have been increasing, and that increases are
outstripping any increase in income they may have, and in many cases outstripping their ability
to pay. The customer who did not oppose an increase stated that, although he did not want his
winter heating bill to increase, he did not want his service to suffer from lack of funds to supply
the product. The customer was in favor of the increase if Intermountain Gas truly needed it to
cover its operating and wholesale costs. Another customer requested that any increase be
implemented incrementally, instead of all at once, in the hopes that the large increase may be
offset with future savings.
E. Company Reply
In reply comments submitted on September 21 , 2005 , Intermountain Gas addressed
Staff s recommendation to open a docket to address customer deposits, fuel fund contributions
and low-income weatherization. The Company believes that opening a docket to examine these
ORDER NO. 29875
issues "would be redundant to the undertakings already addressed in previous dockets which
established practices now followed and adhered to by the Company.
The Company states that the issue of customer deposits was addressed as recently as
2003, when the Commission approved changes to Rule 105. IDAPA 31.21.01.105. The 2003
proceedings took into account the unique nature of the RS-, space heating only, customers who
in contrast to electric or gas space and water heating customers who consume year round, have
usage limited to the heating "season." Adoption of the new deposit rules took into account the
on-again, off-again nature, and accompanying risk, of this particular class of customer and the
deposit rules were modified accordingly.
The Company states that Staff s statistics with regard to fuel fund contributions may
be misleading. The contribution efforts should also be viewed in the context of the relative size
of Intermountain Gas as compared to the other utilities noted by Staff. If viewed in the context
of net income per customer, the Company s level of shareholder contributions far exceeds that of
the other utilities noted by the Staff. The Company also notes its sponsorship, volunteer time
and shareholder contribution in activities such as the Project Warmth Golf Tournament, which is
a major funding source for Project Warmth in eastern Idaho.
Regarding low-income weatherization, the Company notes that it has not raised its
prices to accommodate weatherization or conservation funding, as other utilities have. The
Company believes this to be appropriate in light of its customers already funding these programs
through their other utilities. As included in its Integrated Resource Plan (IRP), Intermountain
Gas continues to communicate and support those conservation efforts that benefit all of its
customers, that encourage the wise and efficient use of all energy sources, that do not translate
into higher prices to those customers who would otherwise provide weatherization subsidies, and
are not redundant to those measures offered in the marketplace that can be funded by various
governmental and private agencies.
DISCUSSION AND FINDINGS
We have reviewed the record for this case, including the Application and comments.
No protests to the Commission s use of Modified Procedure were filed. We continue to find that
the public interest does not require a hearing to consider the issues presented in this case and that
Modified Procedure is appropriate. IDAPA 31.01.01.204. The Commission has jurisdiction
over Intermountain Gas Company, its Application for authority to change rates and prices, and
ORDER NO. 29875
the issues involved in this case by virtue of Title 61 , Idaho Code, specifically Idaho Code 99 61-
129, 61-117, 61-307, and 61-501 , and the Commission s Rules of Procedure IDAPA
31.01.01.000 et seq.
The Commission is required to establish just, reasonable, and sufficient rates for
utilities subject to our jurisdiction. Idaho Code 9 61-502. The Company s current PGA
methodology was approved as modified in Case No. INT-95-, Order No. 26019. The PGA
mechanism is used to adjust rates to reflect changes in the costs for the purchase of gas from
suppliers, including transportation, storage, and other related costs of acquiring natural gas. The
Company s earnings are not to be increased from changes in prices and revenues resulting from
the annual PGA.The PGA mechanism is designed to pass through prudently incurred
commodity costs in a timely fashion.
Wholesale natural gas prices have continued to fluctuate dramatically. The volatile
natural gas market has seen forecasts of future costs at record levels, and resulted in increased
uncertainty about when and where prices will stabilize. As Staff explained, the impact of
Hurricane Katrina, and the remaining hurricane season, was not included in the W ACOG for this
case, as it was calculated prior to the hurricane s disruption of the natural gas and petroleum
industry and supply from the Gulf. Staff Comments at 7. Both Intermountain Gas and Staff
believe the proposed W A COG of $0.73219 per therm to be appropriate. The Company
proposed W ACOG was compared to other forecasts. Given the considerable market uncertainty,
forward prices since the Company s filing indicate the possibility of an even higher W ACOG.
However, like the past two years, there are also market expectations that prices will decrease in
the coming year. The very large increases seen immediately after Hurricane Katrina, spiking at
$1.39 per therm, had begun to moderate to $1.17 per therm as of September 20 2005. Setting a
lower W ACOG would ignore the price increases that have occurred since the Company s filing
and could potentially result in a significantly higher deferral balance subject to recovery next
year.
For the foregoing reasons we find it reasonable to increase the W ACOG from
$0.55492 per therm to $0.73219 per thermo When combined with the surcharges, credits, and
adjustments agreed upon by Staff and the Company, rates per therm will increase on average by
27.21 %. The following table indicates the annualized change in rates per customer class:
ORDER NO. 29875
Proposed Proposed
Proposed Average Proposed Average
Customer Class Increased Increase Average %Price
Class Revenue $/Therm Increase $/Therm
RS-l Residential 065 627 25572 25.49%25888
RS-2 Residential 247 192 24543 27.44 %1.13985
GS-l General Service 643 239 24223 28.36%09646
LV -1 Large Volume 593 241 21301 31.51%88894
T -1 Transportation 525 00009 080/0 11085
T -2 Transportation (Demand)492 01285 50%86678
T -2 Transportation (Commodity)566 00003 0.460/0 00653
Total Requested Amounts $67 555 700 $0.21713 27.21 %$1.01524
The rate increase approved in this Order shall become effective on October 1 , 2005.
The Commission orders Intermountain Gas to adjust its billing and file new tariffs prior to
implementing the new rate. Idaho Code 9 61-618.
Weare satisfied that the Company has sufficiently addressed our immediate concerns
regarding a more formal risk management policy. On that basis we find that Intermountain Gas
may recover the $696 276 that was reserved in Order No. 29540 for future determination and
possible adjustment pending the filing of updated risk management policies and procedures.
However, this is not the end of the work that must be accomplished regarding risk management.
The continuing volatility, uncertainty, and upward trend of the natural gas market necessitates
continued work, development, and improvement upon risk management and documentation of
Company decision making. The Company is directed to continue to work closely with Staff to
enhance and refine its risk management as the program is evaluated and put into practice in the
marketplace.
In contrast to a general rate case, the annual PGA is a tracker, which is meant to
consider only those changes in gas costs that are generally recognized as outside the Company
control. Although customers will pay a large increase associated with the commodity market
price of natural gas, the Company s earnings do not change. In fact, Intermountain Gas has not
requested an increase of Company earnings since its last general rate case in 1985. Case No. U-
1034-122. Staff assures that Intermountain Gas is not over-earning or price-gouging customers
ORDER NO. 29875
by auditing the Company and monitoring its revenues, expenses, and operations. Staff looks
closely at all of the Company s records and assures that the Company is making efforts to keep
costs down, and making prudent business decisions. Staff s next full and complete audit of
Intermountain Gas will take place during Spring 2006. Weare confident that Staff will continue
to be diligent in its review of the Company s revenue and expenses. Demand continues to grow
for natural gas, and as a regulated public utility the Company must meet that demand. It cannot
reduce the amount of gas it is willing to provide to customers when the price gets too high, like a
non-regulated business. As a result, the utility is entitled to recover the prudent and reasonable
costs associated with providing gas to its customers.
While we understand and are sympathetic to the economic difficulties faced by
customers, especially those of low or fixed incomes, resulting from the dramatic increases in the
cost of natural gas, we decline Staff s invitation to open a separate docket to examine the issues
of customer deposits, Company fuel fund contributions, and a Company low-income
weatherization program. Customer deposits were recently examined under a separate docket
and there is no indication that the Company is violating the change in customer deposit Rule 105
that resulted from that case. The Commission s primary duties are to: ensure that all charges
made, demanded, or received by a public utility are just and reasonable Idaho Code 9 61-301;
ensure that public utilities maintain adequate, efficient, just and reasonable service to the public
Idaho Code 9 61-302; and to ensure that all rules and policies adopted by a public utility
affecting or pertaining to its charges or service to the public are just and reasonable Idaho Code
9 61-303. There are federal, state, and local low-income and weatherization assistance programs
currently available to customers of Intermountain Gas, and the discussion of additional rate
increases to support such programs is beyond the scope of a PGA. Customers interested in low-
income programs, weatherization and heating assistance, and/or budget pay programs should
contact the Commission Consumer Assistance Staff at 1-800-432-0369 for more information on
programs in their vicinity.
Intermountain Gas Company Application indicated that the Company "
committed to come before this Commission prior to this winters heating season with an
Application to further amend these proposed prices, should these forward prices materially
deviate from the $0.73219 per therm WACOG.Application at 6. Although "materially
deviate" was not defined by the Company, the Commission, as was done last year, directs
ORDER NO. 29875
Intermountain to promptly seek a rate adjustment if forward commodity prices decrease by 5%
or more below the $0.73219 per therm W ACOG.
ORDER
IT IS HEREBY ORDERED that Intermountain Gas Company s Application in Case
No. INT -05-2 is approved. The Company shall file tariffs in conformance with a W ACOG of
$0.73219 to be effective October 1 , 2005. Intermountain Gas shall promptly seek a rate
adjustment if forward commodity prices decrease by 5% or more below this W ACOG.
IT IS FURTHER ORDERED that Intermountain Gas pass through its proposed
permanent adjustments and temporary surcharges and credits to customers as filed.
IT IS FURTHER ORDERED that Intermountain Gas is hereby allowed to collect the
$676 276 that was previously reserved by Order No. 29540.
IT IS FURTHER ORDERED that Intermountain Gas continue to file quarterly
ACOG projections and monthly deferred costs reports with the Commission.
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 with regard to any
matter decided in 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.
ORDER NO. 29875
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this .:L '1-rA
day of September 2005.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~ftl)~
D. JewelV
Commission Secretary
O:INT-05-02 dw2
ORDER NO. 29875