20060914Reply comments.pdf

EXECUTIVE OFFICES
INTERMOUNTAIN GAS COMPANY RECEIVED
555 SOUTH COLE ROAD. P.O. BOX 7608. BOISE,IDAHO 83707. [phone]. FAX: [phone] SEP 14 PI; I: 33
IDAHO PUi';jJC
UTILITIES COf~Ii.\:SSION
September 14, 2006
Jean Jewell
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington
Boise, Idaho 83702-5983
RE:INT-06-
Reply Comments of Intermountain Gas Company
Dear Ms. Jewell
In response to the Comments of the Commission Staff filed in regards to the above referenced
Case, Intermountain Gas Company hereby respectfully submits for consideration by the
Commission the following remarks.
The Company notes that Staff included comments, assertions and recommendations within the
body of the Staff s Comments, which Intermountain mayor may not agree with, but the
Company will limit its Reply Comments only to the four (4) recommendations found in "STAFF
RECOMMENDATION.
Recommendation No.That in future IRPs, models that were tested but subsequently rejected
in favor of the documented models be reported (along with a summary of why the alternatives
were rejected), including customer usage over seasonal and annual time periods, a range of
natural gas price forecasts from multiple sources, and price elasticity of demand.
A chief element of the IRP is a mathematically based model designed to perform an objective
analysis based on a system of inputs and constraints. Throughout the process of running these
mathematical models there will likely be many model runs; however, most will not provide
useful or beneficial results. More often than not, a particular model outcome is "rejected" simply
because the model could not run to completion or did not provide satisfactory results without
violating any number of model or mathematical constraints or criteria. Intermountain s IRP
model will, using its system of data inputs, ultimately select the most efficient mix of resources
to meet projected demands meaning that there is one, and only one, best model solution. Further
other than the constraint criteria in the model, it may not be possible to subjectively evaluate why
a certain resource did, or did not, make the final cut other than through a generic explanation of
economIC companson.
The Company recognizes that for each particular set of demand forecasts, there would of course
be a best solution that may differ from another forecast in terms of the types and timing of
resources selected. That is why each demand scenario has its own particular solution. The
Company does not favor an open-ended approach where all sorts of "what-if "subjectivity could
result in many models. The effort to analyze, document and discuss a potentially unlimited
number of "test runs" adds an unnecessary level of complexity to an already detailed process.
The Staff s recommendation suggests that the Company does not look at the differences in usage
caused by seasonality in its current modeling process. This is not the case. The Company does
include seasonal differences in consumption in its filed IRP. Individual regression models are
calculated for each of the peak usage months of November through February. The "shoulder
months" also have unique usage numbers recognizing the fact that customers use gas differently
in the fall as they gear up for winter, than they do in the spring as the weather is getting warmer.
Finally, because there are very few heating degree days in July and August, usage is not
influenced by temperature so the Company assumes that usage in those months is strictly
baseload usage (i.e. gas water heater, or other non-space heating load).
Staff has suggested that the Company use alternate price forecasts to run different scenarios. The
gas price forecasts that the Company utilizes in the IRP are market-based projections from
NYMEX's February 21 2006 close. Those prices reflect the market consensus of future prices at
that given point in time and when combined with basin differentials, provide the most
reasonable estimate of forecast prices available to Intermountain. Manipulation of those figures
by the Company in order to create a price forecast to influence the model outcome in a pre-
determined way would add subjective bias in the IRP and would therefore be inappropriate. An
alternative would be to obtain outside price forecasts that purport to address market variation.
The danger in that approach is that those forecasts likely have no tie, link or correlation to the
economic forecast provided by John Church. From a statistical standpoint, there is no way to
know whether or not a model using such a price forecast provides better (or worse) results.
Finally, adding several different price forecasts to each demand scenario could result in a
multitude of models when the main focus of the Company and the Commission is to develop a
most likely scenario from which to build an overall strategy or action plan.
The Staff Comments further suggest that the Company did not consider price elasticity of
demand in the filed IRP. The Company asserts that its regression models already include the
impact of declining usage, caused by a variety of factors, in the equation constants. After careful
consideration, the Company chose not to include an additional layer of price elasticity on top of
what is already embedded in the regression models. Using an additional measure of price
elasticity would be inappropriate in a peak-day usage per customer calculation because it has the
potential to underestimate the Company s peak-day requirement as more fully addressed below.
One of the primary uses of the IRP process is to provide projections upon which the Company
can rely to ensure that it can provide safe, reliable natural gas service to its customers even on
the severely cold (or "design" temperature) day. This requires that the Company have an
accurate forecast of peak-day loads so that it can provide adequate capacity infrastructure and
supply. Over time, the Company has noticed a measurable decline in weather-adjusted
annualized usage per customer. The Company believes its continuing efforts in promoting the
wise and efficient use of natural gas have contributed to this measurable change in customer
behavior. While the Company recognizes this usage decline, the effects of these conservation
efforts do not affect peak day usage in the same manner as non-peak day load.
The winter of 1990 represented what Southern Idaho can and indeed did experience for record
cold temperatures. Since that time, even though Intermountain s service area has experienced
record customer growth, peak usage has been mitigated by warmer than normal winter
temperatures. Intermountain s customers have been able to lower their natural gas usage in
response to price increases by turning down their thermostats and/or employing more permanent
conservation measures advocated by the Company. However, thermal efficiencies gained by
various conservation measures deteriorate as temperatures reach severely cold levels so that even
with lower thermostat settings, a customers' ability to conserve is greatly diminished. If Southern
Idaho were to experience record cold temperatures again as it last did back in 1990, most
furnaces would have to run continuously just to keep homes at comfortable temperature levels
even if thermostats remained at the lower settings. Thus the Company believes the observed
declining use is largely non-peak related and has masked the true peaking load that will occur
when we once again experience design weather.
The Company is aware that other LDC's in the Northwest have also observed that while non-
peak winter load consumption does appear to have varying degrees of correlation with natural
gas prices, design weather consumption has not proven to be significantly correlated to natural
gas prices. Including an incremental layer of price elasticity under design weather conditions
would potentially underestimate the Company s peak day delivery requirements and jeopardize
the Company s ability to serve its customers during record cold temperatures.
Additionally, preliminary research indicates that for a given heating degree day, peak usage per
customer on the Sun Valley and Idaho Falls laterals is higher than the average peak usage per
customer for the rest of Intermountain s customers. As the IRP document explained, the
Company has installed metering equipment on both laterals so the Company will be able to
better model, or predict, the usage per customer for those two specific areas of our service
territory. The Company does not yet have enough data to make statistically significant
calculations regarding usage per customer for a given degree day in the Idaho Falls and Sun
Valley lateral areas, but as more data is collected, we look forward to having enough data to test
these correlations in a future IRP. Utilizing a usage per customer figure adjusted for price
elasticity when calculating the Idaho Falls and Sun Valley lateral peak load would potentially
cause the Company to underestimate usage requirements for record cold days on these two very
sensitive areas of our system.
The Company will continue to model and correlate the relationship between record cold
temperatures and consumption as more representative historical data becomes available while at
the same time ensuring the safe, reliable delivery of natural gas on the coldest "design" degree
day.
Recommendation No.That in future IRPs, the Company address the "full spectrum of DSM
opportunities available to the Company, including conservation and efficiency measures " that
were part of the IRP process prior to Order No. 27098 and that the IRP process be modified to
require that a cost/benefit evaluation of all feasible DSM measures be performed and that the
Commission consider actions aimed at creating a mechanism that will result in all cost-effective
DSM measures being implemented.
Commission Order No. 27098 requires a "general explanation with each IRP filing of whether
there are cost effective demand-side management (DSM) opportunities." The Company believes
it has met those requirements with the comprehensive review of conservation measures
encouraged and supported by the Company in "The Efficient and Direct Use of Natural Gas
section of the filed IRP. Even though Staff noted in the prior IRP (INT -04-1) that "the
Company has made significant improvements in its demand side management programs
Intermountain continues in its efforts to improve customer education regarding the wise and
efficient use of natural gas.
It is the Company s belief that market forces are the best motivator for conservation, and we
have seen this economic theory born out during the recent periods of higher natural gas prices.
As prices rise, customers have a strong incentive to conserve natural gas. As discussed in the
IRP, the Company has continually encouraged the wise and efficient use of natural gas in direct
mailings, bill stuffers, on its educational web site, and through television and print media
campaigns. The following list enumerates the available conservation and efficiency measures
that the Company promotes in its various communications with its customers.
Turn down thermostat at night and when unoccupied
Install automatic setback thermostat
Change or clean furnace filters regularly/monthly
Don t block air registers
Consider closing vents in unoccupied rooms
Turn down thermostat on water heater
Fix leaky faucets
Replace old appliances with high energy efficiency models
Consider tempered glass and heat-air exchange systems for fireplaces
Ensure proper ventilation in fireplaces
Keep fireplace damper closed when not in use
Open drapes and shades during daylight hours in heating months and close at night
Seal leaks around doors, windows and other openings
Ensure the recommended levels of insulation in attics, walls and crawlspaces
Install storm, thermal or double-pane glass doors and windows
Insulate hot-water pipes in unheated areas
Flush water heater tank annually
Intermountain also makes extensive use of its website to educate its customers about
conservation measures. The web site includes how-to videos and written tips on conservation, as
well as television advertisements suggesting ways to conserve on natural gas usage. It promotes
the Intermountain Gas Equipment Finance Program which provides current and prospective
customers with a streamlined financing avenue (through Wells Fargo bank) that includes
competitive rates and an expedited approval process. This program specifically promotes the use
of high efficiency equipment which helps to encourage customers to replace older equipment
with new, higher-efficiency units. Intermountain has also designed a website specific to helping
industrial customers better manage gas usage.
Community outreach is also an important component in delivering the Company s conservation
message. The Company was a co-sponsor of the Energy Resource Symposium, a half-day
seminar for energy-assistance providers and advisors, and Intermountain personnel visited a
number of Senior Citizens Centers with conservation and payment assistance information. As
well, the Company co-sponsored an energy symposium at Fort Hall for the Sho-Ban Native
American tribe.
Intermountain continues to encourage dealers and builders to use the most energy efficient
appliances possible and we encourage our customers to do the same. The Company remains a
partner in the Rebuild Idaho energy efficiency campaign, and has granted funds to the Idaho
Department of Water Resources and the University of Idaho Integrated Design Lab in their
research of new energy-efficient technologies. Intermountain also actively supports the Gas
Technology Institute ("GTI") as it researches ways to improve the efficiency and cleanliness of
natural gas applications. The Company credits all of these conservation efforts with contributing
to a measurable decline in weather adjusted non-peak heating load consumption resulting in a
significant mitigation of gas supply related costs which lowers all of our customers ' bills.
However, Staff now suggests that the Company and Commission adopt measures contained
within the initial Commission Order concerning IRPs. Changing back to the DSM measures in
place prior to Order No. 27098 would require a change in philosophy on the part of the Company
as well as the Commission. This Commission has recognized the fundamental economic
differences between gas and electric utilities in terms of the appropriateness of various DSM
measures and funding mechanisms. Moving from the current market based approach to a system
where DSM measures are Company funded through an incremental charge would put upward
pressure on customers' bills at a time when they can least afford it , and when market prices are
already encouraging the wisest and most efficient use of natural gas possible.
Recommendation No.To specifically describe and evaluate the additional resources that will
be acquired, developed or constructed to eliminate demand deficits in commodity supply and
transportation in all future IRPs.
The Company believes it has already fulfilled Staff request No.3. A thorough reading of the
filed document will show that the additional resources that Intermountain had evaluated and
found to be reasonable options were identified and discussed. As well, Exhibit No.5 contains
detailed utilization data for each and every resource in the final Base Case, High and Low
optimization models.
Studies such as the IRP are an invaluable piece of the Company s long-term planning to identify
and predict deficits compared against a list of potential resource solutions. While the shorter-
term gas supplies are treated as an economic commodity and are generally assumed to be filled
by "spot" supplies, the other "fill" resources used in the model, such as interstate capacity,
storage, and to some extent, longer-term gas supplies, are not. The difficulty with attempting to
provide specific information on these types of resources lies in the fact that they usually become
available unexpectedly, at a moments notice, and are generally market driven in terms of
volume, timing, and term (i.e. they rarely perfectly match the Company s needs). Consequently,
the timing and availability of these resources rarely affords the Company prior knowledge as to
availability, contract specifics, counter parties, or other specific details. So, absent publicly
announced infrastructure expansion (of which none were known when the IRP was developed),
the Company must watch for appropriate opportunities in the open market. The Company is
therefore vigilant in seeking, and evaluating the appropriateness of, such market opportunities if
and when they do arise. Even if specifics are unknown, knowing what resources are needed, as
well as how much, where and when the resources will be needed is useful information that is
derived from the IRP process.
Recommendation No.That the Company publish an addendum to the Resource Optimization
section of the IRP addressing the changed lateral transportation capacity deficit positions stated
in the Company response to production request.
Intermountain acknowledges and appreciates Staff for pointing out to the Company several
typographical and data errors in the narrative and tables reporting potential system deficits.
While those errors were inadvertent, the Company wishes to state that they were only data
reporting errors and in no way affected the optimization model outcome. As the Company has
already filed corrected pages with the Commission, the Company believes that filing an
addendum at this point would be redundant and unnecessarily confusing for Intermountain
customers.
Intermountain Gas Company appreciates the opportunity to address the above Recommendations
made by the Staff and respectfully requests that the Commission consider the Company s Reply
Comments in their final evaluation of ruling of this Case.
~hael P. McGrath
Director
Gas Supply and Regulatory Affairs