20060928final_order_no_30137.pdf

Office of the Secretary
Service Date
September 28, 2006
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF INTERMOUNTAIN GAS COMPANY
FOR AUTHORITY TO CHANGE ITS
PRICES (2006 PURCHASED GAS COST
ADJUSTMENT)
ORDER NO. 30137
CASE NO. INT-06-04
On August 16, 2006, Intermountain Gas Company filed its annual Purchased Gas
Cost Adjustment (PGA) Application with the Commission requesting authority to place new rate
schedules in effect as of October 1 , 2006 that will decrease its annualized revenues
approximately $1.6 million (.5%). Application at 2. The PGA mechanism is used to adjust rates
to reflect changes in costs for the purchase of natural gas from suppliers, including
transportation, storage, and other related costs of acquiring natural gas. See Order No. 26019.
The Company contends its earnings will not be increased as a result of the proposed changes in
prices and revenues.
On August 29, 2006, the Commission issued a Notice of Application and Modified
Procedure with a comment deadline of September 20, 2006. Order No. 30121. The only
comments filed by the deadline were those of Commission Staff. On September 20, 2006, the
Company filed amended exhibits and proposed tariff sheets, amending their initial Application
by asking to incorporate a lower weighted average cost of gas (W ACOG) than originally
proposed. The Company also filed an amended news release as well as a Motion to Waive
Further Customer Notification regarding the additional decrease in the proposed W ACOG. After
reviewing the comments and the record in this case, the Commission approves the Company
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) an increase in costs billed to
Intermountain pursuant to the general rate cases filed by Northwest Pipeline Corporation (NPC)
and Gas Transmission Northwest CorPoration (GTN); (2) benefits included in Intermountain
firm transportation and storage costs resulting from the Company s management of its storage
and firm capacity rights on pipeline systems including NPC and GTN; (3) a decrease in
Intermountain s weighted average cost of gas (WACOG); (4) an updated customer allocation of
ORDER NO. 30137
gas-related costs pursuant to the Company s PGA provisions; and (5) 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. Application at 3-
According to its customer notice, if its Application is approved as filed, all residential
and commercial customers' unit prices will be essentially unchanged for natural gas used during
this next year and the Company s total net revenue will decrease by approximately $1.6 million
5%). The Company stated that despite increases in other energy prices, such as crude oil's 30%
increase during the past year, that it expects to be able to manage its natural gas purchases such
that it will not need to raise customer prices for this next winter season.
Intermountain Gas proposed in its original Application to decrease the W ACOG
from the currently approved $0.73219 per therm to $0.72400 per thermo Application at 5. The
Company stated that the proposed W ACOG includes the benefits to Intermountain s customers
generated by the Company s management of significant natural gas storage assets whereby gas is
procured during the traditionally lower priced summer season for withdrawal and use during the
winter when prices would otherwise be substantially higher. Application at 6. The Company
also reported that natural gas prices have been moderated by: historically high levels of natural
gas stored in the nation s inventory; natural gas production which has come back on-line in the
Gulf of Mexico following Hurricane Katrina; the moderate outlook for the upcoming hurricane
season; and price induced increases in domestic natural gas rig counts and production.
Application at 5-6. The Company stated that although current commodity futures prices dictate
the use of a $0.72400 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 $0.72400 per thermo
Application at 6.
The Company proposed to include various surcharges, credits, and adjustments in its
proposed prices. Application at 7-8. Intermountain has included the elimination of temporary
surcharges and credits pursuant to last year s PGA, Case No. INT-05-2. Application at 7
Exhibit 4, 1. 29. The Company included a fixed cost collection adjustment pursuant to the
provisions of its PGA tariff which provides that proposed prices will be adjusted for updated
customer class sales volumes and purchased gas cost allocations. Application at 7, Exhibit 5 , 1.
24. The Company proposed to pass back to customers the benefits generated from its capacity
ORDER NO. 30137
release agreements through the inclusion of a $3.5 million credit. Application at 7, Exhibit 7.
Further, the Company proposed to allocate deferred gas costs from its Account No. 186 balance
to customers through temporary price adjustments effective during the 12-month period ending
September 30, 2007 as follows:(1) fixed gas costs credit of $3.1 million attributable to
collection of interstate pipeline capacity costs and the true-up of expense issues previously ruled
on by the Commission; and (2) deferred gas cost debits of $14.1 million attributable to variable
gas costs since September 1 , 2005. Application at 7-8. Intermountain proposed to collect the
balances via the per therm surcharges and credits. Id.
THE AMENDED W ACOG REQUEST
On September 20 , 2006, Intermountain Gas filed amended exhibits reflecting a
further decrease in the proposed W ACOG from its original Application. The currently approved
W ACOG is $0.73219 per thermo The original Application sought a decreased W ACOG to
$0.72400 per thermo The amended exhibits propose a WACOG of $0.68500 per thermo If
approved by the Commission, the amended W ACOG would further decrease the Company
annual revenues by $11.2 million resulting in a total decrease of$12.8 million (3.86%).
The reduced W ACOG is the only change proposed to the original Application. The
Company stated the lower W ACOG reflects a further softening of the wholesale price of natural
gas and the Company s purchasing strategies towards the same. The Company stated that with
the amended W ACOG it seeks to pass through to its customers the further decline in natural gas
prices that occurred subsequent to its original filing.
The Company also filed a Motion to Waive Further Customer Notification regarding
the proposed change in the requested W ACOG. The Company stated that customers were
notified of the original Application through individual customer notices and a press release.
Rather than send individual notices of the additional incremental decrease to its customers, the
Company proposed to alert its customers through the news release filed with the amended
Application, and stated it will provide notice of the outcome of this case through individual bill
stuffers. The Company further stated it believes that as a result of the Commission s Notice of
Modified Procedure, Order No. 30121 , and the Company s original notices and press release
customers are already aware of the Application and the process to communicate with the
Commission regarding the Application. The Company believes that individual notice of the
ORDER NO. 30137
additional incremental decrease, other than through a supplemental news release, is unnecessary
and therefore, seeks a waiver regarding individual notice.
STAFF COMMENTS
Staff reviewed the Company s Application and gas purchase contracts to verify that
the Company s earnings will not change as a result of the filing, that the deferred costs are
prudent, and to determine the reasonableness of the W ACOG request. After a complete
examination of the Company Application and gas procurements for the year, Staff
recommended: (1) the Commission accept the Company s Application and filed tariffs, reducing
the approved W ACOG and the Company s annual revenue; and (2) the Commission reserve the
right to reopen any approved tariffs should the FERC pipeline rate increases be less than what
the Company has included in the Application.
The Company s Application includes proposed prices that are weighted to account
for a January 1 , 2007, effective date of the proposed price increases from Northwest Pipeline
Corporation (NPC) and Gas Transmission Northwest (GTN), both of which have pending
general rate cases before the Federal Energy Regulatory Commission (FERC). Though the
outcome of the proceedings is uncertain until a final order is issued by FERC, an increase in
transportation costs is likely given that rates charged by these two pipeline corporations were set
over 10 years ago.
Intermountain Gas has estimated the dollar impact of the pipelines ' cost increases to
be $11 294 815 for the 2006-2007 gas year. Since the increases are subject to possible
negotiation between the pipelines and their customers, and are subject to FERC approval, it is
reasonable to expect that the approved transportation price increases may be lower than those
requested by the pipelines.Staff recommended that the weighting methodology used by
Intermountain Gas to determine the annual impact of the January 1 2007, pipeline rate increases
on the total cost of service is appropriate. The methodology aligns the transportation increases
with the Purchased Gas Cost Adjustment during the PGA year in which the increases occur.
Rather than deferring the entire effect of the increase until next year, the Company will only
have to true-up any differences between the Applications filed by GTN and NPC and the final
order to be issued by FERC. Staff recommended that the Commission reserve the right to reopen
any approved tariffs should FERC pipeline rate increases be less than what the Company has
included in the Application.
ORDER NO. 30137
Staff reported that the previously approved W ACOG was fairly reflective of market
rates through most of the PGA year, and consequently resulted in a nominal balance in the
Company s deferral accounts for the 12 months ended June 30, 2006, and a small decrease in
customer rates for the coming year. Last year s W ACOG was established just prior to the time
when Hurricanes Katrina and Rita struck the gas and oil producing areas of the Gulf Coast. This
disruption of gas supply in the Gulf of Mexico caused very large spikes in the wholesale cost of
natural gas throughout North America. This increase in the prices of natural gas after the
hurricanes was not anticipated in the W ACOG approved by the Commission and resulted in the
Company having to purchase natural gas at prices much higher than had been forecast. Without
the supply disruption from the hurricanes, and the ensuing spike in prices, the Company
forecasts from the 2005 PGA case would have been accurate and deferral balances would have
been minimal.
The Company s proposed W ACOG in its original Application of $0.72400 per therm
is slightly less than that which could be justified when applying the forward prices available as of
June 30, 2006 to the purchases that are yet to be made. However, the Company has taken the
aggressive stance that it can deliver the natural gas yet to be purchased for a lower price than the
forward prices indicate. Staff recommended that the deviation from the use of the NYMEX
pricing is acceptable in this case because: all natural gas needed for Intermountain s storage has
already been purchased at favorable prices; the resulting affect of the Company s aggressive
forward purchasing plan on the W ACOG is small; and the risk is placed on the Company rather
than the consumer. Intermountain Gas s substantial storage capacity has allowed it to take
advantage of lower prices when they have occurred by hedging the entire storage season
purchase at a favorable price early in the summer.
The Company and Staff are continuing to evaluate and work on the risk management
guidelines with the "Gas Supply Risk Management Program." The objectives of the program are
to: (a) help ensure adequate gas supplies, transportation, and storage are available for its
customers; (b) mitigate the adverse impact that significant price movements in the natural gas
commodity can have on the Company s supplies, customers, and other operations; and (c)
minimize the credit risk inherent in the implementation of certain price risk reducing strategies.
Staff reported that the Company s documentation of its market evaluations and market
ORDER NO. 30137
fundamentals continues to improve, and the market expertise and experience of the Company
and its purchasing agent are extensive.
Finally, Staff reviewed the Company s customer notice and press release and
determined they were in compliance with the requirements of IDAPA 31.21.02.102. No
customer comments were received by the filing deadline. Although the Company did not
propose an increase to gas rates for the upcoming year, Staff pointed out that gas rates have
nearly doubled since the year 2000, and that many customers continue to struggle to make ends
meet. Staff would like to remind qualified customers to take advantage of the energy assistance
programs available to them.
Because the Company s amended W ACOG and exhibits were filed on the same day
that Staff comments were due, Staff did not have an opportunity to comment upon the amended
numbers in its written comments. However, after reviewing the amended exhibits Staff does not
change its recommendation set forth in its written comments. The only change in the amended
request is a further lowering of the requested W ACOG, resulting in a larger rate decrease for
customers. This is the result of the Company taking advantage of purchases at lower prices
subsequent to when it filed the original Application in this case.
DISCUSSION AND FINDINGS
We have reviewed the record for this case, including the Application, comments, and
update from the Company. 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. IDAP A 31.01.01.204.
The Commission has jurisdiction over Intermountain Gas Company, its Application for authority
to change rates and prices, and the issues involved in this case by virtue of Title 61 , Idaho Code
specifically Idaho Code ~~ 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 ~ 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 do not increase from changes in prices and revenues resulting from the
ORDER NO. 30137
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. Last year s W ACOG was
established just prior to the time when Hurricanes Katrina and Rita struck the gas and oil
producing areas of the Gulf Coast. This disruption of gas supply in the Gulf of Mexico caused
very large spikes in the wholesale cost of natural gas throughout North America. Consequently,
the extremely high prices and volatility in the natural gas market that occurred as a result of these
hurricanes is included in the Company s deferral balance subject to recovery in this PGA.
Without the supply disruption from the hurricanes, and the ensuing spike in prices, the
Company s forecasts from the 2005 PGA case would have been more accurate and deferral
balances would have been minimaL Intermountain Gas provides approximately 60% of its
winter gas sales from storage. The Company has been able to take advantage of its storage
options, and has made favorable gas purchases when the price has been low that have enabled
the Company to seek a lower W ACOG and the resulting lower prices for its customers.
We find it reasonable to decrease the approved W ACOG from $0.73219 per therm to
$0.68500 per thermo When combined with the surcharges, credits, and adjustments agreed upon
by Staff and the Company, rates per therm will decrease on average by approximately 3.8%.
The rates approved in this Order shall become effective on October 1 , 2006. The
Commission orders Intermountain Gas to adjust its billing and file new tariffs prior to
implementing the new rate. Idaho Code ~ 61-618.
Intermountain Gas Company s Application indicated that the Company is committed
to come before this Commission prior to this winter s heating season with an Application to
further amend these proposed prices, should these forward prices materially deviate from the
proposed W ACOG. Application at 6. The Company, with its updated filing seeking an even
lower W ACOG than that proposed in its original Application, has demonstrated its sincerity in
this statement. We find the Company s request to waive individual customer notice of the
updated incremental decrease in the W ACOG filed on September 22 to be reasonable and grant
the same. The Commission, as it has done for the two prior PGAs, directs Intermountain Gas to
promptly seek a rate adjustment if forward commodity prices decrease by 5% or more below the
approved W ACOG of $0.68500 per thermo
ORDER NO. 30137
ORDER
IT IS HEREBY ORDERED that Intermountain Gas Company s Application as
amended in Case No. INT-06-04 is approved. The Company s Motion to Waive Individual
Customer Notice regarding its updated incremental decrease in its proposed W ACOG is granted.
The Company shall file tariffs in conformance with a W ACOG of $0.68500 to be effective
October 1 , 2006. 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
adjustments, surcharges, and credits to customers as filed and amended.
IT IS FURTHER ORDERED that Intermountain Gas continue to file quarterly
W 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. 30137
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this.:!.
g""\
day of September 2006.
t2t~
PAUL KJELI.:ANDER, PRESIDENT
RSHA H. SMITH, COMMISSIONER
ATTEST:
Commission Secretary
O:INT -06-04 - dw2
ORDER NO. 30137