20070926final_order_no_30443.pdf

Office of the Secretary
Service Date
September 26, 2007
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF INTERMOUNTAIN GAS COMPANY
FOR AUTHORITY TO CHANGE ITS
PRICES (2007 PURCHASED GAS COST
ADJUSTMENT)
ORDER NO. 30443
CASE NO. INT -07-
On August 16, 2007, 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 , 2007 that will decrease its annualized revenues by $25.4
million (7.7%). 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. Intermountain s earnings will
not be changed as a result of the proposed changes in prices and revenues. Application at 2.
The Commission authorized the use of Modified Procedure with a comment deadline
of September 18 , 2007. Order No. 30413. Comments were filed by Commission Staff and by
the Northwest Industrial Gas Users. After reviewing the comments and record in this case the
Commission approves the Company s Application as more fully set forth below.
THE COMPANY'S 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) decrease in costs billed to
Intermountain pursuant to the settlement of the general rate case filed by Northwest Pipeline
Corporation (NPC); (2) the annualized impact of the general rate case filed by Gas Transmission
Northwest Corporation (GTN); (3) changes in Intermountain s firm transportation and storage
costs resulting from its management of storage and firm capacity rights on pipeline systems
including NPC and GTN; (4) a decrease in the Company s Weighted Average Cost of Gas
(W ACOG); (5) an updated customer allocation of gas-related costs pursuant to the PGA
provisions; (6) the collection of unaccounted-for gas on Intermountain s distribution system; and
(7) the inclusion of temporary surcharges and credits for one year relating to gas and interstate
transportation costs from the Company s deferred gas cost accounts. Application at 3-
According to the Company s customer notice in this case, if its Application is
approved as filed, residential customers using natural gas for space heating and water heating
ORDER NO. 30443
could experience a $6.00 decrease (8.1 %) on an average monthly bill. Those residential
customers using natural gas for space heating only could experience a $4.00 decrease (7.5%) on
an average monthly bill. Commercial business customers could realize an average monthly bill
decrease of $29.00 (8.7%). Industrial customers who use only Intermountain s delivery service
but do not purchase their natural gas from the Company, could experience an average increase of
5% or $0.004 per therm delivered.
Intermountain Gas proposes to decrease the W ACOG from the currently approved
$0.68500 per therm to $0.63583 per thermo Application at 6. The Company states 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 7. The Company states that
although current commodity futures prices dictate the use of a $0.63583 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 $0.63583 per thermo Application at 7.
Intermountain Gas proposes to incorporate the benefits of lower prices resulting from
a settlement filed in the 2006 NPC general rate case. In last year s PGA, Case No. INT-06-
Intermountain s prices reflected the inclusion of nine months of NPC's proposed increased
transportation costs, subject to refund pursuant to FERC's order on the then-pending rate case.
The subsequent settlement reached in NPC's rate case was approved by FERC with an effective
date of April 1 , 2007. Intermountain Gas proposes to incorporate the benefits of these lower
prices to include the annualization, or 12-month application, of the rate reduction when
compared with NPC's initial case. Application at 5. The outcome of GTN's general rate case
proceeding is still pending before FERC, and Intermountain Gas proposes to incorporate the
annualization or 12-month application of GTN's filed case. Additionally, Intermountain reports
that its capacity costs have increased on several Canadian pipelines due to rate increases, expired
temporary credits, and the tightening exchange rate between U.S. and Canadian currencies.
Application at 5-
The Company states that it incurred costs to procure additional upstream capacity in
order to more closely align deliveries from those upstream pipelines with Intermountain s take-
ORDER NO. 30443
away rights on NPC at its Stanfield interconnect with GTN. Application at 6. These costs have
been included at Exhibit 4 Row 5. The Company includes costs to procure additional
incremental liquid storage at NPC's Plymouth LNG facility to enhance its overall storage
portfolio. Application at 6. These costs are included at Exhibit 4, Row 13-18. The Company
also states that it is party to certain agreements whereby it manages its storage-related assets in
conjunction with a third-party asset manager. Intermountain Gas proposes to pass back to its
customers the benefits generated from these agreements as shown on Exhibit 4, Line 19.
Application at 6.
The Company proposes 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-06-04. Application at 8
Exhibit 4, Line 29. The Company includes 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 8, Exhibit 5
Line 24. The Company proposes to pass back to customers the benefits generated from its
capacity release agreements through the inclusion of a $3.4 million credit. Application at 8
Exhibit 7. Further, the Company proposes 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, 2008 as follows: (1) fixed gas costs credit of $3.9 million
attributable to collection of interstate pipeline capacity costs, the true-up of expense issues
previously ruled on by the Commission, refunds attributable to the settlement ofNPC's general
rate case, and mitigating capacity-release credits from Intermountain s upstream capacity; and
(2) deferred gas-cost credits of $1.5 million attributable to variable gas costs since October 1
2007. Application at 8-9. Intermountain proposed to pass back the balances via the per-therm
and credit. Application at 9, Exhibit 9, Line 4, Column (b), Exhibit 6, Line 3.
The Company states that a straight cents-per-therm price decrease was not utilized
for the T-l tariff. Application at 9. Absent Williams' firm transportation TF-l commodity
charge increase and the unaccounted-for gas recovery as included on Exhibit 9, the proposed
increase in the T -1 tariff is fixed-cost related, and because there are no fixed costs recovered in
the tail block of the T-l tariff, a cents-per-therm increase related to fixed costs was made only to
the first two blocks of the T -1 tariff. Application at 9-10. Likewise, because the proposed
ORDER NO. 30443
decrease to the T-2 tariff demand charge is fixed-cost related, a cents-per-therm decrease was
made to the T-2 demand charge for these fixed costs. Application at 10. Additionally, the
proposed increase to the T-2 commodity charge incorporates the increase in Williams' firm
transportation TF-l commodity charge pursuant to NPC's current tariffs as well as the collection
of unaccounted-for gas as included on Exhibit 9. Id.
Customers were notified about the Application through a customer notice and a press
release. Id. The Company requested an effective date for the new rates of October 1 , 2007.
COMMENTS OF NORTHWEST INDUSTRIAL GAS USERS
The Northwest Industrial Gas Users (NWIGU) filed comments on September 18
2007. NWIGU did not oppose the use of Modified Procedure and did not request a hearing. In
its comments it generally supported Intermountain s proposed adjustments. NWIGU was
primarily concerned with the proposed adjustment for lost and unaccounted-for gas (L&U gas).
It requested that the Commission condition its approval of the L&U tracking adjustment to a
factor that is capped at a 2% L&U gas level in prospective annual true-ups that will be used to
credit or surcharge Intermountain s customers.
NWIGU stated that its members, many of whom are transportation customers of
Intermountain, are impacted significantly by the imposition of the proposed new adjustment for
lost and unaccounted-for gas at a 0.191 cents-per-therm recovery on all industrial throughput.
However, its members view this adjustment as reasonable given the differential in gas costs
between the factor embedded in rates from 1985 (when gas was $0.33 per therm) and current and
prospective gas commodity markets. NWIGU also recognized the efficiency with which
Intermountain maintains its system, with an L&U factor of just 0., and that the new L&U
adjustment allows recovery only for incremental L&U gas costs on the distribution system that
will be trued up going forward with future PGAfilings.
NWIGU stated that it did not want the creation of the L&U recovery mechanism to
create any contrary incentive for the ongoing and conscientious efforts that Intermountain Gas
undertakes to manage and operate its distribution system to minimize L&U gas. Consequently, it
asked that the Commission limit future recovery under this mechanism to a reasonable ceiling of
2%.
ORDER NO. 30443
COMMENTS OF COMMISSION STAFF
Staff reviewed the Company s Application and gas purchases 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 s Application and gas procurements for the year, Staff recommended: (1) that the
Commission accept the Company s Application and filed tariffs, reducing the approved
WACOG and the Company s annual revenue; (2) that the Commission reserve the right to
reopen any approved tariffs should pipeline rate increases be less than what the Company has
included in the Application; and (3) that the Commission reserve the right to reopen this case and
reevaluate any approved tariffs if the W ACOG materially changes below that included in the
Application.
Staff reported that while gas prices varied greatly throughout the past year, last year
W ACOG estimates were fairly reflective of prices that the Company paid for gas. The result
was a nominal over-collection of the Company s variable costs, which will be returned
customers through credits over the next 12 months. The Company s proposed W ACOG
$0.63583 per therm is slightly less than that which could be justified when applying the forward
prices available as of June 30, 2007 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 effect of the
Company s aggressive forward purchasing plan on the W ACOG is small; and any difference will
be deferred and collected in rates next year. Intermountain s substantial storage capacity has
allowed it to take advantage of lower prices when they have occurred and makes it less
dependent on spot-market purchases during the volatile winter months. Additionally,
Intermountain is able to take advantage of increased production in the Rockies at a lower cost
and consequently, is able to utilize a W ACOG considerably less than other utilities in the region.
Staff reported that the benefits from settlement of the NPC FERC rate case are
proposed to pass through to customers with this filing through the annualized level of
transportation costs from NPC. The benefit received by customers from the settlement is
approximately $970 000. Staff also reported that the outcome of the GTN rate case is still
ORDER NO. 30443
pending at FERC, and Intermountain is proposing to incorporate the annualization, or 12-month
application of GTN's filed rate, which increases Intermountain s annual revenue by $1 425 811.
Staff believes that treatment of the pending GTN rate case is consistent and reasonable given the
uncertainty of the timing and amount of increase to be granted by FERC. Staff recommended
that, in the event that FERC approves an increase less than that proposed by GTN, the
Commission reserve the right to reopen this case and reevaluate the approved tariffs that result
from this proceeding.
Although Staff recommended that the Commission allow the Company to recover the
additional amounts requested for lost and unaccounted-for gas, it also expressed some concern
with regard to the Company s proposal. First of all, Staff stated that it is hesitant to recommend
that recovery be allowed in the PGA, which is designed to recover supply costs that are out of
the control of the Company, when many of the factors that affect the level of unaccounted-for
gas are within the Company s control.
Staff noted that the industry average for lost and unaccounted-for gas
approximately 2%, and that Intermountain s rate is approximately 0.7%. The normalized level
of revenue collected by Intermountain in its current base rates (set in 1985) for unaccounted-for
gas is $445 905. Adjusted for growth, the normalized level is $934 721. The Company
requested to recover the estimated amount of lost and unaccounted-for gas over today
normalized level adjusted for growth, an additional $1.6 million. Staff noted that approval of the
Company s proposal should not guarantee the recovery of all lost and unaccounted-for gas
regardless of circumstances. Staff does not believe it is appropriate for gas losses due to faulty
meters and meter-reading errors to be included in PGA rates. Staff stated that it would review
the actual levels of unaccounted-for gas during next year s PGA audit to determine the
appropriateness of the recovery.
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 stated that the Company s documentation of its market evaluations and market
ORDER NO. 30443
fundamentals continue to improve, and the market expertise and experience of the Company and
its purchasing agent are extensive. Staff reported that the Company executed numerous financial
hedges by locking in specific prices for gas during the 2006-2007 PGA year, and the hedging
practices were successful because they were able to beat the W ACOG and return nearly $1.
million to customers in the coming year.
Finally, Staff reviewed the Company s customer notice and press release and
determined they were in compliance with the requirements of IDAP A 31.21.02.1 02. Although
the Company did not propose an increase to gas rates for the upcoming year, Staff points out that
many customers continue to struggle to pay their gas bills. Staff would like to remind qualified
customers to take advantage of the energy assistance programs available to them, such as the
federally funded Low Income Home Energy Assistance Program (LIHEAP) and non-profit fuel
funds such as Project Share in southwestern Idaho and Project Warmth and Helping Hand in
southeastern Idaho.
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, a public utility, 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 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.
ORDER NO. 30443
The Company requests with this Application to include recovery of lost and
unaccounted-for gas on its system. No party opposed this request, however, both Staff and
NWIGU expressed concerns about allowing this recovery. Staff was concerned about its
inclusion in the PGA, when many of the factors that affect the level of unaccounted-for gas are
within the Company s control. NWIGU recommended that any possible recovery of lost and
unaccounted-for gas be capped at 2%. We find the Company s request to recover the estimated
amount of lost and unaccounted-for gas over today s normalized level adjusted for growth to be
reasonable for two main reasons. First, the normalized level of revenue collected by
Intermountain Gas in its current base rates for unaccounted-for gas was last set in 1985.
Secondly, the Company s rate of lost and unaccounted-for gas is exceptionally low (0.7%) when
compared with an industry-wide average of 2%. While we appreciate the comments submitted
by NWIGU on this issue, we decline to impose a 2% cap on this recovery at this time. There
may come a time when a cap such as that suggested would be appropriate, but the Company
presently does a comparatively good job managing its pipeline system to minimize lost and
unaccounted-for gas, which we expect will continue. Approval of the Company s proposal does
not guarantee the recovery of all lost and unaccounted-for gas, regardless of circumstances. We
reserve the full rights to examine the issue(s) surrounding lost and unaccounted-for gas and make
the appropriate adjustments. Staff will examine and audit the actual levels of unaccounted-for
gas during next year s PGA, and we will determine the appropriateness of the recovery at that
time.
Wholesale natural gas prices fluctuate, and in recent years have been quite volatile.
The Company pursues a gas supply and risk management program designed to mitigate the
adverse impact that significant price movements in the natural gas commodity can have on the
Company s supplies, customers, and other operations. The Company has been able to take
advantage of its storage options, and has made favorable gas purchases that have enabled th~
Company to seek a lower W ACOG and thus lower prices for its customers for the second year in
a row. We commend the Company for its continued improvement and successes in this effort.
We find it reasonable to grant the Company s request, and decrease the approved W ACOG from
$0.68500 per therm to $0.63583 per thermo The rates approved in this Order shall become
effective on October 1 2007. Idaho Code ~ 61-618. The tariff sheets filed with the Company
Application are hereby approved.
ORDER NO. 30443
ORDER
IT IS HEREBY ORDERED that Intermountain Gas Company s Application in Case
No. INT-07-03 is approved. The Company s approved WACOG is hereby reduced from
$0.68500 per therm to $0.63583 per thermo Intermountain Gas is hereby authorized to pass
through its proposed adjustments, surcharges, and credits to customers as filed. The tariff sheets
filed with the Company s Application are hereby approved, to be effective October 1 2007.
IT IS FURTHER ORDERED that Intermountain Gas continue to file quarterly
W ACOG projections and monthly deferred-costs reports with the Commission.
IT IS FURTHER ORDERED that the Commission specifically reserves the right to
reopen any approved tariffs and adjust rates should the pipeline rate increases be less than what
the Company has included in the Application. The Commission also specifically reserves the
right to reopen this case and reevaluate any approved tariffs if the W ACOG materially changes
below that included in the Application.
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 ~ 61-
626.
ORDER NO. 30443
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this ;2//1-
day of September 2007.
PAUL KJELLAND
RSHA H. SMITH, COMMISSIONER
\2v
MACK A. REDFORD, COMMISSIONER
ATTEST:
D. Jewell
C mmission Secretary
O:INT-O7-O3 dw2
ORDER NO. 30443