20080711Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6618
OJ
Street Address for Express mail
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
INTERMOUNTAIN GAS COMPANY FOR )
AUTHORITY TO CANCEL ITS EXISTING T-l )
AND T-2 TRANSPORTATION TARIFFS AND )
IMPLEMENT A T -5 TARIFF. )
CASE NO. INT-G-08-1
COMMENTS OF THE
COMMISSION STAFF
)
)
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of
record, Kristine A. Sasser, Deputy Attorney General, in response to the Notice of Application
(Order No. 30562) and Notice of Modified Procedure (Order No. 30586) submit the following
comments.
BACKGROUND
Intermountain Gas Company (IGC) curently uses its company owned distribution
pipelines and capacity on Northwest Pipeline, an interstate gas transportation provider, to
transport natural gas purchased independently by its industral customers. These services are
outlined within a menu of industrial transportation tariff arangements and rate schedules which
provide several options for customers depending on their business structure and consumption
patterns. Under all of the curent taffs the customer purchases gas supply either independently
or from a third pary marketer and has transportation from IGC's "city gate" locations to the
place of service on IGC's distribution pipelines. The taiffs differ in whether the price structure
STAFF COMMENTS 1 JUL Y 11, 2008
includes (1) interrptible or firm IGC distribution, (2) a specified maximum daily firm quantity
("MDFQ"), or (3) embedded Northwest Pipeline transporttion capacity.
Interrptible IGC distribution serves customers who are willng to consume an
interrptible schedule of gas. This service is tyically associated with industrial users who
consume more in the summer time and are willng to forego firm IGC distribution during the
winter. Maximum daily firm quantity ("MDFQ") is a phrase used to describe customers who
contractually specify the maximum amount of gas they wil consume daily. In exchange for
committing to a contractual maximum daily firm quantity, the MDFQ customer pays one
demand charge per month and receives a lower commodity charge than customers unwillng to
specify a maximum daily firm quantity. This non-volumetric rate structure is most beneficial to
customers operating at a high load factor.
Prior to describing an embedded Northwest Pipeline transportation capacity cost structure
it is importt to understad capacity and how the pipeline industry is strctued. Northwest
Pipeline is a primar arery for the transmission of natural gas to the Pacifc Northwest and
Intermountain Region. What began as a 1 ,500-mile pipeline is now a 3,900-mile bi-directional
transmission system crossing the states of Washington, Oregon, Idaho, Wyoming, Utah and
Colorado. Nortwest's bi-directional system provides access to British Columbia, Albert,
Rocky Mountain and San Juan Basin gas supplies. Northwest Pipeline charges local distrbution
companies (LDC) like IGC and natual gas marketers a reservation charge for the reserved space
on the pipeline, and a volumetric charge for the therms transported. This capacity is used for
transporting gas from the supply basin to IGC's "city gate", i.e., the receipt point at which IGC's
company owned distribution pipelines adjoin Northwest's pipeline. Once the gas reaches this
location it is transported on IGC's company owned distribution pipelines to the end user. Thus,
embedded Northwest Pipeline transportation capacity refers to taiffs where the reservation and
volumetric charge incured by IGC from Northwest Pipeline for IGC's "city gate" delivery is
included or embedded withinthe tarff rates.
The current tariff structues are outlined below according to the services they provide,
aside from the transportation service on IGC's company owned distribution pipelines, which all
taffs provide. Below is a service sumar utilzing the terms defined above.
STAFF COMMENTS 2 JUL Y 11, 2008
1) T-1 TarffIncludes: - Firm IGC distribution, no specified maximum daily firm
quantity ("MDFQ"), embedded Nortwest Pipeline transporttion capacity
included in rates.
2) T-2 Tariff Includes: - Firm IGC distribution, specified maximum daily firm
quatity ("MDFQ"), embedded Northwest Pipeline transportation capacity
included in rates.
3) T-3 Tariff Includes: - Interrptible IGC distribution, no specified maximum daily
firm quantity ("MDFQ"), no embedded Northwest Pipeline transportation
capacity included in rates.
4) T-4 TarffIncludes: - Firm IGC distribution, no specified maximum daily firm
quantity ("MDFQ"), no embedded Northwest Pipeline transporttion capacity
included in rates.
Proposal
On May 7, 2008, IGC requested authority, pursuat to Idaho Code § 61-307, to
discontinue and cancel its existing T-1 and T-2 transporttion taiffs. IGC also requested
authority, pursuant to Idaho Code § 61-307, to place into effect a new industrial transportation
taiff (T -5 Tariff). Both requests are made pursuant to the Rules of Procedure of the Idaho
Public Utilities Commission ("Commission").
The Company asserts that it is necessar to cancel the T-1 and T-2 tarffs and implement
the new T-5 tariff to comply with the applicable rules and regulations pertining to Northwest
Pipeline's interstate pipeline system. Northwest's Federal Energy Regulatory Commission
(FERC) gas tarff requires that a shipper have sole title to the natural gas transported on
Northwest's system. The shipper must have concurrent title to both the gas molecule as well as
the interstate transportation rights transporting that same gas molecule. IGC maintains that there
are two fudamental attributes of its T-1 and T-2 tariffs at odds with Northwest's regulation
requirement: (1) the Company's T-1 and T-2 taiffs are for transporttion services including
compensation for the Company's firm capacity on Northwest's system; and (2) the taiffs require
that customers procure their own supply of natural gas from a third-pary marketer.
Concurent with the elimination of its T-l and T-2 tariffs, IGC intends to offer each T-l
and T-2 customer the opportunity to choose from the menu of remaining industrial transporttion
services; specifically those services as offered under the Company's T-3 and T-4 taiffs, and, if
STAFF COMMENTS 3 JUL Y 11, 2008
approved by the Commission, the proposed T-5 tariff. In order to help faciltate a customer's
option to elect the T-4 tariff, the Company seeks Commission approval to waive the T-4 tariffs
Exit Fee provision.
According to its Application, T -1 customers have the option of selecting a version of the
T -1 tariff without embedded interstate transporttion costs provided through the T-4 tariff. T - 2
tarff customers have no equivalent taiff option with the same benefits of a maximum daily firm
quantity and without embedded interstate transportation costs. Therefore, the proposed T -5 rate
schedule is a version of the Company's T-2 taiff. IGC asserts that in combination with the
capacity releases provide to T-1 and T-2 customers, the T-5 customer's burner-tip price "should
be economically equivalent" to that provided under the bundled T -2 service.
Prior to this Application, IGC has been taking action in an effort to comply with
Northwest's FERC Gas Tariff; more specifically they've contractually agreed beyond the scope
of the tariffs on releasing interstate transportation capacity to pre-aranged marketer paries who
supply gas to those existing T-1 and T-2customers. However, IGC feels that given the evolving
dynamics of the interstate natual gas market, as additional marketers compete for business on
IGC's distribution system, the likelihood that these concurent commodity and transporttion
titles will become severed is greatly intensified thereby subjecting IGC to be out of compliance
with FERC regulations if the T-1 and T-2 tarffs continue to be utilzed.
STAFF ANALYSIS
In Staffs review ofIGC's proposal, three primar factors were analyzed:
1) IGC's obligations with respect to the GENERAL TERMS AND CONDITIONS
of Northwest's FERC Gas Tariff.
2) IGC's proposal to meet its obligation under Northwest's FERC Gas Tariff.
3) The impact ofIGC's rate proposal for its existing T-1 and T-2 customers.
IGC's Obligations with respect to FERC
Staff reviewed IGC's obligations with regards to Section 8 of Northwest's FERC Gas
Tarff, GENERAL TERMS AND CONDITIONS, Fourh Revised Sheet No. 215 ("TITLE TO
GAS") sub paragraph 8.1 ("Warranty of Title"). Specifically, Staff analyzed the relationship of
IGC and Northwest Pipeline according to Section 8, which reads in pertinent par:
STAFF COMMENTS 4 JUL Y 11, 2008
Transporter accepts Shipper's gas at the Receipt Point(s)
subject to the understanding that Shipper warants that it
will at the time of delivery of gas to Transporter for
transporttion, have good title to all gas so delivered to
Transporter.
Because the IGC T-1 and T-2 transportation tarffs require the customer to procure its
own gas supply, and also include an allocated portion of IGC transporttion cost, the tariffs are at
risk of noncompliance, without modification, with FERC Gas Transportation regulations.
Curently, to assure compliance, the Company behaves as a transport capacity marketer by
releasing its pipeline capacity through contractual agreements with marketers supplying gas to
IGC's industrial customers served under the IGC tarffs.
Staff recognized IGC's concern regarding compliance with FERC regulations and the
Company's increasingly complicated contractual arangements implemented to assure FERC
compliance with the T -1 and T -2 tariffs in place. The simpler solution appears to be to eliminate
embedded IGC transportation costs from its industrial transport taiffs. That is effectively what
IGC proposes to do. Based on its analysis, Staff finds it reasonable for IGC to seek modification
of its tariffs to ensure compliance.
Staff also acknowledges that without the T -2 tarff, customers who specify a maximum
daily firm quantity wil need an option where interstate transporttion is not embedded.
Therefore, the Company has proposed, and Staff has no objection to, the T -5 tarff where
pipeline transport cost is not embedded in rates and the customer remains responsible for
procuring gas supply.
Rate Design
In reviewing the transitional changes associated with existing T-1 and T-2 customers
migrating toward the T -4 and proposed T -5 tariffs, the only difference Staff found, and therefore
analyzed for rate changes was how the customer receives interstate transportation capacity.
Instead of having this provided by IGC within the tariffs price strctue, IGC will accommodate
the customers' abilty to procure gas by tuing over interstate transportation capacity on
Northwest Pipeline to the customer or the customer's marketing agent, subject to recall. Upon
communication with the Company, Staff was assured IGC will provide customers with the same
allocated receipt point proportion as was permissible previously under the T-1 and T-2 tariffs.
STAFF COMMENTS 5 JUL Y 11, 2008
Therefore, if the customer demands excess capacity from a Northwest Pipeline receipt point
beyond what IGC is willng to release, it is the responsibilty of the customer to purchase this on
the open market from marketers.
When evaluating the Company's rate design proposal, Staff compared the most logical
taiff transition for customers. The generalization was made that although customers can select
from a menu of remaining options included as T-3, T-4, and T-5, it is unlikely customers will
change their business strcture and consumption pattern in order to meet the interrptible T-3
standards. Therefore, in analyzing the rate design of the T -5 proposed tarff Staff compared the
T-2 rate design and monetar implications of taiff changes. When analyzing the impact to T-1
customers we focused on the T -4 block breaks and rates to compare the moneta implications of
tariff changes.
Upon reviewing the T-5 rate structure methodology shown on Workpaper NO.1 ofIGC's
Application, Staff acknowledges the removal of all the interstate transportation related costs
upstream ofIGC's distribution system that were approved in the Company's anual PGA
Application for the T-2 tarff per Case No. INT-G-07-03. Removing the cost of these items no
longer provided to the industrial users wil insure the price strcture of the proposed T -5 taiff is
economically equivalent. Staf has analyzed the variance in rate structures given the interstate
transportation costs incurred with the discontinued service of the T-1 and T-2 tarffs. According
to the reservation and volumetric rate on the FERC Gas Tarff Northwest Pipelines Statement of
Rates there is no incremental burer tip price increase to IGC's customers aside from the T-4
taiff Block Three volumetric rate. Although there was an increase within this block compared
to the T -1 tariff, the Company has assured Staf that no customers reach this Block Thee of
750,000 therms.
Service Impacts
Staffhas reviewed IGC's proposal to eliminate the T-1 and T-2 tariffs, and more
specifically analyzed how the tarff changes may hinder the quality of service for the curent
twenty-four T-1, and sixteen T-2 customers. Although customers have the option to select from
a menu of the tariffs included as T-3, T-4, and proposed T-5 as stated previously, it is unlikely
customers will change their business structure and consumption pattern in order to meet the
interrptible T-3 standards. Therefore, in Staffs analysis of the transfer impacts we have
STAFF COMMENTS 6 JUL Y 11, 2008
assumed T-1 customers wil migrate to the existing T-4 tariff while the T-2 customers wil
migrate to the proposed T -5 taiff.
Staff agrees with I GC' s proposal to waive the T -4 taiff s Exit Fee provision in order to
help faciltate a customer's option to elect the T-4 taiff. However, despite the Company's
assurance of a smooth transfer, we remain concerned that curent industrial customers will not
have a seamless migration from the proposed cancelled tariffs. Paricular areas of concern are
the "true up" conditions associated with the existing taiffs designated under "Service
Conditions" or "Biling Adjustments" which could potentially act as Exit Fees. As this process
unfolds, Staff recommends that the Company provide a smooth transition for these "true up"
conditions to ensure that the industrial customer is not held responsible for their curent taiffs
elimination.
Summary
Staffhas reviewed the background ofIGC's transportation tarffs within the context of
IGC's distribution pipelines, Northwest Pipelines Interstate pipelines, and the FERC regulations
associated with gas molecule transporttion. Staff has also evaluated IGC's proposal to
eliminate the T -1 and T -2 tariffs while offering the proposed T -5 tariff option. In analyzing how
necessar the termination of the T-1 and T-2 taiffs are to meet IGC's obligations with regards to
FERC, Staff acknowledges that it is reasonable for IGC to seek modifications to its tariffs to
ensure compliance with FERC regulations. Through the review of how customers' service wil
be impacted, Staff remains concerned about the transition from the eliminated T-1 and T-2 tariffs
to remaining taiffs and the new T -5 tariff. It is important that the Company have a clear
transition plan where the customers are openly informed and not penalized for the termination of
their tariff. Upon reviewing the potential rate impacts that could occur given the most likely
taiff transition for customers, Staff found one rate increase in Block Thee of the T-4 tariff when
compared to the T-1 tariff. However, it is Staffs understanding that no customers reach this
Block Three volumetric rate, therefore customers will not be impacted by this increase.
STAFF COMMENTS 7 JUL Y 11, 2008
RECOMMENDATION
Staff recommends the following:
(1) That the Commission adopt the Company's Application to discontinue its T-1 and
T -2 transporttion tarffs;
(2) That the Commission approve the implementation of the T -5 tariff offered as an
alternative for IGC's current industrial customers;
(3) That the Commission allow for waiver of the T-4 Exit Fee in order to faciltate a
customer's option to elect the T -4 taiff; and
(4) That the Commission require IGC to monitor the transition to prevent termination
penalties from being charged due to the T-1 and T-2 tarff elimination.
/ íHRespectfully submitted this / - day of July 2008.
~R¡a.~
Kris . nè A. Sasser
Deputy Attorney General
Technical Staff: Matt Elam
i:umisc:commentsintg08.lksme.doc
STAFF COMMENTS 8 JUL Y 11, 2008
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 11TH DAY OF JULY 2008,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. INT-G-08-01, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
PAUL R POWELL
EXECUTIVE VP & CFO
INTERMOUNTAIN GAS COMPANY
PO BOX 7608
BOISE ID 83707
STEPHEN R THOMAS
MOFFATT THOMAS BARRTT ROCK
& FIELDS
POBOX 829
BOISE ID 83701
EDWARD A FINKLEA
CABLE HOUSTON ET AL
1001 SW FIFTH AVE
STE 2000
PORTLAND OR 97204
PAULA PYRON
NW INDUSTRIAL GAS USERS
4113 WOLFBERRYCT
LAKE OSWEGO OR 97035
,l~SECRETARY'. ..
CERTIFICATE OF SERVICE