20080930final_order_no_30649.pdf

Office of the Secreta
Service Date
September 30, 2008
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF INTERMOUNTAIN GAS COMPANY
FOR AUTHORITY TO CHANGE ITS
PRICES (2008 PURCHASED GAS COST
ADJUSTMENT)
)
) CASE NO. INT -G-08-03
)
)
) ORDER NO. 30649
)
On August 15, 2008, Intermountain Gas Company fied its anual Purchased Gas
Cost Adjustment (PGA) Application requesting authority to increase its annualized revenues by
$54.3 milion. Application at 2. The PGA mechanism is used to adjust rates to reflect anual
changes in Intermountain's costs for the purchase of natural gas from suppliers - including
transportation, storage, and other related costs. See Order No. 26019. Intermountain contends
that its earings wil not be increased as a result of the proposed changes in prices and revenues.
On September 3, 2008, the Commission issued a Notice of Application and Notice of
Modified Procedure. Order No. 30634. The deadline for written comments was set for
September 25, 2008. Comments were fied by Commission Staff, Northwest Industral Gas
Users, and numerous customers. After reviewing the record and, comments in this case, the
Commission approves the Company's Application as more fully set forth below.
THE APPLICATION
Intermountain Gas seeks to pass through to each of its customer classes a change in
gas-related costs resulting from: (l) a decrease in costs biled to Intermountain pursuant to the
Settlement of the General Rate Case fied by Gas Transmission Northwest Corporation ("Gas
Transmission Nortwest" or "GTN"); (2) the procurement of discounted interstate transportation
on Nortwest Pipeline GP ("Northwest" or "Northwest Pipeline"); (3) benefits included in
Intermountain's firm transportation and storage costs resulting from Intermountain's
management of its storage and firm capacity rights on pipeline systems including Nortwest
Pipeline, GTN and TransCanada's BC system; (4) an increase in Intermountain's Weighted
Average Cost of Gas, or "WACOG"; (5) an updated customer allocation of gas-related costs
pursuant to the Company's Purchased Gas Cost Adjustment provision; and (6) the inclusion of
temporar surcharges and credits for one year relating to gas and interstate transportation costs
from Intermountain's deferred gas cost accounts. Application at 3-4.
ORDER NO. 30649 1
The Company calculates that if its Application is approved, residential customers
using natural gas for space heating alone could experience a $7.90 increase on their monthly bil
(15% increase per therm). Residential customers using natual gas for both space and water
heating could experience an increase of $12.30 on an average monthly bil (18% increase per
therm). Commercial customers could realize a $55.30 increase in monthly biling (18% increase
pertherm).
Intermountain Gas proposes increasing its W ACOG from the currently approved
$0.63583 per therm to $0.78484 per thermo The Application states that worldwide demand for
energy, coupled with constraints on production, has driven the price of all energy to record highs.
The Company maintains that its proposed WACOG includes the benefits to Intermountain's
customers generated by the Company's management of significant natual gas storage assets.
More specifically, the Company procures natural gas during the sumer season for withdrawal
and use during the winter when prices would normally otherwise be higher. Additionally, the
Application states that, in an effort to further stabilze the prices paid by customers during the
upcoming winter season, Intermountain has entered into various hedging agreements to lock-in
the price for significant portions of its underground storage and other winter "flowing" supplies.
Application at 6. Although current commodity futures prices dictate the use of a $0.78484 per
therm WACOG, the Company continues to remain vigilant in monitoring natural gas prices. If
forward prices for natural gas materially deviate from $0.78484 per therm, the Company is
committed to retur to the Commission prior to this winter's heating season to amend these
proposed rates.
Pursuant to Order No. 30443, Intermountain included temporar surcharges and
credits in its PGA rates last October. Exhibit No.4, line 26 reflects the elimination of these
temporar surcharges and credits. The Company includes a fixed-cost collection adjustment
pursuant to the provisions of its PGA taiff which provides that proposed rates will be adjusted
for updated customer class sales volumes and purchased gas cost allocations. Application at 7.
Intermountain proposes to pass back to its customers the benefits generated from the
management of its transportation capacity totaing over $9 milion. Id, Exhibit NO.7. Furher,
the Company proposes to allocate deferred gas costs from its Account No. 186 balance to its
customers though temporar price adjustments to be effective during the 12-month period
ending September 30,2009, as follows: (1) fixed gas costs credit of $8.5 milion attributable to
ORDER NO. 30649 2
the collection of interstate pipeline capacity costs, the true-up of expense issues previously ruled
on by the Commission, refuds attributable to the Settlement of GTN's General Rate Case and
mitigating capacity release credits from Intermountain's upstream capacity; and (2) deferred gas
cost debits of $18 milion attibutable to variable gas costs since October 1, 2007. Application at
8. Intermountan proposes to collect the balances via a per therm surcharge and credit. Id.
Intermountain states that a cents-per-therm price increase was not utilzed for the LV-
1 taff. The proposed increase is fixed-cost related and, because there are no fixed costs
recovered in the tail block of the LV -1 tariff, a cent-per-therm increase relating to fixed costs
was made only to the first two blocks of the LV-l tarff. Each block of the proposed T-3 and T-4
tarffs includes a uniform cents-per-therm increase for unaccounted-for gas recovery. Id
Additionally, these industrial taiffs were updated to reflect the elimination of the T-l and T-2
tariffs. i Order No. 30599.
The proposed increase to the T -5 Tariff Demand Charge is fixed-cost related and
reflects the removal of a fixed-cost temporary credit currently included in the T -5 Demand
Charge. Also, the T -5 Commodity Charge includes a uniform cents-per-therm increase for
unaccounted-for gas recovery. Application at 9.
Intermountain maintains that customers have been notified regarding Intermountain's
Application through a customer notice and press release. Id Intermountain states that the
proposed overall price changes reflect a just, fair, and equitable pass-though of changes in gas-
related costs to Intermountain's customers. The Company requested an effective date of October
1,2008.
THE COMMENTS
A. Staff Comments
Staff reviewed the Company's Application and gas purchases for the year to verify
the Company's earnings will not change as a result of the fiing, to verify the deferred costs are
prudent, and to determine the reasonableness of the W ACOG request. The overall effect of the
proposed changes in the Company's Application would increase the anual revenue received by
Intermountain Gas Company by $54,330,257.
1 Intermountain Gas curently offers four industrial tariff options: LV.l - Large Volume Firm Sales Service; T.3 -
Interrptible Distribution Transportation Service; T-4 - Firm Distribution Only Transporttion Service; and T-5 -
Fir Distribution Service with Maximum Daily Demand.
ORDER NO. 30649 3
Weighted Average Cost of Gas (W ACOG)
In the current Application, Intermountain Gas is proposing a W ACOG of $0.78484
per therm, which is an increase of approximately 23.43% from the $0.63583 WACOG curently
included in the Company's rates. The current WACOG (approved last year by Order No. 30443
in Case No. INT-G-07-03) has been in effect since October 1, 2007.
When reviewing the Company's forecasted natural gas prices through September
2009 and the proposed W ACOG of $0.78484, Staff utilzed several forecasting tools including
the NYMEX Futures Index, the Global Insights Forecast, and the Energy Information
Administration's (EIA) outlook. When comparing these information sources to the forward
prices indicated by Intermountain, the Company appears slightly optimistic but has predicted
reasonable estimates. The fragility of current economic conditions, the addition of an extended
pipeline to the east, and the near-term impacts of hurrcane disruptions may add upward pressure
to prices. September has historically been the peak month for huricane activity which often
times sets the tone for Gulf Coast production and volatilty to the market. However,
Intermountain's optimism is understandable based on the following factors: (1) production
declines attributable to Gulf Coast storms are expected to contribute only to short-ru price
increases; (2) growth in onshore natural gas production continues to increase; 3) winter
temperatures are forecasted to be warer than normal; (4) industry demand by the industrial
sector is expected to decline; and (5) the Company's extensive storage allows it to hedge prices.
It is also understandable that given the curent economic conditions forecasting is difficult as
evidenced by significant varations in futue prices even among companies specializing in natual
gas predictions. Staff also reviewed the established W ACOG of other northwest gas utilties,
and with the exception of Puget Sound Energy, the proposed WACOG for Intermountain Gas is
less than other utilties in the region.
Although curent commodity futures prices support the use of a $0.78484 per therm
W ACOG, the Company should remain vigilant in monitoring natural gas prices and work toward
favorably purchasing the remaining 43.4% of unlocked necessary winter flowing gas supplies.
Although 56.5% of the Company's expected winter flowing supplies have been purchased, if
forward prices for the remaining natural gas purchases materially deviate from $0.78484 per
therm, Staff recommended that the Company retu to the Commission prior to this winter's
heating season to amend these proposed rates.
ORDER NO. 30649 4
Pipeline Transportation Rate Cases
On June 30, 2006, GTN fied a general system rate case with the Federal Energy
Regulatory Commission (FERC) in Docket No. RP06-407-000. FERC suspended the effective
date of GTN's proposed rates until January 1, 2007, subject to refud and the outcome of the
FERC hearing. Intermountain's prices, as approved in Case No. INT-G-07-03, remain curently
reflective ofGTN's proposed January 1,2007 prices. The outcome ofGTN's General Rate Case
is now final; this has resulted in FERC allowing GTN lower shipper prices than originally
proposed. This lower price first became effective November l, 2007 and was revised effective
Janua 1, 2008. Therefore, Intermountain proposes with this Application to incorporate the
lower prices and credit customers with the amount that has been over-collected.
Recovery of Lost and Unaccounted-for Gas
Intermountain Gas requests the recovery of Lost and Unaccounted-for Gas (L&U)
though a per therm surcharge. The PGA surcharge request reflects L&U amounts above those
which are included in base rates as approved by the Commission in 1985. In the 2007-2008
PGA, the surcharge for L&U was $1.6 milion of the total $2.5 milion. However, in the 2008-
2009 PGA the Company has requested an L&U surcharge increase of 27%, or $2 milion above
base rates for a total L&U of $3 milion. This year the Company has alleged an increase in L&U
to .85% of throughput, a 19% increase over the 2007-2008 PGA. Staff recognized that the
percentage of L& U gas is dependent on the complexity of a pipeline distribution system and the
flow measurement complexities involved. However, there was some concern as to the increase
of 19% over the 2007-2008 PGA, despite Intermountain's historically reasonable loss levels.
Intermountain is requesting to recover the difference between the projected total
FY08 L&U gas and the normalized level of L&U gas revenue already collected in curent base
rates. The normalized level of L&U already collected is $1,017,951 while the projected FY08
amount is $3,051,984. Thus, Intermountain is requesting an additional $2,034,033. If the
Company decreases its level of lost gas durng the coming PGA year, the Company wil credit
the difference back to customers in next year's PGA filing.
Staf recommended the Commission allow the Company to recover the additional
amount for L&U gas in this year's PGA. However, as mentioned in the 2006 Staff Comments,
"if the system were to experience a catastrophic failure, Staff would expect the Company to file
for an accounting order authorizing it to defer the costs of the repair and lost gas." Staff also
ORDER NO. 30649 5
maintained that losses due to errors in faulty meters or measurement control practices should not
be recovered in the PGA. In order to evaluate these losses more closely, Staff recommended the
Commission order Intermountain to provide a quarerly report outlining the Company's
framework for how it has tested for, identified, and remediated equipment measurement errors or
leaks. Additionally, this report should outline the Company's business process for alleviating
measurement errors through its financial accounting of nominations, scheduling, measurements,
flow volume allocation, and biling. Staff also would like to meet with the Company to outlip.e
steps that the Company is taing toward identifying the sources of L&U gas and how these
losses may be reduced. Also, because of the significant increase in L&U gas between last year's
PGA and this year's PGA, Staff recommended that the Commission place a cap on the amount
recovered for L&U gas at 0.85% of throughput, which is the curent level proposed for recovery
in this case. After the Company has adequately shown its practices to limit the causes of L&U
gas and the Company's approach toward reducing it, Staff would then consider recommendip.g
removal of the imposed cap.
Energy Affordabilty Workshops
On September 8, 2008, the Commission initiated a formal generic case (GNR-U-08-
01) to examine issues surrounding energy affordabilty and customers' abilty to pay energy bils.
These issues will be examined at a series of scheduled workshops within the next few months.
Utilties will be directed to paricipate. Staff recommended that Intermountain Gas actively
paricipate in these workshops and begin formulating ideas as to how its residential customers
can be better served currently as well as in the future.
Low-Income Weatherization
Staff also recommended that Intermountain create a low-income weatherization
program for the purose of weatherizing homes of needy residential customers in its service
terrtory. Monies in Idaho Power's and Rocky Mountain Power's weatherization progrs
canot be used to weatherize homes that are heated by natural gas.
B. Northwest Industrial Gas Users (NWIGU) Comments
NWIGU raised its initial concerns directly with Intermountain regarding the
accounting of debits and credits related to the recent elimination of the Company's T-l and T.2
tariffs. NWIGU independently reached agreement with Intermountain regarding the treatment of
these debits and credits. As a result, NWIGU supports Intermountain's Application.
ORDER NO. 30649 6
C. Customer Comments
More than 50 customer comments were received by the Commission. All but one
submission opposed the increase in rates. More than half of the comments were from low- and
fixed-income customers who were concerned about being able to afford an 18% increase in their
natual gas rates.
D. Reply Comments
On September 26, 2008, Intermountain Gas fied reply comments. The Company
opposed both a cap and/or additional reporting requirements for the recovery of lost and
unaccounted-for (L&U) gas. Intermountain asserted that its levels of L&U gas are enviable
within the natual gas distribution industry. The Company fuer argued that the Commission
has previously acknowledged Intermountain's efforts to limit L&U gas and declined to impose a
cap in previous cases. As an alternative to reporting, Intermountain invited Commission Staff
"to visit with the Company to witness first hand and gain furher insight as to the myriad of
factors involved in the management and mitigation of the Company's L&U efforts." Reply
Comments at 2.
Intermountain also affirmed its intent to paricipate in the affordabilty workshops
scheduled in October 2008.
DISCUSSION
We have reviewed the record for this case, including the Application and comments.
The Commission has jurisdiction over Intermountain Gas Company, a public utilty, its
Application for authority to change rates and prices, and the issues involved in this case pursuant
to Title 61 of the Idaho Code, and more specifically, Idaho Code §§ 61-117, 61-129, 61-307, 61-
501, and 61-502, along with the Commission's Rules of Procedure, IDAPA 31.01.01.000, et seq.
The Commission is required to establish just, reasonable, and suffcient rates for
utilties subject to our jurisdiction. Idaho Code § 61-502. 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 and delivering natural gas. The
Company's earings are not to be increased from changes in prices and revenues resulting from
the anua PGA. The PGA mechanism is designed to pass through prudently-incured
commodity costs in a timely fashion.
ORDER NO. 30649 7
Wholesale natural gas prices fluctuate, and recently have become 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. Despite these efforts, the worldwide
demand for energy coupled with constraints on prodi;ction has driven the price of energy to
record levels. Consequently, we find it reasonable to increase the approved WACOG from
$0.63583 per therm to $0.78484 per thermo When combined with the surcharges, credits, and
adjustments approved herein, rates per therm wil increase an average of approximately 17.56%.
Within its Application, Intermountain requested the recovery of lost and
unaccounted-for gas (L&U) though a per therm surcharge. This year the Company has alleged
an increase in L&U to .85% of throughput, a 19% increase over the 2007-2008 PGA. Although
metering errors because of temporar gas measurement device failures are inevitable, there have
been significant advances in control systems and best measurement practices for quickly
identifying these failures. Therefore, we are concerned about the increase of 19%, despite
Intermountain's historically reasonable loss levels.
In order to evaluate Intermountain's losses more closely, the Commission finds it
appropriate to direct Intermountain to provide a quarerly report outlining the Company's
framework for how it has tested for, identified, and remediated equipment measurement errors or
leaks. Additionally, this report should outline the Company's business process for alleviating
measurement errors through its financial accounting of nominations, scheduling, measurements,
flow volume allocation, and biling. Further, Commission Staff is directed to meet with the
Company to outline steps that Intermountain is taking toward identifying the source of L&U gas
and how these steps may be working toward improvement. Finally, because of the significant
increase in L&U gas from last year's PGA to this year's PGA, the Commission hereby places a
cap on the amount recovered for L&U gas at 0.85% of throughput, which is the curent level
proposed for recovery in this case. After the Company has adequately demonstrated its practices
to limit the causes of L&U gas and the Company's actions in reducing it, the Commission will
consider removal of the L&U gas cap.
There are a varety of factors contributing to significant upward pressure on electric
and natual gas rates in Idaho. Energy affordability has become a central issue for many Idaho
households and businesses. Customers who are unemployed, have lower incomes, and/or have
ORDER NO. 30649 8
fixed incomes that fail to keep pace with inflation are disproportionately affected by rising
energy costs because they must devote an increasingly larger share of their income to paying for
natur gas and electricity. The Commission acknowledges and appreciates Intermountain's
intent to actively participate in affordability workshops set as part of Case No. GNR-U-08-01. In
addition to its paricipation in workshops, the Commission directs Intermountain to collaborate
with Staff to explore the creation of low-income weatherization programs for residences heated
using natural gas. The Company shall report on the results of these efforts on or before March
15,2009.
ORDER
IT IS HEREBY ORDERED that Intermountain Gas Company's Application is
approved. Intermountain is authorized to pass-through its proposed adjustments, surcharges, and
credits to customers as fied. The Company's WACOG shall be increased from $0.63583 per
therm to $0.78484 per thermo The Company shall file conforming tarffs to be effective October
1,2008.
IT IS FURTHER ORDERED that Intermountain Gas continue to file quarerly
W ACOG projections and monthly deferred-costs reports with the Commission.
IT IS FURTHER ORDERED that Intermountain Gas promptly fie an Application to
amend its W ACOG should gas prices materially deviate from the presently approved $0.78484
pertherm.
IT IS FURTHER ORDERED that Intermountain Gas be permitted to recover a
maximum of 0.85% of its total thoughput as lost and unaccounted-for gas. In addition, the
Company shall submit to the Commission a quaerly report outlining: (1) the Company's
framework for how it has testedfor, identified, and remediated equipment measurement errors or
leaks; and (2) the business process for alleviating measurement errors through its financial
accounting of nominations, scheduling, measurements, flow volume allocation, and biling.
Intermountain is directed to work with Commission Staff to outline steps toward identifying the
sources of lost and unaccounted-for gas and work toward improvement. The Company's first
quaerly report is due no later than 30 days after the calendar quarer ending December 31,
2008.
IT IS FURTHER ORDERED that the Company paricipate in the Energy
Affordabilty Workshops scheduled in Case No. GNR-U-08-01.
ORDER NO. 30649 9
IT is FURTHER ORDERED that the Company collaborate with Staff to explore the
creation of low-income weatherization programs for residences heated using natural gas. The
Company shall report on the results of these efforts on or before March 15,2009.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) may petition for reconsideration within twenty-one (21) days of the
service date of 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 and 62-619.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idao this 30~
day of September 2008.
~d~
MARSHA H. SMITH, COMMISSIONER
ATIL
~/I~.?!J --MPTGMISSIONER
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Commission Secret
O:INT -G-08-03 _ ks2
ORDER NO. 30649 10