20090901Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6618
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF INTERMOUNTAIN GAS )
COMPANY'S REQUEST FOR AUTHORITY TO )
ESTABLISH A HOOK-UP FEE ALONG ITS SUN)V ALLEY LATERAL. )
)
)
CASE NO. INT-G-09-1
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilties Commission, by and through its Attorney of
Record, Kristine A. Sasser, Deputy Attorney General, submits the following comments in
response to Order No. 30876 issued on August 11,2009.
BACKGROUND
The Sun Valley Lateral (SVL) of Intermountain Gas Company's natural gas distribution
network is currently operating near system capacity. The Company maintains that it has made
and continues to make substantial capital upgrades to its Sun Valley Lateral in order to serve the
daily natural gas needs of all its Sun Valley Lateral customers. The next planed distribution
system upgrade off the main Sun Valley Lateral is the "Ketchum Uprate"i planed to be
i The "uprate" of a natural gas system is the process required to increase the allowable operating pressure of a
pipeline segment.
STAFF COMMENTS 1 SEPTEMBER 1, 2009
completed in 2009. This upgrade will provide for 16,000 therms per day of incremental
distribution capacity to new Ketchum and Sun Valley, Idaho customers at an estimated cost of
$640,000.
Intermountain Gas Company (Intermountain) proposes a new rate schedule that wil
require new customers whose estimated peak-day (EPD) usage on the Company's Sun Valley
Lateral exceeds the average peak-day (APD) usage on the Lateral to pay a fee for the incremental
distribution system plant investment that these new customers cause. New customers with an
EPD equal to or less than the APD will not be subject to the proposed hook-up fee.
The Company proposes that the fee initially be set based on the estimated cost of
$640,000 to construct the Ketchum Uprate Project. The specific hookup fee for each new
customer wil be calculated by multiplying the per therm capacity cost of the new lateral by the
estimated number oftherms above the APD. The Company intends to fie a revised rate
schedule with the Commission reflecting the actual costs of the Ketchum Uprate when they
become known. If actual costs of the Project result in a lower hook-up fee than what is initially
approved, and therefore charged, to customers, the Company will issue a refud to customers
who paid the inflated fee. If actual costs result in a higher hook-up fee the Company does not
intend to seek the difference from customers who paid the lower fee prior to knowledge of the
actual costs.
The Company insists that its earings will not change as a result of the proposed new rate
schedule. Any collected hook-up fee wil be applied as a reduction to the distribution system
plant investment (rate base) provided to serve the incremental KetchumSun Valley area
customers thereby avoiding any cross-subsidies that would otherwise occur to pay for any above
average customer usage. The Company believes that failure to approve a hook-up fee will cause
undue subsidization and upward price pressure on customers who are not directly benefitted
from the KetchumSun Valley area distribution system upgrades.
STAFF ANALYSIS
In Staffs review of Intermountain's proposal, three primar factors were analyzed:
1) The Company's previous SVL upgrades and the curent capacity situation;
2) The unique needs of futue growth and development on the SVL; and
3) Intermountain's method for calculating its hook-up fee.
STAFF COMMENTS 2 SEPTEMBER 1, 2009
Previous SVL Upgrades and Current Capacity Situation
Since the Company installed the Sun Valley Lateral in 1965, it has completed several
system upgrades staring in 1974 when it replaced 19 miles of 8 inch piping with 10 inch piping.
In addition the Company has completed two uprates: one in 2003 on 15 miles of the Lateral, and
another in 2005 on approximately 33.5 miles of the LateraL. Uprates are generally a quick and
relatively inexpensive method of increasing capacity in an existing pipeline because the existing
system is maximized before the construction of additional facilities become necessar. However
even with the past improvements and curent SVL operating capacity of 180,000 therms per day,
the Company notes that 97% of the demand on the Lateral occurs within the last (northern) 15
miles. In order to meet the system's estimated future peak capacity, most of which is anticipated
to benefit a small percentage of unique customers toward the "end-of-the-1ine", the Company
needs to uprate another pipeline segment requiring a capita cost of nearly $640,000. The
following char shows the Company's actual cost, therms added per day, and cost per daily therm
of previous SVL uprate projects along with estimates for the Ketchum Uprate Project.
Therms $'s Per Daily
SVL Uprate Project Added Per Therm
Year Pro.iects Cost Day Added
2003 Phase 1 $675,000 20,000 $33.75
2005 Phase 2 $550,000 40,000 $13.75
2009 "Ketchum Uprate"$640,000 16,000 $40.00
The Ketchum Uprate is anticipated to be more expensive than the Company's previous uprate
projects because it is closer to Ketchum and Sun Valley, involves relocating a regulator station,
has a higher marginal cost per linear foot of piping, and is generally more complicated.
Unique Needs of Future Growth and Development
The Company anticipates a significant portion of the planed growth to be large homes
and high usage seasonal customers, whose estimated peak day demand requirements are
extremely high compared to their daily usage throughout the year. Although these homes require
the same commitment by the Company to provide for the customer's peak day natural gas needs,
the seasonal occupancy of these large homes do not allow the Company to generate year-round
revenue to make the Ketchum Uprate Project cost effective without a hook-up fee. In order to
STAFF COMMENTS 3 SEPTEMBER 1, 2009
align the Company's commitment to provide service while ensuring projects are cost effective,
the Company has identified a geographic region that will directly benefit from the capital
investment. In this region, identified as the area north of Gimlet Road but excluding Gimlet
Subdivision, the Company has proposed that new customers whose estimated peak day usage is
higher than the average peak day usage pay a hook-up fee. The Company has estimated a 2-4
year cost recovery for the Ketchum Uprate given the proposed hook-up fee and the Company's
growth forecast. However, the Company's growth forecast estimates are dependent on the type
of growth that occurs and when it takes place. With curent instabilty in the economy and the
difficulty in estimating growt, Staff recommends that the hook-up fee stay in effect until either
the Project investment is completely recovered or the additional incremental 16,000 therm
capacity is utilized. Staff supports the hook-up fee because it represents a reasonable
compromise by providing extra capacity to meet above average growt in per customer peak day
demand while allowing new customers with average demand to take service without added cost.
Methodfor Calculating the Hook-Up Fee
In order to determine the hook-up fee, the Company had to determine a reasonable
approach to calculate, and charge for, the incremental above-average demand placed on the
system by new high usage customers. To calculate the above-average demand placed on the
system, the Company estimated an average upper and lower hourly peak demand range that
customers can place on the SVL. The ranges were estimated utilzing the equipment rating and
usage data from a randomly selected sample of customers within the "Impact Area." In order to
determine the upper usage boundary, the Company determined usage based on the hourly
sumation of mechanical equipment ratings. Since it is unealistic for a customer to use 100%
of the equipment rating, the Company conducted a regression analysis to determine the lower
usage boundar. More specifically, the Company analyzed a sample of new customers to
determine what realistic percentage of the average customers' installed equipment rating would
be utilzed on a peak day. From this study the Company was able to estimate that the average
SVL customer utilzed 47% of their equipment's maximum mechanical potential on a peak day.
For simplicity in understanding and describing the calculations, the Company rounded this
equipment usage estimate to 50%. Based on this lower range study, the Company proposed to
take 50% of the new customers installed natural gas equipment rating, multiplied by 20 hours, to
arve at the customer's estimated peak-day consumption needs. To determine the incremental
STAFF COMMENTS 4 SEPTEMBER 1, 2009
amount subject to a hook-up fee, the Company subtracts the average peak-day (APD) demand
shown in the last IRP as 15.5 therms from the customers estimated peak-day (EPD) demand.
Any positive amount from this calculation (APDoCEPD) represents the therms in excess of
average, these therms are then multiplied by $40 dollars, or the incremental cost per therm
($640,000/16,000 therms) of the Ketchum Uprate. 16,000 therms is the additional capacity
provided by the Ketchum Uprate. Staff sees this as a reasonable way to calculate the incremental
costs and the above average therms subject to the fee. However, if when the Project is complete
the actual Project costs included in the hook-up fee calculation are lower than what was
approved by the Commission, Staff recommends that customers who have paid the higher hook-
up fee be refuded the difference in hookup fees with interest at the customer deposit rate.
Public Participation and Comments
The Application was received and the News Release distributed on June 15,2009. The
Company did not send out a Customer Notice to the "Impact Area" customers because the hook-
up fee is anticipated to primarily impact new customers. The only exception to this would be
where an existing customer adds square footage requiring new equipment, and the EPD usage is
calculated above the APD usage. Staff reviewed the News Release and found that the Company
did not include everyhing typically required in Rule 102, Utilty Customer Information Rules
(UCIR), IDAPA 31.21.02.102. However, Staff understands that Rule 102 is not meant to apply
to hook-up fees but instead base rate and PGA changes. According to the Company, the
Application has also been directly brought to the attention of those governental bodies whose
jursdictional area would be impacted by the proposed rate schedule.
Parties interested in intervening were given until July 24,2009, to be a formal pary to the
proceeding. There were no paries that intervened. Even though the Commission considers
public comments up until the time the case is completed, as of July 24, 2009 only five public
comments were received, all of which supported the hook-up fee. The City of Sun Valley,
Ketchum, and the District 25 legislative representatives were all supportive of an equitable
solution where futue growth adequately pays their incremental "fair share." One construction
company voiced support on the design of the fee structure "inasmuch as it appears to be
equitable and directly proportionate to natual gas usage." Staff recommends the Company
continue to involve and solicit feedback from the governental bodies and customers who are
STAFF COMMENTS 5 SEPTEMBER 1,2009
impacted by the proposed rate schedule, specifically as the Project costs are finalized and the
Company reevaluates its hook-up fee with the Commission.
STAFF RECOMMENDATION
After a complete evaluation of the Company's application, its methodology and
conclusions, Staff recommends that the Commission approve the Company's proposed rate
schedule for the SVL. However, Staff has the following additional recommendations:
1) If the actual costs of the Ketchum Uprate Project result in a lower hook-up fee than that
initially approved and charged to customers, the Company wil refud the difference
between the charges and the lower hookup fee ultimately approved by the
Commission including interest at the customer deposit rate.
2) That the Company collect the hook-up fee only until either the Ketchum Uprate
Project costs are completely recovered or the additional incremental 16,000 therm per
day capacity provided by the Ketchum Uprate is fully utilzed.
, S"-
Respectfully submitted this 1-- day of September 2009.
~~ a. ~4iA
Kri ne A. Sasser
Deputy Attorney General
Technical Staff: Matt Elam
i:umisc/commentsintg09.lksme comments
STAFF COMMENTS 6 SEPTEMBER 1, 2009
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 1ST DAY OF SEPTEMBER 2009,
SERVED THE COMMENTS OF THE COMMISSION STAFF, IN CASE NO.
INT-G-09-01 BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
MICHAEL P McGRATH / DIRECTOR
GAS SUPPLY & REG. AFFAIRS
INTERMOUNTAIN GAS COMPANY
POBOX 7608
BOISE ID 83707
E-MAIL: mmcgrath(iintgas.com
MORGAN W RICHARDS JR
RICHARDS LA W OFFICE
804 E PENNSYL VANIA LANE
BOISE ID 83706
E-MAIL: mwrlaw(icableone.net
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SECRETARÝ
CERTIFICATE OF SERVICE