20090909Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 6618
E" ,.- r"lR EC ~ L 1,", :" C)""\ J · - '
iouq Sf? -9 PM 4: 01
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 CHANGE ITS PRICES (2009 )
PURCHASED GAS COST ADJUSTMENT) )
)
)
CASE NO. INT -G-09-02
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
and Notice of Modified Procedure issued in Order No. 30886 submit the following comments.
BACKGROUND
On August 19, 2009, Intermountain Gas Company fied its anual Purchased Gas Cost
Adjustment (PGA) Application requesting authority to decrease its anualized revenues by $72.4
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's earngs will not be
decreased as a result of the proposed changes in prices and revenues. The Company requests
that its Application be processed by Modified Procedure and that its rates become effective on
October 1, 2009.
In this 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 biled to
STAFF COMMENTS 1 SEPTEMBER 9, 2009
Intermountain due to higher prices charged by Northwest Pipeline GP ("Northwest" or
"Northwest Pipeline") offset by a small decline in contract volumes on Northwest; (2) a net
increase in costs from Intermountain's "upstream" Canadian pipeline suppliers; (3) a decrease in
the Company's projected costs relating to its storage contracts; (4) a decrease in Intermountain's
Weighted Average Cost of Gas, or "W ACOG"; (5) an updated customer allocation of gas-related
costs pursuant to the Company's Purchased Gas Cost Adjustment provision; (6) the inclusion of
temporar surcharges and credits for one year relating to gas and interstate transporttion costs
from Intermountain's deferred gas cost accounts; and (7) 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. Application at 3-4. Intermountan also seeks with
this Application to eliminate the temporary surcharges and credits included in its curent prices
during the past 12 months, pursuant to Order Nos. 30649 and 30676. The aforementioned
changes would result in an overall price decrease to Intermountain's customers.
Intermountain Gas proposes decreasing the W ACOG from the currently approved
$0.67482 per therm to $0.49600 per thermo The Application maintains that weather adjusted
demand for natual gas has diminished, driven by the downtur in our regional and national
economy. At the same time, natural gas supplies are plentifuL. This curent imbalance between
supply and demand has driven down the near term prices for natural gas. Application at 6.
The Company asserts that the proposed WACOG includes the benefits resulting from
Intermountain's storage of significant amounts of natural gas procured during the summer season
for use during the winter when market prices are normally higher. Additionally, and in an effort
to fuer stabilize prices paid by customers during the upcoming winter period, Intermountain
has entered into varous hedging agreements to lock-in the price for significant portions of its
underground storage and other winter "flowing" supplies. Application at 6.
Although curent commodity futures prices indicate the use of a $0.49600 per therm
W ACOG, the Company continues to remain vigilant in monitoring natural gas prices. If forward
prices for natual gas materially deviate from $0.49600 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. 30649, Intermountain included temporary surcharges and credits in its
October 1, 2008, and November 15, 2008, prices for the principal reason of collecting or passing
back to its customers deferred gas cost charges and benefits. Exhibit No.4, line 26 reflects the
elimination of these temporar surcharges and credits. The Company proposes to allocate
STAFF COMMENTS 2 SEPTEMBER 9,2009
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, 2010, as follows:
(1) fixed-gas costs credit of$741,556 attbutable to the collection of interstate pipeline capacity
costs, the tre-up of expense issues previously ruled on by the Commission, and mitigating
capacity release credits generated from the release of Intermountain's pipeline capacity; (2)
deferred gas cost amounts of$12.7 milion attributable to variable gas costs since October 1,
2008; and (3) deferred gas costs related to Lost and Unaccounted for Gas which results in a net
per therm decrease to both sales and transporttion customers. Application at 8.
Intermountain states that a straight cents-per-therm price decrease was not utilzed for the
LV -1 tariff. The proposed decrease is fixed-cost related and, because there are no fixed costs
recovered in the tail block of the LV -1 taiff, a cent per therm decrease relating to fixed costs
was made only to the first two blocks of the LV -1 taiff. Each block of the proposed T -3 and T-4
tariffs include a uniform cents-per-therm decrease for unaccounted for gas recovery. Id
Intermountain asserts 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 ajust, fair, and equitable pass-through of changes in gas-
related costs to Intermountain's customers. Finally, the Company requests that this matter be
handled under Modified Procedure pursuant to Rules 201-204 of the Commission's Rules of
Procedure and that its rates become effective on October 1, 2009.
STAFF ANALYSIS
Staff has reviewed the Company's Application and gas purchases for the year to verify
that the Company's earings wil not change as a result of the filing, that the deferred costs are
prudent, and to determine the reasonableness of the W ACOG request. The table below
ilustrates the impact the proposed decrease wil have on the various customer classes served by
the Company:
STAFF COMMENTS 3 SEPTEMBER 9, 2009
Proposed Proposed Proposed
Change in Average Proposed Average
Class Change in Average %Price
Customer Class Revenue $/Therm Change $/Therm
RS-1 Residential (7,729.312)(0.23938)-20.18%0.94667
RS-2 Residential (40.360.100)(0.24102)-22.24%0.84249
GS-1 General Service (22,610,462)(0.21990)-21.55%0.80058
LV-1 Large Volume (762,661)(0.28603)-33.23%0.57462
T -3 Transportation (269,448)(0.00433)-20.63%0.01666
T -4 Transportation (601,203)(0.00433)-9.36%0.04195
T -5 Transportation (95,746)(0.00433)-14.04%0.02652
(72,428,932)-21.60%
The overall effect of the proposed changes in the Company's Application is a decrease in anual
revenue received by Intermountain Gas Company of $72,428,932. This decrease is comprised of
the following items:
Deferrals:
Removal of INT -G-08-03 Temporaries
INT-G-09-02 Temporaries
$ 2,121,191
$ (19,268,569)
Total Deferrals $ (17,147,378)
Re-allocation of Fixed Costs
$
$
(896,762)
(46,976)
Lost and Unaccounted for Gas
Changes in the Weighted Average Cost of Gas $ (54,581,641)
Fixed Cost Changes:
Northwest Pipeline
New Upstream Capacity Costs
LS & SGC Storage Cost Changes
AECO & Clay Basin Cost Changes
Total Fixed Cost Changes
$ 450,947
473,053
7,686
(687,861)
$243,825
Total Annual Price Change $ (72,428,932)
Weighted Average Cost of Gas (WACOG)
The Company's current Application proposes to decrease the WACOG approved last
year by approximately 26.50% (Order No. 30676). More specifically, the proposal drops the
STAFF COMMENTS 4 SEPTEMBER 9, 2009
WACOG from the curent rate of $0.67482 per therm to the proposed rate of $0.49600 per
thermo This request reflects the second decrease since the Company's original WACOG became
effective October 1, 2008, and the third decrease in the past four PGA filings. The table below
ilustrates the changes in the natural gas market over the past twelve years and the volatilty
experienced over the same period:
Percentage
Increase/OOecrease)
Year WACOG From Prior Year
1998 0.15684 n/a
1999 0.18252 16.37%
2000 0.28673 57.10%
2001 0.38796 35.30%
2002 0.32000 (17.52%)
2003 0.47500 48.44%
2004 0.55492 16.83%
2005 0.73219 31.95%
2006 0.68500 (6.45%)
2007 0.63583 (7.18%)
2008 0.78484 23.43%
2008 0.67482 (14.02%)
2009 0.49600 (26.50%)
As stated previously, the primar reason for the decrease in natural gas rates is because the
downturn in our regional and national economy has caused weather adjusted demand for natural
gas to diminish while at the same time, natural gas supplies are plentifuL. In fact, according to a
national report issued by the Energy Information Administration (EIA) in August of this year,
"the severe contraction durng the first half of the year contributed to an estimated 3.8-percent
decline in daily average natural gas consumption compared with consumption during the first
half of 2008. The decline in natural gas use durng this period was driven principally by a drop
in industrial activity, reflected in the 17-percent year-over-year decline in the natual-gas-
weighted industrial production index during the first half of the year." In addition to the impact
of weather adjusted drops in consumption, a number of factors have contributed to excess
supplies throughout the past year. Several influencing factors contributing to this supply include:
(1) the cooler sumer reduced the need for natural gas fired electric generation; (2) the
STAFF COMMENTS 5 SEPTEMBER 9, 2009
discovery of an abundance of North American shale reserves; (3) the spread of global recession
led to higher than normal supplies of Liquid Natual Gas (LNG); (4) the volume of natural gas in
storage exceeded historical averages and continued to increase through the injection season; and
(5) the surge in drillng rigs brought on by last summer's high prices.
In order to determine the W ACOG for the following year the Company looked at the
combined forward gas prices of the supply sources it utilzes and then considered the impact of
economic factors. Last year's WACOG of $0.67482 per therm in the Company's amended
October 27th 2008 PGA filing was high compared to what Intermountain paid for gas throughout
the year. Actual gas prices continued decreasing throughout the year, and therefore resulted in
the Company over-collecting for variable costs, which will be credited back to customers over
the next twelve months.
Throughout the year Staff reviews several publications relating to the natural gas
industry. However, three primary sources are utilized to develop forecasts, specifically:
(1) NYMEX Futures Index; (2) Energy Information Administration (EIA); and (3) Wood
Mackenzie. Staff has reviewed the Company's proposed WACOG of $0.49600 and its
forecasted natual gas prices through September 2010. When comparing these informational
sources and forecasts, it is clear that the NYMEX forward prices are slightly inflated to account
for upward price risk in the long term market. When looking at the forward prices indicated by
Intermountain, the Company seems to be predicting gas prices slightly higher than anticipated.
Although Intermountain's estimates are reasonable, the following factors support continued low
prices through September 2010: (1) slight global economic improvements are only expected to
increase consumption 0.5 percent in 2010 from a comparative decline of2.6 percent in 2009; (2)
compared to 2009, the 2010 expectation of lower coal prices is anticipated to lead to slight
reductions in natural gas use by the electric power sector; (3) Gulf of Mexico production is
expected to increase by 3.3 percent this year because of a lower anticipated incidence of
huricane activity and several deep water fields coming online; (4) Liquefied Natural Gas (LNG)
imports are expected to increase by 240 bcfin 2010 as the U.S. becomes the most attractive
import market; and (5) the EIA is forecasting fewer heating degree days than normaL.
Staff reviewed the established and recently proposed W ACOG' s of other major
northwest gas utilties and found Intermountain's proposed WACOG was the lowest. However,
comparisons can be diffcult because some utilties include different (transportation and storage)
STAFF COMMENTS 6 SEPTEMBER 9, 2009
elements in the W ACOG calculation and have different amortization rates on the year to year
deferral balances. Some ofIntermountain's WACOG difference can also be attributed to:
(1) Northwest Pipeline's proximity to Intermountain's service terrtory; (2) the significant
capacity Intermountain holds on Northwest Pipeline for delivery of gas supplies from the
Rockies Basin; and (3) Intermountain's extensive gas storage that allows it to hedge gas at lower
prices.
In light of these contributing factors and Intermountain's dynamic hedging strategies, it
has been able to guarantee stable and low prices to customers. Given that the Company has
locked its winter flowing gas supplies and the W ACOG of $0.49600 per therm is reasonably
supported by future commodity prices, Staff recommends the Commission accept the Company's
proposed WACOG. However, Staff agrees with the Company that if spring and summer prices
significantly deviate from the proposed rates, the Company should retur to the Commission
with a new filing.
Temporary Surcharges and Credits
In Order No. 30649 Intermountain included temporar surcharges and credits in its
October 1, 2008, and November 15, 2008, prices for the principal reason of collecting or passing
back to its customers deferred gas cost charges and benefits. The removal of the temporar
credits amounts to $2,121,191 as ilustrated above. The eliminated temporar surcharges and
credits consist of three separate items: (1) a credit of$9 milion in benefits generated from
releasing some pipeline transportation capacity that was passed back to customers; (2) an
additional credit of$8.4 milion attributable to the collection of pipeline capacity costs, the true-
up of expenses from the 2007 PGA, and the refuds attributable to the settlement of the GTN
General Rate Case with the Federal Energy Regulatory Commission (FERC); and (3) the $15.4
milion deferred surcharge balance, which was the difference from the commodity costs that
Intermountain actually paid for natual gas and the WACOG that was included in rates for the
past year.
The new temporar credits consist of three separate items: (1) a credit of approximately
$5.9 milion in benefits generated by releasing some pipeline transporttion capacity; (2) an
additional credit of$741,000 attributable to the collection of pipeline capacity costs, the tre-up
of expenses from the 2008 PGA, and charges attributable to new rates effective Januar 1, 2009
for Northwest Pipeline; and (3) the $12.7 millon deferred credit balance, which is the difference
STAFF COMMENTS 7 SEPTEMBER 9, 2009
from the commodity costs that Intermountain actually paid for natural gas and the WACOG that
was included in rates. When the temporary credit items are totaled to account for the drop in
revenue proposed by the Company, the credits total $19.3 milion. However when offset by the
removal of prior temporaries the reduction in revenue is $17.1 milion. When combined with the
proposed $54.5 milion revenue reduction due to the reduced WACOG, and afer adding in
additional fixed cost changes, the total reduction in revenue is $72.4 milion.
Natural Gas Storage
Intermountain utilzes storage to avoid high winter prices by procuring gas during the
summer when prices are cheaper. Curently, Intermountain stores gas at Northwest's Plymouth
LNG and Jackson Prairie's facilties, and Questa Pipeline's Clay Basin facilty. Intermountain
formerly leased capacity at the AECO storage facility in Alberta, Canada. However, this year
AECO proposed a significant cost increase to renew the contract which forced the Company to
revaluate the cost-effectiveness of the facilty. In its evaluation, the Company determined "the
most economic course of action was to allow the contract to expire on March 31, 2009, thereby
lowering Intermountain's fixed storage costs." Underground storage is typically used for
fulfillng the Company's basic core market needs. The Company has 108 milion therms in
underground storage going into the winter heating season, which represents 47% of its
November 2009 to March 2010 supply requirement. Intermountain entered into various hedging
agreements to lock-in the price of its underground storage and other winter flowing supplies.
According to its filing, Intermountain's storage gas has already locked in approximately
$680,000 in savings from the management of these assets. When you incorporate the storage
hedges curently in place, the $0.49600 per therm proposed WACOG embeds a significantly
lower underground storage gas price of $0.36300 per thermo Therefore, the resulting affect of
the Company's forward purchasing plan on the WACOG is small and any difference will be
reconciled in customer rates next year.
The Company continues to utilze Liquid Natual Gas (LNG) for design weather peaking
puroses and to curail entitlements where the pipeline imposes stringent control of pipeline
flows leaving Intermountain with limited supply options. When at capacity, LNG represents
approximately 15% of the Company's total storage; however the Company expects to keep this
below capacity throughout the winter. As of September 1, 2009, the Company's LNG storage
was at approximately 59% of its capacity. Storing significantly more LNG than what is expected
STAFF COMMENTS 8 SEPTEMBER 9, 2009
to be used durng the winter season would come at an additional expense to ratepayers because
ofIntermountain's cost to maintain the LNG at a specific temperatue.
Pipeline Transportation
Intermountain delivers transported natural gas to its Idaho Citygates through Northwest
Pipeline, an interstate transporttion provider whose pipeline rus through Intermountain's
service territory. However, in order to move gas from Canada to Northwest Pipeline
Intermountain also utilzes capacity on Gas Transmission Northwest (GTN), TransCanada's
Foothils Pipeline system (Foothils) and its Alberta system known as Nova Gas Transmission
(Nova). Three ofIntermountain's interstate pipeline companies changed their rates Januay 1,
2009. Northwest Pipeline increased rates to adjust for the higher number ofleap year days
included in its 2008 prices which, in tu, increased Northwest's 2009 full-rate capacity costs.
Since Intermountain's discounted capacity price is indexed on Northwest's full-rate,
Intermountain's prices increased. However Intermountain's discounted capacity price stil
provides a customer savings of $5.4 milion when compared to the full-rate cost.
Intermountain's pipeline capacity rates on Nova increased while its capacity rates on Foothils
decreased, resulting in an anualized net parial increase between the two. In addition, a contract
held by the Company on the Nova pipeline expired and the contractual terms on Northwest's
system resulted in a slight decline in daily volume and capacity costs. Although capacity on
these pipelines remains a key component in serving customers and maintaining supply diversity,
Intermountain determines when interstate transporttion is under-utilzed due to warer weather
or declines in industrial demand and then posts these opportunities for others to utilze at the
benefit of Intermountain customers.
Intermountain's proximity to several interstate pipelines allows it to effectively allocate
its natual gas supply mix from different basins based on price differentials, and subsequently
redeliver that specified volume on its own distrbution pipeline network at the lowest possible
price. Curently nearly 62% of the Company's gas is purchased from the Rockies Basin, leaving
approximately 38% between Sumas and AECO. Since Northwest Pipeline (a large pipeline
connecting the Rockies supply basin) rus directly through Intermountain's service terrtory,
Intermountain is able to geographically utilze this service more directly. Lower Rockies Basin
prices have benefited Intermountain due to its lack of pipeline infrastructure capable of moving
Rockies gas east. Rockies Express pipeline, a pipeline being built to move gas east, began
STAFF COMMENTS 9 SEPTEMBER 9, 2009
moving limited quantities of gas last year but is stil not near completion. The scheduled
completion date has been moved back, and even the completed sections have influenced prices
very little amongst this year's supply buildup and declining economic conditions.
The Company's diversity of supply basins has enabled it to hedge expected winter
flowing gas requirements at favorably contracted prices. This diversity allows Intermountain to
exercise hedging options and provide customers with the lowest possible price.
Recovery of Lost and Unaccounted for Gas
Lost and unaccounted for gas is simply the difference, or variance, between the physical
purchase of natural gas to serve customers and the volumes biled to those same customers.
Intermountain Gas requests the recovery of Lost and Unaccounted for Gas (L&U) through 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 its 2008 PGA Application, the
Company requested a surcharge increase of 27%, or approximately $2 milion above base rates
for a total L&U gas amount of approximately $3 milion. This represented a proposed increase
in estimated L&U to 0.86% of throughput, a 19% increase over the 2007 approved PGA. Due to
Staffs concern over the 19% increase in estimated L&U gas between the 2007 PGA and the
2008 PGA, Staff recommended that the Commission place a cap on the amount ofL&U gas
recovered. In Order No. 30649, the Commission ordered "that Intermountain Gas be permitted
to recover a maximum of 0.85% of its tota throughput as lost and unaccounted-for gas." The
Commission also ordered the Company to submit quarerly reports outlining: (1) the Company's
framework for how it has tested for, 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 was directed to work with Staff to outline steps toward identifying the sources of
lost and unaccounted for gas and work toward improvement. The table below ilustrates the
Company's Lost and Unaccounted (L&U) for gas estimates submitted as par of the past thee
PGA fiings along with the percentage change in these estimates experienced over the same
period:
STAFF COMMENTS 10 SEPTEMBER 9, 2009
Lost & %ofL&U Change From
Unaccounted vs.Prior Yeats %
Year (L&U)Throughput L&U
2007 3,700,000 0.72%n/a
2008*4,800,000 0.86%19.12%
2009 2,414,773 0.45%-47.11%
. .*According to the INT-G-08-03 & INT-G-08-04 filing
As indicated by the table, this year the Company has significantly dropped its estimated
percentage ofL&U from 0.86% to 0.45% of total thoughput, approximately 47% lower than last
year's estimates. Comparatively, when looking back at the Company's actual percentage of
L&U gas to total throughput, it was 0.94% and 0.47% for 2007 and 2008, respectively.
According to conversations with the Company, this year's PGA estimate of 0.45% L&U gas to
total throughput is expected to be closer to what is anticipated to actually occur than in prior
years.
In an effort to meet the conditions of the Commission's Order No. 30649, Intermountain
has fied its quaerly reports explaining how it tests for, identifies, and remediates equipment
measurement errors or leaks. One measure Intermountain taes to identify errors and leaks is by
completing variance reports, where an auditor reviews biled consumption compared to "Low
Usage Reports." The goal of these reports is to identify inaccurate bilings due to the
malfuctioning of the customer's meter. The report analyzes each meter read in every cycle and
compares the curent measured usage to the usage in the same period one year earlier. Accounts
with disparities greater than 60% are summarized and receive the attention of a skiled analyst
who reviews other usage history to determine whether there is a valid reason for the difference.
If there is no valid reason for the difference, the analyst flags the account for a couresy phone
call or "check-for-dead" order.
In 2007 Intermountain performed 7,382 "check-for-dead" biling audits and found
roughly 7% of these meters to have been dead whereas in 2008 there were 5,088 audits which
yielded roughly 13% to be dead. Comparatively, so far in 2009 Intermountain has performed
nearly 4,837 "check-for-dead" biling audits and found roughly 11 % to be dead. In addition to
this type of audit, Intermountan regularly completes audits to: (1) make sure the appropriate
type and size meter is installed; (2) identify problems in programing software used to translate
metered consumption into biled consumption; and (3) ensure what is delivered to
STAFF COMMENTS 11 SEPTEMBER 9, 2009
Intermountain's distribution system according to the interstate pipeline are equivalent to those
same volumes measured by the Company's Gas Control Deparment.
In 1985, the Commission established the normalized unit cost collected as par of base
rates at $0.00182 per thermo However, when adjusted for growth and the natual gas rate of
recovery approved per Case No. INT-G-07-03, the normalized level is $968,168, as ilustrated on
Workpaper NO.8 included with the Company's Application. Intermountain is requesting to
recover the difference between the total estimated October 2008 to September 2009 L&U gas
and the normalized level ofL&U gas revenue already collected in curent base rates. As stated
above, the normalized level ofL&U already collected is $968,168 while the estimated October
2008 to September 2009 amount is $1,544,745. Thus, Intermountain is requesting an additional
$576,577. If at the end of September the Company's level of unaccounted for gas is below its
estimate included as part of the PGA, the Company wil credit the difference back to customers
in next year's PGA filing.
Staff recommends that the Commission allow the Company to recover the L&U gas
amount requested in this PGA. However, as mentioned in previous 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 maintains
its viewpoint that losses due to errors in faulty meters or measurement control practices should
not be recovered in the PGA. In order to continue to evaluate the Company's losses and
procedures but make reporting less onerous, Staff recommends the Commission reduce the
frequency of L&U reports from quarerly to semi-anuaL. Staff recommends the Commission
order the Company to work with Staff on determining the content of the semi-anual reports.
Additionally, after reviewing reports issued by the EIA summarizing several local distribution
companies' L&U statistics, Staff recommends the Commission maintain the maximum L&U gas
recovery at 0.85% of total throughput as specified in Order No. 30649.
Risk Management and Gas Purchasing
Intermountain's risk management and purchasing strategies are dynamic and involve the
flexibilty to make decisions based on the fudamentals of the natural gas environment. These
include decisions based on weather and hurricane forecasts, storage levels, dril rig counts, new
Gulf of Mexico and shale gas supplies, LNG levels, interstate pipeline transportation changes,
and consumption patterns. All of these factors go into determining how the Company executes a
STAFF COMMENTS 12 SEPTEMBER 9, 2009
given hedge strategy, layers in the execution of a given hedge strategy, fixes the price for a given
time frame, or utilzes other forms of financial pricing. The Company and Staff continue to
evaluate the market fudamentals and management guidelines within the "Gas Supply Risk
Management Program" to evaluate the risk of price volatilty to customers. The primar
puroses of the gas purchasing strategies are: (l) to ensure adequate gas supplies are available to
customers; (2) to mitigate the adverse impact of significant price movements in the natual gas
commodity; and (3) to minimize the credit risk inherent in the implementation of certin price
risk reducing strategies.
This year because of declining economic conditions, natural gas prices have been steadily
declining. This spring, in response to low summer and forward prices, the Company was able to
lock in gas for injection season at favorable prices. This winter, Intermountain has locked
approximately 90% of its supply, leaving 10% unocked for weather variabilty and the
possibilty that warmer conditions drop the supply requirements. By leaving 10% unlocked,
customers are protected from potentially higher winter prices and market volatility.
Intermountain foresees next summer's futues price softening from where they are curently,
therefore it has decided to leave these contracts open given the anticipation of a downward
adjustment. Although the Company's contracts for physical gas supplies are stil tyically based
on the first-of month index price, the Company sometimes converts these to daily pricing
depending on what benefits customers. The Company's strategy, foresight, and flexibilty
continue to offer savings to customers, and more importtly mitigate the volatilty by hedging
in comparison to the WACOG. This year, the declining economic conditions and the Company's
hedging strategies allowed the Company to purchase gas at prices much lower than the W ACOG
curently set in rates, this contributed to the over-collection of approximately $12 milion now
being credited back to customers.
CONSUMER ISSUES
Customer Notice and Press Release
The Customer Notice and Press Release were included in Intermountain's Application.
The Application was received on August 19,2009. Staff reviewed the customer notice and press
release and determined they were in compliance with the requirements of Rule 102, Utilty
Customer Information Rules (UCIR), IDAPA 31.21.02.102. The customer notice was mailed
with cyclical bilings beginning August 20,2009 and ending September 18,2009.
STAFF COMMENTS 13 SEPTEMBER 9,2009
Customer Comments
Customers were given until September 9,2009 to fie comments. As of September 9,
2009, eight comments had been received. All commenters supported the decrease in rates while
three commenters said the reduction was not enough given the curent market conditions.
Financial Assistance for Paying Heating Bils
Even though a 20% decrease in Intermountain's rates for the coming year is welcome
news for customers of Intermountain, some customers wil stil struggle to make ends meet.
Because of this, Staff encourages all qualified customers to apply for the federally-fuded Low
Income Home Energy Assistance Program (LIHEAP). Bil payment assistance is also available
through organizations such as Project Share in southwestern Idaho and Project Warth and
Helping Hand in southeastern Idaho. For more information on these programs, customers may
call the nearest Community Action Agency, Intermountain Gas Company, the Idaho Public
Utilties Commission, or the 2-1-1 Idaho Care Telephone Line.
Low Income Weatherization Program
In Order No. 30649, Case No. INT-G-08-03, the Commission directed the Company to
collaborate with Staff to explore the creation of a low-income weatherization program for
residences heated with natual gas. The Company was ordered to report on the results of those
efforts on or before March 15,2009.
On March 12, 2009, Intermountain sent a letter to the Commission stating it was
committed to working with Staff on a weatherization program but felt it would be advantageous
to wait until more was known about the impact of increased federal fuding for low income
weatherization programs and possible additional fuding for energy effciency programs under
the federal American Economic Recovery and Reinvestment Act of 2009 (aka federal Stimulus
Funds). On July 1,2009, the Company and Staff met to discuss how to proceed with
development of a low income weatherization program. At that meeting, program design,
possible fuding mechanisms and the interrelationship of existing federal and electric utilty
programs with a new program benefiting Intermountain Gas' customers was discussed. The
Staff and Company agreed to continue discussions and that the Community Action Parnership
STAFF COMMENTS 14 SEPTEMBER 9, 2009
Association of Idaho, which administers the existing low income weatherization programs,
should be included in the next meeting.
RECOMMENDATION
After a complete examination of the Company's Application and gas procurements for
the year, Staff recommends that the Commission accept the Company's Application and filed
tariffs decreasing the anual revenue of Intermountain Gas Company by $72.4 milion and
establishing a weighted average cost of gas at $0.49600/therm. Regarding the lost and
unaccounted for gas issues in Order No. 30649, Staff recommends the Commission order
Intermountain to: (1) provide semi-anual L&U reports in place of the quarerly reports; (2)
work with Staff on determining the content of the semi-anual reports; and (3) maintain the cap
in Order No. 30649 that specifies the Company's maximum total L&U gas recovery at 0.85% of
total throughput.
n1ll
Respectfully submitted this Î--day of September 2009.
~,;2,~
Krs me A. Sasser
Deputy Attorney General
Technical Staff: Matt Elam
Donn English
Marlyn Parker
i:umisc:commentsiintg08.3 i ksmedemp comments
STAFF COMMENTS 15 SEPTEMBER 9,2009
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 9TH DA Y OF SEPTEMBER
2009, SERVED THE COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. INT-G-09-02, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
MICHAEL P McGRATH / DIRECTOR
GAS SUPPLY & REG. AFFAIRS
INTERMOUNTAIN GAS COMPANY
PO BOX 7608
BOISE ID 83707
E-MAIL: mmcgrathifintgas.com
MORGAN W RICHARDS JR
RICHARDS LAW OFFICE
804 E PENNSYLVANIA LANE
BOISE ID 83706
E-MAIL: mwrlawifcableone.net
,b~SECRETÃÏW ..
CERTIFICATE OF SERVICE