20100930final_order_no_32077.pdf

Office of the Secretary
Service Date
September 30 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF INTERMOUNTAIN GAS COMPANY
FOR AUTHORITY TO CHANGE ITS
PRICES (2010 PURCHASED GAS COST
ADJUSTMENT)ORDER NO. 32077
CASE NO. INT-I0-
On August 11 , 2010, Intennountain Gas Company filed its annual Purchased Gas
Cost Adjustment (PGA) Application requesting authority to decrease its annualized revenues by
$2.2 million. Application at 2. The Company requested that its Application be processed by
Modified Procedure and that its rates become effective October 1 2010.
On August 19, 2010, the Commission issued a Notice of Application and Notice of
Modified Procedure and set a September 22 2010, deadline for comments. One public comment
was received in addition to comments filed by Commission Staff. After reviewing the
Application and comments, we authorize Intennountain Gas to decrease its annualized revenues
by $2.2 million and establish a weighted average cost of gas at $0.49211 per thenn.
authorize the new rates to become effective October 1 2010.
THE APPLICATION
With this Application, Intennountain Gas seeks to pass-through to each of its
customer classes a change in gas-related costs resulting from: (1) a decrease in costs billed to
Intennountain by Northwest Pipeline GP ("Northwest" or "Northwest Pipeline ); (2) an increase
in costs from Intennountain s "upstream" pipeline suppliers; (3) a decrease in Intennountain
weighted average cost of gas, or "WACOG"; (4) an updated customer allocation of gas-related
costs pursuant to the Company s Purchased Gas Cost Adjustment provision; (5) the inclusion of
temporary surcharges and credits for one year relating to gas and interstate transportation costs
from Intennountain s deferred gas cost accounts; and (6) benefits included in Intennountain
finn transportation and storage costs resulting from Intennountain s management of its storage
and finn capacity rights on pipeline systems. Application at 3-
Intennountain Gas proposes decreasing the W ACOG from the currently approved
$0.49600 per thenn to $0.49211 per thenn. The Application maintains that weather-adjusted
demand for natural gas has diminished, driven by the downturn in our regional and national
ORDER NO. 32077
economy. At the same time, natural gas supplies are plentiful. This current imbalance between
supply and demand has driven down the near-term prices for natural gas. Application at 5.
Pursuant to Order No. 30913 , Intermountain included temporary surcharges and
credits in its October I , 2009, prices for the principal reason of collecting or passing back to its
customers deferred gas cost charges and benefits. Intermountain seeks with this Application to
eliminate the temporary surcharges and credits included in its current prices during the past 12
months, pursuant to Order Nos. 30649 and 30676.Exhibit No., Line 26 reflects the
elimination of these temporary surcharges and credits. The proposed changes would result in a
price decrease to Intermountain s RS-, GS-I and LV-I customers and a slight increase to
Intermountain s RS-1 customers. Transportation customers would also experience a small rate
increase resulting from the reversal of the prior year amortization rates. Application at 4.
The Company asserts that the proposed W ACOG 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 further stabilize prices paid by customers during the upcoming winter period, 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 5. Although current
commodity futures prices dictate the use of a $0.49211 per therm WACOG, the Company
continues to remain vigilant in monitoring natural gas prices. If forward prices for natural gas
materially deviate from $0.49211 per therm, the Company is committed to return to the
Commission to amend these proposed rates.
The Company proposes to allocate deferred gas costs from its Account No. 186
balance to its customers through temporary price adjustments to be effective during the 12-
month period ending September 30 , 2011 , as follows: (1) fixed gas costs credit of $2 079 148
attributable to the collection of interstate pipeline capacity costs, the true-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 $15.6 million
attributable to variable gas costs since October 1 2009; and (3) deferred gas costs related to lost
and unaccounted-for gas (L&U) which results in a net per-therm decrease to both sales and
transportation customers. Application at 7.
ORDER NO. 32077
Intermountain states that a straight cents-per-therm price decrease was not utilized for
the LV -1 tariff. There are no fixed costs recovered in the tail block of the LV -1 tariff. The
proposed changes in the W ACOG, and variable deferred credits (outlined in Exhibit 9) are
applied to all three blocks of the LV -1 tariff, but adjustments relating to fixed costs are applied
only to the first two blocks of the LV -1 tariff. Id. Each block of the proposed LV -, T -3, T-
and T-5 tariffs include a uniform cents-per-therm decrease to adjust for L&U gas. Id.
Intermountain asserts that customers have been notified regarding Intermountain
Application through a customer notice and press release. Application at 8. Intermountain states
that the proposed overall price changes reflect a just, fair, and equitable pass-through of changes
in gas-related costs to Intermountain s customers.
THE COMMENTS
Staff reviewed the Company s Application and gas purchases for the year 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. The overall effect of the
proposed changes in the Company s Application is a decrease in annual revenue received by
Intermountain of $2 185 875. The proposal drops the WACOG from the current rate of
$0.49600 per therm to the proposed rate of $0.49211 per thermo
This year 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 the injection season at
favorable prices. Current economic conditions coupled with the Company s hedging strategies
have allowed the Company to purchase gas at prices much lower than the W ACOG currently set
in rates, i., last year s W ACOG of $0.49600 per therm in the Company s amended 2009 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 revenue from customers. This over-collection will be credited back to customers over
the next 12 months.
Staff reviewed the established and recently proposed W ACOGs of other major
northwest gas utilities and found that Intermountain s proposed W ACOG continues to be the
lowest. Direct comparisons can be difficult because some utilities include different
(transportation and storage) elements in the W ACOG calculation and have different amortization
rates on the year-to-year deferral balances. However, Staff explained that Intermountain
ORDER NO. 32077
W ACOG difference can also be attributed to: (1) Northwest Pipeline s proximity to
Intermountain s service territory; (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.
Given that the Company has locked the majority of its winter flowing gas supplies
Staff determined that a W ACOG of $0.49211 per therm is reasonable when compared to
forecasted future commodity prices. Staff recommended the Commission accept the Company
proposed W ACOG. However, Staff agreed with the Company that if prices significantly deviate
from the proposed rates, the Company should return to the Commission with a new filing.
Intermountain utilizes storage to avoid high winter prices by procuring gas during the
summer when prices are usually cheaper. The Company has 111 million therms in underground
storage going into the winter heating season, which represents 52% of its November 2010 to
March 2011 supply requirement. Intermountain entered into various hedging agreements to
lock-in the price of its underground storage and other winter flowing supplies. The remaining
storage injections have been locked in at prices ranging from $0.39800 to $0.41600 per thermo
Consistent with prior years, as of September 1 , 2010, the Company s LNG storage was at
approximately 59% of its capacity.
Intermountain delivers transported natural gas to its Idaho city gates through
Northwest Pipeline, an interstate transportation provider whose pipeline runs through
Intermountain s service territory. However, in order to move gas from Canada to Northwest
Pipeline, Intermountain also utilizes capacity on Gas Transmission Northwest (GTN),
TransCanada s Foothills Pipeline system (Foothills) and its Alberta system known as Nova Gas
Transmission (Nova). Intermountain s pipeline capacity rates for both Nova and Foothills
increased in 2010 resulting in an increase of $1.8 million. Northwest Pipeline updated its rates
effective May 21 , 2010. While some rates decreased and others increased (storage and fuel
rates), the pipeline transportation rate billed to Intermountain remains unchanged. Contractual
terms with Northwest Pipeline allowed for a slight decline in daily volume and a decrease in
capacity costs of $1.2 million.
Lower Rockies Basin prices have benefited Intermountain due to the lack of pipeline
infrastructure capable of moving Rockies gas east. However, Rockies Express pipeline, a 639-
mile pipeline built to move gas east, was completed this past year. This pipeline will enable
ORDER NO. 32077
Rockies direct access to the eastern markets for the first time which is expected to increase price
competition among suppliers in North America. To date, the completion of the Rockies Express
pipeline has not significantly influenced natural gas prices.
This year the Company has significantly reduced its estimated percentage of L&U
gas to 0.20% of total throughput, approximately 55% lower than last year s estimates of 0.45%.
The Company indicates that this year s L&U gas estimate of 0.20% is expected to be closer to
the actual L&U gas going forward. Staff recommended that the Commission allow the Company
to credit the L&U gas amount requested in this PGA and that the Company continue to submit
semi-annual L&U gas reports for review. Staff also recommended that the Commission maintain
the maximum L&U gas recovery of 0.85% oftotal throughput as specified in Order No. 30649.
One comment was received from an RS-1 residential customer (space heating only)
who will receive a slight increase in rates if the proposed PGA is approved. The customer
contended that it was not fair to reward some customers with a decrease because they use more
natural gas and penalize others who use less natural gas.
DISCUSSION
We have reviewed the record for this case, including the Application and comments.
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 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 sufficient rates for
utilities 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 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.
An imbalance currently exists between supply and demand for natural gas which has
driven down gas prices. Intermountain Gas also utilizes dynamic hedging strategies and
effectively manages its natural gas storage. These factors allow Intermountain Gas to provide
ORDER NO. 32077
approved W ACOG from $0.49600 per therm to $0.49211 per thermo We commend the
Company for its management of gas procurement resulting in a lower W ACOG.
The Company continues to file semi-annual reports with the Commission explaining
how it tests for, identifies, and remediates equipment measurement errors and leaks. The
Commission continues to find such reporting reasonable. Finally, the Commission maintains the
cap on the amount recovered for L&U gas at 0.85% of total throughput, which is the current
level approved in Order No. 30649. The Commission commends the Company on its efforts and
proven reductions in L&U gas.
In response to the RS-1 customer comment, the Commission wants to clarify that all
customers are being treated equitably. The reduction in gas costs are assigned to all customers.
Capacity release revenues and other offsetting benefits are assigned to each class based on the
same assignment ratios used for the associated costs. RS-1 customers have a different level of
revenues and benefits. Therefore, RS-1 customers who paid a smaller portion of the costs now
receive a smaller portion of the associated benefits.
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 filed. The Company shall decrease its annualized revenues by $2.2
million and establish a weighted average cost of gas at $0.49211 per thermo The tariff sheets
filed with the Company s Application are hereby approved, to be effective October 1 2010.
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 Intermountain Gas promptly file an application to
amend its W ACOG should gas prices materially deviate from the presently approved $0.49211
per thermo
IT IS FURTHER ORDERED that Intermountain Gas maintain its maximum lost and
unaccounted-for gas recovery at 0.85% of total throughput. The Company shall continue to
submit a semi-annual report to the Commission regarding its lost and unaccounted-for gas.
ORDER NO. 32077
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, Idaho this
-r"-
day of September 2010.
J KEMP , P SIDENT
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFORD, COMMISSIONER
ATTEST:
~F ~.. D. Jewell
Commission Secretary
O:INT-IO-03 ks2
ORDER NO. 32077