20100813Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF

FROM: KRISTINE SASSER
DEPUTY ATTORNEY GENERAL

DATE: AUGUST 13, 2010

SUBJECT: IN THE MATTER OF INTERMOUNTAIN GAS COMPANY’S 2010 PGA,
CASE NO. INT-G-10-03

On August 11, 2010, Intermountain 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 PGA mechanism is used to adjust rates to reflect annual
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 earnings
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, 2010.
THE APPLICATION
With this Application, Intermountain 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
Intermountain by Northwest Pipeline GP (“Northwest” or “Northwest Pipeline”); (2) an increase
in costs from Intermountain’s “upstream” pipeline suppliers; (3) a decrease in Intermountain’s
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 Intermountain’s deferred gas cost accounts; and (6) 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.
DECISION MEMORANDUM 2
Intermountain Gas proposes decreasing the WACOG from the currently approved
$0.49600 per therm to $0.49211 per therm. The Application maintains that weather adjusted
demand for natural gas has diminished, driven by the downturn in our regional and national
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 1, 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. 4, line 26 reflects the elimination
of these temporary surcharges and credits. The proposed changes would result in a price
decrease to Intermountain’s RS-2, GS-1 and LV-1 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 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 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
DECISION MEMORANDUM 3
and Unaccounted for Gas which results in a net per therm decrease to both sales and
transportation customers. Application at 7.
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 WACOG, 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-1, T-3, T-4
and T-5 tariffs include a uniform cents-per-therm decrease to adjust for lost and unaccounted for
gas. Id.
Intermountain asserts that customers have been notified regarding Intermountain’s
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. 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, 2010.
STAFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure.
COMMISSION DECISION
1. Does the Commission wish to process this case under Modified Procedure?

M:INT-G-10-03_ks