20110930final_order_no_32372.pdf

Office of the Secretary
Service Date
September 30,2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF INTERMOUNTAIN GAS COMPANY )CASE NO.INT-G-11-01
FOR AUTHORITY TO CHANGE ITS )
PRICES (2011 PURCHASED GAS COST )
ADJUSTMENT).)ORDER NO.32372
_________________________________________________________________________________
)
On August 11,2011,Intermountain Gas Company filed its annual Purchased Gas
Cost Adjustment (PGA)Application requesting authority to decrease its annualized revenue by
$14.4 million (5.3%).Application at 2.The Company asked that its Application be processed
by Modified Procedure,and that its rates take effect October 1,2011.id.at 9.
On August 18,2011,the Commission issued a Notice of Application and Notice of
Modified Procedure and set a September 21,2011 comment deadline.See Order No.32329.
Having reviewed the Application and the comments received,the Commission enters this Order
authorizing the Company to decrease its annualized revenues by $14.4 million and establish a
weighted average cost of gas (“WACOG”)of $0.45342 per therm,with such changes taking
effect on October 1,2011.
THE APPLICATION
Intermountain proposes decreasing its annualized revenue by $14.4 million (about
5.3%).Application at 2.The Company contends the proposed changes will decrease its
customer rates while not affecting the Company’s earnings.Application at 2,4.
Intermountain seeks to pass-through to each customer class a net change in gas-
related costs resulting from (1)a cost increase billed to Intermountain by Northwest Pipeline GP;
(2)a cost decrease from Intermountain’s “upstream”pipeline suppliers and its storage facilities;
(3)a decrease in Intermountain’s weighted average cost of gas (“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 natural gas purchases 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 various
pipeline systems.Application at 3-4.
ORDER NO.32372 1
Intermountain proposes decreasing the WACOG from $04921 1 per therm to
$0.45 342 per therm.The Application maintains that “[c]ontinued weakness in the regional and
national economies has put downward pressure on new customer growth and weather adjusted
demand for natural gas.At the same time,natural gas supplies are ample and U.S.dry gas
production is at an all time high.Robust supply coupled with flat demand has kept the near term
prices for natural gas relatively low.”Id.at 5.
Pursuant to Order No.32077,Intermountain included temporary surcharges and
credits in its October 1,2010 prices to pass back to customers deferred gas cost charges and
benefits.Intermountain now seeks to eliminate the temporary surcharges and credits included in
its current prices during the past 12 months.The proposed changes would result in an overall
price decrease to Intermountain’s customers.Application at 4,6.
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 when prices are typically lower than during the winter,(making)the cost of
Intermountain’s storage gas normally less than what could be obtained on the open market in
winter months.”Additionally,and to further stabilize prices paid by customers during the
upcoming winter period,Intermountain has entered into fixed price agreements to lock-in the
price for significant portions of its underground storage and other winter “flowing”supplies.Id.
at 5.
The Company proposes allocating 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 30,2012,as follows:(1)fixed gas costs credit of $5.9 million
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 incremental release of Intermountain’s pipeline capacity;(2)deferred gas cost amounts of
$12.2 million attributable to variable gas costs since October 1,2010;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.Id.at 6-7.
Intermountain says it did not use a straight cents-per-therm price decrease for the LV
1 tariff.There are no fixed costs recovered in the tail block of the LV-l tariff.The proposed
changes in the WACOG,and variable deferred credits (outlined in Exhibit 9)are applied to all
ORDER NO.32372 2
three blocks of the LV -1 tariff,but adjustments relating to fixed costs are applied only to the
first two blocks of the LV -l tariff.Each block of the proposed LV-1,T-3,1-4 and T-5 tariffs
include a uniform cents-per-therm decrease to adjust for L&U.Id.at 7.
Intermountain states it notified customers about its Application through a customer
notice and press release.The Company asserts that the proposed overall price changes reflect a
just,fair,and equitable pass-through of changes in gas-related costs to Intermountain’s
customers.Id.at 8.
THE COMMENTS
Comments were filed by Staff and a member of the public.The comments are,in
sum,as follows.
Staff 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 WACOG request.The Company’s proposed
changes will result in an overall decrease in annual revenue received by Intermountain of
$14,377,405.
WACOG
Intermountain’s proposal drops the WACOG from the current rate of $0.4921 1 per
therm to the proposed rate of $0.45342 per therm.The proposed WACOG is about equivalent to
the 2003 WACOG in nominal dollars.Staff recommended that the Commission accept the
proposed WACOG,and that the Company return to the Commission with a new filing if prices
significantly deviate from the proposed rates during the upcoming year.
Staff noted that the Company’s WACOG continues to decline for two reasons.First,
the natural gas industry expects relatively low near-term demand growth in regional and national
markets due to lingering weak economic conditions.Second,the natural gas market supply
continues to grow despite lower natural gas prices due to reduced costs to access unconventional
gas resources and the use of more advanced drilling technology.Staff observed that the
Company’s monthly purchased gas cost generally is higher than Staff’s estimates,with the
largest differences occurring during the winter (mostly due to hedging).Staff nevertheless found
that the Company’s proposed WACOG (though conservative)reasonably compares to other
industry natural gas price benchmarks (e.g.,ETA monthly forecasts,NYMEX futures prices).
ORDER NO.32372 3
Risk Management and Gas Purchasing
Intermountain lowered its winter hedging ratios from 90%(used during the past two
years)to 69%,a move that will enable the Company to buy natural gas for less than it could have
had it continued to use the prior ratios.Staff believes that the Company took a conservative but
appropriate position by allowing for increased opportunities to take advantage of softening
prices,while maintaining sufficient protection against increased market prices.
Continued weak economic conditions coupled with the Company’s hedging strategies
have allowed the Company to purchase gas for less than the current WACOG set in rates during
the past year.This contributed to an over-collection of approximately $12.2 million now being
credited back to customers during this year’s PGA.
Natural Gas Storage
Intermountain utilizes storage to (1)avoid high winter prices by procuring gas during
the summer when prices are usually cheaper and (2)provide system-designed peaking capacity
for unusually high demand events or backup for potential pipeline disruptions and curtailments.
The Company has 95 million therms in underground storage going into the winter heating
season,which represents 42%of its November 2011 to March 2012 supply requirement.
Intermountain entered into various supply agreements to lock-in the price of its underground
storage.The remaining storage injections have been locked in at prices ranging from $0.4080 to
$0.487l per therm.As of September 13,2011,the Company’s LNG storage was at
approximately 78%of its capacity.
Pipeline Transportation
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 Nova increased in 2011,
resulting in a decrease of approximately $500,000.Northwest Pipeline updated its rates effective
April 4,2011.Traditionally,Northwest Pipeline and other fuel providers change rates annually,
but these annual changes do not largely affect the price Intermountain charges to customers.The
pipeline transportation rate billed to Intermountain remains unchanged.Contractual terms with
ORDER NO.32372 4
Northwest Pipeline increased daily volume as well as capacity costs by approximately $1
million.Capacity on these pipelines remains a key component in serving customers and
maintaining supply diversity.Intermountain will also determine when its contracted interstate
transportation is under-utilized due to warmer weather or declines in industrial demand.This
capacity will be posted for release to others with the release payments received benefiting
Intermountain customers.
Intermountain’s proximity to several interstate pipelines allows it to effectively
allocate its natural gas supply mix from different basins based on price differentials,and to
subsequently re-deliver that specified volume on its own distribution pipeline network at the
lowest possible price.Intermountain has traditionally sourced a higher percentage of gas from
the Rockies Basin,because of Northwest Pipeline’s close proximity to the Company’s service
territory and lower price.
The recent completion of the Rockies Express (November 2009)and Ruby (July
2011)pipelines has opened access of Rockies Basin natural gas to the East and to the West,
respectively.This appears to be changing the market that the Company uses to source its gas by
increasing competition and price for Rockies Basin gas while decreasing competition and the
price of gas out of Alberta Canada (AECO-C).
Recovery of Lost and Unaccounted for Gas
This year the Company is in a “found gas”position,with 894,000 therms more of gas
being metered into Intermountain’s service area than were metered at the point of consumption.
The Company says this can happen if measurement error occurs on the high side at
Intermountain’s city gates and/or on the low side at the customer’s meter,even if the error is
within acceptable tolerances.Because the absolute value of L&U as a percent of total yearly
throughput is below what was reported last year,this may indicate that the amount of
measurement error is improving and the measures the Company has put into place to improve on
reducing L&U are working.
Staff recommended that the Commission allow the Company to refund to customers
L&U gas amount requested in this PGA ($1,506,252),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%of total throughput as specified in Order No.30649.
ORDER NO.32372 5
Public Comments
The sole public commenter is a customer who is pleased with the Companys
proposed rate decrease.
FINDINGS AND DISCUSSION
The Commission has 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
3 1.01.01.000,el seq.
The Commission must establish just,reasonable,and sufficient rates for utilities
subject to its jurisdiction.Idaho Code §6 1-502.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 annua1 PGA.The
PGA mechanism is designed to pass through prudently incurred commodity costs in a timely
fashion.
The currently increased supply of natural gas 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 stable prices to its customers.
Consequently,we find it reasonable to decrease the approved WACOG from $0.4921 1 per therm
to $0.45342 per therm.
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.
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 $14.4
ORDER NO.32372 6
million and establish a WACOG at $0.45342 per therm.The tariff sheets filed with the
Company’s Application are hereby approved,to be effective for service rendered on and after
October 1,2011.
IT IS FURTHER ORDERED that Intermountain Gas continue to file quarterly
WACOG projections and monthly deferred costs reports with the Commission.
iT IS FURTHER ORDERED that Intermountain Gas promptly apply to amend its
WACOG should gas prices materially deviate from the presently approved $0.45342 per therm.
IT IS FURTHER ORDERED that Intermountain Gas refund $1 ,506,252 to customers
for L&U,and maintain its maximum L&U 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.
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.
ORDER NO.32372 7
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of September 2011.
PAUL KJ LAN ,PRESIDENT
r)
MARSHA H.SMITH,COMMISSIONER
L
MACK A.REDFORD,COMMISSIONER
ATTEST:
71 71 /
Jan D.Jewell [:
Commission Secretary
O:INT-G-I 1-Olkk
ORDER NO.32372 8