20120928final_order_no_32653.pdf

Office of the Secretary
Service Date
September 28, 2012
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE ANNUAL
PURCHASED GAS ADJUSTMENT (PGA) ) CASE NO. INT-G-12-01
FILING OF INTERMOUNTAIN GAS )
COMPANY ) ORDER NO. 32653
On August 10, 2012, Intermountain Gas Company ("Intermountain" or "Company")
filed its annual Purchased Gas Cost Adjustment ("PGA") and requested a Commission Order,
pursuant to Idaho Code §§ 61-307 and 61-622, to institute new rate schedules which will
decrease its annualized revenues by $6.0 million. Application at 2. Intermountain also "seeks to
refund $11.9 million of variable deferred credits in a one-time bill credit." Id. Intermountain
attached copies of its current rate schedules and proposed rate schedules. Id., Exh. 1-2.
On September 5, 2012, the Commission issued Notices of Application, Modified
Procedure and Intervention Deadline. See Order No. 32632. Commission Staff ("Staff') was the
only party to submit written comments by the September 20, 2012 comment deadline.
THE FILING
Intermountain's Application lists the following cost variations that it seeks to pass
through to each of its customer classes through this filing:
(1) an increase in costs billed Intermountain from Northwest Pipeline OP
("Northwest" or "Northwest Pipeline") reflecting a January 1, 2013 price
increase and the purchase of additional Northwest capacity, (2) a decrease in
Intermountain's Weighted Average Cost of Gas, or "WACOG," (3) an
updated customer allocation of gas related costs pursuant to the Company's
PGA provision, (4) 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 (5) benefits resulting from
Intermountain's management of its storage and firm capacity rights on various
pipeline systems. Intermountain also seeks with this Application to eliminate
the temporary surcharges and credits included in its current prices during the
past 12 months, pursuant to Order No. 32372 per Case No. INT-G-1 1-01.
Id. at 3-4. The Company asserts that the net effect of the "above changes would result in an
overall price decrease to Intermountain's customers." Id. at 4.
According to Intermountain, its "proposed prices incorporate all changes in costs
relating to the Company's firm interstate transportation capacity including, but not limited to,
ORDER NO. 32653 1
any price changes or projected cost adjustments implemented by the Company's pipeline
suppliers as well as any volumetric adjustments in contracted transportation agreements which
have occurred since Intermountain's PGA filing in Case No. INT-G-l1-0l." Id.
Intermountain notes that "Northwest Pipeline and its shippers settled Northwest's
recent rate case filing resulting in an approximate 9% price increase effective January 1, 2013.
Id., Exh. 3. Next, Intermountain recounted the efforts the Company has taken to "effectively
manage its natural gas storage assets." Id. at 4-5, Exh. 4.
The Application lists a decrease in the WACOG price from the current price of
$0.41812 per therm to the proposed price of $0.33489 per therm. Id at 5, Exh. 4. Intermountain
declares that natural gas prices have continued to fall. Id. Intermountain states that natural gas
storage balances are at "record levels." Id. Thus, record storage levels combined with "ample
natural gas supplies . . . has kept the near term prices for natural gas low." Id. Intermountain
states that it "has entered into various fixed price agreements to lock-in the price for significant
portions of its underground storage and other winter 'flowing' supplies." Id.
Intermountain's Application seeks "to pass through to its customers the benefits that
will be generated from the management of its transportation capacity totaling $3.7 million as
outlined on Exhibit No. 7." Id. at 6. Intermountain's proposal seeks 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, 2013. . . ." Id. at 7, Exh. 6, 8-9.
Intermountain filed "an out-of-cycle PGA which was effective February 2012 to
account for rapidly falling natural gas prices. . . ." Id. Nevertheless, prices continued to drop
and "lower natural gas commodity prices from July 2011 through June 2012 resulted in a credit
balance of $11.9 million." Id. at 7, Exh. 10. Intermountain' s proposal includes a "refund of this
balance through a one-time credit on customer bills in December 2012." Id. The credit balance
would be divided by actual sales volumes over the time period it was generated to arrive at the
per therm credit. Id., Exh. 10. "This calculated credit would be reflected as a line item on
customer bills in December 2012." Id. at 8, Exh. 10. Intermountain did not apply "a straight
cent per therm price decrease . . . for the LV- 1 tariff as no fixed costs are currently recovered in
the tail block of the LV-1 tariff." Id. The changes to the WACOG price, as well as other
variable deferred credits, "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
ORDER NO. 32653 2
"Each block of the proposed LV-1, 1-3, T-4 and 1-5 tariffs include a uniform cents
per therm increase to adjust for Lost and Unaccounted For Gas as detailed on Exhibit No. 9,
Lines 13 through 20, Col. (b)." Id. An analysis of the overall price changes by class of customer
is outlined in Exhibit No. 11. Id.
Intermountain states it has provided notice of the proposed changes to its tariff
schedules through the issuance of a formal Customer Notice and Press Release. Id.
Intermountain proposes an effective date for the proposed changes of October 1, 2012. Id. at 10.
STAFF COMMENTS AND RECOMMENDATIONS
Staff reviewed the Company's Application and gas purchases 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 Application
proposes a credit of approximately $11.9 million to customers in the form of a one-time bill
credit to customers on their December bills. Another $6.0 million in revenue would be passed
back to customers through a 2.4% decrease in the Company's rates beginning October 1, 2012.
The combined credits would yield an overall price decrease of 7.1%.
WA COG
Intermountain's proposal drops the WACOG from the current rate of $0.4181 per
therm to the proposed rate of $0.3349 per therm. This represents a 26.1% decrease authorized in
the Company's 2011 PGA filing, INT-G-11-01, and a 19.9% decrease from the Company's
December 2011 WACOG filing, INT-G-11-03. Staff believes that the Company's methods are
solid and accurate; the proposed WACOG reflects current and future economic factors; and the
proposed WACOG reasonably compares to benchmark market prices.
Staff noted that the Company implemented two improvements recommended by Staff
in comments pertaining to its 2011 PGA filing: (1) approval of the fixed cost collection rate was
incorporated as part of the Company's PGA filing rather than through a separate approval by
Staff after the PGA is authorized by the Commission; and (2) the Company organized its gas
contracts, and other documents relevant to the development of the WACOG, in a manner that
allowed Staff to more easily locate and review them. In future filings, Staff recommended that
the Company include electronic versions of exhibits and workpapers with its initial filing.
Staff's analysis of current market trends led it to conclude that the Company's
forecast of a downward trend in the WACOG is valid and reasonable. Staff noted that this is the
ORDER NO. 32653 3
sixth consecutive decrease and that the proposed WACOG is roughly equivalent to the 2002
WACOG in nominal dollars.
Finally, several factors have driven the price of gas to the lowest levels seen in over
10 years: (1) continued weak economic conditions, i.e., weak demand; (2) mild winter in 2011-
2012; (3) a prolific increase in the supply of shale and unconventional gas aided by reduced costs
and more advanced drilling technology; (4) an increase in natural gas from oil drilling; and (5)
storage balances filled to capacity sooner than expected.
Staff compared the Company's projected monthly cost of purchased gas used to
determine the proposed WACOG to EIA's monthly forecasts and to NYMEX futures prices.
The Company's proposed WACOG is conservative but reasonably compares to published natural
gas price benchmarks.
Risk Management and Gas Purchasing
Intermountain lowered its winter hedging ratios from 69.4% to 63.3%. For the full
year, the Company's hedging ratio averages out to 59.0%. Staff believes that the Company has
made adjustments in its hedging ratios to match current market conditions and to protect
consumers from future upward price risk.
Staff believes that the Company's ability to dynamically adapt to market conditions
continues to offer customers savings and, more importantly, mitigate price volatility by hedging
in an intelligent manner. Stagnant economic conditions allowed Intermountain to purchase gas
for less than the current WACOG set in rates during the past year, leading to the aforementioned
over-collection the Company proposes to credit back to customers.
Temporary Surcharges and Credits
Staff reviewed the new temporary credits and noted that they consist of three separate
items: (1) a credit of approximately $3.7 million in benefits generated by release of some
pipeline transportation capacity; (2) an additional credit of $4.8 million attributable to the
collection of pipeline capacity costs, the true-up of expenses from the 2011 PGA, and capacity
release credits generated from the release of Intermountain's pipeline capacity; and (3) the $1.3
million deferred credit balance, which is the difference from the commodity costs that
Intermountain actually paid for natural gas and the WACOG that was included in rates. The
temporary credit items, minus the drop in revenue proposed by the Company, results in a total
credit of $9.8 million. This amount is then offset by the removal of prior temporaries, including
ORDER NO. 32653 4
lost and unaccounted for gas (L&U), for a total deferral of $13.4 million. As mentioned earlier,
the total reduction in revenue is approximately $6 million. See Page 4, Table 2.
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 contracted underground storage going into the winter
heating season, which represents 38% of its November 2012 to April 2013 supply requirement.
Intermountain entered into various supply agreements to lock-in the price of its underground
storage. These storage injections have been locked in at prices ranging from $0.2375 to $0.3852
per therm. The Company expects to keep only 50% of its 18.5 million therms of total LNG
capacity throughout the winter. Storing significantly more LNG than anticipated usage during
the winter would come at an additional expense to customers.
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 (GIN),
TransCanada's Foothills Pipeline system (Foothills) and its Alberta system known as Nova Gas
Transmission (Nova). Intermountain's pipeline capacity rates decreased in 2012 by
approximately $600,000. Northwest Pipeline settled its prefiled FERC rate case and updated its
rates effective January 1, 2013. Contractual terms with Northwest Pipeline increased daily
volume as well as capacity costs by approximately $6 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
ORDER NO. 32653 5
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 Unaccountedfor Gas
This year the Company is in a "lost gas" position, with 4.5 million therms less of gas
flowing through customer's meters than into Intermountain's service area, representing a 0.76%
L&U rate. This rate is approaching the 0.85% maximum cap of L&U as a percentage of total
throughput established by the Commission in Order No. 30649. Staff believes that the
Company's L&U for this PGA filing is accurate and recommended the Company be allowed to
surcharge customers $2,060,867 for L&U requested in the PGA.
Because this year's L&U was approaching the 0.85% cap and because of relatively
large swings in the L&U from year-to-year, Staff investigated possible root causes for the
variation. Staff discovered that the Company had found an error that affected a large customer's
bill for approximately the past three years.
Intermountain has expressed a desire to review L&U through its integrated resource
planning process but Staff continues to recommend that the Company be required to submit
semi-annual L&U gas reports for review. Staff believes that the Company should be compelled
to quantify normal causes of variation before shifting to less frequent reviews. Staff
recommended that the Commission maintain the maximum L&U gas recovery of 0.85% of total
throughput as specified in Order No. 30649.
Customer Relations
Staff agrees with the Company's method of calculating the proposed credit in its
Application. Staff supports the one-time credit method over the normal PGA method for three
reasons: (1) it gives money back to customers sooner; (2) the credit is based on each customer's
usage during the time period the credit accumulated; and (3) it will provide rate stability.
ORDER NO. 32653 6
Staff noted that the Company issued a Customer Notice and Press Release in
compliance with the IPUC Rules of Procedure. The Commission did not receive any public
comments regarding the Company's Application.
FINDINGS OF FACT AND CONCLUSIONS OF LAW
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, more specifically, Idaho Code §§ 61-117, 61-129, 61-
307, 61-501, and 61-502, and the Commission's Rules of Procedure, IDAPA 31.01.01.000, et
seq.
COMMISSION FINDINGS AND DECISION
The Commission has thoroughly reviewed the record in this case, including the
Company's Application and exhibits, as well as Staff comments. The Commission reviews the
Company's annual PGA filing in order to verify that it properly adjusts rates to reflect
contemporary changes in the costs for the purchase of gas from suppliers, including
transportation, storage and other related costs associated with the acquisition and delivery of
natural gas. Intermountain's PGA filing does not increase, decrease or otherwise affect the
Company's earnings.
The Commission finds Intermountain's calculation of the proposed credit and
estimation of the near-term pricing levels for natural gas to be reasonable and accurate. It is
abundantly clear that record storage and supply levels are currently outpacing aggregate demand,
resulting in the continuing decline of wholesale natural gas prices. Therefore, the Commission
finds that it is fair, just and reasonable for Intermountain Gas to decrease its previously approved
WACOG from $0.4181 per therm to $0.3349 per therm.
Further, the Commission finds that a one-time bill credit based upon actual usage
during the time period that the credit balance was accrued is a fair, just and reasonable method to
reimburse customers. Instead of embedding the value of the credit in rates throughout the
coming year, the single credit method will allow customers more immediate rate relief during a
time period when natural gas usage is typically nearing its peak.
The Commission directs the Company to continue filing semi-annual L&U gas
reports, per Commission Order No. 30649. The Company is encouraged to meet with Staff and
come to agreement on standard loss control practices for the identification and remediation of
ORDER NO. 32653 7
extraordinary causes due to leaks and errors. Once the Company can demonstrate successful
implementation of such practices, the Commission invites the Company to request a shift of the
reporting of L&U gas to the Company's Integrated Resource Plan. Finally, the Commission
maintains maximum L&U recovery at 0.85% of total throughput previously approved in
Commission Order No. 30649
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
approximately $6.0 million and establish a new WACOG of $0.3349 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, 2012.
IT IS FURTHER ORDERED that the Company's request to pass along to customers
a one-time bill credit of approximately $11.9 million on their December bill, resulting in an
overall price decrease of approximately 7.1% to the average customer, is approved.
IT IS FURTHER ORDERED that Intermountain Gas shall 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 $0.3349 per therm.
IT IS FURTHER ORDERED that Intermountain Gas shall be permitted to surcharge
customers $2,060,867 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. 32653 8
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of September 2012.
PRESIDENT
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MACK A. REDFORD, COMMISSIONER
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MARSHA H. SMITH, COMMISSIONER
ATTEST:
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J€mn D. Jewell (J
&ommission Secretary
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ORDER NO. 32653