20140926final_order_no_33139.pdf

Office of the Secretary
Service Date
September 26.2014
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF INTERMOUNTAIN )
GAS COMPANY’S APPLICATION FOR )CASE NO.INT-G-14-01
AUTHORITY TO CHANGE ITS PRICES )
(2014 PURCHASED GAS COST )
ADJUSTMENT).)ORDER NO.33139
________________________________________________________________________________________
)
On August 8,2014,Intermountain Gas Company (the “Company”)filed its annual
Purchased Gas Cost Adjustment (“PGA”)Application.The Company seeks to pass its increased
gas costs to consumers through new PGA rates that would increase the Company’s annual
revenues by $6.7 million (about 2.64%).The new rates would take effect on October 1,2014.
On August 20,2014,the Commission issued a Notice of Application and Notice of
Modified Procedure soliciting public input on the Application and setting a September 17,2014
comment deadline.Order No.33099.Commission Staff and four members of the public filed
timely written comments.The Company did not reply.
Having reviewed the record,the Commission enters this Order granting the
Application as follows.
THE APPLICATION
The PGA adjusts rates each year to reflect changes in the Company’s costs to buy
natural gas from suppliers—including transportation,storage,and other related costs.See Order
No.26019.A change in the PGA does not affect the Company’s earnings.But a PGA change
can cause customer rates to go up or down.In this Application,the Company proposes a PGA
increase that would increase overall prices for customers.The Company says residential
customers using gas for space and water heating would see a $1.89/month (3.8 1%)average
increase,residential customers using natural gas only for space heating would see a $1.40/month
(3.64%)average increase,and commercial customers would see a $0.31/month (0.15%)average
increase.
The Company explains that its proposed PGA rates incorporate all changes in the
Company’s costs for firm interstate transportation capacity,including any price changes or
projected cost adjustments implemented by the Company’s pipeline suppliers and any volumetric
adjustments in contracted transportation agreements that have occurred since the Company’s last
ORDER NO.33139 1
PGA filing,Case No.INT-G-13-05.The proposed PGA would increase the weighted average
cost of gas (“WACOG”)to be recovered through the new rates from $0.3734l per therm to
$0.39482 per therm.’Although significant shale gas reserves exist,the Company explains that
the WACOG has risen because modest improvements in the economy and increased natural-gas-
fired electric generation have increased demand and caused natural gas prices to rise.The
Company notes,however,that natural gas prices remain much lower than they were a few years
ago.The Company attempts to keep gas prices low by locking in large portions of its stored gas
at lower prices,and by hedging other winter gas supplies.
As part of this Application,the Company seeks to provide its customers with $3.9
million in benefits arising from the management of the Company’s transportation capacity.The
Company also proposes to temporarily adjust prices for 12 months—from October 1,2014 until
September 30,2015—to allocate to customers the fixed,variable,and lost and unaccounted-for
gas costs from the Company’s deferred Account No.186 balance.The Company notes that
pursuant to Order No.32793,its deferred variable gas cost reflects credits associated with
liquefied natural gas (LNG)sales from the Company’s Nampa,Idaho facility.
THE COMMENTS
Commission Staff and four members of the public filed timely comments.
The four public commenters oppose the Company’s Application for three reasons.
First,they express concern that commercial users will see a lesser average monthly bill increase
(.15%)than residential users will see (3.8 1%or 3.64%,depending on whether the residential
customer uses gas for space and water heating or just for space heating).Second,they argue that
it is inequitable for the Company to receive a rate increase when its residential customers have
not received increases in their income.Third,they question whether the Company is
mismanaging its other business costs if its gas costs are 50%less than they were in 2005 but
customer rates still increase.
Commission Staff noted that it thoroughly reviewed the Company’s Application and
gas purchases and verified that the Company’s PGA proposal will not change the Company’s
The WACOG is the Company’s average variable cost to buy and transport gas to satisfy its customers’estimated
annual gas needs.While the WACOG includes the volumetric interstate transportation rate and city gate costs,it
excludes fixed capacity costs for interstate transportation,liquid storage,and underground storage.The WACOG is
about 66%of the Company’s total annual gas cost.See Staff Comments at 4.
ORDER NO.33139 2
request is reasonable.Staff Comments at 2.For those reasons,it recommends approval of the
Application.
Staff explains that this year’s $6.7 million PGA increase reflects:(I)the pass through
of transportation costs billed to the Company from firm transportation providers;(2)an increase
in the Company’s WACOG;(3)an updated customer allocation of gas-related costs under 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 the Company’s deferred
gas cost accounts;and (5)benefits resulting from the Company’s management of its storage and
firm capacity rights on various pipeline systems.Id.
Staff confirms that the Company’s proposed WACOG is appropriate.Staff does note
that this year’s proposed WACOG—an increase from $0.37341 per therm to $0.39482 per
therm—would be the second WACOG increase following several years of consecutive
decreases.Id.at 4-5.However,Staff reviewed the market,the Company’s weighted average
cost of its current hedges,and the Company’s estimated cost of forward-looking index
purchases,and opines that the Company’s proposed WACOG is reasonable.Staff thus
recommended the Commission accept the proposed WACOG and direct the Company to return
to the Commission with a new filing if prices materially deviate from proposed rates in the
upcoming year.Id.at 5-6.
Staff also confirms that the Company bought gas at market prices and minimized risk
to ratepayers.Staff explains that the Company supplies its mainline requirement with hedges,
spot market purchases,and underground storage of gas purchased at lower,summer prices.The
Company also sells LNG from its above-ground storage facility to provide customers with a
$405,411 PGA credit while still using the LNG to meet its customers’peak-day gas needs.The
Company also manages its interstate transportation capacity so it can sell surplus capacity in the
market.Staff opines that the Company continues to manage its resource portfolio to provide
price stability for customers.According to Staff,the Company’s flexible approach allows it to
opportunistically buy gas,manage storage,and use its interstate transportation capacity to lower
fixed costs and benefit customers.See id.at 6-10.
Staff further confirms that the Company’s proposed PGA surcharge for Lost and
Unaccounted For (“LAUF”)gas is reasonable.LAUF gas is the difference between the amount
of natural gas delivered to the Company’s distribution system at the city gate and amount of
ORDER NO.33139 3
natural gas ultimately recorded at the customers’meters.Each year,the Company estimates its
LAUF gas amount for inclusion in the PGA.The Company recovers its LAUF gas amount
through a per therm surcharge if the amount is above the amount that is included in base rates.
Conversely,the Company credits customers if the LAUF gas amount is below the amount that is
included in base rates.This year,the Company says it under-collected LAUF gas,and it
proposes to correct the under-collection through a $634,066 surcharge to customers.Although
Staff found some minor errors in the Company’s calculation,Staff opines that the errors will not
impact customers and that the Company’s proposed LAUF gas amount is reasonable.Id.at 10-
11.
Staff notes that the Company also uses its LAUF gas reports to bill the party who is
responsible for breaking a line,which in turn reduces annual PGA costs.In last year’s PGA
case,the Commission directed the Company to “bill the full retail rate to the responsible party
when pricing lost gas due to a line break.”Order No.32897 (emphasis added).In this year’s
PGA filing,the Company explains that it interprets the “full retail rate”to include the WACOG,
and the Residential Schedule No.1 (RS-1)fixed costs of interstate transportation and storage.
Staff notes that the true “full retail rate”could also include costs that are unrelated to the per
therm cost of a line break,or that occur downstream of the line break (e.g.,meter costs,A&G,
O&M,ROR,taxes,etc.).But both the Company and Staff note that using the true “full retail
rate”would be administratively burdensome for pricing lost gas,particularly when the party
responsible for the line break is not a customer.Staff thus recommended the Company continue
to price lost gas by using the WACOG and the RS-1 fixed cost of interstate transportation and
storage to price lost gas.Id.at 11-12.
Staff took issue with how the Company used peak-day in allocating gas costs to
customers.Staff explains that the Company allocates its fixed-gas costs to each customer class
based on peak-day usages.Before 2012,the Company used a 1990 peak-day to allocate the
volume-weighted average costs of gas,but since the 2012 PGA,the Company has used a
December 2009 peak-day to allocate those costs.Staff reports that the Company exceeded the
December 2009 peak-day usage in December 2013,but that the Company did not update its
allocation factors to reflect the new peak because the Company determined that such a change
would have an immaterial impact on customer class allocations.Staff states that the Company
should objectively update its allocation factors to reflect the most recent peak day,regardless of
ORDER NO.33139 4
whether the Company believes such a change would materially impact allocations.Staff thus
recommended the Company update its peak-demand allocation factors in future PGA filings
whenever a new peak day has occurred.
DISCUSSION AND FINDINGS
The Commission has reviewed the record for this case,including the Application and
comments.The Company is a public utility,and the Cornmifision has jurisdiction over it and the
issues in this case under Title 61 of the Idaho Code,and more specifically,Idaho Code ft 61-
501 and 61-501 The Commission must establish just,reasonable,and sufficient rates for
utilities subject to its jurisdiction.Idaho Code §61-502.The POA mechanism is used to adjust
rates to reflect changes in the Company’s costs for the purchase of natural gas from suppliers—
including transportation,storage and other related costs.See Order No.26019.The Company’s
earnings are not to be increased from changes in prices and revenues resulting from the PGA.
The PGA mechanism is designed to pass through prudently incurred commodity costs in a timely
fashion.
The Commission has examined the Company’s Application and gas purchases for the
year,and finds that the Application should be granted and the tariffs approved as filed.We find
the Company’s costs to buy natural gas and transport it to the Company’s system have increased
by about $6.7 million,and that the Company’s current rates are insufficient to enable it to
reasonably recover these costs.We thus find the Application should be granted,and the
Company should be allowed to increase its WACOG from $0.3734 per therm to $0.3948 per
therm,and that the resulting customer rates are just,reasonable and sufficient to enable the
Company to recover its increased costs.
With respect to how the Company bills for lost gas from line breaks,we accept
StaWs and the Company’s explanation that pricing such gas at the “full retail rate”would be
administratively burdensome.We thus find it reasonable for the Company to continue billing
responsible parties by pricing lost gas —the WACOG and the RS-1 fixed cost of interstate
transportation and storage.
Lastly,we find it reasonable for the Company to objectively update its peak-demand
allocation factors in the PGA filing following a new peak-day,regardless of whether the change
would materially impact allocation to customer classes.
ORDER NO.33139 5
ORDER
IT IS HEREBY ORDERED that the Company’s Application is granted.The
Company is authorized to pass through its proposed adjustments.surcharges,and credits to
customers as filed.The Company shall establish a WACOG of $0.3948 per therm.The tarifT
sheets filed with the Company’s Application are hereby approved,effective October 1,2014.
IT IS FURTHER ORDERED that the Company shall promptly apply to amend its
WACOG if natural gas prices materially deviate from the WACOG approved in this Order.
IT IS FURTHER ORDERED that in the future,the Company shall bill a party who is
responsible for a line break to price lost gas using the WACOG and the RS-l fixed-cost of
interstate transportation and storage.The Company shall also update its peak-demand allocation
factors in PGA filings following a new peak day.
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 62-6 19.
ORDERNO.33139 6
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of September 2014.
ATTEST:
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MARSHA H.SMITH,COMMISSIONER
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Jean D.Jewell
Commission Secretary
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MACK A.REDFORD,CO1 IONER
ORDERNO.33139 7