20150319Comments.pdf

KARL T. KLETN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSIONpo Box g3720 rr'rJrr'rDD L'\rr'vrlvuoDr\,\ :l:l:: i'i,',q I:l Fli 3: C I
BOISE, IDAHO 83720-0074 iil,.1,;,,,[phone] LjTilliliii l,\,i,,ii'ri-,i,ri';'
IDAHO BAR NO. 5I56
Street Address for Express Mail:
472 W , WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF INTERMOUNTAIN GAS )
COMPANY'S APPLICATION TO CHANGE ITS ) CASE NO. INT-G-14-02
COMPOSITE DEPRECIATION AND )
AMORTIZATION RATES. ) COMMENTS OF THE
) COMMISSION STAFF
)
The Staff of the Idaho Public Utilities Commission comments as follows on
Intermountain Gas Company's Application.
BACKGROUND
On November 4,2014,Intermountain Gas Company applied to increase its: (1)
composite depreciation rate from3.}7Yo (3.06% when weighted by December 31,2010 assets) to
3.12%; and (2) total General Plant account amortizations from $1,749,970 to $2,598,813. The
Company says it needs these accounting changes because it has been under-depreciating its
assets and under-amortizing General Plant account Nos. 391,393,394,395,397 afi 398. If the
changes are approved, they would be reflected in the Company's books as of January 1,2015,
consistent with the start of the Company's financial reporting period. The proposed changes
would not increase customer rates at this time.
STAFF COMMENTS MARCH I9,2OI3
STAFF ANALYSIS
Staff has reviewed the Company's Application and accompanying Depreciation and
Amortization Accrual Rate Studies performed by AUS Consultants. In reviewing the
depreciation and amortization studies, Staff analyzed the depreciation rates, service lives,
remaining lives, and salvage values for all plant asset accounts. Additionally, Staff met with the
Company and its depreciation consultant on February 3,2015 and on March 5,2015. As a result
of those discussions, Staff and the Company have agreed to new depreciation rates that will
allow the Company to depreciate an annual amount of $ 14,617,3 l0 for a composite depreciation
rate of 3.05%. Attachment A outlines the specifics related to the agreed upon annual
depreciation rates. Staff and the Company agreed to accept the Amortization rates as filed.
Adjustments from the Company's original filing are explained in greater detail below.
Electronic Meter Reading Transmitters (ERTs)
In2002, the Company began installing automated and remote electronic meter reading,
using ERT devices that record the metered usage and transmit that usage to a radio receiving
device in a Company vehicle as it passes through the Company's service area. The ERT device
consists of a circuit board with a semiconductor chip radio transmitter, an electro-mechanical
device that converts the rotating action of the meter registers into data that is stored in the ERT's
memory chip, and a lithium battery. The manufacturer of the ERT devices has determined the
battery life to be 15 years. When the battery fails, the total ERT is replaced since it would be
more labor intense and costly to replace just the sealed battery. Accordingly, the Company
depreciated its initial ERT investment with a 15-year service life with a current annual
depreciation rate of $2,406,907 .
The Company began replacing the ERTs in2074, 12 years after initial deployment. The
Company's depreciation study proposed an average remaining life of 2.6 years, and an annual
depreciation expense of $2,545,702. After discussions, Staff and the Company agreed that the
ERT's depreciation rate should not change until after the Company has installed new ERTs
throughout its service territory. The Company's 2016 depreciation study will reevaluate the
appropriate depreciation rate for the new ERTs at that time.
STAFF COMMENTS MARCH 19,2013
Distribution Mains
The Company's current depreciation rate for distribution mains is $3,783,742 per year,
with a service life of 58 years and a negative 610/o net salvage value. In its Application, the
Company proposed a depreciation rate of 2.33% and an annual depreciation expense of
$3,417,100, with a net salvage value of negative 53Yo. The net salvage experience over the
period 1975 through 2013 has been a negative 43.8oA, with recent experience (2004-2013) being
a negative 45.5%. Staff and the Company have agreed to use a net salvage value of negative
50%, which results in an annual depreciation rate of 2.25o/o with annual expense of $3,229,775.
The agreed upon depreciation rate for this account is $187,325 less than the Company's
proposed depreciation rate, and $553,967 less than the Company's current depreciation rate.
Staff and the Company will monitor the net salvage values for distribution mains, and the 2016
depreciation study will allow any additional changes in this asset category if necessary.
Re gulating Station Equipment
For regulating station equipment, the Company currently uses a 35-year service life with
a net salvage value of negative 10o2, resulting in an annual depreciation expense of $194,108.
The Company's depreciation study recommended a net salvage value of negative 18% with
annual depreciation of $224,024. Staff and the Company agree that a net salvage value of
negative l4Yo is appropriate. This results in an annual depreciation rate of $2 I 3,5 88, for $ I 9,480
more than the Company's current depreciation expense, but $10,436 less than what the Company
proposed. As with Staff s other adjustments, the Staff and the Company will monitor the salvage
values prior to the 2016 depreciation study and incorporate any necessary changes at that time.
Liquefied Natural Gas (LNG) Facilities - Nampa
Historically, the Company has used its LNG facility in Nampa, Idaho to provide gas
during periods of high demand typically occurring in the winter. In 2011 , investment was made
to allow LNG to be loaded on trucks, and in 2073, the Company also began using the facility for
the non-utility sale of liquefied natural gas. See Order No, 32793. During 2011-2013,the
Company invested over $4.6 million in upgrades to the facility. Although Staff currently is not
proposing to adjust the Company's depreciation rates for the Nampa LNG facility, Staff raised
concerns with the Company that some of the upgrades appear primarily to facilitate the
STAFF COMMENTS MARCH I9,2OI3
commercial, non-utility sale of LNG, and to be more limited with regard to providing LNG to
customers during peak periods.
The Company currently provides a2.5 cent per gallon sold credit to utility customers in
the annual Purchased Gas Adjustment (PGA) mechanism to offset the operations and
maintenance of the LNG facility. Additionally, the Company has set aside another2.5 cents per-
gallon-sold recognizing that the commercial use of the facilities may accelerate capital
expenditures and maintenance. Staff and the Company agree that the allocation methodology
and reserve amounts should be revisited routinely to ensure that the Company's natural gas
customers are not on the hook for additional maintenance and capital expenditures caused by the
commercial sale of liquefied natural gas. The Company has agreed to let Staff access the Nampa
facility, and to assist Staff in periodically reevaluating the allocations for the commercial sale of
LNG.
The Company proposes a depreciation rate of 2.55Yo for the Nampa LNG facility, with an
annual depreciation expense of $312,379. The current depreciation rate is2.00Yo with an annual
expense of $245,003. The plant life has historically been extended with upgrade investments,
and Staff expects similar activity going forward. Staff and the Company agree that until the
LNG sales allocations, reseryes, and plant use are investigated later this year as discussed above,
the depreciation rate should not be changed and should remain at2.00o/o with an annual expense
of $245,003.
Amortizations
The proposed amortization for Account Nos. 391 ,393,394,395,397, and 398 increases
annually by $848,843 to $2,598,813. Many changes can be linked to changes in Customer
Service. Account 391, Furniture and Office Equipment, includes additions for modular work
stations, computer equipment and software upgrades. Account 397, Communications
Equipment, includes shorter lives for telephone and radio systems. It reflects the Company's
share of the new call center investment jointly used by Intermountain Gas, Cascade Gas and
MDU North Plains. Although Staff agrees to accept the Company's amortization rates as filed,
the Company has agreed to include additional detail for Accounts 391 and397 with its next
Amortization Study.
STAFF COMMENTS MARCH I9,2OI3
STAFF RECOMMENDATION
After thoroughly reviewing the Company's Depreciation and Amortization Accrual Rates
Study, and through discussions with the Company, Staff recommends that the Commission
accept the Company's proposed Amortization rates as filed, with an agreed upon overall
depreciation rate of 3.05%. Staff also recommends that the Commission accept the agreed upon
depreciation rates included in Attachment A, which incorporate the adjustments detailed above.
Per settlement discussions, the Company will work with Staff to reevaluate the customer
allocations associated with the commercial sale of LNG from the Company's Nampa LNG
facility. Additionally, the Company shall include additional detail to Accounts 391 and 397 in
its 2016 Amortization Study. The Company concurs with this recommendation.
Respectfully submitted this I q l-L day of March 2015.
lu/L
Karl T. Klein
Deputy Attorney General
Technical Staff: Terri Carlock
Donn English
i:umisc/comments/avug I 4.2kktcde comments
STAFF COMMENTS MARCH 19,2013
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CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS lgth DAY OF MARCH 2015,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. INT-G.14.02, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
MICHAEL P McGRATH
DIR _ REGULATORY AFFAIRS
INTERMOUNTAIN GAS CO
PO BOX 7608
BOISE ID 83707
E-MAIL: [e-mail]
RONALD L WILLIAMS
WILLIAMS BRADBURY PC
1015 W HAYS ST
BOISE ID 83702
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE