20160812Dedden Direct.pdf

Ronald L. Williams, ISB No. 3034
Williams Bradbury, P.C.
1015 W. Hays St.
Boise, ID 83702
Telephone: [phone]
Email: [e-mail]

Attorneys for Intermountain Gas Company

BEFORE THE IDAHO PUBLIC UTILITES COMMISSION

IN THE MATTER OF THE APPLICATION OF
INTERMOUNTAIN GAS COMPANY FOR
THE AUTHORITY TO CHANGE ITS RATES
AND CHARGES FOR NATURAL GAS
SERVICE TO NATURAL GAS CUSTOMERS
IN THE STATE OF IDAHO

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Case No. INT-G-16-02

DIRECT TESTIMONY OF TED DEDDEN

FOR INTERMOUNTAIN GAS COMPANY

August 12, 2016

Dedden, Di 1
Intermountain Gas Company
Q. Please state your name, title and business address. 1
A. My name is Ted Dedden. I am the Accounting & Finance Director of
Intermountain Gas Company. My business address is 555 S. Cole Road, Boise
Idaho 83707.
Q. Mr. Dedden, would you please summarize your educational and professional 5
experience. 6
A. I have been with Intermountain Gas Co. for over 3 years, with prior experience
with one of Intermountain’s affiliate companies – Cascade Natural Gas Corp. as
their Manager, Accounting Systems for three years. Prior to this role, I served in
various accounting and finance groups with Puget Sound Energy from 1978 until
2000 in staff and management roles with progressive responsibilities in Plant
Accounting, General Accounting, and Division Operations. I am a graduate of
the University of Puget Sound with a bachelor’s degree in Business 13
Administration, with an accounting emphasis. 14
Q. What is the purpose of your testimony in this proceeding? 15
A. My testimony describes Intermountain Gas Company’s, (“Intermountain” or the 16
“Company”) unadjusted 2016 test year Rate Base and Income Statement In
addition, I will discuss the nature of transactions with affiliated companies during
the test year, the costs of which are reflected in test year expenses sponsored by
Mr. Jacob Darrington.
Q. Are you sponsoring any exhibits? 21
A. Yes. In addition to my testimony, I am sponsoring the following exhibits, which
are described in herein:

Dedden, Di 2
Intermountain Gas Company
Exhibit No. 06 Unadjusted Rate Base
Exhibit No. 07 Monthly Rate Base Balances
Exhibit No. 08 Unadjusted Income Statement
Exhibit No. 09 Other Revenues
Exhibit No. 10 IGC Cost Allocation Manual
Exhibit No. 11 Affiliate Charges Included in Test Year
I. UNADJUSTED TEST YEAR RATE BASE AND INCOME 7
STATEMENT
Q. What is the Company’s proposed test year for this case? 9
A. Intermountain is proposing a test period ending December 31, 2016, reflecting six
months actual, January to June, and six months projected data, July to December.
Q. Please describe the basis for the 2016 projected data. 12
A. The 2016 projected data was prepared as part of the Company’s ongoing
budgeting process. It incorporates the Company’s best outlook for capital and
expense items for calendar year 2016 and the forecasted revenues for that period.
Q. Have any adjustments been made to the forecast to determine the test period 16
rate base and revenue requirement? 17
A. Yes. Several adjustments to the forecast were necessary to determine the
appropriate rate base and expense levels for rate making purposes. These
adjustments are discussed by Company witness Jacob Darrington in his
testimony.
Q. What is the unadjusted rate base for the test year?

Dedden, Di 3
Intermountain Gas Company
A. As shown on Exhibit 06, page 1, column (b), line 9, the unadjusted rate base for
the test period is $235,968,612. It consists of five items; net gas plant in service,
materials and supplies inventory, gas storage inventory, accumulated deferred
income taxes and customer advances.
Net plant is the thirteen-month average of gross plant less the thirteen-
month average of accumulated provisions for depreciation. Added to the net plant
amount is materials and supplies inventory and gas storage inventory, both of
which are thirteen-month averages. Accumulated deferred income taxes and
customer advances are deductions from rate base as they are recognized as an
interest-free funding mechanism from ratepayers. Exhibit 07, pages 1-6 show the
development of the thirteen-month averages for the items described above.
Q. Please discuss how the forecasted, July to December, amounts were 12
determined. 13
A. The July to December forecasted amounts are shown on Exhibit 07, pages 1-6,
lines 15-25. These amounts were determined as follows:
Gas Plant in Service: is based on forecasted capital expenditures and
retirements. On a quarterly basis, department managers review current spending
and update future months to determine forecasted capital expenditures and
retirements. Then the plant accounting group runs the close out and depreciation
process.
Accumulated Provision for Depreciation and Amortization: is based on
forecasted capital expenditures and retirements. On a quarterly basis, department
managers review current spending and update future months to determine

Dedden, Di 4
Intermountain Gas Company
forecasted capital expenditures and retirements. Then the plant accounting group
runs the close out and depreciation process.
Plant Materials and Operating Supplies and Undistributed Stores: are
based on a three-year historical average.
Gas Storage Inventory: is based on projected boil-off, injections, and
withdrawals for the period ending December 31, 2016.
Accumulated Deferred Income Taxes: is based on the Company's
approved capital budget and the resultant book-tax timing differences as well as
book-tax timing differences on assets previously placed in service.
Advances in Aid of Construction: is based on a historical three-year
average.
Q. What are the unadjusted revenues and expenses for the test year?
A. As shown on Exhibit 08, page 1, column (d), line 3, the unadjusted test year total
operating revenues are $236,530,903. The unadjusted test year expenses are
$235,335,918 as shown on Exhibit 08, page 1, column (d), line 24. This produces
a net operating income of $1,194,985 as shown on Exhibit 08, page 1, column (b),
line 25.
Q. What are the components of the test year operating revenues?
A. Test year operating revenue consists of gas operating revenue and other revenues.
Gas operating revenues are the revenues generated by the sale and transportation
of gas under the Company’s sale and transportation rate schedules. As shown on
Exhibit 08, page 1, column (d), line 1, the unadjusted test year gas operating
revenues are $233,637,331. Forecasted, July to December, gas operating

Dedden, Di 5
Intermountain Gas Company
revenues from residential and commercial customers are based on forecasted
customers, weather-normalized usage per customer amounts, and currently
approved rates. Forecasted gas operating revenues from industrial customers are
based on currently approved rates and forecasted usage obtained from the
Industrial Services Manager, which is primarily based on historical usage.
Forecasted Gas Operating Revenues also includes non-regulated sales of liquefied
natural gas (LNG) from the Company’s Nampa storage facility, which are
forecasted based on historical figures.
Q. Will you please explain how you included revenues and cost of gas expenses 9
related to the Cost of Gas Delivered but Unbilled (CGDU) in the presentation 10
of your test year data?
A. Yes. Test year operating revenue and cost of gas expense through June 2016
includes a reduction to revenue of $27.6 million and a reduction to cost of gas
expense of $21.2 million due to the effect of CGDU resulting in a gross margin
reduction of $6.4 million. This same deficit is removed from the determination of
revenue requirement as seen in the testimony of Company witness Darrington.
For simplicity, the forecast period July – December 2016 does not include
revenue or cost of gas expense related to CGDU.
Q. What Other Revenues did the Company record during the test year?
A. The Company recorded other revenues associated with miscellaneous services,
field collection charges, return check charges, account initiation charges,
reconnection charges, interest on past due accounts, other miscellaneous non-
operating revenues, cash discounts, rents, interest income, Allowance for Funds

Dedden, Di 6
Intermountain Gas Company
Used During Construction (“AFUDC”) equity, and non-utility revenues.
Forecasted other revenues for the period July to December are based on calendar
year 2015. In total, the Company recorded Other Revenues of $2,893,572 during
the test year, as shown on Exhibit 08, page 1, line 2, column (d). An itemized
listing of other revenues is shown on Exhibit 09, page 1, column (d).
Q. What expenses are included in the Company’s unadjusted income statement? 6
A. The following classification of expenses are included in the Company’s income 7
statement:
 Cost of gas;
 Operating and maintenance expenses;
 Depreciation and amortization expenses;
 Taxes Other Than Income Taxes;
 Federal and State Income Taxes; and
 Interest Expenses.
The unadjusted test year levels for these expense items are shown on Exhibit 08,
page 1, column (d), lines 5 through 23.
Q. Please discuss the how the forecasted, July to December, amounts were 17
determined. 18
A. The July to December forecasted amounts are shown on Exhibit 08, page 1,
column (c). These amounts were determined as follows:
 Cost of Gas: is based on forecasted customers, weather-normalized usage per
customer amounts, and currently approved rates. Cost of gas related to non-
regulated sales of LNG is forecasted based on historical data.
 Operation and Maintenance Expense: is forecasted by each department of the
Company. Forecasting is done at the object level (i.e. Labor, Contract
Service, Materials) and not at a FERC account level (i.e. Transmission

Dedden, Di 7
Intermountain Gas Company
Facilities Operations/Maintenance Expense, Distribution Operations/
Maintenance Expense). In order to obtain the Functional categories
(determined by FERC account), the Company used 2015 historical data to
allocate the forecasted amounts to the various FERC accounts.
 Depreciation: is based on Idaho PUC approved depreciation rates, assets
currently in service, and forecasted capital additions and retirements.
Forecasted capital additions and retirements are determined by each
department's expectation of future projects to be completed or retired by
December 31, 2016.
 Payroll Taxes: are primarily based on total taxable compensation multiplied
by a payroll tax rate, 7.5 percent, based on last year’s tax to salary percentage.
Payroll taxes related to incentive compensation were calculated on an
individual basis. Payroll taxes related to supplemental executive retirement
plan payments were forecasted based on history;
 Property Taxes: are based on an annual tax assessment received from Idaho
counties in May for the July to June tax period;
 Franchise Taxes: are based on the portion of Company customers that live
within city limits of a city that has a 3% franchise tax. Not all Company
customers live within city limits, therefore, the forecast is based on a historical
realized rate of 2.58% of all revenue;
 Interest Expense: is based on the Company's line of credit, outstanding bonds,
and forecasted new long-term debt. The line of credit interest expense is
based on a combination of Prime and LIBOR rate estimates provided to the

Dedden, Di 8
Intermountain Gas Company
Company by the MDUR Treasury Department. Interest expense on the
Company's outstanding bonds is based on the stated interest rates identified in
the terms of each bond issuance; and
 Income Taxes: are based on the statutory federal rate of 35.0% and Idaho rate
of 7.4% for an effective tax of 39.81%. The estimate also includes permanent
and timing differences.
II. AFFILIATE TRANSACTIONS 7
Q. Does Intermountain’s revenue requirement include costs which are directly 8
or indirectly charged to the Company by affiliated companies? 9
A. Yes, it does.
Q. Does Intermountain receive charges from MDU Resources Group, Inc. 11
(“MDUR”)? 12
A. Yes. MDUR has several departments that provide services to the operating
companies. These departments include:
 Payroll Shared Services;
 Procurement Shared Services;
 Enterprise Technology Service;
 General and Administrative Services.
Q. What services does Payroll Shared Services provide to Intermountain? 19
A. Payroll Shared Services processes payroll and is also responsible for the
preparation, filing and payment of all payroll-related federal, state and local tax
returns. Since Intermountain does not have any departments that provide payroll

Dedden, Di 9
Intermountain Gas Company
related services, Payroll Shared Services is also responsible for the accumulation
of time entry records, and maintenance of employee records for the Company.
Q. Please describe the services provided by Procurement Shared Services. 3
A. Procurement Shared Services creates and maintains the Corporation’s national 4
accounts for the purchase of products, goods and services. The group is also
responsible for monitoring the level of services, quantities, discounts and rebates
associated with established national accounts. Intermountain places specific
purchase requests for required materials and services with approved vendors.
Q. What function does the Enterprise Technology Services provide? 9
A. Enterprise Technology Services provides policy guidance, infrastructure-related
information technology (“IT”) functions and security-focused governance.
Q. Is there also a Utility Group IT department? 12
A. Yes. The Utility Group IT Department is responsible for supporting applications
specific to the utility group such as customer care and billing system; financial
software; Supervisory Control and Data Acquisition (“SCADA”) and mobile 15
applications; Enterprise Geographic Information System (“GIS”), and the project 16
and fixed asset accounting software (“PowerPlan”).
Q. What services does the General and Administrative Services function 18
provide? 19
A. The General and Administrative Services function provides the following services
to all MDUR companies:
 Corporate governance, accounting and planning;
 Communications and public affairs;

Dedden, Di 10
Intermountain Gas Company
 Human resources;
 Internal Audit;
 Investor Relations;
 Legal;
 Risk Management;
 Tax and compliance;
 Travel; and
 Treasury Services.
Q. How are the costs of the General and Administrative Services function billed 9
to the MDUR companies? 10
A. Costs that directly relate to a business unit are directly assigned to that business.
The remaining unassigned expenses are allocated to the operating companies
using the corporate allocation methodology.
Q. Please describe the corporate allocation methodology. 14
A. The allocation factor is developed to apportion unassigned administrative costs
via a capitalization factor based on the 12-month average capitalization at March
31. Capitalization includes total equity and current and non-current long-term
debt (including capital lease obligations).
Q. Are there other affiliated costs that are allocated to or from Intermountain? 19
A. Yes. There are certain affiliate-owned assets, such as the General Office/Annex
facility, that are used for the benefit of all MDUR operating companies. To cover
the cost of ownership and operating costs associated with these owned assets, a
revenue requirement (i.e., asset return plus annual operating expenses) is

Dedden, Di 11
Intermountain Gas Company
computed for the shared assets. The resulting revenue requirement is billed to the
other MDUR operating companies as a monthly fee. The costs are allocated
based on the number of customers served by each utility.
Q. Does Intermountain own facilities that are billed to other MDUR companies? 4
A. Yes. Intermountain owns the Customer Care Center located in Meridian, ID. The
revenue requirement associated with that facility is billed to Montana-
Dakota/Great Plains and Cascade as a monthly fee.
Q. How are the amounts billed to affiliated companies associated with the 8
customer care center reflected in Intermountain’s determination of its 9
revenue requirement in this proceeding? 10
A. Revenues from affiliate billings for the Customer Care Center are included in
Other Operating Revenues (Account 488).
Q. Are there departments at Montana-Dakota/Great Plains that provide 13
services to each of operating companies? 14
A. Yes. These departments include:
 Leadership Group – composed of the Executive Group and Directors that
oversee shared utility specific functions;
 Customer Services – include such functions as the call center, scheduling and
online services;
 Information Technology and Communications – provides services associated
with Management Information Systems, Technology and Compliance;
 Administrative Services – provides such functions as procurement, office
services, and fleet operations;

Dedden, Di 12
Intermountain Gas Company
 Gas Supply and Control.
Q. How are the costs associated with these services billed to the individual 2
operating utilities? 3
A. The groups have calculated methodologies to allocate the costs to the utility
companies based on services performed for each utility company.
Q. Have you prepared an exhibit, which summarizes the nature and level of 6
such charges? 7
A. Yes. Exhibit No. 10 is the Company’s cost allocation manual which provides 8
details of the services and the allocation methodology. Exhibit No. 11 provides a
summary of affiliated charges included in the Company’s revenue requirement.
Q. Does that complete your direct testimony? 11
A. Yes, it does.