20170215Dedden Rebuttal.pdf

Ronald L. Williams,ISB No. 3034
Williams Bradbury, P.C.
1015 W. Hays St.
Boise,ID 83702
Telephone: [phone]
Email: [e-mail]
Attomeys for Intermountain Gas Company
BEFORE TIIE IDAHO PUBLIC UTILITIES 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
Case No. INT-G-16-02
REBUTTAL TESTIMONY OF TED DEDDEN
FOR INTERMOUNTAIN GAS COMPANY
February 15,2017
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Please state your name, position and business address.
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.
Are you the same Ted Dedden that pre-filed direct testimony in this case on
behalf of Intermountain Gas Company?
Yes.
What is the purpose of your rebuttal testimony?
My testimony will address the adjustments to Other Revenues, Affrliate Costs,
and Incentive Compensation proposed by NWIGU Witness Gorman, and will
respond to the testimony and proposed adjustments presented by IPUC Staff
Witness Romano.
I. Rebuttal to ltlWIGU Witness Gorman
Will you please explain, as you understand it, the amount and reasoning
supporting Mr. Gorman's proposed adjustment to Other Revenues?
Yes. Beginning on page 5 of his direct testimony, Mr. Gorman proposes to
increase the Company's test year Other Revenues by $206,000. Mr. Gorman
argues that the first six months of 2016 are a better representation of the ongoing
level of Other Revenues than the last six months of calendar year 2015, upon
which the Company based its forecast of Other Revenues for July through
December of 2016. Therefore, according to Mr. Gorman, the first six months of
2016 should be used to forecast the last six months of 2016. As previously
mentioned, this would result in a $206,000 increase in Other Revenues and thus a
decrease to the Company's overall revenue requirement.
Dedden, Reb. I
Intermountain Gas Company
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a. Do you agree with Mr. Gormants proposed adjustment to Other Revenues?
A. No, I do not.
a. Will you please explain why you do not agree with this adjustment proposed
by Mr. Gorman?
A. Yes, but I would like to clarifr two things before I begin. First, I want to make it
clear that Mr. Gorman's proposed adjustment is in relation to Other Revenues as
stated on Exhibit No. 9, Lines I through 12 and not the total Other Revenues as
stated on Exhibit No. 8, Line 2 (which includes interest income).
Second, Mr. Gorman has not incorporated into his direct testimony the
information from the Company's updated revenue requirement calculation which
was filed in response to IPUC StaffProduction Request No. 178 and upon which
the IPUC Staffis basing its proposed adjustments. In response to this production
request, the Company provided actual data through September of 2016, to include
Other Revenues, and an updated forecast ofrevenues, expenses, and rate base for
October through December of 2016. In this update, the Company's total level of
Other Revenues was forecasted to be $2,963,511 (Company Witness Dedden's
Exhibit No. 9, p.1, Column (d), Line 12 as filed in response to IPUC Staff
Production Request No. 178).
This updated level of Other Revenues is only $27,352 (0.92%) lower than actual
Other Revenues through December 31,2016. Based upon the accuracy of the
Company's filed amount for Other Revenues, the Company rejects Witness
Gorman's proposed adjustment and instead proposes that the level of Other
Dedden, Reb. 2
Intermountain Gas Company
I Revenues presented in its updated test year be accepted. This is consistent with
the StafPs Exhibit 103, which makes no adjustment to test year Other Revenues.
Will you please explain, as you understand it, the amount and reasoning
supporting Mr. Gorman's proposed adjustment to Affiliate Costs?
Yes. Beginning on pageT of his direct testimony, Mr. Gorman simply argues that
the Company's test year Affiliate Costs are too high in comparison with the five-
year average of Affiliate Costs. It is important to note that Mr. Gorman is not
arguing that Affiliate Costs are inappropriate to include in customer rates, rather
he is only arguing that the Company's total forecasted level of Affiliate Costs are
too high when compared to actually incurred costs. Consequently, Mr. Gorman
proposes to adjust the Company's level of Affiliate Costs downward. The total
proposed adjustment by Mr. Gorman to Affiliate Costs is $1,381,000.
Do you agree with Mr. Gorman's proposed adjustment to Affiliate Costs?
No, I do not.
Will you please explain why you do not agree with this proposed adjustment?
Yes. The total amount of actual and forecasted Affiliate Costs included in the
response to IPUC Staff Production Request No. 178 was $15,499,927. The actual
amount of Affiliate Costs through December 31,2016 was $15,552,479. This
updated level of Affrliate Costs is lower than actual costs by $52,552 (0.34%).
Based upon the accuracy of the Company's filed amount of Affrliate Costs, the
Company rejects Witness Gorman's proposed adjustment and instead proposes
that the updated level of Affiliate Costs be accepted.
Dedden, Reb. 3
Intermountain Gas Company
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Please describe Mr. Gorman's proposed adjustment to Incentive
Compensation.
Mr. Gorman argues that the Company's customers do not "receive any benefit
from the MDU incentive plan" because the incentive plan metrics "reflect the
results of operations, which are not specifically based on the performance of IGC
service quality" (Gorman Direct Testimony, p. 10, Line 3-6). Although Mr.
Gorman agrees that "cost control and customer satisfaction can benefit ratepayers
through lower costs and improved service reliability," he does not believe that the
Company's customers are benefited because the incentive plan is based on the
combined efforts of multiple utilities and "MDU's metrics do not identifu which
customers get the benefits" (Gorman Direct Testimony, p. 10, Line 10-13). Mr.
Gorman concludes that since "IGC has not proven that this progftrm produces
benefits to its IGC customers," its cost should be removed from the Company's
revenue requirement (Gorman Direct Testimony, p. 11, Line 4-5).
Do you agree with this proposed adjustment?
No I do not. Mr. Gorman's argument does not take into consideration the fact
that it is the individual efforts of each utility that achieve the combined utility
group goals of the incentive compensation plan. Mr. Gorman's argument that the
incentive plan metrics "are not based on the performance of IGC service quality"
or that the metrics "do not identifu which customers get the benefits" is false
because, as each individual utility works to manage its business to achieve its
individual goals for cost control and customer satisfaction, the customers of that
utility are benefited even if the combined utility group goals are not achieved
Dedden, Reb. 4
Intermountain Gas Company
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(Gorman Direct Testimony, p. 10, Line 3-4 and Lines l2-I3). Each utility has the
responsibility to manage its business in order to achieve its individually assigned
portion of the incentive compensation plan goals if there is to be any chance of an
incentive compensation payment.
By actively and effectively managing its business, Intermountain met its cost
control goal by underspending its total planned expenditures for O&M for the
year ending December 31,2016, thus directly benefiting its customers. To
achieve the customer satisfaction goal, the combined utility group must be within
the top 35 companies in the annual JD Power Gas Utility Customer Satisfaction
Study. This requires each utility to work diligently to achieve the highest level of
customer satisfaction possible because the goal is measured against the
performance of the other companies in the study, not against some target level of
customer satisfaction (i.e. achieving a particular score in the study).
Since the Company's customers are directly benefited by the cost control and
customer service goals of the incentive compensation plan, Mr. Gorman's
proposal to remove such costs from the revenue requirement are misplaced.
What has been this Commission's practice with respect to incentive
compensation?
It has been the practice of this Commission to allow incentive compensation in
the calculation of the revenue requirement if it is related to customer benefits. In
Idaho Power Case No. IPC-E-08-10 (Order 30722), the Commission stated,
"[T]he Commission affirms that incentive pay is properly included in
annual revenue requirement if it is related to identifiable customer
benefits. We find Staff s recommended adjustments to the 2008 test year
incentive accrual appropriate so that employee incentive pay in the
Dedden, Reb. 5
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revenue requirement is directly related to improving service or reducing
costs to cttstomers" (emphasis added).
Additionally, in PacifiCorp Case No. PAC-E-10-07 (Order 32196),the
Commission stated that the incentive compensation expense included in the
revenue requirement should "only reflect incentives tied to operational efficiency,
customer service and safety." For this reason, the Company proactively removed
from its revenue requirement the portion of incentive compensation expense
related to the earnings goal because this does not benefit customers (see
Darrington Direct Testimony, p. 12, Lines I I - 1 3).
II. Rebuttal to Staff Witness Romano
Does the Company accept any of the proposed adjustments presented by
Witness Romano?
Yes it does.
Will you please explain?
Yes. The Company accepts Ms. Romano's proposed adjustments to certain
management expenses, injuries and damages, and other proposed adjustments
presented on Staff Exhibit No. 101.
Will you briefly outline which of the proposed adjustments presented on
Exhibit No. 101 the Company does not accept?
Yes. The Company does not accept the Staffs adjustment for the following: l)
Chamber of Commerce expenses; 2) Rotary and Lions club dues; 3) certain
expenses which were duplicated; 3) an expense which was later refunded; and 4)
Staff s determination of disallowed expenses in the forecast period.
Dedden, Reb. 6
Intermountain Gas Company
a. Will you please explain the Company's rejection of Staffs proposed
adjustment to Chamber of Commerce expenses?
A. Yes. On page 8 of her testimony, beginning on line 3, Ms. Romano argues that
expenses related to Chambers of Commerce should not be included in customer
rates. She states that *Chambers of Commerce advocate for businesses on issues
that impact the business' ability to successfully compete in the market. But here,
where the Company is a monopolistic utility, the Chambers' actions should not
impact the Company's success" (Romano Direct Testimony, Page 8, Lines 3-7).
Ms. Romano's argument to disallow Chamber of Commerce expenses in the
amount of $18,150 hinges on the fact that the Company does not have to compete
in the marketplace. The Company disagrees.
a. \ilill you please explain further why the Company rejects Ms. Romano's
argument regarding competition?
A. Yes. Natural gas can be used to heat homes, to heat water, to cook food, and to
dry clothes, to name a few. On each of these fronts, the Company faces
competition from electricity and other heating fuels to include oil and propane.
During its review of Ms. Romano's testimony, the Company was surprised to see
her argument that the Company does not face competition. The Company was
also confused because earlier in her testimony, Ms. Romano offered a clear
example of the competition the Company faces when she stated that Staff allowed
advertising expenses that o'remind the ratepayer of the low cost of using natural
gas instead of electricity to heat their homes" (Romano Direct Testimony, Page 3,
Lines 12-12). Consequently, the Company, through discovery questions, asked
Dedden, Reb. 7
Intermountain Gas Company
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the Staffwhy it believed that the Company did not face competition as a provider
of energy. In response to Company Production Request No. 49, Staff stated that
"[s]ome element of competition does exist," and that the Company "may compete
with electric utilities as a heating fuel source when systems are installed or
replaced." Furthermore, in a reaffirmation of Ms. Romano's position, the Staff
stated that because of the competition faced by the Company it "included
advertising expenses informing customers of the low cost of gas versus
electricity."
Based on the above, it is clear that both the Company and the Staff believe that
the Company faces competition in the energy marketplace. Therefore, the
Company rejects Ms. Romano's claim that the Company does not face
competition.
Does the fact that the Company faces competition affect the determination of
certain costs as recoverable from customers?
Yes. As stated above, it is clear that Staff is allowing advertising expenses in the
face of competition. This is consistent with what the Commission has allowed in
the past when it stated that a company may charge its customers for "advertising
in areas in which the Company faces competition, because we feel that the
ratepayers derive direct or indirect benefit from this information or the increased
business which the advertising may encourage" (Case No. U-1000-37, Order No.
14423, Page 33).
The Commission's assessment that customers benefit from such advertising
makes sense for two reasons. First, advertising can encourage customer growth
Dedden, Reb. 8
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on the Company's distribution system, which increases the sharing of fixed costs
among a greater number of customers thus potentially reducing current customer
rates. Second, very few of the Company's current customers use natural gas in
every application discussed above and there are direct benefits to letting them
know about the environmental and cost-savings benefits of using natural gas
versus other energy sources.
What is the Company's position on the Staffs proposed adjustment to
Chamber of Commerce expenses?
The Company believes it is logical to extend the Commission's determination
discussed above to include Chamber of Commerce expenses, since these
Chambers help the Company compete in the marketplace thereby enabling it to
offer its customers more and lower-priced options for energy.
Additionally, Chamber meetings and activities are great opportunities for the
Company to work with customers on issues of mutual concem. Furthermore,
Chambers help to develop the local economies in which they are based by
attracting business and creating a healthy business environment which is a direct
benefit to both the Company and its customers. Finally, this Commission has
granted recovery of these types of expenses in the past (see Case No. IPC-E-03-
13, Order No. 29505). Therefore, the Company believes that Chamber of
Commerce expenses are a legitimate business expense that help the Company
successfully compete in the marketplace and also benefits the Company's
customers and should not be denied rate recovery.
Dedden, Reb. 9
Intermountain Gas Company
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Will you please explain why the Company does not accept Staffs adjustment
to Rotary and Lions Club dues?
Yes. On Exhibit No. l0l, Schedule 3,page 4, lines 44 and 51, Staff is proposing
to remove dues paid to the Rotary Club of Idaho Falls and the Twin Falls Lions
Club. These service clubs serve an important community and customer function.
They provide opportunities to network with the Company's customers and help
strengthen the communities in which they live. These are direct customer benefits.
Additionally, this Commission has granted recovery of these expenses in the past
(see Case No. IPC-E-03-13, Order No. 29505). Therefore, the Company proposes
that StafPs adjustment to the Rotary Club of Idaho Falls and the Twin Falls Lions
Club in the amount of $275 not be accepted.
Will you please describe the Company's adjustment for certain duplicated
expenses?
Yes. The Company found that two expense line items on Exhibit No. l0l,
Schedule 3,page 4, lines 104 and 107 were duplicated. Additionally, the
Company found that the amount on Exhibit No. 101, Schedule 3,page 4,line 82
was already captured on Exhibit No. 102. The Company confirmed in its
accounting software that each of these expenses were only incurred once. The
total amount of duplicated expenses is $1,498, and should be removed from
Staff s proposed adjustment for these duplicated items.
Will you please explain the Company's adjustment related to an expense
item which was later refunded?
Dedden, Reb. l0
Intermountain Gas Company
lA.The Company found that the amount on Exhibit No. 101, Schedule 3, page 5, line
123 ($100) was refunded in April of 2016. Consequently, this reduces Staff s
total proposed adjustment by an additional $100.
Please describe how the Company proposes to adjust Staf?s determination of
disallowed expenses for the forecast period.
The Company proposes to recalculate Staff s determination of disallowed
expenses for the forecast period. On Exhibit No. 101, Schedule l, Staff used the
relative percentage of disallowed expenses to the total expenses for the period
January through September of 2016 and applied that percentage to the forecast
period October through December of 2016. In so doing, Staff did not take into
consideration that certain expenses it is proposing to disallow do not occur during
the last three months of the year, specifically golf sponsorships and the American
Heart Association Heart Walk sponsorship. Therefore, the Company recalculated
the proposed adjustment to the forecast period October through December of
2016by removing these expenses. This, in connection with the other adjustments
discussed above, reduces StafPs total expense disallowance of $190,980 on
Exhibit No. 101, Schedule 1 to $152,411, which can be seen on Exhibit No. 32,
Page 1, Line26.
Does this conclude your rebuttal testimony in this proceeding?
Yes it does.
Dedden, Reb. 1l
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