20170215Heintz Rebuttal.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 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
CaseNo. INT-G-16-02
REBUTTAL TESTIMONY OF DAVID HEINTZ
FOR INTERMOUNTAIN GAS COMPANY
February 15,2017
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Please state your name, position and business address.
My name is David Heintz and I am a Vice President with Concentric Energy
Advisors, 1nc.,293 Boston Post Road West, Suite 500, Marlborough, MA 01752.
Would you please describe your educational and professional background?
I hold a B.S. in Economics from the Pennsylvania State University and a M.B.A.
from the University of Pittsburgh. I began my professional career at the Federal
Energy Regulatory Commission and have worked for two interstate pipeline
companies and the Boston Gas Company. For the last 19 years I have worked as
a consultant in the gas and electric industries with a primary focus on regulatory
issues including class cost of service studies. A summary of my education and
experience is contained in Appendix A which is included at the end of this
testimony.
What is the purpose of your rebuttal testimony?
I am responding to the Staff witness Morrison's critique of the class cost of
service methodologies used by Intermountain Gas Company (ooIGC" or
"Company") in its filing. In addition, I will address the impact on cost of service
allocations of Dr. Morrison's revisions to the T-3 and T-4 billing determinants.
What are Dr. Morrison's issues with the Company's class cost of service
study?
Dr. Morrison's issues include (l) the lack of load study to determine peak usage;
(2) the exclusion of two small rate classes from the cost study, and (3) the use of
certain cost allocation methods and allocators.
What is Dr. Morrison's concern regarding a load study?
Heintz, Reb. 1
Intermountain Gas Company
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A major allocation factor in the class cost of service study is the coincident peak
demand factor which is used, in whole or in part, to allocate demand related costs
to the rate classes. Dr. Morrison argues that a load study is necessary to
determine the peak usage by rate class so as to allocate these costs in a manner
consistent with the principals of cost causation.
Is a load study required to determine the coincident peak usage of the rate
classes?
No. While a load study may provide a more precise estimate of each classes' peak
usage, it is not a requirement to meet the principal of cost causation. A load study
of the type envisioned by Dr. Morrison requires daily recording meters at a
representative sample of customers along with the systems and personnel time to
collect, store and analyze the data. At this time the Company does not have the
smart meter technology fully in place to provide such data, nor is it required in
order to do a cost of service study. Instead the Company has applied a commonly
used gas industry approach to estimating the rate classes' peak demands. In my
experience the use of load studies is relatively uncommon in the natural gas
industry. Rather, variations of the Company's method for determining the peak
demand factor is the more corlmon practice.
What method did the Company use to determine the peak demand factor?
The Company determined the peak demand factor by subtracting the actual usage
of the daily metered customers from the most recent peak day. It then allocated
the remaining demand to the non-daily metered classes, in this case the residential
and general service classes, on the basis of their January (the peak month) usage.
Heintz, Reb. 2
lntermountain Gas Company
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This method fairly apportions the peak demand to the classes within the
limitations of the available data.
Do you agree with Dr. Morrison that the allocation of transmission and
storage costs are "usually determined using data from multiple peak days"?
No. While I have seen the use of multiple peak days for allocation the more
common method is the use of the peak day.
Do you agree with Dr. Morrison that'(distribution plant is usually allocated
using a NCP allocators"?
No. Non-coincident peak ('NCP") allocators are commonly used in the electric
industry for the allocation of electric distribution costs. The use of non-coincident
peak allocators for gas distribution costs is, in my experience, rare and the use of
coincident peak allocators is the common practice. As noted by Company witness
Gilchrist, the Company has designed and built its system to deliver gas supply to
core market and non-intemrptible industrial customers on the coldest peak-day
period. In order to meet peak-day demand, the Company has to design and build
the distribution system with enough capacity to meet this demand, regardless of
what the demand is on non-peak days.l
What is Dr. Morrison's objection to the Company's allocation of service and
regulator costs?
The Company used a weighted customer factor for the allocation of service and
regulator costs using a weighting factor based on meter costs. Dr. Morrison
argues that the regulator costs should be allocated in proportion to the costs of
Heintz, Reb. 3
Intermountain Gas Company
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I Direct Testimony of Hart Gilchrist, page 4,lines 14 - 17
I services and regulators used by each class.
Does the Company's accounting records include the cost of serices and
regulators used by each rate class?
No. The Company's accounting records include the total costs related to
regulators and services but this information is not kept by rate class.
Consequently, an accepted natural gas industry approach to this allocation factor
was utilized, which was to use a weighting factor base on meter costs.
I)o meter, service and regulator costs increase with a customer's peak
demand and consumption?
Yes. A larger customer requires larger and more expensive meters and services.
Since meter costs can generally be acquired, or calculated, by rate class, it is a
common industry practice to use the meter costs as a weighting factor for other
customer related equipment costs. This is the approach used by the Company.
Do you agree with Dr. Morrison's statement that since mains serve multiple
users it is not appropriate to classiff any portion of the mains costs as
customer related?
Absolutely not. Some distribution main investment is necessary to connect a
customer to the distribution system that is completely independent of the level of
peak demand of the customer. To the extent that this component of distribution
main cost is a function of the requirement to connect the customer, regardless of
the customer's size, it is both appropriate and necessary to allocate the cost of
those facilities to rate classes based on the number of customers, and not peak
demand. Mr. Gorman agrees on page 18 of his direct testimony that the
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Company's "proposed allocation of distribution main costs using both a customer
and a demand component best reflects cost causation principles". This point can
be illustrated with a simple example. Assume there is a single industrial customer
on the Intermountain system with a peak demand of 5,000 therms. Further,
assume that elsewhere on the system there is a neighborhood of 1,000 residential
customers with an aggregated peak demand of 5,000 therms. It is obvious that in
order to connect all of those residential customers to the system, the Company
would have to invest in far more distribution mains footage for those customers
than it would have to invest in for the single industrial customer. The extra
distribution mains investrnent is due solely to the number of customers on the
system, not the peak demand of those customers.
Is the classification of distribution mains costs on a customer and demand
basis consistent with accepted regulatory practice?
Yes. The National Association of Regulatory Utility Commissioners ('NARUC")
Gas Distribution Rate Design Manual discusses several methodologies and
approaches to cost allocation and notes that "A portion ofthe costs associated
with the distribution system may be included as customer cost."2
What are the common methods used to determine the customer component
of distribution mains?
The two common methods used are the zero-inch and minimum size. The zero-
inch method, used by the Company, uses regression analysis to identifr the cost
of a hypothetical "zero sized" main, the cost of which is necessary to serve
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2 National Association of Regulatory Utility Commissioners, Gas Distribution Rate Design Manual at22
(June 1989).
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Intermountain Gas Company
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customers connected to the system whether or not they place any demand on the
system. The minimum system method identifies the minimum sized distribution
main needed to serve customers and then classifies that portion of distribution
mains as customer-related.
Do you agree with Dr. Morrison that the zero-inch method used by the
Company should have used capacity (diameter squared) rather than pipe
diameter in the regression analysis?
No. The cost of distribution main is driven by size (diameter) and length (feet).
Capacity is not a cost factor. The purpose of the zero-inch study is to determine
the cost of a "zero-sized", i.e. zero diameter, main.
Is it necessary to have "project level" information for the zero-inch study, as
suggested by Dr. Morrison?
Not at all. ln all the zero-inch studies I am familiar with, yearly vintage data; total
cost per year by size (diameter), type (steel, plastic), and footage, is necessary.
The yearly costs are brought to current year value by use of the Handy-Whitman
Index, a utility inflation index. Dr. Morrison seems to believe that multi-decimal
point precision is required for a cost study. He is wrong: Such a standard is
unattainable.
Is it necessary to include the snow melt classes, IS-R and IS-C, as separate
classes of service in the cost study?
No. As explained by Company witness Blattner, the Company included the snow
melt customers as residential or corlmercial customers rather than separate
classes of service. Given these customers' low annual throughput volumes, it is
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Intermountain Gas Company
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not necessary to include them as separate classes in the cost study.
Please summarize your testimony regarding the Company's class cost of
service study.
The Company's class cost of study was conducted using standard industry
accepted methodologies that are commonly employed by a significant number of
natural gas companies in the country, and is a methodology recognizedby
NARUC and multiple state regulatory commissions.
Regarding the adjustments Dr. Morrison made to the T-4 billing
determinants, what effect does Dr. Morrison's arbitrary reallocation of the
spread of therms in the T-4 billing blocks have on the allocation of costs
between customer classes in Dr. Morrison's proposed methodolory?
Dr. Morrison is basing his revenue requirement allocation on normalized test year
revenue. As explained by Company witness Darrington, Dr. Morrison's artificial
inflation of the margin for the T-4 class has the effect of forcing the T-4 class to
bear more than their fair share of the revenue requirement.
What effect does the averaging applied by Dr. Morrison to the T-3 customer
class have on the allocation of costs between customer classes?
Anificially inflating the billing determinants for the T-3 class will force a higher
revenue requirement to T-3 than is fair based on the usage of the customers that
currently comprise the class. Nowhere in Doctor Morrison's testimony does he
provide a justification for this adjustment to the T-3 class.
Does this complete your testimony?
Yes.
Heintz, Reb. 7
Intermountain Gas Company
1 Appendix A
Page 1 of4
David A. Heintz
Vice President
Mr. Heintz is a Vice President who has over 30 yeats of experience wotking with regulated tates and
tadffs at both the federal and state levels. He also provides clients with analyses of natural gas projects,
markets, and issues. Mr. Heintz's areas of expertise include cost of sewice, allocation and rate design,
tariff terms and conditions, rate case preparation, and regulatory issues.
REPRESENTATTYE PROJECT EXPERIENCE
Regulatoqy Analysis, Ratemaking, Cost of Service
o Prepared electric cost of service studies fot Evetsource Energy East Q'JSTAR Electric) and
West $Vestem Massachusetts Electric Company)
. Prepared gas cost of service study for Eversource Energy (I{STAR Ga$
o Prepared electric and gas class cost of service studies for New York State Electric and Gas
and Rochester Gas and Electric Companies
. Prepared class cost of service study fot Green Mountain Power Company
o Cash Working Capitalwitness forAmeten Illinois Company ifl its 2009, 2071,2012 and2013
Illinois rate filings.
o Assisted a customer group served by Dominion Cove Point LNG in a FERC rate proceeding,
Docket No. RP11-2136.
o Prepared a cost of service study for Virginia Natual Gas, Case No. PUE-2011-OO'['42
o Assisted a customer group served by Tennessee Gas Pipeline Company in a FERC rate
proceeding, Docket No. RP11-1566.
o Filed testimony on the proper design of Kem River Gas Transmission Period Two rates in
Docket RP0+27+023 on behalf of a Kem River shipper.
. Prepared a cost of sergice study for Adanta Gas Light Company, Docket No. 31647-U.
o Project manager for preparation of Granite State Gas Ttansmission FERC rate filing, Docket
No. RP10-896. Witness on issues of billing determinants, revenues, cost allocation and rate
design.
o Particrpated in the development of a gas cost of serrrice and tate re-tedesign for Northem
Indiana Public Service Company.
o Assisted a customer group served by Southem Natural Gas Company in a FERC rate
proceeding, Docket No. RP09-427. Assisted this same group in Southern's 2013 setdement
extension.
o Assisted ISO-NE in the evaluation of de-list bids and new capacity offers for the first two
Forward Capacity Auctions conducted by ISO-NE.
o Prepared a cost of service study and rate design ptoposals for National Grid Rhode Island
(Gut).
o Prepared cost of service studies for New England Gas Company in four Massachusetts rate
filings.
o Assist New England Gas in the preparation of periodic filings before the Massachusetts
Department of Public Utilities including Gas Cost and Local Distribution Adjustrnent filings.
2 Appendix A
Page2 of 4
o Prepared cost of service studies for Connecticut Natutal Gas Colpotation and Southem
Connecticut Gas Company in theit Phase 2 rate design proceeding before the Connecticut
Department of Public Utility Control.
. Prepared a cost of service study and rate design proposals for Northwest Natural Gas
Company ('i7A) which included the phase out a commercial rate class.
. Prepared a cost of service study for Puget Sound Energy and assisted in the development of
a revenue decoupling mechanism.
o Prepared cost of service studies for Peoples Gas Light and Coke Company and North Shore
Gas Company. Assisted in the development of a revenue decoupling mechanism for these
companies.
o Petformed a cost of sewice study for Arkansas Oklahoma Gas Corporation. Provided
testimony on cost of service andra;te design.
. Particrpated in the development of the revenue requirements for the gas and electric operating
companies of a major mid-west utility.
. Particlpated in a teview of the cost of service and mte design methodologies for the natural
gas transmission affi.liate of a Canadian Crown Colporation.
o Perfotmed an electric cost of service and rate review for the City of Vero Beach, Florida.
o Performed a cost of service study for Chesapeake Utility Corporation, Delaware Division, and
provided testimony o1r rate design issues.
o Performed cost of service and rate design studies integrating the rates and tariffs of Providence
Gas Company and Valley Gas Company. Provide testimony on cost of seryice and proposed
new rate designs for the integtated company.
o Performed cost of service study for an investot owned Canadian electric utility.
o Reviewed and provided support for the deferred purchased gas balances of a Louisiana local
distribution company.
o Provided support and cost of service analysis for a Pennsylvania electric utility in a FERC
complaint case.
o Assisted a Canadian ma*eting company in its intervention in Nothem Border Pipeline
Company FERC rate ptoceeding. Filed testimony on various cost-of-service and rate design
issues.
o Assisted an Indiana local disribution company io the prepamtion of a general rate case and
unbundling fiIing. Assisted in the development of the proposed unbundled services and
tariffs.
o Assisted a New Jersey local distribution company *ith its initial filing under New Jersey's
Electric Discount and Enetgy Competition Act.
o Assisted a major Southwest utility in the preparation of a cost of service and rate design study
for filing with the regulatory commission.
o Reviewed and evaluated an electric cost-of-service and unbundling model for the Ontario
Energy Boatd. This model is to be used by the municipal electric utfities in their filings to the
Board.
o Assisted a group of Midwest local distribution companies served by Northem Natural Gas
Company in a FERC rate proceeding. Filed testimony on various cost-of-service and rate
design issues.
o Reviewed the rate harmodz,atton proposal of a major Canadian gas utility for potential
shortcomings alternative apptoaches.
o Responsible for the development, defense, implementation and administration of the Boston
Gas Company's tates in rate cases and CGA filings. Prepared annual sales, revenue, margin
and gas cost forecasts for budgeting and Fnancial reporting. Directed the company's load
research project. Represented the company in regulatory proceedings.
J Appendix A
Page 3 of4
Responsible for all aspects of United Gas Pipeline Company's rate departmen! including cost-
of-service allocation and rate desigu, cettifi.cates and analysis of other pipeline FERC filings.
Represented the company and supported its positions through testimony and negotiations
with tegulatory agencies, customers and intervenors.
Responsible for the development of cost-of-sewice, allocation and rate design studies and
filings for Consolidated Natual Gas Company. Analyzed supplier rate and certificate filings.
Represented the company and supported its position in negotiations with regulatory agencies,
customers and intervenors.
Responsible for the development and support of FERC staffs position on allocation and rate
design issues in pipeline rate and certifi.cate filings.
Valuation and Apptaisal
Assisted in the preparation of a report to the FERC on appmised value and insurance
recommendations in a cettificate proceeding.
Market Analysis
Assisted the Province of New Brunswick in the preparation of its Stage I document for the
establishment of natural gas disuibution vdthin the Ptovince.
Expert Witness Testimony Prcsentation
o Federal Energy Regulatory Commission
o Atkansas Public Service Commission
o Connecticut Departrnent of Public Utility Control
o Delaware Public Service Commission
o Georgra Public Service Commission
o Illinois Commerce Commission
o Massachusetts Department of Public Utilities
o New York State Public Service Commission
o NewJersey Board of Public Utilities
o Pennsylvania Public Utility Commission
. State of Rhode Island and Providence Plantations Public Utility Commission
o r0Tashington Utilities and Transportation Commission
o
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PROFESSIONAL HISTORY
Concentric Energy Advisots, Inc. (2006 - Present)
Vice President
Assistant Vice Ptesident
Navigant Consulting (1998 - 2006)
Senior Engagement Manager
Boston Gas Company (1993 - 1998)
Director, Rates and Revenue Analysis
United Gas Pipeline Company (1992-1993)
Director, Rates and Regulatory Affairs
4 AppendixA
Page 4 of 4
Consolidated Natutal Gas Company (1985 - 1992)
Manager, Regulatory Ptoj ects
Fedetal Regulatory Enetgy Commissio n (1979 - 1985)
Industry Economisg Allocation and Rate Design Branch
EDUCATION
M.B.A., I(atz Graduate School of Business, Univesity of Pittsburgh, 1989
B.S., Econornics, Behrend College, Pennsylvania Sate University, 1978