20170215Swenson Rebuttal.pdf

Ronald L. Williams,ISB No. 3034
Williams Bradbury, P.C.
1015 W. Hays St.
Boise,ID 83702
Telephone: Q08) 344-6633
Email: [e-mail]
Attorneys 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 DAVE SWENSON
FOR INTERMOUNTAIN GAS COMPANY
February 15,2017
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a. Please state your name, position and business address.
A. My name is David Swenson. I am Manager of Industrial Services at
Intermountain Gas Company ("Intermountain" or'the Company"). My business
address is 555 S. Cole Road, Boise, Idaho 83707.
a. Are you the same David Swenson that prepared and previously presented pre-
filed direct testimony on behalf of Intermountain Gas Company in this Case?
A. Yes.
a. What is the purpose of your rebuttal testimony?
A. The purpose of my rebuttal testimony is to address Dr. Reading's direct testimony
relative to the impact of Intermountain's proposed tariffs on one of its industrial
customers, Amalgamated Sugar.
a. Do you have an initial comment in response to Dr. Reading'?
A. Yes. Intermountain would first like to state that it is very aware of the impact that
the proposed rate design will have on all of its large volume/industrial customers
monthly natural gas transportation bills including Amalgamated Sugar's.
Intermountain appreciates and values every customer and Amalgamated is no
exception. Intermountain also recognizes the value that Amalgamated provides to
the Idaho economy. Intermountain has worked in the past several years to assist
Amalgamated with tariff migrations and to negotiate mutually beneficial
agreements to help Amalgamated make efficient energy choices as Amalgamated
experienced growth in its natural gas usage. Intermountain deeply appreciates the
working relationship with Amalgamated and sincerely hopes that the mutually
Swenson, Reb. I
Intermountain Gas Company
beneficial working relationship between the parties will continue long after this
Case is complete.
a. Dr. Reading criticizes the Company's rate design proposal to now include a
demand charge as atypical and decidedly unreasonable. Do you agree?
A. I do not agree with either assertion. The use of Demand Charges are not at all
"atypical" as purported by Mr. Reading, they are a common practice within the
industry, particularly for firm service tariffs. Dr. Reading did not provide any
evidence to back his assertion, but a search of northwest gas utilities tariffs
located in close proximity to Intermountain show that most include at least a
monthly Customer Charge while both Northwest Natural and Questar Gas include
a monthly demand charge for their firm large volume customers. In regards to Mr.
Readings' assertion that the Company's proposed rate design is "unreasonable", I
would like to address this in two important respects. First, I would again
emphasize the importance of a workable system to ration our existing pipe
capacity and to encourage large customers to be judicious with their MDFQ
election. Our experience with the T-5 rate indicated that the existence of a
demand charge increased those customers' interest in setting an MDFQ that
protected their peak day need, while at the same keeping monthly charges as low
as reasonably possible.
Secondly, the proposed rate design changes are necessary as a number of
Intermountain's smaller to medium sized customers in the industrial group are
currently bearing a proportionally larger share of fixed cost recovery. They
therefore are subsidizing other larger users due to the way the current rate design
Swenson, Reb. 2
Intermountain Gas Company
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recovers those fixed costs. As the total T-4 block 3 therm use grows, the level of
subsidization worsens. It would be unreasonable to continue these interclass
subsidies.
Let me explain firther. Todays' T-4 rate structure collects almost all fixed cost in
the first two price blocks with recovery more heavily weighted to the first block.
Amalgamated's combined 2016 annual therms sales show that only 10% of the
Company's therm use was billed in the first block while over 70Yo was billed in
the Company's third block. This means thatT|o/o of Amalgamated's 2016 usage
contributed only to the variable cost of providing that service, leaving other
customers to provide the bulk of fixed cost recovery.
Is Amalgamated at fault for this?
No, Intermountain is not suggesting Amalgamated has done anything wrong;
they merely operated under today's effective tariffs to maximize their
economics. The Company is simply suggesting that T-4 usage patterns have
materially changed over the past decade and therefore in this Case proposes a
new rate design to reflect those changes. For example, the following table shows
the total annual large volume (LV) sales of the Company, both with and without
Amalgamated (TASCO; The Amalgamated Sugar Company)
Swenson, Reb. 3
Intermountain Gas Company
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350,000
300,ooo
250,000
200,000
150,000
100,000
50,000
I ntermou nta i n An n ua I La rge Vol u me/l nd ustria I Sa les
2003 2004 2005 2006 2007 2008 2009 2010 20Lt 20L2 2013 20L4 2075 201b
ETotal LVSales lTotal LV LessTASCO
As you can see from this Table, total LV sales, and Intermountain's sales to
Amalgamated, were relatively consistent in the years 2000 through 2010 where
Amalgamated comprised anywhere from2Yoto 4o/o of total LV sales. However,
beginning approximately in 2010, Amalgamated began a significant ramp-up in
it gas usage to the point where their 2016 combined sales accounted for nearly
one-fourth of all LV Sales. Amalgamated's rapid increase in usage compared to
the rest of the LV class is, in part, one of the reasons for needing a demand
charge. When all LV customers were closer to parity in volumetric usage, the
interclass subsidies between customers with high versus low load factors was not
as great a concem as it is today. Now, with Amalgamated accounting for such a
larger volume of annual purchases while having a middling annual load factor,
compared to the rest of the LV customers, the interclass subsidies became much
more pronounced and needed to be addressed.
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Intermountain Gas Company
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Please explain further the relationship between Amalgamated's plant
operations and Intermountain's proposed rates.
All three Amalgamated plants have seasonal load profiles and none of them have
a2016load factor higher than60%o. The plants may run *2417" when they are
being operated, as Dr. Reading testifies, but they do not run year round, as do
many other industrial customers.
Could a change in how Amalgamated operates change the financial impact
associated with Intermountain's proposed rates and proposed demand
charge?
Yes, as Dr. Reading acknowledges, Amalgamated's energy consumptions is
highest in the fall and winter processing months (Reading, Di, page 1). The winter
months especially coincide with Intermountain's highest sales and transportation
capacity and energy demand months. If Amalgamated were able shift, or "smooth
out", its operation in the winter months, with its energy consumption spread more
evenly throughout the year, its rate impact would more in line with the other
industrial and transportation customers in this case, which is a modest proposed
rate decrease.
Dr. Reading concludes that Intermountain has failed to keep up with changes
in both customer usage patterns and to keep its rate design current and
relevant. Do you agree?
I both agree and disagree. First, I agree that had the Company implemented a
demand charge in 2010, customers with load profiles like Amalgamated would
have already been accustomed to more fairly paying for the impact their operation
Swenson, Reb. 5
Intermountain Gas Company
has on the Company's transportation system, and would have had more time to
change usage patterns in response to pricing signals. However, Intermountain's
failure to make rate design changes earlier is not an acceptable reason to postpone
or dilute making those rate design changes now.
Dr. Reading makes the assertion that "customers" - I assume he is only speaking
for Amalgamated - have established usage patterns and made plant investment
based on Intermountain's 31 years of not filing a general rate case and not
charging for demand. However, as the table above shows, Company records
indicate otherwise. Virtually all of the significant increase in Amalgamated's
daily, monthly and annual usage over the past decade largely occurred beginning
in 2010. In fact, Amalgamated's combined20l6 annualized usage exceeds 2009
by over 1400%. It is difficult to understand how a relatively smooth usage pattern
until2010 could be primarily responsible for all or a significant portion of
Amalgamated's investment decisions over the past 31 years, as Dr. Reading
implies.
Second, I disagree with Dr. Reading's assertion that the Company failed to keep
up with changes in customer usage patterns. The Company has a data base of
monthly billed usage of all LV customers going back to 1986, and has daily
records of telemetry volumes (SCADA) going back to 1990. Usingthat data
Intermountain performs various monthly, quarterly, annual and multi-year reports
and analysis that identifies patterns for each individual customer, market segment
and LV rate class. This very data has been used to track and chart these patterns
and provided the basis for the rate study sponsored in this Case.
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Intermountain Gas Company
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Dr. Reading testifies as to the significant percentage increase that
Amalgamated will be paying Intermountain for gas transportation service.
With Amalgamated purchasing its own gas or commodity, do you have an
estimate of the total natural gas delivered to the burner tip cost increase (i.e.
both transportation cost, and enerry cost) that Amalgamated would
experience, if the Company's Demand Charge for T-4 customers is
implemented?
Intermountain is not privy to what Amalgamated, or any transport customer,
pays a marketer for gas supplies delivered on behalf of that customer. However
assuming that Amalgamated purchased delivered gas supplies equal to
Intermountain's current WACOG of $0.32764 (which I believe is very
conservative as evidence suggests marketers can supply gas supplies at a
discount to Intermountain's WACOG) and adding to that Amalgamated's 2016
average cost per therm for Intermountain transport of $0.01 3 1 5, yields a
delivered cost of gas cost of $0.3 4133 per therm. Increasing Intermountain's
transport cost by 65Yoto $0.02254 yields a new delivered cost of $0.35018 per
therm or a net increase of only 2.60/o for Amalgamated's total cost of gas service.
In fact increasing Intermountain's transport charge by 100% yields a total
increase in delivered gas cost of only 4%o.
Dr. Reading finds the Company's proposal to implement a demand charge as
unreasonable, and resulting in 66rate shock" for Amalgamated. As an
alternative, he proposes phasing in the demand charge over the next five
general rate cases, with the expectation that the Company would file a
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general rate case once every live years. Do you lind a 30 year phase in of a
Demand Charge to be reasonable?
No. First, as I indicated above, a2.6Yo increase in the total cost of gas service -
the all-inclusive cost of interstate and distribution transportation and gas
commodity - can hardly be described as "rate shock". Second, in essence, Dr.
Reading is proposing that all other industrial customers, especially ones with high
load factors and most their volume in the first and second blocks, continue to
subsidize Amalgamated's use of lntermountain's gas lines and gas line capacity
for the next 30 years. As described in Intermountain's filing, the company designs
its system to provide enough peak capacity for that design weather day. While
that capacity is robust enough for firm customers' needs, it is still finite. It is
patently unfair to allow a single customer, or class of customers, to access that
capacity at the financial expense of the remaining customers. Therefore the
company believes that customers should bear their fair allocation of the cost of
peak day capacity use and a demand charge based on MDFQ sends the correct
price signal to T-4 customers. Intermountain believes that the time has come, or is
even past due, to implement a Demand Charge that is designed recover peak day
capacity cost from peak users. The proposed rate design is fair for all industrial
customers, and reduces cross subsidization among customers in a rate class with
extreme variation in load profiles.
Does this complete your rebuttal testimony?
Yes.
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Intermountain Gas Company
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