20170215Terzic Rebuttal.pdf

Ronald L. Williams,ISB No. 3034
Williams Bradbury, P.C.
l0l5 W. Hays St.
Boise,ID 83702
Telephone: [phone]
Email: [e-mail]
Attorneys for Intermountain Gas Company
BEFORE TIIE 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
CaseNo. INT-G-16-02
REBUTTAL TESTIMONY OF BRANKO TERZIC
FOR INTERMOUNTAIN GAS COMPANY
February 15,2017
)
)
)
)
)
)
)
1
2
aJ
4
5
6
7
8
9
a.
A.
a.
A.
a.
A.
a.
A.
a
A.
Please state your name, title and business address.
My name is Branko Terzic and my business address is 1800 M Street NW,
Second Floor, Washington, D.C. 20036.
By whom are you employed and in what capacity?
I am employed as a Managing Director at the Berkeley Research Group.
Are you the same Branko Terzic who filed Prepared Direct Testimony
earlier in this proceeding?
Yes,I am.
What is the purpose of your rebuttal testimony in this proceeding?
I am responding to the direct testimony of Idaho PUC StaffWitnesses Randy
Lobb and Michael Morrison.
What issue will you comment on in Dr. Morrison's testimony?
The issue is Dr. Morrison's testimony is his recommendation to this Commission
that the Company's cost of service study be ignored and that "...the Company's
revenue requirement be allocated in proportion to the normalized revenue
currently being collected from each rate class." (Morrison P.3 L. 5-8)
Do you agree with Dr. Morrison's recommendation?
No. I do not. The recommendation is disingenuous. Dr. Morrison asserts that the
Company's cost of service study, prepared in2016 with recent data and based on
industry acceptable methodology, "will not result in a fair allocation of the
company's revenue requirement among its rate classes" (Morrison P.2L. 19-20).
Yet, he makes a recommendation to this Commission that it use an allocation
method based on revenue "currently collected". That revenue is based on rate
Terzic, Reb. 1
Intermountain Gas Company
10
t2
13
1l
t4
15
t6
t7 a.
18 A.
r9
20
2t
22
23
I
2
J
4
5
6
7
8
9
a.
A.
schedules developed from cost of service studies established in the last general
rate case in 1985. Even Staff witness Lobb recognizedthat in his testimony that
"...the current level of revenue collected from each class was established without
cost of service over the last 30 years..." (Lobb P. 14 L. 5-6).
Why would the use of the Company's cost of service study be preferred?
The Company's cost of service sfudy uses recent data conceming recent costs and
usage by customers to estimate the various cost allocation factors. While it is true
that access to more exact customer load surveys would be ideal, I thinks it is self-
evident that the Company's use of recent data in its cost of service study
methodology, even if all the numbers are not exact, is superior to the imputed use
of 30 year old data as implied in Dr. Morrison's recommendation and observed by
staffwitness Lobb.
Do you agree that it would be preferable to have data from a load study for
use in developing a cost of service sfudy?
Yes, I do. However, as pointed out by Company witness Heintz, absent the
availability of such data the Company must then, and did, rely on other
recognized allocation methodologies and principles used throughout the natural
gas industry.
Do you have any differences of opinion with the testimony of Mr. Randy
Lobb?
Yes, this is with respect to his testimony on the FCCM proposed by the Company.
Firstly I would ask the Commission to disregard Mr. Lobb's final
recornmendation that the Commission "adjust the Company's ROE downward"
Terzic, Reb. 2
Intermountain Gas Company
l0
1t
t2
13 a.
t4
15 A.
t6
t7
18
tea
2t A.
20
22
23
1 should it approve the FCCM. This Commission has extensive experience with the
determination of a fair ROE for this company and for all the other utilities under
its jurisdiction. That experience, most likely is similar to mine during my time as
a state and federal regulator, in recognizing the difficulty in making a single
numerical adjustment to an ROE based on any one regulatory treatment, rate
design or cost factor. I would observe, having made such decisions in numerous
rate cases, that, since ROE is based on real financial markets viewing multiple
attributes of a company, there is no direct way to measure the effect of a single
regulatory treatment on the ROE required.
I would further add that even if Mr. Lobb was correct that this single treatment
would result in a lower ROE requirement, there are likely other regulatory
decisions to be made in this case, as in all utility rate cases, where those other
regulatory decisions would increase the risk and require a "higher" ROE than
otherwise would be the case.
Do you agree with Mr. Lobb's recommendation that the Commission deny
the Company's f,'CCM request?
No, I do not. Besides the positive attributes of the program as testified to by the
Company, I would ask the Commission to consider what damage would be done
if it was to approve the FCCM as requested. The Commission can approve the
FCCM request with the full knowledge that annual or other more frequent reports
required of the Company will provide sufficient information as to any possible
problems with the progftlm and direct any potential corrections going forward.
Terzic, Reb. 3
Intermountain Gas Company
2
J
4
5
6
7
8
9
l0
ll
T2
l3
t4
ls a.
t6
17 A.
18
t9
2t
20
22
I The FCCM is a decoupling mechanism which recognizes that DSM and other
exogenous factors now and in the future can lower sales volumes without
commensurate reduction in necessary plant investment. The costs in the FCCM
are reviewed in this case and reviewable in the future by this Commission. The
use of the cost of service presented by the Company, and incorporated in the
FCCM, is a superior choice than reliance on a method tied to regulatory decisions
made thirty years ago. For these reasons, I see no reason to not accept the FCCM.
What would be the consequences of denial of the Company's proposed
FCCM?
Denial of the FCCM and acceptance of other staff recommendations would result
in the company's higher risk of non-recovery of fixed charges in the Company's
Commission approved revenue requirement.
The FCCM as requested is one mechanism to recover recognized fixed charges
inctrred by the Company. The other mechanism to recover more fixed charges
requested by the Company was an increase in the residential customer charge
from a current weighted average of $3.83 per month (Erdwurm P. 4L.l l) to
$ 10.00 per month (Erdwurm P .4 L.2l). The staff witness Erdwurm has
recofllmend a much lower increase in the customer charge to an average of $5.50
per month.
Should the Commission accept the two staff recommendations for a lowered
residential and commercial customer charge, it would result in rates which are
designed to recover fixed charges in the volumetric usage rate at projected levels
of sales. Should sales volumes fall short of projections, which can occur because
Terzic, Reb. 4
Intermountain Gas Company
2
aJ
4
5
6
7
8
9
10
1l
t2
l3
t4
l5
t6
17
18
t9
20
2t
22
23
a.
A.
I
2
J
4
5
6
7
8
9
l0
lt
t2
13
t4
15
t6
t7
l8
T9
20
2t
22
23
of weather, economic or programmatic reasons the Company will not recover the
same fixed charges this Commission deemed necessary and appropriate to deliver
service to consumers.
There is no good public policy reason for choosing a series of rate
recorrmendations which increase the risk of under recovery of fixed charges.
There are good public policy reasons to support both requests.
National and state regulatory policies, with respect to gas distribution utilities
have been directed to encourage efficiency and conservation to ultimately lower
monthly bills to consumers. Keeping in mind that even without any such policies
the least interested consumer will still experience lower natural gas purchases
after installing a modern replacement furnace.
However the consumer's reduction in energy (therm) usage does not diminish the
capital investment already in place to serve consumers. The service line to the
house does not change, the meter does not change nor is there a reduction in the
size of distribution gas system pipe when new efficient appliances are installed.
Conversely a lower unit energy charge for delivered natural gas, which generally
accompanies a higher customer charge, does not stimulate the furnace, gas stove
or water heater to use more therms than a previous higher volumetric rate.
Thus, I recommend that the Commission approve both the higher customer charge
and the FCCM as appropriate public policies to improve the prospects for fixed
cost recovery.
Q. Does that conclude your testimony?
Yes it does.
Terzic, Reb. 5
Intermountain Gas Company
A.