20170518Petition for Reconsideration.pdf

\MILLIAMS BRADBURY
ATTORNEYSATI,AW it:il*lV=D
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,, irlr;11-1i.rMay 18,2017
Ms. Diane Hanian
Commission Secretary
Idaho Public Utilities Commission
472W. Washington
Boise,lD 83702
Re: IGC Petition for Reconsideration - Case No. INT-G-16-02
Dear Ms. Hanian:
Enclosed for filing with the Commission are one original and seven conformed copies
of Intermountain Gas Company's Petition for Reconsideration to the Commission Staff.
Thank you for your assistance in this matter. Please feel free to give me a call should
you have any questions.
Sincerelv-r)
K^ Ut)l'-
Ronald L. Williams
RLW
Enclosures
P.O. Box 388 - Boise,ID 83701
Phone: [phone] - www.williamsbradbury.com
Ronald L. Williams,ISB No. 3034
ron @ williamsbradbury.com
Williams Bradbury, P.C.
P.O. Box 388, 802 W. Bannock, Suite 900
Boise,ID 83702
Telephone: [phone]
Attorneys for lntermountain Gas Company
BBFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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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
PETITION FOR
RECONSIDERATION
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COMES NOW Intermountain Gas Company ("Intermountain" or the "Company") and
pursuant to Rule 331 of the Idaho Public Utilities Commission's ("Commission") Rules of
Procedure, hereby petitions for reconsideration of Commission Order No. 33757. The Company
respectfully requests the Commission to reconsider its decision on the issues addressed below,
for the reason that the Commission's decision in Order No. 33757 is unreasonable, erroneous,
unduly discriminatory, not in conformity with the facts of record and/or the applicable law, and
results in rates that are confiscatory.
I.
Given that the Commission Adopted Staff's Weather Normalization
Methodology in lieu of the Company's, Order No. 33757 is Erroneous and
Not Supported by Substantial Evidence in its Acceptance of Staffs Weather
Normalization Adjustment of $2,024,597, Because StafPs Methodology OnIy
used L3 Years and 8 Months of Weather Data from 1989 through 2003, and
not 30 Years Of Weather Data, to Determine "Normal" Weather for 2016.
As Order No. 33757 notes, test year revenues for the Company are adjusted to
"normalize" revenues as they relate to weather. The definition of "normal" is a peculiarity of the
estimation process, as the Order also points out. Order No. 33757 at p. 11. The Commission is
also correct in taking judicial notice of an accepted regulatory treatise that defines "normal"
Intermountain Gas Company' s Petition for Reconsideration Page I
weather for regulatory and rate making purposes as "the average over the previous 3O years." Id.,
(Judicial notice taken of Jonathan Al Lesser & Leonardo R. Giacchini, Fundamentals of Energy
Re gulation, 2ll (2. Ed. 201 3)).
In so far as the Commission finds that Staff's weather normalizing methodology is
superior to the Company's, the issue the Company presents for reconsideration in this section is
that Staff's analysis and methodology only used l3 years and 8 months of weather data to define
Normal weather for the Company, and did not use the industry best practice of 30 years of
weather data. Specifically, Staff's calculation of Normal weather relied on the period of time
from October of 1989 through May of 2003, to determine average weather, which then produced
a revenue reduction of $2,024,597, when run through Staff's regression models normalizing
usage or consumption.
The efficacy of the regression model used to calculate usage/consumption and revenues
related thereto, which is discussed in Section II below, is a separate and distinct issue from the
issue of the appropriate definition of Normal weather that should be used as an input into the
selected regression model.
Regardless of the regression models employed, the Company also believes that additional
hearings are necessary to ensure that 30 years of average temperature data is being used to
calculate Normal weather when the Commission preferred models are run.
1. Statement of Facts
Commission Order No. 33757 finds that the Company "did not meet its burden of proof
related to weather normalization" and as a result, adopts Staff s analysis of weather
normalization, and also Staff s weather normalization revenue decrease of $2,024,597. Order
No. 33757, p. 12. However, if Staff s weather normalization models are to be adopted, it is also
important that it is applied correctly, and they are not. In this section of its Petition,
Intermountain only seeks reconsideration of and the correct application of Staff s Weather
normalization methodology. That correct application would require using as an input to the
Staffls approved regression models 30 years of weather data instead of the 13 years and 8
months of weather data actually used by the Staff.
The Company provided compelling evidence that the correct application of Staff s
weather normalization methodology would not result in a revenue decrease of $2,024,597. In her
rebuttal testimony Company witness Blattner testified that Staff witness Dr. Morrison used 26
lntermountain Gas Company' s Petition for Reconsideration Page2
years of heating degree day data (1989 through 2Ol5) in developing his regression models used
to calculate usage (Tr. 1804, Ln9 - 12), but only used 13 years and 8 months of weather data
(October 1989 through May 2003) to calculate Average weather. The Average weather is used as
an input in those regression models once the models are developed. Tr. 1804, Ln 1 - 3.
Company witness Blattner testified that when she ran Dr. Morrison's weather normalization
model using 30 instead of 13 years and 8 months of weather data [heating degree days], Staff s
models deprived the Company of $3.575 million dollars in revenues. Tr. 1806. As Ms. Blattner
testified, Exhibit 40 demonstrated that Dr. Morrison's failure to include 30 years of averaged
weather data in his calculation of an Average weather year produced significantly colder
Average weather heating degree days per customer than Intermountain's Normal heating degree
days. Tr.1806,1807.
Immediately prior to his cross examination, Dr. Morrison materially revised his direct
pre-filed testimony to retract his statement that he had "used the Company's weighted heating
degree days as a weather predictor" and inserted new testimony that the Company "did not
provide the full range ofheating degree days used in its analysis", and that he had "used data for
the date ranges provided by the Company." Tr. 1099. Dr. Morrison then testified that he had re-
run his regression models to calculate usage, and that the difference between the new and old
regression model run was "extremely small." Tr. 1100.
Intermountain's Production Requests 13 - 17 and 19 to Commission Staff requested
various "data, workpapers, models and calculations" related to Dr. Morrison's testimony and his
"normalized consumption estimate" (Request No. 17). At hearing, Dr. Morrison testified to his
re-running of his models that corrected for his omission of certain usage data. Tr. 1 100.
However, Staff failed to provide these updated models to the Company prior to, at or after the
hearing, in spite of the continuing nature of the production requestsl obligating Staff to do so.
Because of this omission to produce the requested updated models pursuant to discovery
requests, the Company was significantly disadvantaged at hearing and effectively deprived of
any meaningful ability to analyze the revised regression model runs, and to cross examine Dr.
Morrison regarding his opinion that 30 years of weather data produced a difference that was
t "This Production Request is continuing and Staffis requested to provide, by way ofsupplementary responses,
additional documentation that it or any person acting on its behalf may later obtain that will augment the documents
produced." See page I of the Company's first Production Request to Commission Staff.
Intermountain Gas Company' s Petition for Reconsideration Page 3
"extremely small". Ironically, prior to the hearing, Staff did provide the Company updated direct
testimony of Staff witness Bentley Erdwurm, with a cover sheet outlining the changes to Mr.
Erdwurm's testimony. Yet, the significantly more prejudicial changes made by Dr. Morrison to
his pre-filed written testimony were not provided to the Company in advance, and the model runs
supporting the changes have never been provided.
Using Dr. Morrison's own words from his written comments regarding Staff Production
Request No. 27, Company witness Blattner also refuted Dr. Morrison's revised testimony that
the Company "did not provide the full range of heating degree days" to him, and that he only
"used data from the date ranges provided by the Company". In her testimony, Ms. Blattner was
given no choice but to read into the record Dr. Morrison's contradictory written statement to her
that "You won't need to provide me temperature data. I can download that myself [from NOAA]
if you provide me the list of facilities from which the temperature information was obtained." Tr.
1822. These written words of Dr. Morrison stand in stark contrast to his revised testimony
attempting to lay blame at the feet of the Company for failing to provide to him the very data he
said he would independently acquire.
The Company also wished to pursue a line of questions with Dr. Morrison comparing his
revised regression model runs producing "extremely small" results, to Ms. Blatter's Exhibit No.
40, but when Dr. Morrison was asked whether he had reviewed Exhibit No.40, he stated "No, I
haven't." Tr. II42. However, this answer directly contradicted the very reason Dr. Morrison
gave for amending his testimony: "Witness Blattner in her rebuttal testimony discusses this error
and so I am correcting that error." Tr. 1099. Dr. Morrison's answer also deprived the Company
of critical cross examination related to the $3.575 million material difference identified on
Exhibit 40, versus Dr. Morrison's "extremely small" difference.
In rebuttal testimony, Ms. Blattner explained that the Company had, in fact, used 30 years
of average temperature data from 7 different weather stations which were collected from NOAA,
to calculate Normal weather. Tr. 1819, Ln.l7 -20,Tr. 1824,Ln.6 -9. Ms. Blattner also
explained that the calculation of Normal weather, or average heating degree days, is a variable
which both the Company and Dr. Morrison use in their different regression models.Tr. 1824.
"Normal weather becomes the variable that you apply these coefficients that come out of the
regression model to and that equals the normal usage." Tr. 1818. There appears no dispute
between the Company and Staff that the normalized weather variable to be used in any
Intermountain Gas Company' s Petition for Reconsideration Page 4
regression model used to calculate usage should be 30 years of weather data. Ms. Blattner also
testified that "the method used by Dr. Morrison is not a common industry practice for calculating
Normal HDDS, nor is it a method supported by the National Oceanic and Atmospheric
Administration (NOAA)" (Tr. 1798), and that there is no other utility she is aware of that utilizes
the modeling methodology proposed by Dr. Morrison. Tr. 1804. The record in this case is
uncontroverted that the weather data subset used by Dr. Morrison is 13 years and 8 months, not
30 years.
Ms. Blattner explained that the error that Dr. Morrison corrected in his revised testimony
was a "different error" and only related to the 26 years of usage data [no!_weather data] running
through Dr. Morrison's regression models. Tr. 1820, 1824. As Ms. Blattner said, "He's
corrected a different error. The portion of his testimony that he corrected addressed regression
equations. It didn't address the calculation of normal heating degree days." Tr.1824.
Ms. Blattner's Exhibit No.40 made that additional correction of applying 30 years of
heating degree day [weather] data - instead of 13 years and 8 months - to Dr. Morrison's
regression models calculating usage. The Exhibit 40 results of Ms. Blattner's run of Dr.
Morrison's regression models showed that using 30 years of heating degree day data produced a
revenue shortfall of $3.575 million dollars to the Company. Tr. 1825. The $3.575 million
shortfall using 30 years of weather data run through Dr. Morrison's regression model is $ 1.5
million higher than the revenue requirement proposed by the Company, using its alternative
regression models.
The $3.575 million revenue shortfall shown on Exhibit 40 relating to Dr. Morrison's 13
years and 8 months of weather data was not disputed by Dr. Morrison from the stand, and when
he was asked if he had reviewed Exhibit 40 his response was "No, I haven't." Tr. II42.
Ms. Blattner's testimony that Dr. Morrison only used 13 years and 8 months of average
weather for the years 1989 through 2003, and her explanation of Exhibit 40, was not challenged
by Staff during her cross examination. Nor was Ms. Blattner challenged or refuted in her
testimony that Dr. Morrison's correction of his testimony and his revised model run related only
to the calculation contained in his regression model, and not the number of years he used to
calculate Average weather.
Intermountain Gas Company' s Petition for Reconsideration Page 5
2. Discussion
It is erroneous, arbitrary and capricious and not in conformity with law for the
Commission to set the Company's rates based on a 2016 test year using average temperature data
for a 13 year, 8 month, period of time from October of 1989 through May of 2003 to calculate
average weather, and not use 30 years of average temperature data, regardless of which
regression models the Commission finds as the more appropriate.
a. Order No. 33757 is not based on Substantial Evidence
To regularly pursue its authority, the Commission must enter adequate findings of fact
based upon competent and substantial evidence. Boise Water Corp. v. Idaho Public Utilities
Commission,9T ldaho832,555P.2d163,169 (1976);Hartwigv. Pugh,9T Idaho 236,542P.2d
10 (1975). The Commission's pursuit of regulatory authority is valid as long as it "has not abused
or exceeded its authority or made findings unsupported by substantial evidence or improperly
employed its own methods of rate determination." Intermountain Gas Co. v. Idaho Public
Utilities Com'n,971 Idaho lI3, I27,540P.2d,775,189 (1975). "Substantial evidence is that
which affords 'a substantial basis in fact from which the fact in issue can be reasonably
inferred."' Boise Water Corp 555P.zd 163,170 (citing NLRB v. Columbia Enameling &
Stamping Co.,306U.5.292,299-300,59 S.Ct. 501, 505, 83 L.Ed. 660 (1939)).
"In making its determinations the Commission must present in its order the basic (not
merely "ultimate") facts necessary to support reasonably its conclusion regarding facts in issue."
Boise Water Corp. 555P.zd 163,111. An ultimatefact is generally expressed in the language of
a statutory standard, such as the "rate is reasonable". Id. Basic facts are those upon which the
ultimate facts rest - they are more detailed. Id.
Order No. 33757 fails the substantial evidence test regarding the number of years used to
calculate Normal weather. In fact, the Order fails to even address this issue - which is not the
issue of whether Staff's or the Company's regression models are the more reasonable. Order No.
33757 instead limits itself only to a discussion of the selection of Staff s regression models over
the Company's, and then jumps to the ultimate conclusion that a weather normalization
adjustment decreasing revenues by $2 million is appropriate. For purposes of this section, the
Company assumes arguendo that the Commission's selection of Staff's regression models are
based on substantial evidence. But, the record clearly shows that Staff's regression models only
lntermountain Gas Company' s Petition for Reconsideration Page 6
used the weather years 1989 through 2003 to compute Average weather. Average weather is an
input to the regression models when computing normalized consumption.
The Company agrees with the Commission that, for ratemaking purposes, Normal
weather is defined as the average over 30 years. Order No. 33757 p. ll (Lesser & LGiacchino).
At best, there is only a mere scintilla of evidence presented by Dr. Morrison at hearing that he
corrected for the weather data set problem when he revised his testimony, alleging that his
correction results in an extremely small change to the Company's revenue requirement.2
To the contrary, the Company presented overwhelming and substantive evidence that
even though Dr. Morrison corrected his regression models to account for 26 years of
consumption data, he failed to also correct for only using 13 years and 8 months of weather data.
Company witness Blattner prepared Exhibit No. 40 showing that when Dr. Morrison's models
were run using 30 years of weather data, it produced a revenue shortfall of $3.575 million. Even
though Dr. Morrison was Staff s expert on this subject matter, he said he had not reviewed
Exhibit 40, thus foreclosing his cross examination on whether he agreed with the analysis or not.
Nor did Staff, or any other party, pursue cross examination of Ms. Blattner regarding Exhibit No.
40, or her testimony that Dr. Morrison only corrected his consumption data inputs, and did not
also correct for his mistake in using 13 years and 8 months of weather data from a historical time
period, a period not reflective of current weather and weather changes.
ln Boise Water Corp., the Court said "It is nevertheless also reversible error for the
Commission to not make appropriate findings based on substantial evidence when such findings
are material to the decision reached, and when their absence precludes the reasonableness of the
conclusions reached by the Commission." Boise Water Corp. v. Idaho Public Utilities
Commission,9T [daho 832,555P.2d 163,175 (1976) (citing Intermountain Gas Co. v. Idaho
Public Utilities Com'n, 971 Idaho lL3, l2l , 540 P.2d 77 5,789 (I97 5)). It is also reversible error
for the Commission to find that a revenue reduction of $2 million is warranted in this case,
without a finding that the weather normalization methodology preferred by the Commission is
correctly relying on 30 years of weather data to calculate average weather.
2 Dr. Morrison also blamed the mistake on the Company, changing his testimony to read that the Company failed to
provide the proper data to him for analysis; a statement later proved false by Company witness Blattner reading into
the record Dr. Morrison's written correspondence that he instead would acquire his own weather data.
lntermountain Gas Company' s Petition for Reconsideration PageT
b. Order No. 33757 is Arbitrary and Capricious and an Abuse of Discretion
In addition to findings of fact based on substantial, competent evidence, the Commission
must also explain the reasoning employed to reach its conclusions in order to ensure that the
Commission has applied relevant criteria prescribed by statute or its own regulations and thus
has not acted arbitrarily or capriciously. Washington Water Power v. Idaho Public Utilities
Commission, l0l Idaho 567,617P.2d1242,1250 (1980). "NotonlymusttheCommission
make and enter proper findings of fact, but it must set forth its reasoning in a rational manner."
Id. " An order based upon a finding made without evidence ... or upon a finding made upon
evidence which clearly does not support it ... is an arbitrary act against which courts afford
relief." Oregon Shortline Railroad v. Public Utilities Commission, 47 ldaho 482,484,216P.2d
910,97I (1929). "What is essential are sufficient findings to permit the reviewing court to
determine that the Commission has acted non-arbitrarily." Boise Water Corp. v. Idaho Public
Utilities Commission, 97 ldaho 832,555 P.2d 163, 17l (1976).
The Commission's decision to reduce the Company's revenue requirement by $2 million
contains no explanation, discussion, or findings of fact regarding the number of years of weather
data used in Staff's average weather year, which was in turn applied to Staff's weather
normalization models selected by the Commission to establish rates. The Order references that
"Staff maintained that lntermountain did not provide pertinent consumption information." Order
No. 33757, p. 12. The Order explains that it selected Staffls model because "[t]he Company did
not meet its burden of proof as related to weather normalization. As a result, we adopt Staff's
analysis for weather normalization." Id. There is no discussion in the Order regarding whether
Staff s methodology correctly used 30, versus 13 years - 8 months, of weather data when
calculating normalized usage. The Order only discusses the efficacy of Staff s consumption
models as preferable to the Company's. Id. at Ll, emphasis added.
This ultimate finding, however, is insufficient to justify a $2 million dollar revenue
reduction using a methodology that the record unequivocally shows is using only l3 years - 8
months of weather data, from 1989 through 2003 to calculate Normal weather. "In making its
determinations the Commission must present in its order the basic (not merely "ultimate") facts
necessary to support reasonably its conclusion regarding facts in issue." Boise Water Corp. 555
P.zd 163,171. Commission Order No. 33757 fails the Boise Water Corp. requirement for
making a factual determination regarding the number of years of weather data run through
lntermountain Gas Company's Petition for Reconsideration Page 8
Staff s regression models for normalizing consumption. The record is clear, as described above,
that the weather data for the years 1989 through 2003 were relied on by Dr. Morrison in
recommending his $2 million revenue adjustment. Use of weather data from 1989 through 2003
to compute normal weather and2016 consumption is arbitrary, capricious, and an abuse of
discretion.
c. Order No. 33757 results is Rates that are Confiscatory
Using Staff's regression models to set Intermountain's rates based on weather years 1989
through 2003 results in an Average weather year calculation that is significantly colder than if
the same model had used a rolling 30 years of weather data. Staff's model produces a therm
usage per customer that is five (RS-1, GS-1 customers) to nine percent (RS-2 customers) higher
than the usage per customer using 30 years of data to calculate average weather. Tr. 1806, 1807.
These facts are strikingly similar to the facts in ldaho Power Company v. Idaho Public
Utilities Commission, where the Commission rejected Idaho Power's model and instead adopted
Staff s model containing an assumption that Idaho Power's thermal plants were unnecessarily
constrained, and should be dispatched another ten percent. Idaho Power Company v. Idaho
Public Utilities Commission, 108Idaho 943,703P.2d.707 (1985). Staff s "llO%o thermal
blocking" modeling assumption allowed for more thermal generation dispatch than Idaho Power
said was available to it in a normal water year. Id. at7ll. The net result of the lll%o thermal
blocking assumption was a material reduction in Idaho Power's revenue requirement.
In its ruling overturning the Commission's decision, the Idaho Supreme Court framed the
issue as to "whether the 110 percent thermal blocking formula adopted by the Commission is
confiscatory, thus violating Constitutional and statutory mandates. We conclude that itis." Id. at
7L3 -ll4.The Court went on to state "The formula adopted clearly overestimates Idaho Power's
thermal resources by ten percent" and a model "which overestimates thermal resoutces by ten
percent, resulting in reduced revenue requirements for the utility is confiscatory and, hence, must
be set aside." Id. The Court also held that "The Commission has reduced Idaho Power's revenue
requirement by making unw:uranted assumptions" Id. at7l2. And that there was not "substantial
and competent evidence" in the record "to support the findings of the Commission that the 1 10
percent thermal blocking formula was properly used." Id. at714, emphasis added.
Similarly, the Commission's decision in this case that uses vintage weather data from
1989 through 2003 to overstate average weather by five to nine percent, and reduce normalized
Intermountain Gas Company' s Petition for Reconsideration Page 9
revenues accordingly, is confiscatory. The record in this case shows that Saff s regression
models/"formula" were not "properly used" in the calculation of Average weather. Supra.
3. Conclusion
Assuming arguendo that the Commission did not abuse its discretion in selecting Staff s
regression models over the Company's to weather normalize consumption, the Commission must
award an additional $3.575 million of revenue requirement to the Company, in order that the
Commission preferred regression models are "properly using" 30 years of average weather, not
13 years and 8 months.
II.
The Commission's Decision to Reject the Company's Weather Normalization
Methodology and Adopt StafPs is Unreasonable, Arbitrary, Capricious, and
Not Supported by the Facts of the Record and Applicable Law.
In 1986, Intermountain filed an application with the Commission "requesting authority to
utilize its proposed weather normalization model for internal forecasting and ratemaking
purposes."3 PUC Order No. 21048, issued at the conclusion of that case, noted that the
Commission had "received neither protest nor corlment nor inquiry on the issue of the
Company's proposed weather normalization model", including presumably, from Commission
Staff. Order No. 21048, p. 1. The Order also "finds implementation of [the] proposed model to
be a reasonable alternative" to the Company's prior weather normalization mode. The Order
goes on to state that "In view of the forgoing, the Company is authorized to implement its
proposed weather normalization model for internal forecasting and ratemaking purposes."a
As Commission Order No. 33757 in this case notes, "Intermountain has used the same
weather normalization method in this case that it has used since 1986 in its PGA filings with the
Commission." Order No. 33757, p. 11. All of the Company's PGA rate filings with the
Commission since 1986 have been approved by the Commission without Staff objecting to this
weather normalization methodology. Commission Order No. 33757 now asserts that the
Commission did not "approve" the Company's weather normalization model in 1986, in spite of
3 In the Matter of the Application of Intermountain Gas Company for Approval of its Weather Normalization Model,
Case No. U-1034-134.
a Following the ordering language in Order No. 21048 authorizing the Company to implement its weather
normalizing model "for ratemaking purposes", the Order also notes that the appropriateness of the model will be
again reviewed in the Company's next general ratecase.
lntermountain Gas Company' s Petition for Reconsideration Page 10
the clear language in that 1986 Order No. 21048 "authorizing" the use of the methodology "for
ratemaking purposes. " Id.
It is erroneous, arbitrary and capricious and not in conformity with law for the
Commission to assert that a prior "authorization" to use a rate making methodology is not the
same as Commission "approval" to use the methodology.
It is erroneous, arbitrary and capricious and not in conformity with the facts or the law for
the Commission to rule that Staff s weather normalization methodology is a more reasonable
alternative to the Company's methodology that was "authorized" by the Commission's 1986
Order No. 21048. Staff has the burden of proof in showing that Staff's model is, in fact, "a
[more] reasonable alternative"s and Order No. 33757 makes no reference to any portion of the
record to support an abandonment of an "authorized" weather normalization methodology and
the substitution of a "new methodology" (Tr. 1808) in its place.
1. Statement of Facts
Intermountain witness Blattner testified that "the Company has been using the same
weather normalization methodology since its approval in Order No. 21048, Case No. U-1034-
134. Tr.1788. Ms. Blattner also acknowledges Order No. 21048's encouragement to
Intermountain to continue "to refine its weather normalization methodology", which the
Company testified extensively as having occurred. Tr. 1793 - L198. As Ms. Blattner states,
"Weather normalized consumption levels resulting from this method have been incorporated in
all of the Company's PGA filings following 1986, and "normalized therm sales have been
reviewed by IPUC Staff during annual PGA audits." Tr. 1788. Usage forecasting calculations,
using the same methodology, also "have been reviewed by Staff as part of Staff s audits of the
Company's IRP filings." Tr. 1788. The regression models have also been reviewed on a
consistent basis by outside consultants specializing in statistical modeling. Tr. 330,331; Exhibit.
18 (Boise State Letter to Lori Blattner, Jtne 22,2016).
After lengthy rebuttal testimony regarding the regression analysis modeling used to
calculate normal weather usage, Company witness Dr. Phil Fry concluded that "the Company's
s "In my opinion, the proposed changes [switching from the Company's model to Staff's model] are so material as
to render them essentially a new methodology and a significant departure from the weather normalization
methodology authorized by this Commission for the Company in Case No. U-1034-134. In making such a material
deviation from prior Commission approved practice, I believe the burden is on Dr. Morrison to prove his
methodology is better than the current methodology approved by the Commission and used by other natural gas
utilities." Company Witness Blattner, Tr. at. 1808.
Intermountain Gas Company' s Petition for Reconsideration Page I I
model is following sound statistical practice and that the model represents a reasonable modeling
approach to modeling weather normalization." Tr. 1776.
2. Discussion
In Intermountain's last weather normalization modeling case, U-1034-134,the
Commission made the explicit finding that "implementation of [the] proposed model to be a
reasonable alternative" to the Company's prior weather normalization model. Order No. 21048,
p. l. The ordering language of Order No. 21048 then explicitly stated: "In view of the forgoing,
the Company is authorizedto implement its proposed weather normalization model for internal
forecasting and ratemaking purposes."
a. The Commission had the burden to adequately explain its departure from
Order No.2104, and such departure is not based on substantial evidence
Once the Commission decided to deviate from its prior ruling in Order No. 21048, it has
the legal obligation to adequately explain its reasoning for doing so. Such an explanation must be
based on substantial evidence. The Commission has failed to do so -- to adequately explain its
decision based on facts in the record.
The Company recognizes that the Commission is not as rigorously bound by stare decisis
as are the courts, and that the Commission is not required to decide all future cases the same way
as they have decided similar cases in the past. Rosebud Enter. v. Idaho Pub. Util. Com'n,917
P.2d766,775 (Idaho 1996). "If however, the IPUC decides a case in a manner contrary to prior
IPUC rulings, the Court will consider whether the IPUC has adequately explained departure from
prior rulings" Id. In addition to findings of facts based on substantial evidence, competent
evidence, the Commission must explain the reasoning employed to reach its conclusion. . . . in
order to ensure that it has not acted arbitrarily or capriciously. Id.
Order No. 33757 fails to adequately explain its departure from its prior rulings
"authorizing" the Company's normalization models "for ratemaking purposes". Instead, the
Commission simply states an ultimate finding that the Company failed to show that its prior
approved methodology was reasonable. Order No. 33757 p. 13. Furthermore, the Commission
never objected to the Company using that same model in all of its subsequent PGA and IRP
filings over the past 30 years. Because the Commission had previously ruled the methodology
employed by the Company as "reasonable", the Commission has the higher burden to now
explain why it chose to depart from its previous ruling in Order No. 21048. It fails to do so.
Intermountain Gas Company' s Petition for Reconsideration Page 12
Order No. 33757 is void of any explanation, or comparison, of why the Commission chose
Staff s models for weather normalization as now being the better models. It is inadequate, as a
matter of law, for the Commission to explain its departure from a prior approved practice by
simply saying that the Company failed to meet its burden of proof.
To regularly pursue its authority, the Commission must also enter adequate findings of
fact based upon competent and substantial evidence. Boise Water Corp. v. Idaho Public
Utilities Commission, 9'7 ldaho 832,555 P.2d 163, 169 (1976); Hartwig v. Pugh, 9l ldaho 236,
542P.2d70 (1975). The Commission's pursuit of regulatory authority is valid as long as it "has
not abused or exceeded its authority or made findings unsupported by substantial evidence or
improperly employed its own methods of rate determination." Intermountain Gas Co. v. Idaho
Public Utilities Comm'n,971 Idaho ll3, 127, 540 P.2d715,789 (1975). "Substantial evidence
is that which affords 'a substantial basis in fact from which the fact in issue can be reasonably
inferred."' Boise Water Corp.,555 P.2d 163,I70. "In making its determinations the
Commission must present in its order the basic (not merely "ultimate") facts necessary to support
reasonably its conclusion regarding facts in issue." Id. at 17l. An ultimate fact is generally
expressed in the language of a statutory standard, such as the "rate is reasonable". Id. Basic
facts are those upon which the ultimate facts rest - they are more detailed. Id.
The Commission failed the substantial evidence test in only providing "ultimate facts" in
support of its reasoning for choosing Staff s model over the Company's. The Commission gave
no basic facts or explained why Staff had met the burden of proof, which shifted to it, that its
models were now the more reasonable alternative, in light of the Commission's prior
authorization of the Company's models.
b. In departure from previous ruling, not based on substantial evidence, the
Commission acted arbitrarily, capricious, and abused its discretion
Commission Order 33757 cites dicta from its prior Order 21048 reserving the right to
review the Company's weather normalization model in the Company's next rate case. The
reservation of right - which is essentially, a generalized statement of the Commission's statutory
authority6 - does not discharge the Commission from its duty to adequately explain its reasoning
for departing from a previously authorized practice. As the United State Supreme Court stated,
6 Idaho Code $ 61-503: "Power to investigate and fix rates and regulation." "The Commission shall have [the]
power, upon a hearing, to investigate a single rate . . or schedule ofrates."
Intermountain Gas Company' s Petition for Reconsideration Page 13
without proper findings based on substantial evidence and reason, review would be impossible,
and "[a]dministrative expertise would. . . be on its way to becoming 'a monster which rules with
no practical limits on its discretion'. . . ." Baltimore & Ohio R. Co. v. Aberdeen & R.R. Co.,393
U.S. 92, 89 S.Ct. 280,283 (1968). By failing to provide proper findings, the Commission acted
arbitrarily, capricious, and abused its discretion.
The explicit "finding" by the Commission in Order No. 21048 "authorizing"
Intermountain to employ the weather normalizing methodology "for ratemaking purposes"
carries the weight of law that cannot be undone by language in the same order stating, in the
most general of terms, the Commission's statutory obligation to review, at a future date, the
Company's weather normalization model. The ordering language "authorizing" the methodology
for forecasting and "ratemaking purposes" is specific, while the reservation of a right to review
appropriateness at a later ratecase is of a very general nature. "Where two statutes deal with the
same subject matter, the more specific will prevail." State v. Betterton,I2T ldaho 562,564,903
P.2d151,153 (Ct. App. 1995).
3. Conclusion
The Commission had the burden to adequately explain its departure from Order No.
21048 (authorizing Intermountain's use of its weather normalization model), and failed to do so.
The Commission's departure from its previous ruling authorizing the Company to use its weather
normalizing model to set rates is not based on substantial evidence, and the Commission acted
arbitrarily, capricious, and abused its discretion in finding that Intermountain failed to meet it
burden of proof related to weather nbrmalization. The Commission's decision to adopt Staff s
weather normalizing adjustment and to decrease Intermountain's revenue requirement by
$2,024,597 is arbitrary, capricious, an abuse of discretion, and not based on substantial evidence.
m.
The Commission's Decision to Disallow $1,381,000 of Affiliated
Operations and Maintenance Expenses is Unreasonable, Arbitrary,
Capricious, and Not Supported by the Facts of the Record and
Applicable Law.
Commission Order No. 33757 reduced the Company's revenue requirement by $1.38
million, finding that the Company failed to prove that the expenses were "reasonable", noting
that the Company has a higher burden of proof with respect to affiliated charges. The
Commission accepted NIGU's proposal to reduce revenues by $1.38 million, reflecting the
lntermountain Gas Company' s Petition for Reconsideration Page 14
previous 5 year's average of affiliated expenses (predominantly A&G expenses as identified by
Witness Gorman) billed by MDU to Intermountain, rather than the actual test year affiliated
charges. Order No. 33757 p. 18. Based on Mr. Gorman's averaging comparison, the
Commission found the Company's affiliated transactions abnormally high. Id.
1. Statement of Facts
NIGU Witness Gorman, when he is asked in his direct testimony if "IGC provided any
explanation for this increase in cost from affiliated companies", answered by saying "No. IGC
witness Dedden discusses affiliate charges in his direct testimony, but provides no explanation or
justification for the increase level sought by the Company." Tr.111. Consequently, Mr.
Gorman recommends a previous 5 year average of such costs, and a revenue reduction of $ 1.38
million.
In cross examination, Mr. Gorman reiterates the same position, saying: "S/i!hou!_U,
explanation of why there was a need for an increase in those costs, I think the Commission
should reject that as an unexplained and unjustified cost increase." Tr. 926 (emphasis added).
On rebuttal, Intermountain explained "why" 2016 affiliated costs increased, compared to
2015 and before: "[T]he primary driver of that increase relates to our customer information
system development that was - during the development stages, it was all the costs related to
consulting, internal labor, software licensing, as well as other contractor costs were able to be
capitalized into the project into rate base." Tr. 1536, 1537. Mr. Dedden then explained: "That
project went live in August of 2015, so thereafter, for the most part starting in2016, all of those
costs converted from capital over to expense." Tr. 1537. (emphasis added)
Nicole Kivisto, the Company's CEO, also testified as to the "meaningful cost savings that
have flowed through to Intermountain as a result of MDU Resources' acquisition of
Intermountain." Tr. 18. Ms. Kivisto explained, and as shown on Table K.1, A & G costs for
Intermountain "have decreased by l9%o since 2007, due in large part to the greater scale of
efficiencies brought by MDU Resources.
Mr. Scott Madison, Executive Vice President for the Company, also testified comparing
Intermountain's A & G expenses, on a per customer basis, to all SNL Listed gas utilities in the
United States (Tr. 41, Table M.4.1), to all regional gas utilities (Id.,TableM.4.2), and to like-
sized gas utilities (Tr. 42, Table M.4.2). Each of those comparisons shows the Company
significantly below average of A&G costs. Table MA.2 shows lntermountain having the lowest
Intermountain Gas Company' s Petition for Reconsideration Page 15
A&G costs per customer of all regional gas utilities, and Table M.4.3 shows Intermountain
having the lowest A&G costs, per customer, of all like-sized gas utilities in the country.
2. Discussion
Intermountain agrees with the Commission that the Company has a higher burden of
proof regarding the reasonableness of expenses incurred between affiliates. Order No. 33757, p.
17. (Citing General Telephone Company v. Idaho Public Utilities Commission, LO9ldaho 942,
950 7 LzP.2d 643,651 (1986)). However, the Company did in fact meet this higher burden, and
Commission Order No. 33757 fails in discussing and reconciling the evidence presented on this
topic.
The Company did not just show the actual incurrence of these expenses, but also
provided detailed and logical explanation as to why these expenses were incurred, and "why"
2016 expenses were above the five year average. The record shows that Company witness
Dedden provided rebuttal testimony that the reason for higher affiliated transaction costs in 2016
primarily related to MDU's new customer information system. Tr. 1536, 1537. Mr. Dedden also
explained how those costs converted in 2016 from capital over to expense. Tr. 1537 - Company
witness Kivisto also testified to the benefits of MDU Resources' acquisition of Intermountain.
Tr. 18. Further, Company witness Madison testified to how the Company was significantly
below average of A&G costs compared to like-sized gas utilities in the country. Tr. 42, Table
M.4.2. The Company did not just explain the existence of such expenses, but also provided a
rational accounting based explanation (items previously being capitalized must now be
expensed) justifying "why" those expenses increased. Company witness Madison compared the
Company's costs to other gas utilities, demonstrating them to be some of the lowest in the nation,
and the lowest in the region.
The Company met its higher burden of presenting a prima facie case of reasonableness.
This evidence was not acknowledged by the Commission, in its determination that the Company
failed to meet its burden of proof. To regularly pursue its authority, the Commission must enter
adequate findings of fact based upon competent and substantial evidence. Boise Water Corp. v.
Idaho Public Utilities Commission, 97 ldaho 832,555 P.2d 163, 169 (1976); Hartwig v. Pugh
,97 Idaho 236,542P.2d70 (1975). None of these facts discussed above were reviewed or
discussed, discounted or dismissed, as unreliable or insufficient. "An order based upon a finding
made without evidence ... or upon a finding made upon evidence which clearly does not support
Intermountain Gas Company' s Petition for Reconsideration Page 16
it ... is an arbitrary act against which courts afford relief." Oregon Shortline Railroad v. Public
Utilitie s Commis sion, 47 ldaho 482, 484, 27 6 P .2d 97 0, 97 | (1929).
3. Conclusion
The Commission's decision that the Company failed to prove that the affiliated A & G
expenses were "reasonable" is a finding not supported by the facts of the record. The
Commission's decision to disallow $1,381,000 of affiliated operations and maintenance expenses
was unreasonable, arbitrary, capricious, and not supported by the facts of the record or applicable
law.
IV.
The Commission's Decision to Disallow l00%o of Intermountain's Incentive
Compensation is Unreasonable, Arbitrary, Capricious, and Not Supported by
the Facts of the Record and Applicable Law.
Commission Order No. 33757 denies $704,000 of Company expenses because the
Commission believes the Company "failed to meet its burden of proof' that Intermountain's
customers directly benefit from MDU's incentive compensation plans "related to cost control
and customer satisfaction". Order No. 33757 p. 15. Specifically, the Commission said the
Company "must attempt" to show that the incentive compensation relate to "improving service
or reducing costs" to Intermountain's customers. /d.
Contrary to this failure-of-proof language in the Order, the Company did provide direct
and uncontroverted evidence that the efforts of non-executives of the Company to contain costs
and provide exemplary customer service directly benefitted Intermountain's customers. None of
that evidence was discussed by the Commission in its Order admonishing Intermountain that it
"must attempt to make a showing" connecting employee efforts/results to the twin goals of cost
control and customer satisfaction.
l. Statement of Facts
Intermountain's CEO, Nicole Kivisto, testified that since the MDU Resources'
acquisition of the Company, Intermountain's A&G costs have dropped l9%o since 2001 . Tr. 18,
19. Intermountain considers this substantial evidence of "cost control" and "reducing costs to
Intermountain customers." Order No. 33757, p. 16. In addition, Ms. Kivisto notes that J.D.
Power ranked Intermountain - not MDU Resources' - in first place for 2013, third place in20L4,
and second place in 2015, for overall customer satisfaction, for mid-sized gas utilities in the
Intermountain Gas Company' s Petition for Reconsideration Page 17
west. Tr. 20. This evidence is substantial evidence "directly relate[d] to improving service" for
"fntermountain customers." Order No. 33757 p. 16. A review of the public records, regarding J.
D. Power rankings, of which the Commission may take judicial notice, would also show
Intermountain consistently competing with its sister utility, Cascade Natural Gas, for first and
second place in the region, in the J. D Power rankings for customer service. ,See:
http://wwrv jdpower.con/press-releases/201 3-gas-utility-residential-custorner-satisfaction-study.
Mr. Scott Madison, Executive Vice President for the Company, also testified comparing
Intermountain's A & G expenses, on a per customer basis, to all SNL Listed gas utilities in the
United States (Tr.4I, Table M 4,.1), to all regional gas utilities (Id.,TableM.4.2), and to like-
sized gas utilities (Tr. 42, Table M.4.2). Each of those comparisons shows the Company
significantly below the national average of A&G costs per customer, having the lowest A&G
costs per customer of all regional gas utilities, and having the lowest A&G costs, per customer,
of all like-sized gas utilities in the country. A & G costs are predominately incurred at and
controlled at the Company level, not at the MDU Resources' level.
2. Discussion
Commission Order 33757 denies recovery of non-executive compensation, based on a
finding that Intermountain did not meet its burden of proof, and that "[t]he Company must
attempt to make a showing that these expenses directly relate to improving service or reducing
costs to Intermountain customers." Order No. 33757 pgs. 15, 16.
Contrary to the Ordering language admonishing the Company for failing to even make an
attempt at showing linkage between employee efforts and cost controVcustomer satisfaction, the
Company in fact made a compelling showing that it ranks lowest in the region, and lowest in the
country, in containing costs and achieving customer satisfaction. The Company presented
witness testimony from Ms. Kivisto and Mr. Madison on how the expenses related to improving
services or reducing costs that directly benefitted lntermountain customers in Idaho. Yet, the
Commission failed to address any of this testimony in it in its decision.
To regularly pursue its authority, the Commission must enter adequate findings of
fact based upon competent and substantial evidence. Boise Water Corp. v. Idaho Public
Utilities Commission, 97 Idaho 832,555 P.zd 163,169 (1976); Hartwig v. Pugh,91 Idaho 236,
542P.2d70 (1975) The Company met its burden in regards to incentive compensation by
lntermountain Gas Company' s Petition for Reconsideration Page 18
showing how the expenses directly related to improving service or reducing cost to
lntermountain customers.
The Commission also failed to give any reasoning or competent and substantial evidence
to support their decision that the Company did not meet its burden. "An order based upon a
finding made without evidence ... or upon a finding made upon evidence which clearly does not
support it ... is an arbitrary act against which courts afford relief." Oregon Shortline Railroad v.
P ublic U tilitie s C ommi s s ion, 47 ldaho 482, 484, 27 6 P .2d 91 0, 97 I (1929).
3. Conclusion
The Commission's failure in not addressing the testimony from the Company's witnesses
regarding incentive compensation, and not basing its decision on competent and substantial
evidence to support its decision to disallow I00Vo of the Company's incentive compensation,
was unreasonable, arbitrary, capricious, and not supported by the facts of the record.
v.
CONCLUSION
Pursuant to Rule 33 1 .01 , Intermountain requests Reconsideration of Order No. 33575
with respect to the above described four issues, for the reasons stated above.
1. Specific to the reconsideration request regarding Section I, lntermountain believes
the Commission must hold additional hearings in order to further investigate and clarify the
record, in order to determine if Staff s weather normalization methodology is or is not relying
upon the most recent 30 years of weather data to calculate the Normal weather input into the
regression models to calculate normalized usage. The Company maintains that it does not, and
believes it has provedT that it does not.
The Company also needs to be provided with the results of Dr. Morrison's re-run of his
regression models, and evaluate his claimed but unsubstantiated assertion that he corrected for
more than just regression data input; i.e., that Staff s weather normalization calculation also used
30 years of weather data to calculate the Normal weather that was input into the models.
Following analysis of Staff s model re-runs, the Company will provide additional testimony,
analysis and exhibits.
2. With respect to Sections III and [V requests for reconsideration, denial of these
two revenue recovery issues were based on the Commission's finding that the Company failed to
7 See Exhibit 40.
Intermountain Gas Company's Petition for Reconsideration Page 19
meet its burden of proof. As outlined above, the Company believes that it has in fact met its
burden of proof, and points to numerous references to the record where this burden was met, but
was never discussed or acknowledged by Commission Order No. 33757.
After a more thorough review of the portions of the record referenced above, if the
Commission still believes the Company has failed to meet its burden of proof, Intermountain
requests the opportunity to supplement the record and provide additional evidence. In particular,
the Company will provide additional documentation that 2016 operations and maintenance
charges from MDU Resources' to Intermountain are benchmarked to comparable gas utilities
that incur such costs internally, and benchmarked against third party providers of such O & M
services, to the extent that such services can reasonably be acquired from competent third party
providers.
With respect to Section II above, the Company believes that additional hearings are not
necessary and that the record is sufficient to support the request that the Commission reconsider
its decision (i) that the Company's weather normalization models were not previously approved
by the Commission, (ii) that the Company failed to meet its burden of proof as to the
reasonableness of its weather normalization models, and (iii) and that Staff met the burden of
proof shifted to it, that Staff s weather normalization models were a more reasonable alternative
to the Company's models previously "authorized for ratemaking purposes".
Dated this 18ft day of May,2O17.
Respectfully submitted,
,Qe t
Ronald L. Williams
Williams Bradbury, P.C.
Attorneys for Intermountain Gas Company
lntermountain Gas Company' s Petition for Reconsideration Page20
CERTIFICATE OF DELIVERY
I HEREBY CERTIFY that on this 18th day of May,2017, I caused to be served a true
and correct copy of the Petition for Reconsideration of Intermountain Gas Company to the
Commission Staff upon the following individuals in the manner indicated below:
Hand Deliverv: (original and 7 copies)
Diane Hanian
Commission Secretary
Idaho Public Utilities Commission
472 W . Washington Street
Boise, D 83720
Michael P. McGrath
Intermountain Gas Company
555 S. Cole Road
Boise,ID 83707
E-Mail: Mike.McGrath @intgas.com
Brad M. Purdy
2019 N. 17th Street
Boise, D 83702
E-Mail: [e-mail]
Attorney for Community Action
Partnership Association of Idaho (CAPAI)
Benjamin J. Otto
Idaho Conservation League
710 N. 6th Street
Boise, D 83702
E-Mail: [e-mail]
F. Diego Rivas
NW Energy Coalition
1101 8th Avenue
Helena, MT 59601
E-Mail: [e-mail]
Edward A. Finklea
Northwest Industrial Gas Users (NWIGU)
545 Grandview Drive
Ashland, OR 97520
E-Mail: [e-mail]
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US Mail (postage prepaid)
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Chad M. Stokes
Tommy A. Brooks
Cable Huston LLP
1001 SW Fifth Avenue, Ste. 2000
Portland, OR 97204-1136
E-Mail: [e-mail]
tbrooks @ cablehuston.com
Attorneys for NWIGU
Electronic service only:
Michael C. Creamer
Givens Pursley LLP
E-Mail: mcc@ givenspursley.com
Attorneys for NWIGU
Scott Dale Blickenstaff
The Amalgamated Sugar Company LLC
1951 S. Saturn Way, Ste. 100
Boise, TD 83702
E-Mail: sblickenstaff@ amalsugar.com
Peter Richardson
Gregory M. Adams
Richardson Adams, PLLC
515 N. 27th Street
Boise,ID 83702
E-Mail: [e-mail]
greg @ richardsonadams.com
Attorneys for The Amalgamated Sugar
Company LLC
Electronic service only:
Dr. Don Reading
E-Mail: dreading @mindspring.com
The Amalgamated Sugar Company LLC
Ken Miller
Snake River Alliance
223 N. 66 St., Ste. 317
P.O. Box 1731
Boise,ID 83701
E-Mail: kmiller@ snakeriveralliance.org
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Andrew J. Unsicker
Lanny L.Ziemarr
Natalie A. Cepak
Thomas A. Jernigan
Ebony M. Payton
AFLOA/JA-ULFSC
139 Barnes Drive, Suite I
Tyndall AFB, FL32403
E-Mail: [e-mail]
Lanny.zieman. I @ us. af.mil
Natalie.cepak. 2 @ us. af.mil
Thomas jernigan. 3 @ us. af.mil
Ebony.payton.ctr @ us.af.mil
Attorneys for Federal Executive Agencies
(FEA)
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Intermountain Gas Company' s Petition for Reconsideration Page23