20170630Affiliated Charges and Exhibits 47; 48.pdf

WILLIAMS BRADBURY
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June 30,2017
Ms. Diane Hanian
Idaho Public Utilities Commission
472 West Washington
Post Office Box 83720
Boise, Idaho 83720-0074
Intermountain Gas Company
Case No. INT-G-16-02
Dear Ms. Hanian:
Enclosed for filing with the Commission are an original and nine copies of the following:
o Report on Affiliated Charges and Exhibits 47 and 48.
o Report on Incentive Compensation Expense Charges and Exhibit 49.
If you should have comments or questions regarding this filing, please contact Michael P,
McGrath (377-6168) or me (344-6633).
Sincerely,
Rrt'l tuttl
Ronald L. Williams
Williams Bradbury, P.C.
Attorney for Intermountain Gas Company
cc:Michael P. McGrath
Enclosure
P O Box 388, 802 W. Bannock St, - Boise, ID 83701
Phone: [phone] - www.williamsbradbury.com
CERTIFICATE OF DELIVERY
I HEREBY CERTIFY that on this 30th day of June,2017,l caused to be served a true and
correct copy of Intermountain Gas Company Reports on Affiliated Charges and Incentive
Compensation upon the following individuals in the manner indicated below:
Hand Deliverry: (original and 9 copies)
Diane Hanian
Commission Secretary
Idaho Public Utilities Commission
472 W . Washington Street
Boise, ID 83720
Electronic Deliverv
Michael P. McGrath
Intermountain Gas Company
555 S. Cole Road
Boise,lD 83707
E-Mail : [e-mail]
Brad M. Purdy
2019 N. lTth Street
Boise, ID 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, lD 83702
E-Mail: [e-mail]
F. Diego Rivas
NW Energy Coalition
I l0l 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]
Chad M. Stokes
Tommy A. Brooks
Cable Huston LLP
l00l SW Fifth Avenue, Ste. 2000
Portland, OR 97204-1136
E-Mail: [e-mail]
[e-mail]
Attorneys for NWIGU
Michael C. Creamer
Givens Pursley LLP
E-Mail: [e-mail]
Attorneys for NWIGU
Scott Dale B lickenstaff
The Amalgamated Sugar Company LLC
l95l S. Saturn Way, Ste. 100
Boise, ID 83702
E-Mail : [e-mail]
Peter Richardson
Gregory M. Adams
Richardson Adams, PLLC
515 N. 27th Street
Boise,lD 83702
E-Mail: [e-mail]
gr e g@richardso nadam s. c om
Attorneys for The Amalgamated Sugar
Company LLC
Dr. Don Reading
E-Mail : [e-mail]
The Amalgamated Sugar Company LLC
Ken Miller
Snake River Alliance
223 N. 6th St., Ste. 317
P.O. Box 1731
Boise,lD 83701
E-Mail: [e-mail]
2
Andrew J. Unsicker
Lanny L. Zieman
Natalie A. Cepak
Thomas A. Jernigan
Ebony M. Payton
AFLOA/JA-ULFSC
139 Barnes Drive, Suite I
Tyndall AFB, FL 32403
E-Mail: [e-mail]
Lanny .zieman. I @us. af.mi I
[e-mail]
Thomas jernigan.3 @us.af.mil
[e-mail]
Attorneys for Federal Executive Agencies
(FEA)
Rrqtultl
Ronald L. Williams
Williams Bradbury, P.C.
Attorneys for Intermountain Gas Company
J
Ronald L. Williams,ISB No. 3034
Williams Bradbury, P.C.
P O Box 388, 802 W. Bannock St., Suite 900
Boise,lD 83701
Telephone: [phone]
Email : [e-mail]
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Attorneys for Intermountain Gas Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
TNTERMOUNTAIN GAS COMPANY FOR
THE AUTHORITY TO CHANGE ITS RATES
AND CHARGES FOR NATURAL GAS
SERVICE TO NATURAL GAS CUSTOMERS
IN THE STATE OF IDAHO
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Case No. INT-G-I6-02
TNTERMOUNTAIN GAS COMPANY'S WzuTTEN COMMENTS AND EXHIBTTS
REGARDING
AFFILIATED CHARGES
JTINE 30,2017
Report on Affiliated Charges
Prepared By and Under the Direction of Ted Dedden
Accounting and Finance Director, lntermountain Gos Company
June 30, 2077
1. lntroduction
Commission Order No. 33757 reduced the Company's revenue requirement by Sf.gg
million, in reliance on the testimony of NWIGU witness Gorman's direct testimony, where Mr.
Gorman proposed that the Company's affiliated charges for recovery be limited to a five-year
historical average. Using historical information provided to Mr. Gorman through Request No.
33 of NWIGU's First Production Request, Mr. Gorman created an average of affiliated charges
for the zOtt-2OLS time period. That average was 514,446,817 (Gorman Di, p. 7, Table 3). Mr.
Gorman compared that average to test year affiliated charges of 5L5,827,869, as presented on
Exhibit No. 11 of Company witness Dedden's direct testimony. Mr. Gorman proposed that the
Company's affiliated charges be reduced by 51,381,000, which is the rounded difference
between these two numbers.
2 of Customer lnformation s as the "Prima
Driver" of the Test Year lncrease in Affiliated Expense Charges
Commission Order No. 33575 found that the Company "failed to prove" the
reasonableness of its test year affiliated charges which were "abnormally higher" than the five-
year average of such expenses (Order No. 33757, p. 18).
ln his rebuttal testimony Company witness Dedden however explained why test year
affiliated expenses were higher than prior year: "[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 rate base" (Tr. 1536, 1537). Mr. Dedden
further explained: 'That project went live in August of 2015, so thereafter, for the most part
starting in 2OL6, all of those costs converted from capital over to expense" (Tr. L537).
ln addition to the testimony and exhibits already found in the record and referred to in
the Company's Petition for Reconsideration with respect to information system ("1S") affiliated
charges, attached hereto is Exhibit No. 47 which is the graphical representation of the increase
in lS affiliated charges experienced by the Company for the years 2011 through 2016. The lS
affiliate charges data used to prepare Exhibit 47 for the years 2011through 2015 can be found
in the Company's response to NWIGU Production Request No. 33, and the lS affiliate charges
data representing the 2016 test year is part of the September 30 Update data.
IGC Report on Affiliated Charges - Page 1
Exhibit 47 shows that the total September 30 Update of test year lS affiliated charges
was S1,755,995. ln contrast, the 2011-2015 average, as embedded in Mr. Gorman's direct
testimony, was 5941,602. Using Mr. Gorman's five-year average of 5941,602, instead of the
September 30 Update of test year lS affiliated charges of S1,755,995, deprives the Company of
5814,393, which represents 77% oI the total difference between the five-year average and the
updated test year affiliated charges. As stated by Mr. Dedden in his rebuttaltestimony, this
increase is the "primary driver" of the total difference between the five-year average and the
updated test year affiliated charges and results from the fact that information systems costs
which were previously capitalized are expensed in the 2016 test year. By limiting test year
affiliated charges to a five-year average, the Commission is ignoring the evidence presented by
the Company proving the reasonableness of test year affiliated charges.
3. Double Disallowance of Expenses
Mr. Gorman's proposals to adjust affiliated charges to a five-year average as well as
deny recovery of non-executive incentive compensation exposes the Company to double
disallowance of the same expenses. A portion of the Company's non-executive incentive
compensation is related to employees who are shared among the MDU Resources family of
companies and is embedded within test year affiliated charges. By limiting test year affiliated
charges to a five-year average, the Commission is denying a portion of affiliated charges that
are related to non-executive incentive compensation. Since non-executive compensation was
also denied recovery in its entirety by the Commission, the Company has thus been subject to
double disallowance of the same expenses.
4. Cost Savinss
Affiliated charges are an avenue for the Company to share costs and efficiencies among
multiple companies with the goal of decreasing costs from what they would have been had the
Company been operating on its own. For example, Ms. Nicole Kivisto, Company CEO, explained
that lntermountain has experienced overall cost savings in administrative and general ("A&G")
costs "due in large part to the greater scale of efficiencies brought by MDU Resources" (Tr.18).
As can be seen in Exhibit No. 48, A&G costs have decreased by SS.f U since MDU Resources'
purchase of lntermountain. Furthermore, Mr. Scott Madison, Executive Vice President for the
Company, showed in Tables M.4.2 and M.4.3 of his direct testimony that the Company has had
the lowest A&G costs per customer of all regional gas utilities and all liked-sized gas utilities in
the country for several years. Therefore, it is unreasonable to disallow a portion of test year
affiliated charges while at the same time allowing customers to benefit from the overall savings
and efficiencies that the Company has achieved by being a part of the larger MDU Resources
organization.
5. Calculation Errors in the Gorman Adiustment
Mr. Gorman's proposed adjustment of S1.38M was calculated incorrectly because he
failed to compare his five-year average of affiliated charges to the test year affiliated charges
IGC Report on Affiliated Charges - Page 2
included in the Company's updated revenue requirement which incorporated actual data
through September 30,20L6, and forecasted data for October 1to December 3L, 2016 (the
"september 30 Update"). The September 30 Update data was, in fact, the test year used by the
Commission in setting the Company's revenue requirement. Mr. Gorman should have used the
September 30 Update test year affiliated charges of $15,499,927 to calculate his proposed
adjustment instead of the incorrect S15,827,869.
Mr. Dedden stated in his rebuttaltestimony "[t]he total amount of actual and
forecasted Affiliate Costs included in the response to IPUC Staff Production Request No. 178
was S15,499,927" (Dedden Direct, p. 3, lines L6-L71. This updated levelof test year affiliated
charges was ignored both by Mr. Gorman and by the Commission in the determination of the
Sf.SgM adjustment. Had this updated level of test year affiliated charges been used, the total
proposed adjustment would have been S1,053,503 instead of S1,381,000.
6. Conclusion
As shown above, the Company has met its burden of proof to explain the
reasonableness of the increase of test year affiliated charges versus the 2011-2015 average. ln
addition, the Company has also made it clear that it was harmed twice by the Commission's
acceptance of Mr. Gorman's proposed adjustments; first, by Mr. Gorman and the Commission's
failure to use the updated test year information in its determination of the affiliated charges
adjustment, and second, by Mr. Gorman and the Commission's failure to provide relief for the
double disallowance of the same non-executive incentive compensation affiliated charges.
Therefore, the Company proposes that the entire Sf.gAM adjustment be reversed and that the
Company be allowed to incorporate total test year affiliated expenses into its revenue
requirement.
IGC Report on Affiliated Charges - Page 3
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Exhibit No.47
Case No. INT-G-16-02
T. Dedden
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Exhibit No.48
Case No. INT-G-16-02
T. Dedden
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