20170630Incentive Compensation Expense Charges and Exhibit 49.pdf

Ronald L. Williams,lSB No.3034
Williams Bradbury, P.C.
P O Box 388, 802 W. Bannock, Boise ID 83701
Telephone : [phone]
Email: [e-mail]
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
TN THE STATE OF IDAHO
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Case No. INT-G-16-02
INTERMOLINTAIN GAS COMPANY'S WRITTEN COMMENTS AND EXHIBITS
REGARDING
INCENTIVE COMPENSATION EXPENSES
JUNE 3O,2OI7
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Report on lncentive Compensation Expenses
Prepared By ond Under the Direction of Lindo Murray
Director of Humon Resources, lntermountoin Gos Company
June 30, 2077
7. lntroduction
Commission Order No. 33757 denies 5704,000 of Company expenses because the Commission
believes the Company "failed to meet its burden of proof" that lntermountain's customers
directly benefit from Montana Dakota Utility Group's ("MDUG") incentive compensation plans.
The following information contained in this report provides additional evidence that the
Company's ldaho customers directly benefit from the performance incentives provided to
lntermountain's employees.
2. MDUG lncentive Compelsation Plan
Contrary to the findings of Commission Order 33757, MDUG's incentive compensation plan ("1
C Plan") that rewards, or fails to reward, lntermountain employees, is inextricably linked to the
performance of the Company which ties directly to benefits received by the Company's
customers. MDUG's I C Plan is based on three performance components: (1) Earnings, (2)
Customer Service, and (3) O & M cost containment. The I C Plan is for non-bargaining
employees and focuses lntermountain's employee's attention on achieving Company
objectives. The lC Plan incentivizes lntermountain's non-bargaining employees to continue to
improve in their performance and organizational effectiveness that leads to positive business
results benefitting both the Company and lntermountain's customers in ldaho. The efforts of
employees, both individually and as Company team members, are key to success under the
plan.
More importantly, the individual performance of lntermountain has a direct and material
impact on whether MDUG pays out incentive compensation to anv MDUG affiliated company
employees,or none of them
A composite MDUG financial performance benchmark of 85% must first be met before
incentive compensation is available to any/all MDUG companies and their employees.
Achievement is measured by comparing the actual results of the financial performance
measure to the targeted levels. Achievement of at least 85% of the financial goal is a
prerequisite for a payout to occur.
lf the minimum financial performance target of 85% is achieved across all MDUG companies,
funding is available and goal achievement is then determined based on the following:
IGC Report on lncentive Compensation Expense Charges - Page 1
3
Eornings Gool. Meeting or exceeding the MDUG earnings goal accounts for one-third of
I C Plan compensation. While the earnings goal test is applied across all MDUG
companies, it is possible that the sub-standard financial performance of a single MDUG
company jeopardizes all MDUG companies from achieving the company-wide financial
goal, resulting in no I C Plan payments for that year for all MDUG non-bargaining
employees. lntermountain did not request rate recovery for the earnings portion of
incentive compensation and, therefore, the earnings component of the Company's
incentive compensation was not included in the Company's filing.
O&M Expense Goal. Controlling O&M expenses at or below budget accounts for
another one-third of the calculated I C Plan payout for a year. All employees are
expected to work together to continuously seek efficiencies that control costs, such as
labor, benefits, travel, supplies, office, and plant maintenance, etc.
Operationol Gool - Customer Service. Customer service satisfaction is the third factor in
determining the amount of I C Plan compensation, and accounts for the final one-third
of the calculated payout. The MDUG customer service goal is to be within the top 35
companies in the annualJD Power Gas Utility Customer Service Satisfaction Study of
similar utilities.
lntermountain's Performance under MDUG's lC Plan
a
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o
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Attached is Exhibit 49 which is a 2012 -zOtG analysis of the I C Plan, comparing
lntermountain's stand-alone performance to MDUG overall performance, for the three plan
components. lntermountain's comparison performance for each component is further
described as follows:
a) Earnings Component
o Exhibit 49 demonstrates that lntermountain would have met the earnings incentive
targets for a payout as a stand-alone company for all years except 2015 and exceeded
the MDUG results for all years except 2015.
o lntermountain's 20L5 earnings were 63% of target earnings and significantly below the
MDUG average of 77%.lntermountain's poor financial performance for that year (due
to an abnormally warmer year) effectively resulted in MDUG as a whole not achieving its
85% financial benchmark, and consequently no MDUG company qualified for an annual
lC Plan payment to employees.
o As 2015 demonstrated, lntermountain's earnings impact on the achievement of the
incentive target is a significant driver to whether the MDUG meets the incentive targets.
Had lntermountain been evaluated on a stand-alone basis for meeting and exceeding its
earnings target, the compensation that would have been paid to Company employees
would have been more than that paid due to lntermountain performing better than the
MDUG. ln essence, lntermountain has generally out-performed other MDUG
IGC Report on lncentive Compensation Expense Charges - Page 2
companies, and I C Plan payouts to Intermountain employees have been reduced to
reflect the average MDUG performance metrics.
o lntermountain does not request rate recovery for the earnings portion of incentive
compensation.
b) Customer Service Component
o lntermountain scored at the top of the JD Power rankings for all years from 2012
through 2016 and would have met the Customer Service incentive target as a stand-
alone utility. Again, lntermountain's JD Power rankings for customer service are above
the average ranking for all MDUG companies.
o lntermountain's customers directly receive the benefit of the outstanding customer
service provided by lntermountain's employees through efficient, comprehensive, and
low-cost service.
c) O&M Cost Containment Component
o Intermountain met the incentive target for O&M cost control as a stand-alone utility for
allyears from2Ol2 through 2016.
o O&M budgets are generally held to a percentage of the prior year 6 months of actual
expenses and 6 months of budget. Year over year budgets for lntermountain for the
calendar years 2OL2 - zOtG range from a reduction of 3o/o in 2016 to an increase of 4% in
years 2014 and 2015 which is reasonable in light of annual inflation.
o lntermountain's customers directly benefit from lntermountain's O&M cost control due
to the request for lower cost recovery and resulting cost reductions which serve to
lower the Company's overall revenue requirement and customer rates.
4. Conclusion
As demonstrated above, lntermountain's financial performance, customer service, and O&M
cost control have a significant positive impact on MDUG and are returned by MDUG to
lntermountain, to benefit the Company's ldaho customers. The MDUG I C Plan is designed to
give all employees the incentive to perform their best on behalf of all customers, to provide
exceptional customer service and contain costs, so that MDUG remains one of the lowest cost
natural gas service providers in the United States. Intermountain employees consistently
provide superior service while being the lowest cost service provider in the region, all to the
benefit of the Company's ldaho customers. The I C Plan clearly incentivizes Company
employees to provide exceptional customer service, while containing O&M costs, at the
Company level. Therefore, the Company proposes that the entire 5704,000 adjustment be
reversed and added back to lntermountain's revenue requirement.
IGC Report on lncentive Compensation Expense Charges - Page 3
lntermountain Gas Company
Historical lncentive Compensation Analysis
Dollars in Millions
Budret
6,513
47,O09
lt,235
4&309
10,546
46,658
11,335
44,863
12,026
Budqet
67,998
272,686
77,0@
254,830
74,474
239,527
67,084
22L,376
65,000
Actual
69,324
268,878
59,52L
234,094
67,2t5
226,721
72,493
2L4,693
50,o42
lntermountain Gas Company
Qualified Qualified
77%
LI,4L6
MDUG
2016
rnings
Costs
Service
2015
rnings
Costs
Service
20t4
Earnings
Costs
Service
2013
Earnings
Costs
Service
2012
rnings
Costs
Service
Actual
8,311
46,76L
7,O28
43,815
10,906
43,394
t4,232
42,63L
Exhibit No.49
Case No. INT-G-16-02
L. Murry, IGC