20180314Comments.pdf

CAMILLE CHRISTEN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, TDAHO 83720-0074
[phone]
BARNO. 10177
IN THE MATTER OF THE APPLICATION OF
INTERMOUNTAIN GAS COMPANY FOR
APPROVAL TO PLACE INTO EFFECT A
CHANGE IN ITS DEPRECIATION AND
AMORTIZATION RATES.
RECEIVED
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; i,;, li i-.ii:,il,,ilSSION
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-59T8
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. INT-G,17-06
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Camille Christen, Deputy Attorney General, and in response to the Notice of
Settlement Stipulation and Notice of Modified Procedure, Order No. 33990, issued on
February 21,2018, submits the following comments.
BACKGROUND
On October 27,2017,Intermountain Gas Company filed an Application seeking approval
to change its composite depreciation and amortization rates. The Company asked to: (1) increase
its composite depreciation rate from 3.05% (3.09% when weighted by December 31,2016
assets) to 3.1 \oh;t and (2) decrease its total General Plant account amortizations from $2,066,577
to $1,648,415.2 The Company indicated it needed to make changes because its most recent
studies show that overall, it had under-depreciated its assets and over-amortized General Plant
rAs shown in Exhibit I of the Application.
2 As shown on Exhibit 2 of the Application.
1STAFF COMMENTS MARCH I4,2OI8
accounts. The Company did not propose to increase the prices that customers pay for natural gas
service in this case. The Company requested that the increase to the annual composite
depreciation rate be effective January 1,2018, consistent with the beginning of its annual
financial reporting period.
The Commission issued a Notice of Application and set a deadline for interventions.
Order No. 33934. No interventions were received. A settlement conference was then noticed
and held on January 10, 2018, and further discussions ensued. On February 12,2018,
Commission Staff filed a Motion to approve a Settlement Stipulation agreed to by the Company
and Staff (collectively, the Parties). The Motion asked the Commission to accept the Stipulation
and implement revised depreciation and amortization schedules effective January 1,2018. The
Commission issued a Notice of Settlement Stipulation and Notice of Modified Procedure setting
comment and reply deadlines, Order No. 33990.
The Parties agree the Settlement Stipulation represents "a fair,just and reasonable
compromise of all the issues raised in the proceeding, is in the public interest and its acceptance by
the Commission represents a reasonable resolution of the multiple issues identified by the Settling
Parties in this case." Id.
The Parties agreed to depreciation rates set forth in Attachment A to the Stipulation,
recommended acceptance of all other depreciation account accruals shown in the Application's
Exhibits in this case, and recommended acceptance of the changes in amortization expenses shown
in the Application's Exhibits in Case No. INT-G-17-06. Id. at3. As a result of the Stipulation, the
Company's overall depreciation rate would be2.78%o, as compared to the originally proposed
3.t8%. rd.
The Parties agreed to further discuss, outside of this proceeding, possible changes to the
accounting structure for its liquid natural gas plants at Nampa and Rexburg, Idaho, and the
appropriate depreciation study cycle (that is, a three year cycle or something else) going forward.
STAFF ANALYSIS
Staff reviewed the Company's Application and the accompanying Depreciation and
Amortization Accrual Rate Studies conducted by AUS Consultants. During the course of this
review, Staff performed an analysis of the depreciation rates, service lives, remaining lives, and
salvage values for all plant asset accounts. Based on Staff s review and negotiations with the
2STAFF COMMENTS MARCH I4,2OI8
Company, Staff believes the Settlement Stipulation represents a compromise of all the issues and
results in depreciations rates that are just, fair, and reasonable. Furthermore, Staff accepts the
Company's proposal that the effective date for the changes in the annual depreciation and
amortization rates be January I,2018. The rationale for this acceptance is that depreciation
expense is transacted annually and is included in the Company's annual financial statements.
Therefore, in order to allow the Company to capture this expense in time to be included in the
financial statements for this year, it is ideal for the effective date to be set at the beginning of the
year; that is, in the first quarter. An order by the end of March will allow the Company to record
depreciation expense for the full year. The comments below identify specific concerns that were
addressed in the stipulation or previous orders.
A. Depreciation
As a result of the settlement discussions, Staff and the Company have agreed to new
depreciation rates that will allow the Company to deduct an annual depreciation expense at an
annual composite depreciation rate of 2.78Yo, or $15,161,109 based on the 2016 year-end
balances. Attachment A to the Settlement Stipulation, also attached here, provides the agreed
upon annual depreciation rates.
Services Account 380
Historically, the Services account has experienced significant negative net salvage value
because of high removal costs as few services are retired individually. However, the current
increase in the cost of removing the services has been primarily the result of a change in the way
the removal costs are processed and calculated. In the mid-2013, the Company implemented the
PowerPlan fixed asset software application. The purpose was to be able to more accurately
capture the costs related to the removal of capitalized facilities from service based on the project
manager's assessment of the work done on every project. Prior to the implementation of the
PowerPlan application, labor and other costs had to be directly assigned by the employees
working on a capital project to unique retirement accounts separate from the addition accounts for
replacements of facilities. However, this required more time and effort for employees to code the
addition and retirement account on most charges. Thus, instead, employees typically recorded all
costs to the addition account rather than take the time to directly split the charges. Furthermore, it
3STAFF COMMENTS MARCH I4,2OI8
was very difficult to get sub-contractors to report the split between addition and retirement work
on their invoices. This resulted in much lower removal cost charges than were actually physically
occurring on each job and created a misrepresentation of the new facility investment.
The Services account is the second largest distribution plant account and due to modern
superior construction, cathodic protection and increased use of main materials, their lives
continue to lengthen. The Company states that since the last study in 2013, Case No. INT-G-14-
02,the net salvage values (i.e. gross salvage net of removal costs) has become increasingly
negative. Comparatively, the salvage value for this account has decreased from negative 50o/o to a
negative l2l%. This results in an increase in annual depreciation rates from2.67%o to 4.89%o or,
based on 2016 year-end plant balances, an increase in the annual depreciation expense from
94,099,537 to $7,508, 141.
Staffexpressed its concern that the accounting change is due to enhanced separation of
costs and not an under recovery of costs making the change over a period of time more
appropriate than a single adjustment. Staff and the Company propose to mitigate this impact by
spreading the increase in depreciation expense over the next three depreciation studies. During
the settlement discussions, Staff and the Company agreed that the annual depreciation rate for the
services account should be set at3.47o/o, instead of the 4.89% originally requested by the
Company. This reflects an annual depreciation expense, based on the year-end 2016 plant
balances, of $5,327,863 which is a decrease of $2,180,278 from the Company's proposal.
Electronic Meter Reading Transmitter (ERTsl Equipment Account 381.2
The Company currently depreciates ERTs at arate of 14.22%o with an annual depreciation
expense of $2,653,402. In its Application, the Company proposed to reduce the annual
depreciation rate to 5.l4Yo with an annual depreciation expense of $959,106, which is a decrease
of $1,694,296. Staff agrees with the Company and recommends that the depreciation rate for the
ERTs be accepted as filed.
Since 2002, the Company undertook two projects with the purpose of upgrading its meter
reading equipment and thus ensuring greater efficiency in meter reading. The first phase of this
project was implemented in 2002-2003. During this phase, the Company installed automated and
remote meter reading equipment, using the electronic devices, which record the metered usage
4STAFF COMMENTS MARCH 14,2018
and transmits the usage to a radio receiving device in a Company vehicle as it passes through the
company service area. These were the original40G Legacy ERT or the First Generation ERTs.
The First Generation ERTs proved problematic for the Company and thus needed to be
replaced. The main issue was the fact that the equipment used a battery that had a shorter life
(12-15 years) with the potential of being outlived by the unit, which had a manufacture design
life of 20 years. In addition, these batteries were no longer being manufactured. Problems
would be compounded if the Company waited for the 40G ERT units to fail before replacing
them, as this would result in increased billing errors, billing adjustments issues, estimation of
usage and more administrative work in order to ensure that customers understand how their bill
was affected.
As a result , 12 years after the 2002 initial deployment, in20l4 the Company began to
proactively replace all the 40G ERT (First Generation) with the 100G ERT (Second Generation).
According to Itron, the manufacturer, and the Company's findings in the 2016 depreciation
study, the 100G model comes with numerous advantages over the 40G model. The 100G model
offers a mechanical, electronic, and battery life of 20 years, and allows for greater distance
reading ability of the ERTs. This project was completed at the end of 2017. The Company now
has relatively new ERT units with a projected service life of 18 years, compared to the l2-year
service life of the First Generation ERTs. Staff conducted an evaluation of the appropriate
depreciation rate for these new ERTs and represents that the Company's proposed depreciation
rate for the ERTs is reasonable.
Liquefied Natural Gas (LNG\ Facilities - Nampa & Rexburg
The Company currently depreciates the Nampa LNG facility at an annual depreciation
rate of 2Yo with an annual depreciation expense of $406,43 5 based on 2016 year-end plant
balances. The annual depreciation rate for the Rexburg LNG facility is currently 6.84% with an
annual depreciation expense of $343,572. In this Application, the Company requested that these
rates be changed to 3.56Yo with an annual depreciation expense of $723,454 for the Nampa LNG
facility, and3.67Yo with an annual depreciation expense of $184,343 for the Rexburg LNG
facility. Staff agrees with the Company and recommends the above changes in the depreciation
rates be accepted as filed, as explained below.
5STAFF COMMENTS MARCH I4,2OI8
In its depreciation study, the Company states that the Nampa-LNG and the Rexburg LNG
facilities are integral parts of the Company's gas delivery resources and will remain in service
for the near term. The Nampa LNG facility has been used, historically, to provide gas during the
period of high demand for gas. It now also has a loading station where LNG is loaded on trucks
for distribution to third-party purchasers or other areas. In 2008 the Company installed
vaporization equipment at the Rexburg LNG facility to vaporize LNG delivered by truck. The
Nampa LNG facility supplies the LNG for the Rexburg LNG facility, which vaporizes the LNG
and distributes the gas in the Company Rexburg and Idaho Falls service area.
In order to maintain the continued utilization of its LNG facilities and extend the
depreciable lives as reflected in this depreciation study, the Company installed a new compressor
and turbine, made upgrades to the vaporizer, and completed several other plant improvements.
As a result of these investments and after discussions with Staff, the Company reached a
settlement agreement whereby Staff accepted the Company's proposed depreciation rates.
Furthermore, as stated in term 9 of the Settlement Stipulation, Staff and the Company agree to
conduct further discussions, in the future, for the adoption of an accounting structure that would
accommodate an additional break down by components for assets associated with the Company's
LNG plants in Nampa and in Rexburg.
B. Amortizations
The Company requested total General Plant Account amortizations decrease by
$418,162, from $2,066,577 to $1,648,415. Staffthoroughly examined the amortization study for
the General Plant Accounts submitted by the Company. This study covered the submitted details
of the General Plants Account Nos. 391 Furniture and Office Equipment; 393 Stores Equipment;
394 Tools, Shop, and Garage Equipment; 395 Laboratory Equipment; 397 Communications
Equipment; and 398 Miscellaneous Equipment. The changes in these accounts are primarily
associated with the investments the Company made in20l6.
Significant investments were made in new desks, chairs, tables, computer equipment,
software and office equipment reflected in Account No. 391. Additional investments were made
in the construction and maintenance tools used in the Company operations, namely: detectors,
emergency equipment, power tools, racks and shelving in Account No. 394. Lastly, Account No.
397 -Communication Equipment, incorporates the investments that the Company made in the
6STAFF COMMENTS MARCH I4,2OI8
internal telephone systems and mobile radio equipment. This equipment is used in the
Company's construction, service vehicles, the telephone systems, and the call center. The
Company provided extensive details in the study for all of the above accounts. Thus, after
in-depth analysis and several discussions with the Company, Staff believes the Company's
proposed amortization rates, shown in Attachment B, are reasonable and recommends they be
accepted.3
STAFF RBCOMMENDATIONS
After a thorough review of the Company's Application and its Depreciation and
Amortization Accrual Rates Study, and discussions with the Company, Staff recommends that
the Commission approves the Stipulation as filed, resulting in annual composite depreciation rate
of 2.78%o. Based on the 2016 year-end plant balances, this depreciation rate would be associated
with an annual depreciation expense of $15,161,109. Staff recommends that the Commission
accept, as filed, the Company's proposed annual decrease in the total General Plant account
amortizations in the amount of $418,162. Staff recommends a January 1,2018 effective date.
Respectfully submitted this it* day of March 2018.
0r,^X[ Q-u,*,,--..
Camille Christen
Deputy Attorney General
Technical Staff: Johan Kalala-Kasanda
Terri Carlock
i :umisc/comments/intg I 7.6cctcjk comments
7STAFF COMMENTS MARCH 14,2OI8
3 Exhibit B reproduces page I of Exhibit 2 of the Company's Application.
Attachment A
Case No. INT-G-17-Oo
lntermountain Gas Company
Page 1 ot 3
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Case No. INT-G-17-06
Staff Comments
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Case No. INT-G-17-06
lntermountain Gas Company
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Case No. INT-G-17-06
Staff Comments
03/l4ll8 Page 2 of 3
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Attachment A
Case No. INT-G-17-06
lntermountain Gas Company
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Attachment A
Case No. INT-G-17-06
Staff Comments
03/l4ll8 Page 3 of 3
lnte.mountain G.r Comp.ny
GCnenl Plant Amortiaation Study
As of Drcembc.31, 2015
Exhibit No. 2
Case No. INT-G-17-06
lntermountain Gas Company
Page 1 of 5
A€@nt A@ounlA@unt
Fu.nitur! and
Oftic. Eouipmrnt
(b)
8,535,874
5,311,773
62.22%
9.25
16.1896
1,381,266
Ac@unt
393
A@unt
394 398197395391
Storot
EoulpmGnt
(c)
Toob, Shop, .nd
Work Equioment
(d)
5,158,589
1,780,909
2a.92%
A@unt
Laboratory
Equiomant
(e)
Communication!
Equipmant
tf)
Lin.
Numbct Description
(a)
Activity At 12-31-2016
lnvcstm!nt {Ss)
R.s.rv. (Sr)
% Rli.ry.d
Erittlng Amoitization Rrtr rnd Exp.nrr
Amorlizalion P8riod as or 12-31.2013 (years)
Rat..5 of 12-31-2013 (96/y..r)
€xprnsc {$s/ycrr)
9 Proporcd Amortiatlon Rlta and Erp.nrc
10 Age a3 ot 12-31-2016 (y6aB)
11 Amortlzatjon Period aB ol 12-31-2016 (y688)
12 Remaining Lif. as of 12-31.2016 (ysars)
[e-mail]5 Total Gc.cral Plent
fuciPmm! esdllrrigo!
(r) (h)
00 r,799,715
-r92,223
-10.68%
0
0
15.495,178
6,907,409
41.88%
Attachment B
Case No. INT-G-17-06
Staff Comments
03114/18 Page 1 of I
6,950
18.17
5.5
344,265
7.00
18.95%
341,045
t2j3%
2,066,571
4.80
9.87
5.07
4.12
15.48
10.76
3.71.
7,OO
3.29
13
14
15
15
Rata at
il of 12.31.2016 (3tly..rl
12.31.2016 7,45X
635,r15
5.5lX
406,8{8
33.4X
505,452
Amonization Summary
1
2
4
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS l4th DAY OF MARCH 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. INT-G-17-06, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
MICHAEL P McGRATH
DIR _ REGULATORY AFFAIRS
INTERMOUNTAIN GAS CO
PO BOX 7608
BOISE TD 83707
E-MAIL: [e-mail]
RONALD L WILLIAMS
WILLIAMS BRADBURY
IOI5 W HAYS ST
BOISE ID 83702
E-MAIL: [e-mail]
ARY
CERTIFICATE OF SERVICE