20171218Application.pdf

EXECUTIVE OFFICES
I NrgnrraouNTArru Ges CorupaNv
555 SOUTH COLE ROAD . P.O. BOX 7608 . BOISE, IDAHO 83707 . [phone] o FAX: [phone]
December 18,2017
Ms. Diane Hanian
Commission Secretary
Idaho Public Utilities Commission
472W. Washington St.
P.O. Box 83720
Boise, ID 83720-0074
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RE: Case No. INT-G-17-07
Dear Ms. Hanian:
Attached for consideration by this Commission are the original and seven (7) copies of Intermountain Gas
Company's Application for Authority to Implement an Infrastructure Integrity Management Mechanism.
If you should have any questions regarding this Application please contact me at 208-377-6168.
Sincerely,
Regulatory Affairs
Intermountain Gas Company
Enclosure
cc: Mark Chiles
Scott Madison
Ronald L. Williams
INTERMOUNTAIN GAS COMPANY
CASE NO. INT.G-17-07
APPLICATION
AND
EXHIBITS
In the Matter of the Application of INTERMOUNTAIN GAS COMPANY
For Authority to Implement an Infrastructure Integrity Management
Mechanism
APPLICATION - I
Ronald L. Williams, ISB 3034
Williams Bradbury PC
Post Office Box 388, Boise, ID 83701
802 W. Bannock, Suite 900
Boise, Idaho 83702
Telephone : [phone]
Afforney for Intermountain Gas Company
In the Matter of the Application of
INTERMOUNTAIN GAS COMPANY
for Authority to lmplement an
Infrastructure Integrity Management
Mechanism
BEFORE THE IDAI'IO PUBLIC UTILITIES COMMISSION
Case No. INT-G-17-07
APPLICATION
Intermountain Gas Company ("lntermountain" or "Company"), a subsidiary of MDU
Resources Group, Inc. with general offices located at 555 South Cole Road, Boise, Idaho, pursuant
to the Rules of Procedure of the Idaho Public Utilities Commission ("Commission"), hereby requests
authority to implement an Infrastructure Integrity Management Mechanism ("IIMM") as outlined in
this Application. Intermountain's proposed Rate Schedule IIMM is attached hereto as Exhibit No. I
and incorporated herein by reference.
Communications in reference to this Application should be addressed to
Michael P. McGrath
Director - Regulatory Affairs
Intermountain Gas Company
Post Office Box 7608
Boise, lD 83707
and
Ronald L. Williams
Williams Bradbury PC
Post Office Box 388, Boise, ID 83701
802 W. Bannock, Suite 900
Boise, lD 83702
In supporl of this Application, Intermountain does allege and state as follows:
APPLICATION.2
I.
Intermountain is a gas utility, subject to the jurisdiction of the Commission, engaged in the
sale of and distribution of natural gas within the State of Idaho under authority of Commission
Certificate No.219 issued December2,1955, as amended and supplemented by OrderNo.6564,
dated October 3,7962.
Intermountain provides natural gas service to the following Idaho communities and counties
and adjoining areas;
Ada County - Boise, Eagle, Garden City, Kuna, Meridian, and Star;
Bannock County - Arimo, Chubbuck, Inkom, Lava Hot Springs, McCammon, and Pocatello;
Bear Lake County - Georgetown, and Montpelier;
Bingharn County - Aberdeen, Basalt, Blackfoot, Firth, Fort Hall, Moreland/Riverside, and Shelley;
Blairre County - Bellevue, Hailey, Ketchum, and Sun Valley;
Bonneville County - Amrnon, Idaho Falls, Iona, and Ucon;
Canyon County - Caldwell, Greenleaf, Middleton, Nampa, Parma, and Wilder;
Caribou County - Bancroft, Grace, and Soda Springs;
Cassia County - Burley, Declo, Malta, and Raft River;
Elmore County - Glenns Ferry, Hammett, and Mountain Home;
Fremont County - Parker, and St. Anthony;
Cem County - Emmett;
Gooding County - Gooding, and Wendell;
Jefferson County - Lewisville, Menan, Rigby, and Ririe;
Jerome County - Jerome;
Lincoln County - Shoshone;
Madison County - Rexburg, and Sugar City;
Minidoka County - Heyburn, Paul, and Rupert;
Owyhee County - Bruneau, and Homedale;
Payette County - Fruitland, New Plymouth, and Payette;
Power County - American Falls;
Twin Falls County - Buhl, Filer, Hansen, Kimberly, Murtaugh, and Twin Falls;
Washington County - Weiser.
Intermountain's properties in these locations consist of transmission pipelines, liquefied
natural gas storage facilities, a compressor station, distribution mains, services, meters and regulators,
and general plant and equipment.
II.
The llMM is a cost recovery mechanism designed to allow the Company to accelerate the
replacement of aging infrastructure, to mitigate the increasing impact of regulation on the Company's
Capital and O&M Budgets, and more proactively address safety related issues on its system.
Intermountain believes this proposed mechanism is an integral part of its mission to provide safe and
reliable natural gas service to its customers.
APPLICATION.3
Across the nation, state utility commissions are granting permission to gas utility companies
to implement some form of integrity management and infrastructure replacement programs. There
are variations between the 42 states that have implemented such programs. However, the common
focus of these approved programs is system safety and reliability of service. Intermountain is
continually cornmitted to providing safe and reliable natural gas service to its customers. As part of
this commitment, the Company utilizes tools, technology and processes to consistently and
proactively identify and remove risks to its pipeline system, in order to enhance overall public safety.
Additionally, the Company leverages industry best practices, recommended practices, peer groups,
research and development, manufacturer recommendations, employee and management feedback,
government advisories, and industry associations to enhance its efforts to provide safe and reliable
natural gas service to its customers.
Intermountain is faced with additional federal, state, and local requirements to monitor,
replace or improve pipelines and infrastructure which puts additional pressure on Intermountain's
Capital and Operation and Maintenance ("O&M") Budgets. The same Budgets must also address
Intermountain's obligation to serve its growing customer base as well as balance many other
competing capital and O&M expense requirements.
III.
Intermountain has created a Transmission Integrity Management Program ("TIMP") and a
Distribution lntegrity Management Program ("DINr[p"; in order to both continue its commitment to
provide safe and reliable service to its customers and to comply with federal regulations. TIMP and
DIMP practices help guide the Company in proactively removing and replacing pipe that has a
potential risk of failure, therefore improving the Company's ability to operate a safe and reliable
system. Both TIMP and DIMP utilize relative risk models to manage and assess the risk of potential
infrastructure failures based on several factors including age, material, operating pressure, damage
history as well as other considerations. Based on the outputs of the TIMP and DIMP models, the
Company prioritizes infrastructure replacement projects within the context of the total capital
investment demands on the Cornpany. Although Intermountain would like to accelerate the
replacement projects ahead of the timelines calculated by the models, budgetary constraints often only
allow the Company to maintain a more modest replacement schedule. With the implementation of
the proposed IIMM, the Company anticipates that over time it will be able to grow its Capital and
O&M Budgets to accelerate infrastructure replacement and stay ahead of schedule on these important
replacement projects.
APPLICATION - 4
By way of example, the Company's DIMP risk model incorporated industry concems
regarding pre- l 985 vintages of DuPont Aldyl-A polyethylene pipe and identified that replacement of
this type of pipe should continue over time on the Company's system. This pipe has been shown to
be subject to a premature loss of flexibility in the pipe materialwhich can allow small cracks to form
on the inner wall of the pipe which could eventually result in failure of the pipe, The Company has
approximately 600 miles of this type of pipe in its distribution system. The Company estimates that
at today's prices, it would cost approximately $158.4 million to replace all of this Aldyl-A pipe.
Given budgetary constraints and the many demands for capital investment throughout the Company's
entire system, Intermountain replaces approximately 4 to 5 miles of Aldyl-A pipe each year. At this
rate it will take the Company over 100 years to completely replace this designated type of pipe.
However, if the proposed IIMM is approved, Intermountain could replace its Aldyl-A pipe using a
more accelerated schedule.
IV.
Intermountain is required to make certain capital investments in order to satisfu federal, state
and local regulations. Under these same regulations, the Company can be required to increase O&M
spending and add additional personnel pertaining to safety related initiatives. In total, these types of
capital investrnent and expense requirements challenge the Company's financial situation as they do
not provide the necessary supporting revenues.
By way of example, the Pipeline and Hazardous Materials Safety Administration ("PHMSA")
has a proposed rule which would require the use of automatic and remote controlled shut off valves
on a pipeline operator's transmission line. In the event of a gas release on the transmission line, these
valves would allow the pipeline operator to shut off the flow of gas from a remote location. If this
proposed federal rule is passed, the Company would be required to install these valves.
As another example, the Company has hired additional employees to help the Company
comply with federal laws promulgated under PHMSA as well as to help the Company enforce and
inform others of Idaho's damage prevention law.
Capital investment and O&M costs such as those described above contribute to budgetary
constraints and compete with other necessary capital investment projects. Including these types of
required capital investment costs in the IIMM would give the Company more flexibility to
concurrently pursue these pipeline related capital investments while also implementing other
necessary capital expenditures.
APPLICATION - 5
V.
The Pipeline Safety Division of the Idaho Public Utilities Commission ("Pipeline Safety
Division") has strongly encouraged the Company to inspect all the High-Pressure Service Sets
("HPSS") on the Company's system. Additionally, the Pipeline Safety Division expressed an interest
in seeing these HPSS removed. A HPSS is used in situations where the only natural gas pipe near the
customer's home orplace of business is an elevated-pressure main (i.e. pressure above 60 psi). The
HPSS facilitates a reduction in pressure from the elevated-pressure main to the customer's service
line. Since these HPSS sit above the ground there is an added measure of risk that these devices can
be damaged which could result in the escape of natural gas from the pipe.
As a resultof the Pipeline Safety Division's encouragement, in 2014the Company began a
pilot program to inspect a certain number of HPSS each year. Due to the potential risk these HPSS
pose to the Company's system and customers, as calculated by DIMP, the Company also decided to
dedicate a certain amount of its annual Capital Budget to proactively abandon HPSS while at the same
time continuing to inspect all the HPSS on its system. The HPSS is abandoned by replacing the
elevated-pressure main with a distribution main and tying the existing service line into the new
distribution main. Including projects identified and encouraged by the Pipeline Safety Division in the
IIMM would allow the Company to more aggressively pursue these and other necessary capital
investments concurrently.
vI.
The proposed IIMM does not seek recovery of capital investments and expenses associated
with incremental growth on its system. There may be instances when the Company decides to
increase the size of pipe being replaced in an IIMM project in order to accommodate future
customer growth. However, the Company proposes that the IIMM only contemplate the cost of
replacing pipe of similar size even if the Company actually installs larger pipe.
VII.
As part of this proposed Infrastructure Integrity Management Mechanism, the Rate Base
and expenses embedded within the llMM Charge approved by the Commission willbe eliminated
from recovery through the IIMM and shifted to the Company's base rates in subsequent general
rate case proceedings.
APPLICATION - 6
VIII.
The proposed IIMM will allow the Company to adjust its distribution rates for the collection
of the IIMM Charge in the following manner:
1. The projects and expenses proposed for recovery through the tlMM will be
reviewed and discussed between the Company and the Pipeline Safety Division
(see paragraph IX.).
2. The IIMM Revenue Requirement will be determined based on the agreed upon
IIMM projects and expenses (see paragraph X.).
3. The IIMM Revenue Requirement will be allocated to each rate class based on the
allocation of base rate revenues from the Company's most recent general rate case.
The IIMM Charge will be equal to the allocated IIMM Revenue Requirement
divided by normalized volumes provided in the Company's annual Purchased Gas
Cost Adjustment ("PGA") (see paragraph XI.).
4. The IIMM Charge will be reviewed and updated annually, with prices effective
October I't of each year (see paragraph XII.).
The Company has prepared and attached hereto Exhibit No. 2 which provides examples of
how the amounts above will be calculated as part of the proposed IIMM filing.
IX.
The Company proposes that at regular intervals during the year, the Company and the
Pipeline Safety Division convene an "llMM Project Review Meeting" to review and agree upon
IIMM projects and O&M expenses that would qualify for consideration and recovery in the IIMM.
The Company will present IIMM projects and O&M expenses identified by its TIMP & DIMP as
well as other IIMM projects and O&M expenses identified as a result of federal, state or local
regulations. The Pipeline Safety Division may also present for discussion and analysis any IIMM
projects and O&M expenses that result from its analysis of the Company's distribution system.
Exhibit No. 2, Page I is an example of IIMM projects that could result from the IIMM
Project Review meeting.
x.
In the annual IIMM filing, Intermountain will calculate the historical thirteen-month
average of the IIMM projects agreed upon with the Pipeline Safety Division to include the
accounting for accumulated depreciation and accumulated deferred income taxes ("IIMM Rate
Base"). The IIMM Rate Base will be based on actual costs incurred during the previous calendar
APPLICATION - 7
year. The after-tax return on IIMM Rate Base will be determined by using the weighted average
cost of capital approved in the Company's most recent general rate case. The IIMM Revenue
Requirement is calculated as the difference between the after-tax return and the after-tax actual
depreciation, property tax, and O&M expenses, which difference is grossed-up using the Gross
Revenue Conversion Factor from the Company's most recent general rate case (See Exhibit No.
2,Page 3, Line l2).
Exhibit No. 2, Pages 2 and 3 are an example of the IIMM Rate Base and Revenue
Requirement calculations based on the hypothetical IIMM projects shown on Exhibit No. 2, Page l.
xI.
The Company proposes to allocate the IIMM Revenue Requirement to each rate class based
on the allocation of base rate revenues from the Company's most recent general rate case. The
Company proposes to collect the IIMM Revenue Requirement on a per therm basis based on
normalized volumes provided in the Company's annual PGA.
Exhibit No. 2, Page 4 is an example of how the IIMM Charge would be determined.
XII.
The Company proposes to file the IIMM in May of each year, with prices effective October
I't ofeach year.
xIII.
This Application has been brought to the attention of Intermountain's customers through a
Customer Notice and by a Press Release sent to daily and weekly newspapers, and major radio and
television stations in Intermountain's service area. The Press Release and Customer Notice are
attached hereto and incorporated herein by reference. Copies of this Application and its Exhibits have
been provided to those parties regularly intervening in Intermountain's rate proceedings.
XIV.
Intermountain requests that this matter be handled under modified procedure pursuant to
Rules 201-204 of the Commission's Rules of Procedure. Intermountain stands ready for immediate
consideration of this matter.
APPLICATION - 8
WHEREFORE. Intermountain respectfully pctitions the Idaho Public Utilities Commission as
lollows:
a. 'l'hat the C'ornmission autlrorizc thc pro;xrscd IIMM as it has bccn cxplaincd in this
Application and thc attachmonts hsrcto.
b. 'Ihat this Application bc hcard and actcd ulxrn rvithout hcaring under modified procedure.
artd
c. Iror such othcr rclicf as this Commission n'ra)'dctennirre proper herein.
l)A'flil) at lloisc. Idaho. this l8'h dav of December 2017.
INTERMOUNI'AIN GAS COMPAN Y Williams Bradbury PC
Ral ) q/ttt*l]
:r\ l'lairs
81,
Ronald I.. Williams
nllorncy lirr lntcnnountain (ias ('ompanl'
AI)l'LlC'i\ I'l( )N - q
CERTIFICATE OF MAILING
I HEREBY CERTIFY that on this l8th day of December,20l7,I served a copy of the
foregoing Case No. INT-G-17-07 upon:
Ed Finklea
Northwest Industrial Gas Users
545 Grandview Drive
Ashland, OR 97520
Chad Stokes
Cable Huston et al.
l00l SW Fifth Avenue, Suite 2000
Portland, Oregon 97204-1 136
Don Sturtevant
J. R. Simplot Company
PO Box 27
Boise, ID 83707
by depositing true copies thereof in the United States Mail, postage prepaid, in envelopes addressed
to said persons at the above addresses.
Affairs
APPLICATION - IO
EXHIBIT NO. 1
CASE NO. INT-G-I7-07
INTERMOUNTAIN GAS COMPANY
PROPOSED RATE SCHEDULE IIMM
(2 pages)
l.P.U C. Gas Tariff
Rate Schedules
Original Sheet No. 18 (Page 1 of2)
Name of
Utility Intermountain Gas Company
Rate Schedule llMM
INFRASTRUCTURE INTEGRITY MANAGEMENT MECHANISM
AND CHARGE
PURPOSE:
The purpose of the lnfrastructure lntegrity Management Mechanism ('llMM') is to establish procedures
that allow lntermountain Gas Company (the "Company"), subject to the jurisdiction of the ldaho Public
Utilities Commission ("Commission"), to adjust its distribution rates for the collection of the llMM Charge
as explained below.
APPLICABILlTY:
The llMM shall apply to all Rate Schedules for natural gas service.
DEFINITIONS
The following definitions shall apply throughout the provisions of this llMM tariff:
1. "TlMP" shall mean Transportation lntegrity Management Program
2. "DlMP" shall mean Distribution lntegrity Management Program
3. "llMM Proiect Costs" shall mean the cost of projects reviewed and agreed upon by the Company
and the Pipeline Safety Division of the ldaho Public Utilities Commission as explained in the llMM
Project Review section below. ln those instances when the Company upgrades a replaced pipe
in order to accommodate future growth, the Company will only seek recovery of the costs to
install the same size pipe that was replaced.
4. "llMM Rate Base" shall mean the historical thirteen-month average of the previous calendar year
of the llMM Project Costs less accumulated depreciation and accumulated deferred income
taxes.
5. "llMM Revenue Reouirement" shall be equal to the difference between (1) the after-tax return
(llMM Rate Base multiplied by the weighted average cost of capital approved in the Company's
most recent general rate case), and (2) the Net Operating Expense, which difference is grossed-
up using the Gross Revenue Conversion Factor approved in the Company's most recent general
rate case.
6. "Net Operatinq Expense" shall be equal to the depreciation, property tax, and operation and
maintenance ("O&M') expenses associated with llMM Projects, net of income taxes.
Exhibit No. 1
Case No. INT-G-I7-07
lntermountain Gas Company
Page I of 2
rssued by: lntermountain Gas Company
By: Michael P. McGrath Title: Director - Regulatory Affairs
Effective: December 18, 2017
l.P.U.C Gas Tariff
Rate Schedules
Oriqinal Sheet No. 18 (Page 2 of 2)
Intermountain Gas CompanyName
Uril
Rate Schedule !lMM
INFRASTRUCTURE INTEGRITY MANAGEMENT MECHANISM
AND CHARGE
(Continued)
IIMM PROJECT REVIEW
At regular intervals during the yearthe Company and the Pipeline Safety Division of the ldaho
Public Utilities Commission ("Pipeline Safety Division") shall convene an llMM Project Review
meeting to review and agree upon llMM projects and O&M expenses that would qualify for
consideration and recovery in the llMM. The Company will present llMM projects and O&M
expenses identified by its TIMP & DIMP as well as other llMM projects and O&M expenses
identified as a result of federal, state or local regulations. The Pipeline Safety Division may also
present for discussion and analysis any llMM projects and O&M expenses that result from its
analysis of the Company's distribution system.
CALCULATION OF THE IIMM CHARGE
1 . The llM M Revenue Requ irement will be allocated to each rate class based on the allocation of
base rate revenues from the Company's most recent general rate case.
2. The llMM Charge will be equal to the allocated llMM Revenue Requirement divided by
normalized volumes provided in the Company's annual Purchased Gas Cost Adjustment ('PGA')
TIME OF FILING AND EFFECTIVE DATE:
1. The llMM shall be filed in May of each year
2. The llMM Charge will be effective October 1't of each year, unless otheruyise ordered by the
Commission.
TRANSFER TO BASE RATES:
The llMM Rate Base and expenses embedded within the llMM Charge approved by the
Commission shall be eliminated from recovery though the llMM and shifted to the calculation of
base rates at the time of the Company's next general rate case filing.
PER THERM CHARGE:
Schedule
Rate Schedule RS
Rate Schedule GS-1
Rate Schedule IS-R
Rate Schedule lS-C
Rate Schedule LV-l
Rate Schedule T-3
Rate Schedule T-4
llMM Charqe
$XXXX
$XXXX
$XXXX
$XXXX
$XXXX
$XXXX
$XXXX Exhibit No. 1
Case No. INT-G-17-07
lntermountain Gas Company
Page2 of 2
rssued by: Intermountain Gas Company
By: Michael P. McGrath Title: Director- Regulatory Affairs
Effective: December 18, 2017
EXHIBIT NO.2
CASE NO. INT.G.I7.O1
INTERMOUNTAIN GAS COMPANY
EXAMPLE IIMM EXHIBITS
(4 pages)
Lin e
No.
lntermountain Gas Company
IIMM Project Capita! Costs
Example
Project Name Cost
1
2
3
4
5
(a)
CapitalCosts:
Aldyl-A Replacement
HPSS Replacement
Automatic Shutoff Valve lnstallation
Total llMM Project Capital Costs
(b)
S
S 1,ooo,ooo
Exhibit No. 2
Case No. INT-G-17-07
lntermountain Gas Company
Page 1 of4
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Case No. INT-G-17-07
lntermountain Gas Company
Page 2 ot 4
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lntermountain Gas Company
llMM Revenue Requirement
Example
Line
No.Description
(a)
llMM Rate Base
Cost of Capital
After-Tax Retu rn
Amount
1
2
3
(b)
S 491,948
7 30%tll
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4
5
6
7
8
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Depreciation Expense
Property Tax
O&M Expense
Pre-Tax Operating Expense
Current lncome Tax Benefit
Deferred lncome Tax Expense
Net Operating Expense
$ (ro,:r:) (')
(4,800)
(2OO,OOo) {3)
s (21s,113)
96,460
(9,s15)
s
s
( 128,168)
After-Tax Deficiency
Gross Revenue Conversion Factor
llMM Revenue Requirement
164,081"
1.67055
$ z74,Lo5
(1) As reflected in the Company's most recent general rate case.
(2) To refelct depreciation rates currently approved by the Commission.
(3)To refelct O&M expenses associated with llMM Projects.
Exhibit No. 2
Case No. INT-G-17-07
lntermountain Gas Company
Page 3 of 4
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Case No. INT-G-17-07
lntermountain Gas Company
Page 4 of 4
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