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HomeMy WebLinkAbout20180515Reply Comments.pdfAttorneys for Intermountain Gas Company BEFORD THE IDAHO PUBLIC UTILITIES COMMISSION Preston N. Carter (ISB No. 8462) Givens Pursley LLP 601 W. Bannock St. Boise,ID 83702 Telephone: (208) 388-1200 Facsimile: (208) 388-l 300 prestoncarter@ givenspursley. com IN THE MATTER OF INTERMOI-INTAIN GAS COMPANY' S APPLICATION FOR AUTHORITY TO IMPLEMENT AN INFRASTRUCTURE INTEGRITY MANAGEMENT MECHANISM Case No. INT-G-17-07 INrnnrrouNTArN GAs CouplNv's Rnplv ConruoNrs REC!IVED ?El0 i{,iY l5 PH 2:25 SSION Intermountain Gas Company ("Intermountain Gas" or "Company'') files the following reply in response to comments filed by the Commission Staff ("Staff') and the intervenor Alliance of Western Energy Consumers ("AWEC"), collectively referred to as the Parties. BACKGRoUND On Decemb er L8, 2017 ,Intermountain Gas filed an Application ("Application") requesting authority to implement an Infrastructure Integrity Management Mechanism ("IIMM"). AWEC and Staff filed Comments on May 1, 2018 and May 2,2018, respectively. Intermountain Gas offers the following reply for consideration by the Commission. Rnplv Coururnrs All Parties agree that safety related investments by the Company are paramount for Commission consideration and potential recovery. In its Comments, AWEC "supports Intermountain making necessary investments to ensure that its gas distribution network is sound, reliable and 100 percent in compliance with all safety regulations, and agrees that those lNrERvouNralN Gas Covpa.NY's REPLY CotturNrs - 1 ORIGINAL prudently incurred costs are recoverable." AWEC Comments at 4. ln its Comments, Commission Staff also notes its support for "the Company's work to maintain safe and reliable service" and confirms that important safety related expenditures "can be included for recovery." Staff Comments at 4. The issue at hand, then, has to do with the appropriate recovery mechanism for sound safety related expenditures 1) If approved, the IIMM recovery mechanism will accelerate safety-related projects, enhancing the safe and reliable distribution of natural gas to the Company's customers. The Company has proposed two layers of protection to ensure that the IIMM will not be used to replace general ratemaking. As a first step, the Company will meet with the Commission's Pipeline Safety Division to review and agree upon projects that would qualiff for later Commission consideration in the IIMM. Application at 7. This process will help ensure, or safeguard, that only bona fide safety related expenses will be presented to the Commission and Commission Staff in the IIMM process. After the Pipeline Safety Division agrees that a project is reasonable and necessary, the Company will calculate its proposed cost recovery for those expenditures and present its case to the Commission and Commission Staff in an IIMM filing in May of each year.l Commission Staff will have the opportunity to address whether, in its opinion, the costs are recoverable. The Commission, of course, will retain ultimate authority to determine cost recovery. This two-step process does not place the Pipeline Safety Division in charge of determining cost recovery. Nor does it diminish the Commission or Commission Staff s role. It is designed to provide two layers of protection for ratepayers: the first to ensure only bonafide safety related expenditures are presented for recovery; the second to ensure that only eligible costs are recovered. In this I The proposed cost-recovery methodology is discussed in more detail on page 7 ofthe Application. Ir.rrERMouNrArN GAS CoMPANv's Rrprv Coutr,tevrs - 2 manner, the IIMM will allow acceleration of safety and reliability projects while protecting ratepayers. A primary purpose of the IIMM is to accelerate the replacement of infrastructure designated at risk by the Company. Application at 4. Currently, safety related projects identified by the Company's Transmission Integrity Management Program ("TIMP") and Distribution Integrity Management Program ("DIMP") must be placed in line alongside-and sometimes behind----other capital projects while still maintaining the integrity of the Company's distribution system. For example, the DIMP and TIMP have identified replacement of the approximately 600 miles of Aldyl-A pipe on lntermountain Gas's system. Application at 5. Yet, without the ability to accelerate safety-related investments, the Company anticipates that it will take over 100 years to replace all this pipe.Id. In its comments, Commission Staff recognizes the need to "maintain safe and reliable services by replacing Aldyl-A pipe and upgrading other infrastructure" but takes the position that these costs should be recovered through general rate cases rather than through an annual cost recovery mechanism. Staff Comment at 3. This position is driven, in part, by Staff research indicating that "the most urgent infrastructure projects nationwide are replacement of cast iron and unprotected steel pipes, rather than replacement of Aldyl-A pipes." Id. at 7. While Staff ultimately agrees that Aldyl-A pipe should be replaced, "the low leak rates and resistance to rupture make it a much less urgent safety issue than replacing cast iron or unprotected steel pipe." Id. This, in Staff s opinion, "eliminates the primary need of an annual adjustment mechanism." Id. at8. Intermountain Gas acknowledges that its system is of a much newer vintage than in many parts of the country. However, the Company does not agree that this eliminates the need for the I].IERMOUNTAIN GES COMPANY,S REPIY COVIT,IENTS - 3 IIMM. Replacement of Adyl-A pipe is certainly not as urgent as replacement of cast iron or unprotected steel. But it is still identifred by the DIMP and TIMP as among the most urgent needs on Intermountain Gas 's system from a safety and reliability perspective. The IIMM provides a process by which Intermountain Gas can address safety and reliability issues on its system. The fact that other systems are in worse shape does not undercut the need for the IIMM here. Also, the IIMM request is not focused solely on Adyl-A pipe. The Pipeline Safety Division has strongly encouraged the Company to inspect and, as necessary, remove High- Pressure Service Sets ("HPSS") on the Company's system. Application at 6. Other projects may come to light, from time to time, through the DIMP and TIMP process, and the Company has incurred costs necessary to comply with increased regulatory oversight. Id. at 5. The Company proposes the IIMM as a process, not for recovery of a particular project or other safety related expenditure. If the Commission Staff or the Commission believe that particular projects or mandated safety related expenditures should or should not qualify for cost recovery, that can be addressed in the filings contemplated under the IIMM. The Company respectfully submits that a process that allows for acceleration of safety related projects and mandated expenditures is appropriate at this time. As previously stated, AWEC notes its support for investments that ensure a sound, reliable, and compliant gas distribution system, and further notes that prudent costs incurred for this purpose are recoverable. AWEC Comment at 4. The Company agrees, and respectfully submits that the IIMM will facilitate the required expenditures while ensuring that only prudently incurred costs are recoverable. Indeed, AWEC will have the opporfunity to participate in the IIMM filings and comment upon particular investrnents at that time. The Commission will INTERMoUI.IIArN GAS CotuPe].ry's Rrply CotvtvEl.rls - 4 retain oversight and authority to ensure that only eligible costs are ultimately recovered. 2) The IIMM is consistent with ratemaking decisions in Idaho and the broader Northwest. As noted in the Application,42 states have approved some form of integrity management and infrastructure replacement programs. Application at 4. These programs and associated cost- recovery complement the federally required TIMP and DIMP processes by encouraging acceleration of TIMP- and DlMP-identified projects. Id. at 4. Commission Staff and AWEC argue that the IIMM would constitute prohibited or discouraged single-issue ratemaking. Staff Comments at 4-5; AWEC Comments at2-4.The Company submits that single-issue rate adjustment mechanisms are certainly not prohibited, and are not as discouraged as Staff or AWEC would make it seem. Attachment I provides a list of single-issue rate adjustment mechanisms that have been approved in Idaho and neighboring states. These single-issue trackers allow recovery ofa broad variety ofprojects, including capital costs for safety and reliability projects. The Company certainly recognizes that single-issue rate adjustrnent mechanisms must be tightly controlled. But the Company submits that the IIMM projects given by example in the Company's Application fall well within the bounds of single- issue rate adjustment mechanisms in Idaho and the Northwest. Staff and AWEC also argue that single-issue rate adjustment mechanisms should be limited to expenditures that are l) beyond the control of the utility and 2) unpredictable and volatile. Staff Comments at 5-7; AWEC Comments at 4. AWEC contends that single-issue trackers typically involve recovery of operational costs, AWEC Comments at4-5, while Staff contends that "the prudency and recovery of infrastructure costs are best addressed through traditional ratemaking in a general rate case," Staff Comments at 4. Intermountain Gas respectfully submits that the actual practice of this Commission and INTERMoUNTAIN GAS COMPANY'S RTPIY COVUEVTS - 5 others do not comport with Staffls and AWEC's proffered taxonomy. The Commission has approved single-issue trackers for recovery of infrastructure costs, including for investrnent in Advanced Metering Infrastructure,2 the CTI Danskin gas turbine,3 and the Langely Gulch Power Plant.a Each of these involved infrastructure projects that were no more beyond the control of the utility or unpredictable or volatile than the situation lntermountain Gas faces here. As noted above, single-issue trackers are also common in surrounding states, including for costs similar to those proposed in the IIMM here. See Attachment 1. Regardless, the standard for cost recovery is not whether expenditures are unpredictable or volatile. The standard is whether costs are prudent, reasonable, and necessary. The Company will be required to prove that its expenditures are prudent, reasonable, and necessary before recovering its costs through the IIMM. Even if Staff and AWEC are correct that single-issue trackers are appropriate only for unpredictable, volatile expenditures beyond the utility's control, the costs proposed for recovery through the IIMM would qualiff. The Company cannot control the identity or costs of safety- related needs identified as a priority through the TIMP and DIMP. The Company cannot control the contents or costs associated with new rules and regulations, including the regulation currently proposed by the Pipeline andHazardous Materials Safety Administration ("PHSMA") that would require automatic and remote-controlled shutoff valves. See Application at 5. And one of the biggest threats to the safety of the Company's system, damage by third parties, cannot be predicted or controlled. Accordingly, even if the Commission accepts the Staff s and AWEC's characteization of costs recoverable through single-issue trackers, the costs that would be 2 Case No. IPC-E-09-07, Order No. 30829 3 Case No. IPC-E-08-01, Order No. 30559 a Case No. IPC-E-12-14, Order No. 32585 INTERMoUNTAIN GAS COMPANY'S REPLY COMMENTS - 6 recovered under the IIMM qualify. Staff contends that the Commission "has never approved an open-ended, on-going, annual cost recovery mechanism for infrastructure upgrade projects similar to what Intermountain has requested in this case." Staff Comments at 4. Intermountain Gas disagrees with this comment on several bases. First, the IIMM is not open-ended. It is focused on expenditures related to system safety and reliability. As earlier stated, proposals for recovery will be subject to two levels of review, once by Pipeline Safety to ensure only bonafide proposals make it to the Commission, and then by the Commission and Commission Staff to ensure only recoverable costs are included. Second, the IIMM provides benefits to the Company's customers. It will allow the Company to pursue safety and reliability incentives in an accelerated manner while, at the same time, help customers experience a more gradual change in rates as eligible safety-related costs will be recovered annually, or gradually, instead of all at once in a general rate case. And the annual filing will save time and ultimately money for all parties by focusing on a single issue, which allows all parties, outside of a rate case, to gain familiarity, increase understanding, and audit the results of this single issue. Third, Intermountain Gas notes that the Commission's history with single-issue trackers is not so clear as Staff suggests, but regardless, the Commission's history does not dictate a particular result here. As the Commission stated in Order No. 30829, which allowed Idaho Power to recover costs of Advanced Metering Infrastructure outside of a general rate case, "the Commission must also keep an eye toward the future and maintain a proactive approach that will best serve long-term customer interests." The proposed IIMM is a proactive approach that will allow acceleration of eligible safety and reliability expenditures and best serve long-term I].IERMoUNTATN GaS COMPA].IY'S REPLY COMMEVTS - 7 customer interests. Finally, Staff argues that "annual adjustment mechanisms lessen the incentive for utilities to control cost." Staff Comments at 4. This observation is not consistent with lntermountain Gas's experience. Through the Company's annual Purchased Gas Adjustment ("PGA"), the Commission, Staff, and other interested parties gain a level of understanding and familiarity with the narrowly defined issues within the case. This understanding and repeated involvement increases, not lessens, the Company's incentives to control costs. The same would be true with the IIMM, which is designed to be fully reviewed and approved by the Commission each year. 3) The IIMM is needed and will not result in over-recovery. Commission Staff and AWEC contend that Intermountain Gas has not shown that the current ratemaking process is impeding necessary investments. AWEC Comments at 4; Staff Comments at 8. However, as the Company states in its Application, safety and reliability expenditures challenge the Company's financial situation as they do not provide supporting revenues. Application at 5. Because these expenditures do not provide supporting revenues, the Company is limited in how much it can spend on these projects. For example, the Company currently can only finance replacement of approximately 4-5 miles of Aldyl-A pipe each year, which leads to a timeline of over 100 years to complete this safety-related expenditure. Id. While the Company is not strictly unable to complete the projects, the current ratemaking structure does not provide the flexibility needed to accelerate and prioritize these types of projects. The IIMM would provide that flexibility and provide the corresponding safety and reliability benefits to customers. AWEC contends that single-issue trackers lead to over-recovery and provides a chart to illustrate this point. AWEC Comments at 6-7. AWEC's chart is misleading. The chart includes expenditures recoverable in the single-issue tracker and depreciation, but does not include any II.IERMou].ITAIN GAS CoMpaNY's Rrplv Covvrx-rs - 8 "normal" expenditures (i.e., expenditures not recoverable through the single-issue tracker). Under these circumstances, there is a difference between relative rate increases. The modified chart included as Attachment 2 shows the addition of normal expenditures. The Company's modified example shows an opposite result to that which AWEC's chart alleged. Additionally, the Company's modified example demonstrates one of the benefits to customers of using single- issue trackers: the facilitation of a more gradual change in rates. AWEC also argues that the IIMM will result in over-recovery because it does not consider the impact of plant retirements on depreciation expense. AWEC Comments at 6. However, the Company's depreciation rates are reviewed and approved by the Commission every three years in a single-issue case. Retirements are factored into depreciation rates at that time. The Company will apply the Commission-approved depreciation rates to the incremental safety and reliability expenditures as part of the proposed IIMM, preventing over-recovery. In addition, as discussed above, the IIMM contains two levels of review to ensure that only eligible costs related to bonafide safety and reliability projects are recovered. This process will protect ratepayers while allowing the Company to accelerate appropriate projects. Coxcl-uston The IIMM provides the Company flexibility to accelerate both safety related projects and mandated safety related expenditures while benefiting the Company's customers. Additionally, the proposed mechanism complements the TIMP and DIMP processes by providing a mechanism for important projects to move up in the queue, instead of waiting in line with other projects. The IIMM is in accord with ratemaking practices in Idaho and the Northwest. The Company respectfully requests that the Commission approve the Company's proposed Infrastructure Integrity Management Mechanism. INIERMOUNTATN GaS COMPA].TY,S REPLY COMMENTS . 9 Dated: May 15,2018 GIVENS PURSLEY LLP Preston N. Carter Givens Pursley LLP Attorneys for Intermountain Gas Company INTERMoUNTAIN Ges CoMPANY,S REPLY COUUTNTS - 1O CERTIFICATE OF SERVICE I certify that on May 15,2018, a true and correct copy of the INtpRuouNreIN Ges CotrtpeNv's REpI-y To CoMMENTS oF rup AI-LnNCE oF WesrpRN ENpRcy CONSuupnS AND IPUC Sl,tr.r was served upon all parties of record in this proceeding via the manner indicated below: Commission Diane Hanian, Commission Secretary Idaho Public Utilities Commission 472 W . Washington Street Boise, ID 83702 Diane.holt@puc.idaho. gov (Original andT copies provided) Hand Delivery & Electronic Mail Commission Staff Sean Costello, Deputy Attomey General Idaho Public Utilities Commission 472W. Washington Street (83702) P.O. Box 83720 Boise, ID 83720-0014 Sean. Costello@puc.idaho. gov Electronic Mail Intervenors Edward A. Finklea 545 Grandview Drive Ashland, OR 97520 efinklea@awec. solutions Alliance of Western Energy Consumers Jonathan J. Cavanagh Chad M. Stokes Cable Huston LLP 1001 SW Fifth Ave., Suite 2000 Portland, OR 97 204 -l 1 3 6 j cav anagfi@cabl ehuston. co, cstokes @cablehuston. com Alltance of Western Energy Consumers Electronic Mail INrrnvouNrarN Ges CoMpANY's REPLY CoMMENTS - 1l Preston N. Carter ATTACHMENT 1 CASE NO. INT.G.17.O7 INTERMOUNTAIN GAS SINGLE.IS SUE RATEMAKING IN THE NORTHWEST (2 PAGES) Attachment 1 Case No. INT-G-I7-07 lntermountain Gas Page 't of 2 Single-tssue Ratemaking in the Northwest ldaho Power - ldaho Fixed Cost Adjustment Energy Efficiency Rider Rate lncrease - Advanced Metering lnfrastructure Rate lncrease - Danskin CT1 Turbine Rate lncrease - Langley Gulch Power Plant ldaho Power - Oregon Boardman Operating Life Adjustment Energy Efficiency Rider Solar Photovoltaic Pilot Program Rider Rocky Mountain Power - ldaho Customer Efficiency Services Rate Adjustment Avista Corporation - Idaho Fixed Cost Adjustment Energy Efficiency Rider Adjustment Avista Corporation - Washington Decoupling Mechanism Fixed-lncome Senior & Disabled Residential Service Discount Rate Demand Side Management Rate Adjustment Low lncome Rate Assistance Rate Adjustment Optional Renewable Power Rate Renewable Generation lncentive Renewable Energy Credit Revenue Mechanism Avista Corporation - Oregon Conservation lnvestment Mechanism Decoupling Mechanism DSM Cost Recovery Senate Bill 408 Amortization Low lncome Energy Efficiency Program Low lncome Rate Assistance Program Capital Project Costs Northwest Natural - Oregon System lntegrity Program Recovery Mechanism Automated Meter Reading Rate Adjustment Special Rate Adjustment for Working Gas lnventory Rate Adjustment for Environmental Cost Recovery Site Remediation Recovery Mechanism lndustrial Demand Side Management Program Cost Recovery Partial Decoupling Mechanism Weather Adjusted Rate Mechanism Attachment 1 Case No. INT-G-17-07 lntermountain Gas Page 2 of 2 Northwest Natural - Washington Adjustment to Rates Energy Conservation Programs Special Rate Adjustment (Mist Storage Capacity) Temporary Adjustments to Rates for Low-lncome Programs Puget Sound Energy - Washington Conservation Service Tracker Low lncome Program Property Tax Tracker Revenue Decoupling Mechanism Cost Recovery Mechanism for Pipeline Replacement Electric Conservation Service Rider Cascade Natural Gas - Oregon Conservation Alliance Plan Mechanism Oregon Low lncome Assistance Program Oregon Low lncome Energy Conservation Program Energy Efficiency Services Environmental Remediation Cost Adjustment Cascade Natural Gas - Washington Decoupling Mechanism Residential Conservation lncentive Program Low lncome Weatherization lncentive Program Commercial lndustrial Conservation Program Washington Energy Assistance Fund Program Cost Recovery Mechanism - Elevated Risk Pipeline Facility Replacements Portland General Electric - Oregon Energy Efficiency Funding Adjustment Low lncome Assistance Customer Engagement Transformation Adjustment Decoupling Mechanism Demand Response Cost Recovery Mechanism Customer Owned Solar Payment Option Cost Recovery Mechanism Boardman Power Plant Decommissioning Adjustment Colstrip Power Plant Operating Life Adjustment Environmental Remediation Cost Recovery Adjustment ATTACHMENT 2 CASE NO. INT.G.17-07 INTERMOUNTAIN GAS BASE RATE VS. TRACKER RECOVERY LLUSTRATTON ($000) (1 PAGE) Attachment 2 Case No. INT-G-17-07 lntermountain Gas Company Page '1 of 1 Table 1 Base Rate vs. Tracker Recoverv tllustration (50001 Tracker Test Year Additions (a) (b) Retirements Deor,Reserve (d) (soo) 500 (688) Non- Tracker Additions (c)(e) Option 1 Rate Case (f) = I (a):(e) Option 2 Tracker 19; = I 1al:(b) Rate Base Gross Plant ACC Dep Net Plant Working Capital ADIT Rate Base Net Oper. lnc. (10%) lncome Tax Depr. Exp (2.5%) Revenue Req. s 2s,000 (7,s00) s 17,s00 s 1,000 s (2s) 2,000 s (s0) s 27,500 s (7,7631 26,000 (7,s2s) s e7s s 1,ss0 s s (688) s 1e,738 s 18,47s s soo (1,12s) s 16,87s S soo s lt,L2sl s00 (1,12s) s s 97s s 1,9s0 s s (688) s 1s,113 s 17,8s0 (6s)se8sless ,785 237 650 t,s1,911 254 688 sS 50 1,688 224 625 25 (13) Relative lncrease s 2,s37 s 123 s 24s s (13) s (6s) s2,8s252,672 L2.5%5.3%