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%