20200722Final_Order_No_34735.pdf

ORDER NO. 34735 1

Office of the Secretary
Service Date
July 22, 2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

On January 27, 2020, Intermountain Gas Company (“Intermountain” or “Company”)
applied to the Commission for authority to revise the Company’s General Service Provisions
related to the installation and extension of natural gas mains and services (“Line Extension
Policy”).
On February 25, 2020, the Commission issued a notice setting a March 11, 2020
intervention deadline. Order No. 34560. The Commission also suspended the Company’s proposed
April 1, 2020 effective date for the tariff for 30 days plus 5 months, pursuant to Idaho Code § 61-
622(4).
Boise City and the Idaho Conservation League (“ICL”) filed timely petitions to
intervene, and the Commission granted their petitions on March 23, 2020. Order No. 34605.
On April 21, 2020, the Commission issued a Notice of Modified Procedure, setting a
June 11, 2020 comment deadline and a June 25, 2020 reply comment deadline. Commission Staff,
Boise City, and ICL filed comments. Additionally, the Commission received three public
comments. Intermountain filed a timely reply.
Having reviewed the record, we approve Intermountain’s Application as discussed
below.
BACKGROUND
In the Company’s last rate case, Case No. INT-G-16-02, the Commission found it
“reasonable and appropriate” for Intermountain to update its line extension tariff to reflect the rate
of return approved in the rate case. Order No. 33757. The Commission noted the updated tariff
should accurately reflect the degree to which customer contributions associated with line
extensions depend on rate of return. Beginning in December 2017, the Company began working
closely with Commission Staff to update the line extension tariff in response to Order No. 33757.

IN THE MATTER OF INTERMOUNTAIN
GAS COMPANY’S APPLICATION FOR
AUTHORITY TO REVISE ITS GENERAL
SERVICE PROVISIONS RELATED TO THE
INSTALLATION AND EXTENSION OF
NATURAL GAS MAINS AND SERVICES
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CASE NO. INT-G-20-01

ORDER NO. 34735
ORDER NO. 34735 2

THE APPLICATION
In its Application, the Company proposed to replace Section C of its General Service
Provisions, and update Section A of its General Service Provisions to refer to Section C. The
Company would use an embedded cost methodology approach to calculate the Allowable
Investment1 for residential and commercial line extension projects. Intermountain stated that this
method “will help to ensure that the investment in gas facilities for each new customer will be
similar to the embedded costs of the same facilities for existing customers that are reflected in the
Company’s approved base rates.” Application at 5. The customer will pay any costs exceeding the
Allowable Investment as an upfront Contribution in Aid of Construction (“CIAC”).
The Company’s Line Extension Policy calculates the Allowable Investment for
residential applicants by first calculating the estimated annual therm usage of the customer, then
multiplying the estimated annual therm usage by the Allowable Investment Factor2. The estimated
annual therm usage is calculated using a formula incorporating the square footage of the residential
customer’s home (if the home is gas heated), and the annual therm usage of the home’s gas
appliances. See Application, Exhibit 2.
To determine the cost to install a service line3, Intermountain proposed multiplying the
on-property service line length by the Service Line Cost per Foot4. For a main5 extension, the
project cost “is calculated by estimating the costs of the gas facilities required to serve the gas load
of the requesting applicant.” Application at 6. Under the proposed tariff, the applicant for a line
extension would pay the difference between the Allowable Investment and the Project Cost.
The Company anticipates filing an annual tariff advice to update the Allowable
Investment Factors, the Service Line Cost per Foot, and the construction overhead charge.

1 The Allowable Investment is the portion of a line extension that will be rate based by Intermountain.
2 The Allowable Investment Factor is derived from the Present Value (“PV”) of the embedded cost of mains and
services in the Company’s tariff. The PV calculation uses the Commission-approved Weighted Average Cost of
Capital as the discount rate over the life of the plant. Allowable Investment Factors for service lines and mains are
included in Section C, Section 4.3 of the Company’s proposed tariff.
3 A service line is an underground gas pipeline and required fittings that extend downstream from a main.
4 The Service Line Cost per Foot is derived by calculating a three-year average of service line costs divided by the
feet installed during the same years. The Service Line Cost per Foot would be updated annually. For 2020, the
Company proposes a value of $12.38 per foot. See Application, Exhibit 5.
5 A main is the underground pipeline, and required fittings, used for the distribution of natural gas upstream of service
lines. See Application, Exhibit 2.
ORDER NO. 34735 3

Under the Company’s proposed tariff, a customer who paid for a line extension would
be eligible for a vested interest refund if additional service points are added to the main within five
years of the date of installation. This refund would occur when a service point not used in the
original calculation connects to the main extension within a five-year period after the extension.
When this occurs, the original applicant or developer would be eligible for a vested interest refund
not to exceed the original upfront payment.
The Company proposed refunding applicants who paid a customer advance between
May 1, 2017—the effective date of Order No. 33757—and the effective date of the final order in
this case. The reason given by the Company for this refund is “the amount of time that has elapsed
between the reduction of Intermountain’ s [rate of return] in Case No. INT-G-16-02 and the filing
of this case.” Application at 7. The refunds would be calculated by comparing the original project
and the resulting allowable investment to the proposed Allowable Investment calculation method
at issue in this case. If the computation shows the customer CIAC paid under the previous tariff
was higher than the customer CIAC would have been under the proposed tariff, the customer would
be refunded the difference—less any refunds already remitted.
The Company stated the proposed tariff would result in a slightly higher Allowable
Investment for projects that include both a main and service extension, due largely to increased
costs over time and Intermountain’s reduced weighted average cost of capital in Case No. INT-G-
16-02. For projects that include only a service extension, the footage that will be allowed without
any investment by the customer would be less due to declining customer usage.
Intermountain stated it issued notice of its Application to affected customers during the
week of February 3, 2020. The notice was sent to “those developers, builders, and HVAC
contractors that may be affected by the proposed changes to inform them of the Company’s
request.” Application at 9.
COMMENTS
Staff Comments
Staff reviewed Intermountain’s Application and concluded the proposed Line
Extension Policy will be a more simple and equitable policy for customers. Staff recommended
the Commission accept the Company’s proposed tariff revisions as filed.
Staff noted that the computation of Allowable Investment “is predicated on the notion
that new customers should pay the entire cost of infrastructure needed to connect them with the
ORDER NO. 34735 4

Company’s distribution system, either through an up-front [CIAC], or through the revenue related
to mains and service drops that is embedded in base rates.” Staff Comments at 3. Because
Intermountain will not collect the costs of the mains and service lines for years, the Company
makes an up-front investment—the Allowable Investment. Staff noted that, in order to determine
the embedded line extension costs, Staff and Intermountain developed a “proxy methodology that
can be used until a more detailed [Class Cost of Service] model can be developed and presented
in a future rate case.” Id.
Staff discussed Intermountain’s proposed method for estimating residential gas
consumption, which uses a model that incorporates data on gas consumption for space heating on
a square-foot basis and consumption data from homes constructed in 2015 through 2016. Staff
believed the proposed methodology is acceptable.
Staff agreed with the Company’s proposed vested interest refund. The Company
proposed a five-year limit on vested interest payments and plans to review vested interest payments
once a year to determine who is eligible for payments. Both practices are designed to reduce the
administrative burden on Intermountain. While Staff noted it would prefer vested interest refunds
be made as soon as the holder is eligible, Staff believed reducing administrative burden is
worthwhile because of the relatively small number of vested interest holders.
The Company revised its Line Extension Policy to make it clearer and shorter, and Staff
supported this change. Likewise, Staff agreed with the Company’s plan to update its tariff annually
via tariff advice.
Intermountain proposed in its Application to refund customers who paid a customer
advance between the effective date of Order No. 33757 and the effective date of this Order. The
refund would be the difference between the amount eligible customers paid and what they would
have paid under the proposed tariff. Staff acknowledged that Intermountain proposed the refund
but noted that a good argument can be made that no refunds need be made because Intermountain
was following its line extension policy during this period. On the other hand, “it could also be
argued that changes to the existing line extension policy took too long to update and refunds should
be made to customers who have paid a higher line extension CIAC since the conclusion of the
Company’s last rate case….” Staff Comments at 8. Staff noted that rate base will increase in
proportion to the amount of the refunds due to a lower CIAC offset if the Commission does not
ORDER NO. 34735 5

treat the refunds as a penalty. However, Staff limited itself to these observations and did not
recommend the Commission make any particular decision.
Staff audited the Company’s calculation of the Allowable Investment and project costs.
Staff agreed with the Company’s calculations and conclusions. Staff proposed an August 1, 2020
effective date for the Company’s Line Extension Policy, citing the Company’s need for time to
update its software.
Boise City Comments
Boise City noted that the Line Extension Policy’s Allowable Investment would be less
for service line extensions than it is currently. Boise City inquired how the reduced Allowable
Investment would impact residential and commercial construction projects in Boise. Boise City is
concerned about how increased cost of construction impacts housing prices and affordability.
Additionally, Boise City inquired how the 11.92% construction overhead was
calculated and requested justification of the number. Boise City also inquired why “the 80%
efficient furnaces were used in the analysis instead of the 95% efficient furnaces, which would
likely be used in new construction resulting from main line and/or service line extensions.” Boise
City Comments at 3.
ICL Comments
ICL’s comments focused on the calculation of the Allowable Investment. First, ICL
viewed the proposed Allowable Investment as an unjust subsidization of new customers by current
customers. ICL recommended “the Commission direct Intermountain to develop a line extension
policy that directly allocates all costs to the requesting customer.” ICL Comments at 3.
Second, ICL believed the model used to calculate the Allowable Investment overstates
natural gas consumption. ICL argued the homes used in the model meet only the minimum
efficiency standard, and do not “factor in any improvements or appliance replacements over time.”
Id. at 2. ICL asserted these assumptions are inconsistent with the assumptions in Intermountain’s
recent Conservation Potential Assessment. Additionally, ICL believed the model assumes
unreasonably high levels of natural gas consumption because the model’s homes include a “full
suite of gas appliances—heater, water heating, dryer, range, fireplace, and a gas [grill].” Id. ICL
recommended “the Commission direct Intermountain to assess the actual distribution of appliances
in the service territory rather than assume each gas customer will use a full suite of appliances.”
Id.
ORDER NO. 34735 6

Third, ICL argued that it was inappropriate to apply the same Allowable Investment
calculation across Intermountain’s system that includes different climate zones and many building
types. ICL recommended the Commission require the Company to “develop a line extension policy
that is unique to each location and building type” by using location and building type data provided
as part of Intermountain’s independent study. Id. at 3.
Finally, ICL recommended Intermountain be directed to create a line extension policy
that incentivizes customers to build projects that maximize energy efficiency. In particular, ICL
argued the line extension policy should include tiered costs based on the size of the service line to
encourage customers to limit consumption.
Public Comments
The Commission received public comments on Intermountain’s Application from the
Rocky Mountain Propane Association (“RMPA”), a Boise-based energy engineer, and a Treasure
Valley developer. The comments from RMPA and the energy engineer both argued that new
customers should fully pay for line extensions, and that the Allowable Investment should be
significantly reduced or eliminated altogether.
On the other hand, the developer argued the line extension policy would burden
developers, builders, and (ultimately) future home buyers because the line extension policy
reduces the service line footage that will be allowed without any investment by the customer from
196 feet to 34 feet. See Application at 9. The developer noted that “affordability of housing suffers
from these type of cost increases.”
INTERMOUNTAIN’S REPLY
Reply to Staff Comments
Intermountain replied to Staff Comments on several topics. First, Intermountain
believed booking the customer refunds as a penalty is unjustified. “Intermountain was following
the approved [line extension policy] at the time these projects were completed, and as illustrated
throughout [Staff Comments], the Company has made a good faith effort to work through this
complex revision with Staff in a timely manner.” Company Reply at 2.
Second, Intermountain opposed Staff’s recommended effective date for the Line
Extension Policy. Staff recommended August 1, 2020, but Intermountain recommended the
effective date remain October 1, 2020. See Order No. 34560. Intermountain indicated the October
1, 2020 date would be less disruptive because it is at the end of the Company’s construction season.
ORDER NO. 34735 7

Additionally, the Company explained it has referenced the October 1, 2020 effective date in
discussions with customers.
Reply to the Boise City Comments
Intermountain addressed several questions raised by Boise City. Id. at 3. Notably,
Intermountain explained why the Musgrove study modeled using 80% efficient furnaces instead
of 95% efficient furnaces:
Although the Department of Energy submitted a proposal to raise the minimum
efficiency level for furnaces from 80%, that rulemaking has received some
challenges and is still making its way through the rulemaking process. There is
not yet clear direction on whether the minimum efficiency level will be
increased, and, if it is increased, to what level. Therefore, 80% furnaces are still
being installed routinely in new construction and are thus appropriately
included in Exhibit No. 3.

Id. at 4.
Reply to ICL Comments
Regarding ICL’s concerns about the Musgrove study, Intermountain noted that “the
Musgrove study is based on the current new construction environment across the Company’s
service territory” and was “calibrated and validated using actual consumption data from homes
constructed during the 2015 and 2016 calendar years.” Id. Intermountain explained that, contrary
to ICL’s representations, “the Musgrove study does not assume that customers will build homes
to meet minimum code levels or install minimally efficient appliances….” Id. The Musgrove study
assumes some customers will install minimally efficient appliances while other installations will
be more efficient than what is required by code.
Intermountain disputed ICL’s assertion that the Musgrove study’s model homes
unrealistically include a full suite of gas appliances. Intermountain pointed out that “[t]he non-
heating appliance gas usage was separated [in the model] from the overall building heating
consumption.” Id. at 5. Separate consumption factors were developed from these separate usages.
Regarding ICL’s concern about the use of an Allowable Investment across its system,
Intermountain pointed out that the differences in temperature, code, and building practices across
its system ended up offsetting each other, “and thus produced results that were similar regardless
of location.” Id. While acknowledging the importance of precision, Intermountain argued that
“when simple calculations result in a similar answer to extremely complex calculations, the
simpler calculations generally result in a tariff that is easier to explain and understand.” Id.
ORDER NO. 34735 8

Regarding ICL’s recommendation that the line extension policy encourage
conservation through a tiered cost methodology, Intermountain argued that “its Energy Efficiency
program is a better mechanism to encourage customers to consider efficiency improvements than
a complicated, punitive line extension policy.” Id. at 5-6.
Reply to comments regarding equity
Intermountain noted that Boise City’s comments and the developer’s comments both
expressed concern about the increased cost of line extensions under Intermountain’s proposal and
worried this increased cost would negatively impact housing prices and affordability. On the other
hand, the comments of ICL, RMPA, and the energy engineer “raised concerns about the possibility
of existing customers subsidizing line extensions to new customers by not imposing enough costs
on new construction.” Id. at 6. The Company noted that these conflicting comments highlight how
difficult it is to balance the interests of existing and new customers fairly. The Company stated
that it has struck a balance between these interests, and that the balance is a fair one.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over this matter under Idaho Code § 61-501. The
Commission has broad authority to regulate the practices and operations of public utilities and may
prescribe rules and regulations. Idaho Code §§ 61-501 and 61-507. Intermountain is a
Commission-regulated public utility under Idaho Code § 61-129 and a gas corporation under Idaho
Code § 61-117. A public utility’s charges, rules, and regulations must be just and reasonable. Idaho
Code §§ 61-301 and 61-303.
We find the Company’s proposed Line Extension Policy is just and reasonable, and
that it complies with the spirit (if not the letter) of our directive in Order No. 33757. In our Order,
we directed Intermountain to update its line extension tariffs within 90 days of the conclusion of
the case to reflect the approved rate of return, but we also directed that the “updated tariff should
accurately reflect the extent to which customer contributions associated with line extension depend
on the [rate of return].” Order No. 33757 at 39. Intermountain and Staff soon realized that the
existing line extension policy—established in the mid-1980s—is outdated, and that it is no longer
possible to know for certain what rationales were used in formulating the existing line extension
policy. We did not foresee this complication when we gave Intermountain 90 days to update its
line extension policy. The Company chose to work closely with Staff to create the Line Extension
ORDER NO. 34735 9

Policy before us today, and we find Intermountain and Staff’s time was well spent. The proposed
Line Extension Policy is more simple and equitable than its predecessor.
We are not persuaded by several commenters’ argument that a customer requesting a
main or line extension should be required to pay the full cost of the project. A customer’s base rate
is designed to recover the cost of the distribution system necessary to serve them. Therefore, a new
customer forced to pay the full cost of a line extension would overpay for service. This would be
unjust. We believe the proposed Line Extension Policy strikes the right balance: ensuring new
customers do not overpay for their interconnection, while ensuring CIAC payments for line
extensions are large enough to guard against upward pressure on existing customers’ rates.
We recognize that since the issuance of Order No. 33757 some of Intermountain’s
customers have made higher CIAC payments than they would have if the proposed Line Extension
Policy had been effective during the same period. The Company proposed refunding these
customers the difference between the Allowable Investment under the current line extension policy
and the Allowable Investment under the proposed Line Extension Policy. The Commission finds
this to be an equitable solution. We direct Intermountain to make these refunds, where appropriate,
to customers that paid a CIAC between May 1, 2017 and the effective date of the proposed tariff
modifications. Because the Company’s delay updating the Line Extension Policy was consistent
with the Commission’s ultimate aims in Order No. 33757, the refunds should be reflected as a
reduction in the CIAC account—not as a penalty.
Intermountain will need time to implement the Line Extension Policy. Therefore, the
proposed tariff modifications will take effect on October 1, 2020.
O R D E R
IT IS HEREBY ORDERED that Intermountain’s proposed changes to its General
Service Provisions are approved as filed, effective October 1, 2020.
IT IS FURTHER ORDERED that Intermountain shall file an annual tariff advice to
update the Allowable Investment Factors, the Service Line Cost per Foot, and the construction
overhead charge. The tariff advice shall be filed each year by October 1, beginning in 2021.
IT IS FURTHER ORDERED that where consistent with this Order, Intermountain shall
calculate and issue refunds to customers who paid advances between May 1, 2017 and October 1,
2020.
ORDER NO. 34735 10

THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order about any matter
decided in this Order. Within seven (7) days after any person has petitioned for reconsideration,
any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 22nd
day of July, 2020.

PAUL KJELLANDER, PRESIDENT

KRISTINE RAPER, COMMISSIONER

ERIC ANDERSON, COMMISSIONER

ATTEST:

Diane M. Hanian
Commission Secretary