20200529Comments.pdf

IITC I IVE D
MATT HUNTER
DEPUry ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 10655
Steet Address for Express Mail:
I133I W CHINDEN BLVD, BLDG 8, SUITE 2OI-A
BOISE, D 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN TIIE MATTER OF INTERMOTJNTAIN GAS
COMPAIIY'S APPLICATION FOR
AUTHORITY TO FACILITATE RENEWABLE
NATTTRAL GAS ACCESS
CASE NO. INT.C,-20.03
COMMENTS OF THE
COMMISSION STAFF
The Staffof the Idaho Public Utilities Commission submits the following comments
regarding the above referenced case.
BACKGROUND
On May 4,2020,Intermountain Gas Company ("Intermountain" or "Company") applied
to the Commission for authority to facilitate access for Renewable Natural Gas ("RNG")
producers to the Company's distribution system for the purpose of moving RNG to purchasers of
RNG. RNG is pipeline-quality biomethane produced from biogas. Biogas is the mixture of
gases produced by the breakdown of organic matter in the absence of oxygen (anaerobically),
primarily consisting of methane and carbon dioxide. It can be produced from raw materials such
as agricultural waste, manure, municipal waste, plant material, sewage, or food waste.
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1STAFF COMMENTS MAY 29,2020
STAFF ANALYSIS
Staff reviewed the Company's Application requesting authority to facilitate RNG access.
The Company's willingness to facilitate the delivery of RNG to market carries risks that could
cause the Company's core retail customers to inappropriately incur additional costs. Because of
this risk, Staff s review focused on three objectives to protect the Company's retail customers:
(1) identiff all the costs related to RNG delivery; (2) sufficiently separate and properly allocate
these costs; and (3) establish recovery from RNG customers to ensure that costs are recovered by
the Company to ensure that the Company's retail customers do not bear the risk of stranded
assets and costs.
After careful review of the Company's proposal, Staffbelieves that the Company's
Application is appropriate to establish a method to facilitate RNG producer's access to their
distribution system.
Risk Evaluation
Livestock operations in Idaho are increasingly using animal waste to produce biogas
which is then cleaned to produce RNG for the expanding RNG market. Several nearby states
incent RNG production or require the use of renewable energy sources. lntermountain believes
these policies currently make RNG production profitable.
While current market prices are driving interest in new RNG ventures in Idaho, RNG
prices could decrease to levels that make RNG production unprofitable. If market conditions or
incentive structures change, the Company could be left with stranded assets and costs that have
not been fully recovered. Because of this risk, utility customers need to be shielded from
potential negative cost impacts of RNG production. Staff believes the Company's proposed
financial structure recovers incurred Operations and Maintenance ("O&M') costs through
Maintenance Fees charged to RNG producers and infrastructure costs recovered under the
current line extension policies, and will protect utility customers from paying increased rates.
Financial Structure and Accounting
The Company proposes to collect RNG production facilities and infrastructure costs
through separate fees. Staff has reviewed the Company's proposed fees and believes that utility
customers will not pay increased rates if the proposed RNG facilitation plan is approved.
2STAFF COMMENTS MAY 29,2020
The Company proposes to charge the RNG producer for startup O&M expenses and other
unforeseen expenses at the RNG facility. Any capital expenses incurred by the Company will be
directly billed to the RNG producer and considered a Contribution in Aid of Construction
("C[AC"). All capital costs related to RNG projects will be included in the Company's plant-in-
service and offset by the CLAC. Because all startup and facilities costs are paid by the producer
and will not be included in rate base, utility customers will not be affected.
RNG producers often use natural gas in their operations and receive natural gas delivery
from lntermountain. Staff agrees with lntermountain that natural gas service to RNG producers
should be billed at Intermountain's standard tariffed rates.
Staffconfirmed that line extension facilities to provide gas as an lntermountain customer
will be completely separate from the facilities needed to deliver gas from the RNG facility to
lntermountain's pipeline. [n response to Production Request No. 2, the Company confirmed that
it has not and does it intend to install common infrastructure for providing gas to the facility and
taking RNG from the facility. Because this infrastructure is physically separated, the Company
can easily identiS and separately track both upfront facilities cost and O&M expense, and
separately recover the cost. The Company plans to recover facilities cost for delivery of gas to
the project through the line extension tariffauthorized at the time of installation, and to recover
the cost of facilities to deliver RNG through a separate charge.
By separately tracking the two sets of infrastructure costs, the Company can also directly
assign most of the O&M expense between the two sets of facilities. The only portion of O&M
expense that is corlmon between the two sets of facilities is overhead-related expense, such as
maintenance equipment and indirect labor. The Company has proposed to include an overhead
loading rate to the Maintenance Fee to properly allocate these types of costs.
Maintenance Fee
The monthly Maintenance Fee paid by the RNG producer will cover the Company's
anticipated expenses and includes items such as: a) labor for inspection of meters, regulators,
reliefs, odorizers, valves, etc., b) oderant, c) gas chromotograph, including calibration gas and
helium, d) SCADA equipment, e) other utility costs that may include electricity and telephone, f)
direct general adminisffative costs, g) direct contractor costs, h) an overhead loading rate, i)
material replacement costs, and j) other costs as may be necessary to provide service.
3STAFF COMMENTS MAY 29,2020
Based on the current average of monthly costs, the anticipated monthly Maintenance Fee
will be set at $2,500. The Company proposes to update the Maintenance Fee each year to ensure
that it accurately reflects the costs of providing service to RNG producers. The Company will
calculate the new fee each September based on actual expenses for the previous year beginning
on September I through August 31, with the new fee taking effect on October I of each year to
align with the annual Purchased Gas Adjustment ("PGA") changes.
Access Fees
The Access Fee is designed to provide a financial return to the Company for granting
access to its distribution facilities and to move the RNG to the end use customer. It will
compensate the Company for bearing the financial risk associated with providing pipeline access
to the RNG projects.
When lntermountain files its annual gross intrastate operating revenue report with the
Commission (Fiscal), it will include all revenues from RNG access service-including the
Access Fee. This will allow the proper assessment of Commission Fees to be made.
CIAC and Income Tax
Because CIAC is considered taxable income to the Company, it must be grossed up for
income taxes to ensure that utility customers are not paying the additional income tax liability
associated with the CIAC from RNG producers. ln Order No. 21933 (Case No. U-1500-176)
issued in 1988, the Commission prohibited the Company from grossing up CIACs to cover the
additional income tax generated by the CIAC payment. Instead, the Company adds the
additional income tax paid to rate base where it is charged to customers over time. While there
is a valid reason for ratepayers to pay the increased income tax on plant that is used by utility
customers, in the case of RNG projects this process would result in a negative financial impact to
utility customers. Grossing up the CIAC paid by RNG producers will en$.re that the entity
causing the increased income tax liability will be the same entity that pays the increased income
tax. To protect utility customers, Staffrecommends the Commission grant a waiver from Order
No. 21933 in this case and allow the Company to gross up the CIAC charged to RNG producers
for the additional income taxes generated by RNG customer payments.
4STAFF COMMENTS MAY 29,2020
Existing RNG Producers with Contracts
Intermountain has executed contracts with three RNG producers to facilitate access, but
the Company seeks Commission approval of an RNG facilitation plan that will guide all future
distribution system access by RNG producers. If the Commission approves the RNG facilitation
plan, the Company proposes to make all subsequent RNG agreements consistent with it. In
response to Production Request No. 4, the Company describes how it will align current RNG
producers:
The existing contracts the Company has executed do not address the Access
Fee and they allow the Company to directly bill the RNG producers each
quarter for actual O&M expenses relating to each RNG facility, rather than
following the Maintenance Fee process outlined in the Application.
Intermountain has already contacted the counterparties to the contracts for each
facility to 1) notifu them of the Company's RNG filing, 2) clarifu what terms
Intermountain proposes to adjust or revise to bring these agreements into
alignment with terms outlined in the filing, 3) remind the counterparties that
the Company cannot arbitrarily change existing contractual terms without
mutual agreement, and 4) explain the specifics regarding the Access Fee and
Maintenance Fee that Intermountain proposes to incorporate. If the
Commission issues an Order in this proceeding, with an effective date of June
15, 2020, that is substantially similar to Intermountain's proposal, the
Company is hopeful it can conclude these negotiations by August 1,2020.
Staff is concerned that the framework in existing contacts may not isolate core
customers from RNG facility costs. Staffwill routinely audit these costs before RNG fee
changes and review these costs in the next general rate case to ensure customers do not bear the
burden of these costs.
Staffrecommends that if the Company's proposal is authorized by the Commission, the
Company should be required to incorporate provisions in all new or renewal contracts that
implement the Company's proposal.
CUSTOMER IMPACT AI\D NOTIFICATION
Intermountain contends that it will "completely insulate utility customers from all
potential impacts of RNG production." Application at 5. Intermountain proposes RNG
producers pay a monthly fee for access to the Company's distribution system. Also, if
Intermountain must incur startup or extraordinary Operation & Maintenance expenses at an RNG
facility, "the producer will be billed for the actual additional expenses incurred by
Intermountain." Id. at 6.
5STAFF COMMENTS MAY 29,2020
The Company sent a letter directly to its RNG producers who may be affected by the
proposal. The Company did not provide direct notice to its utility customers because
Commission rules do not require it. Staff believes that keeping utility customers informed is
desirable and encourages RNG communication with all customers. Staffnotes that the Company
provides functional links to Commission filings on its website in the Rates & Services section.
Information for this and other open cases can be accessed on the Company's or Commission's
website by anyone with intemet capability.
STAFF RECOMMENDATIONS
Staffbelieves approval of lntermountain's Application is appropriate to establish a
method to facilitate RNG producer access to the Company's distribution system, while
simultaneously protecting utility customers from any increases associated with that access.
Staff recommends the Commission:
1. Approve the Company's Application to facilitate RNG as described in the
Company's filing, including the financial structure and accounting methodology.
2. Approve the Company's request to gross up CIAC payments for income taxes as
described in the Application.
3. Require the Company to include provisions in all new or renewal contracts that
implement the Company's proposal.
4. Require the Company to provide updates to the Commission when existing RNG
producer contracts become consistent with the Company's RNG facilitation plan.
Respectfully submitted ttns Q.lth day of May 2020
Matt Hunter
Deputy Attorney General
Technical Staff: Kevin Keyt
Johan Kalala-Kasanda
Michael Eldred
i:umisc/commeots/intg20.3mhkkjkme comments
6STAFF COMMENTS MAY 29,2020
CERTIF'ICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 296 DAY OF MAY 2020,
SERVED TtrE FOREGOING COMMENTS OF THE COMMISSTON STAFF, IN
CASE NO. INT-G-20-03, BY E-MAILING A COPY THEREOF, TO THE
FOLLOWING:
LORI BLATTNER
DIR _ REGULATORY AFFAIRS
INTERMOUNTAIN GAS CO
PO BOX 7608
BOISE ID 83707
E-MAIL: [e-mail]
PRESTON N CARTER
GTVENS PURSLEY LLP
601 W BANNOCK ST
BOISE D 83702
E-MAIL: [e-mail]
kendrah@ eivenspursley. com
SECRETARY
CERTIFICATE OF SERVICE