HomeMy WebLinkAbout20221201Hourigan Direct.PDF
Preston N. Carter, ISB No. 8462
Morgan D. Goodin, ISB No. 11184
Blake W. Ringer, ISB No. 11223
Givens Pursley LLP
601 W. Bannock St.
Boise, Idaho 83702
Telephone: (208) 388-1200
Facsimile: (208) 388-1300
prestoncarter@givenspursley.com
morgangoodin@givenspursley.com
blakeringer@givenspursley.com
Attorneys for Intermountain Gas Company
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF INTERMOUNTAIN GAS COMPANY
FOR AUTHORITY TO INCREASE ITS
RATES AND CHARGES FOR NATURAL
GAS SERVICE IN THE STATE OF IDAHO
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CASE NO. INT-G-22-07
DIRECT TESTIMONY OF KIRSTI HOURIGAN
FOR INTERMOUNTAIN GAS COMPANY
December 1, 2022
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K. HOURIGAN, DI
INTERMOUNTAIN GAS
Q. Please state your name and business address. 1
A. My name is Kirsti Hourigan, and my business address is 400 North 4th Street, Bismarck, 2
ND 58506. 3
Q. Please describe your involvement in this proceeding. 4
A. I am the Human Resources Director responsible for the day-to-day human resource 5
operations of the utility companies owned by MDU Resources Group, Inc. (“MDU 6
Utilities Group”), including Intermountain Gas Company (“Intermountain” or 7
“Company”). I work closely with the Human Resources Department at MDU Utilities 8
Group with respect to employee compensation philosophy, benefit programs, and other 9
corporate-wide programs and am responsible for implementation of that philosophy and 10
those programs. 11
Q. Please describe your educational background and professional experiences. 12
A. I graduated from Cornell University in 1995 with a Bachelor of Science degree in 13
Industrial and Labor Relations. In 2000 I graduated from Wake Forest University School 14
of Law with a Juris Doctor degree, emphasizing labor and employment law. I have been 15
licensed to practice law in the state of North Dakota since 2000. 16
I worked as an attorney in private practice in Fargo, North Dakota from 2000-17
2007. In 2007 I joined MDU Resources Group, Inc., and between 2007 and 2020 I was 18
an attorney in the legal department focused on labor and employee relations, employee 19
benefits, corporate compliance, uninsured litigation, and finance matters. During this 20
time, I worked closely with the Human Resources Department of the MDU Utility Group 21
to ensure compliance with federal and state law, as well as promoting the Company’s 22
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culture of being an employer of choice. In 2020 I transferred from the legal department 1
to my current position as Human Resources Director. 2
Q. Please describe your duties and responsibilities with the Company. 3
A. I oversee and develop strategy for implementation of all human resources functions for 4
the Utility Group. These functions include the compensation philosophy outlined in the 5
MDU Total Rewards Philosophy (including base pay and incentive pay), employee 6
benefit offerings, and company culture. 7
Q. What is the purpose of your testimony? 8
A. My testimony explains the following: (1) the Company’s Total Rewards Philosophy for 9
its employees, including both base pay and incentive compensation; (2) the MDU 10
medical plans available to employees and the premiums paid by the employee and 11
Company for each plan; (3) the reorganization of functions and personnel undertaken in 12
2018 to comply with newly enacted industry rules and regulations while simultaneously 13
increasing the efficiency of operations throughout the Company; (4) the increase in 14
wages and benefits since the Company’s last general rate case; and (5) test year and pro 15
forma adjustments for salaries for both bargained and non-bargained employees for 2022 16
and 2023. 17
Q. Please describe the Total Rewards Philosophy and general approach to managing 18
employees’ total compensation. 19
A. The Company’s approach to employee compensation is designed to minimize costs while 20
allowing it to attract and retain the qualified employees necessary to deliver safe and 21
reliable service to its customers. To do this, the Company applies three basic principles: 22
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INTERMOUNTAIN GAS
First, the Company has adopted a Total Rewards philosophy, which provides 1
employees with a Total Rewards package. The Total Rewards package includes both total 2
cash compensation and benefits. For non-bargained employees, the two key components 3
of total cash compensation are base pay and incentive compensation. Intermountain’s 4
bargained employees do not receive incentive compensation. 5
Second, the Company compares its wages and at-risk incentive compensation 6
with the relevant labor market and seeks to set total cash compensation at the market 7
average for comparable jobs. However, the Company has found the market for 8
employees with the skills and experience required is very competitive in the industry, and 9
therefore Intermountain must provide the same general pay levels and benefits as are 10
included in the packages provided by the Company’s competitors for labor. 11
Third, the Company believes that a certain percentage of each non-bargained 12
employee’s market compensation should be “at-risk” to encourage employee engagement 13
and reward employees for their role in effectively operating the business. Accordingly, 14
employees have the opportunity to receive total cash compensation at the market average 15
under the MDU Utility Group incentive plan. However, that program is structured such 16
that total compensation for all employees is aligned with the market average in a typical 17
year. 18
Q. Please explain how the Company determines the market average for the base pay 19
and pay-at-risk components of total cash compensation. 20
A. The Company researches and obtains industry salary data when market pricing individual 21
positions. This data comes from many sources, including the American Gas Association, 22
Mercer, EAP Data Information Solutions, Empsight, World at Work, Willis Towers 23
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Watson, and Kenexa Compensation Analyst, among others. Specifically, the Company 1
analyzes the median base pay and target incentive compensation from these sources to 2
determine an appropriate market wage. 3
Q. How does the Company determine annual base pay increases? 4
A. The Company allocates a share of its annual salary budget for merit-based compensation 5
increases. Managers and supervisors are provided guidelines by Human Resources for 6
how to allocate individual employee salary increases, taking into consideration 7
performance appraisals, pay equity, retention concerns and other factors. Each 8
November, the Company’s Vice President of Human Resources publishes guidelines for 9
the MDU Utility Group to follow in allocating the following year’s pay increases for non-10
bargained employees. Managers and supervisors are responsible for allocating this 11
budget in accordance with the guidelines. 12
Q. How does the Company ensure it is not paying or incentivizing more than necessary 13
to attract and retain a qualified workforce? 14
A. In addition to the internal market review described above, approximately once every five 15
years the Company retains an outside independent consultant to review its compensation 16
practices and programs. In 2022 the Company contracted with Mercer to conduct a 17
robust competitive market study on multiple aspects of the Company’s compensation 18
program. This review assures that reasonable and appropriate compensation packages are 19
implemented to attract and retain quality employees, who in turn allow the Company to 20
continue providing safe and reliable service to its customers. 21
The Company’s pay philosophy is to pay employees at the 50th percentile for base 22
salary and total cash compensation, but Mercer’s study found the Company is positioned 23
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between the 25th and 50th percentiles. Mercer also found that the Company’s pay levels 1
are within a competitive market range of +/- 10% for base salary and +/- 15% for total 2
cash compensation. 3
The Company is continuing to analyze options to position a more favorable 4
compensation package to current and potential employees, as the talent market continues 5
to be very competitive, and extremely competitive for certain positions. 6
Q. Please explain how the Company determined Intermountain’s 2022 non-bargained 7
compensation. 8
A. In the second quarter of each year, the Company creates a budget for non-bargained 9
employee pay increases. MDUR’s Vice President of Human Resources provides a 10
recommendation for the subsequent calendar year, subject to approval by the President 11
and CEO of each business unit. This salary budget recommendation considers 12
competitive pay, economics, and industry-specific salary budget projections. The 13
recommendation is presented as an all-inclusive percentage that includes merit increases 14
for performance, equity and competitive pay adjustments, and promotions. 15
In November of 2021, the Vice President of Human Resources published 16
guidelines for the Company’s officers to follow in allocating 2022 pay increases for non-17
bargained employees. The guidelines provided managers a 3% merit-based wage 18
increase budget plus an additional 1.5% to be used during 2022 to address pay equity, 19
wage compression, and promotions through a mid-year salary increase process. 20
Managers who exceed the 3% in the first half of the year, will have the .5% mid-year 21
budget reduced by an equal amount. Company President, Nicole Kivisto, approved 2022 22
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salary recommendations submitted by officers for non-bargained employees effective on 1
December 20, 2021, which resulted in a total increase of approximately 3.8%. 2
Q. Please explain the rationale for Intermountain’s compensation for bargained 3
employees. 4
A. For bargained employees, hourly pay rates and total compensation make up one portion 5
of the collective bargaining agreement (“CBA”). The Company and the Plumbers and 6
Pipefitters Union’s (“Union”) current CBA has been effective since November 11, 2019 7
and will be renegotiated in the first quarter of 2023. On April 11, 2022, the Company 8
and Union executed a Memorandum of Agreement to increase the wages for Temporary 9
Summer Help from $11.50/hour to $15.00/hour; this wage increase was necessary to 10
attract qualified individuals to accept these temporary positions. While annual wage 11
increases are normally within the range of 2.5% to 3.5%, the cost of labor has increased 12
slightly during 2021 and 2022 for individuals with the skills utilized in bargained roles. 13
Q. Does Intermountain propose to include allocated wage increases from affiliate 14
companies to Intermountain’s overall wage expenses? 15
A. Yes. Since 2018, the Company has been consolidating functions within its three utility 16
companies to become more efficient at providing safe, reliable and cost-effective service 17
to customers. This consolidation resulted in many positions transferring from 18
Intermountain’s headcount to an affiliate’s headcount. A percentage of these positions 19
continue to service Intermountain’s business either directly or indirectly through 20
activities that simultaneously benefit Intermountain and the other utilities. 21
Q. Has the consolidation of operation functions with affiliate companies resulted in a 22
decrease in headcount at Intermountain? 23
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INTERMOUNTAIN GAS
A. No. The headcount at Intermountain has remained relatively consistent over the last five 1
years despite the fact that some roles were transferred from Intermountain’s headcount to 2
an affiliate’s headcount. The reason for this consistency is that a number of roles have 3
been added to Intermountain’s headcount that didn’t exist five years ago. Examples of 4
these new roles include field positions to service areas with significant customer growth, 5
environmental positions, and positions to ensure regulatory compliance and pipeline 6
safety. 7
Q. Please explain why it is appropriate to allocate wage increases from affiliate 8
companies to Intermountain. 9
A. Wage increases at Intermountain’s affiliates follow the same total rewards philosophy as 10
Intermountain, and wages for Intermountain and its affiliates are determined in the same 11
manner. Wage increases for employees at affiliates of Intermountain who have a portion 12
of their time allocated to Intermountain increase the total cost of said time that is 13
allocated to Intermountain. As such it is appropriate to allocate a percentage of those 14
increased costs to Intermountain. 15
Q. Did Intermountain’s affiliate companies experience labor market price increases in 16
2021 and 2022? 17
A. Yes. MDU has experienced labor market increases across its service territory in 2021 and 18
2022. 19
Q. Please describe the Company’s medical plan benefits for its employees. 20
A. All Utility Group companies utilize the same medical plan package. This package 21
includes a health savings account (“HSA”) coupled with a choice of two high-deductible 22
medical plans, a company contribution to employees’ HSA accounts, dental insurance, 23
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vision insurance, supplemental life and AD&D insurance, flexible spending plans, and 1
more. 2
All Utility Group companies pay the same percentage of the premium for their 3
employees’ medical, dental, and vision insurance premiums, and provide their employees 4
with the same contributions to the employees’ HSA accounts. 5
Q. Please describe the Company’s retirement plan benefits for its employees. 6
A. All Utility Group companies utilize the same retirement plan package for its non-7
bargained employees. This package includes a 401(k) plan with employer match equal to 8
50% of an employee’s salary deferrals with the maximum match being 3% of an 9
employee’s salary. Additionally, non-bargained employees receive an annual 10
contribution to their 401(k) accounts equal to 5% of their salary. 11
Bargained employees at Intermountain do not receive an employer match to their 12
401(k) accounts. However, they do receive monthly contributions to a multi-employer 13
pension plan associated with their local union. These monthly contributions have been 14
increasing based on the total number of employee hours worked per month and the 15
contribution rate negotiated between Intermountain and the union. 16
Q. Please describe the Company’s incentive pay plan for its employees. 17
A. All Utility Group companies utilize the same Employee Incentive Compensation Plan 18
(“Plan”). The Plan is available to all non-bargained employees who are classified as full-19
time or part-time employees and is structured to provide incentive compensation to those 20
employees with satisfactory performance. 21
A payout under the Plan is provided when the Company meets pre-established 22
financial targets and operational goals, with the percentage of target incentive 23
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compensation ranging from 0%-150% of that target for most employees. If the Company 1
meets the initial financial target, then the payout is further increased or decreased 2
depending upon the Company’s performance with respect to Operations and Maintenance 3
Expense, Operational/Customer Service, and Cyber Security goals. If the initial financial 4
target is not met, then no payouts will be made to any employees. 5
Q. How does the Plan benefit the Company’s customers? 6
A. The Operations and Maintenance Expense factor encourages employees to proactively 7
seek efficiencies and manage costs. This factor accounts for 40% of the Plan’s total 8
payout. Another 40% of the payout is determined by the Company’s performance with 9
respect to customer satisfaction (including direct activities and support services). The 10
final 20% of the total payout is determined by the Company’s overall phishing click rate 11
and each employee’s individual completion of assigned cyber-security training; each sub-12
category accounts for 10% of each employee’s payout. These elements to the Plan 13
benefit customers by incentivizing employees to improve efficiencies, manage costs, 14
provide high-quality customer service, and maintain the security of customer information. 15
Q. Has the COVID-19 pandemic affected Intermountain’s decision to apply wage 16
increases? 17
A. Intermountain takes the impact of a rate increase on its customers very seriously and has 18
considered the economic conditions created by the COVID-19 pandemic before 19
submitting the wage increases described in this proceeding. However, the pandemic has 20
not decreased the Company’s need to attract and retain qualified individuals. The 21
Company provides an essential service to its customers, and must maintain high-quality, 22
safe, and reliable service to its customers regardless of the economics existing in the 23
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industry or labor market. The Company continues its goal to attract and retain highly-1
qualified employees despite the current economic conditions, and continues to 2
significantly invest in their training and development. The wage increases submitted in 3
this proceeding are the minimum amount necessary to maintain a highly-qualified 4
workforce that can ensure a safe and reliable gas system. 5
Q. How has the current labor market impacted the Company’s goal to hire qualified 6
employees? 7
A. Similar to other organizations in the country, the current labor market has provided 8
challenges for the Company to hire qualified employees. Due to the COVID-19 9
pandemic, Intermountain has seen a significant rise in the number of organizations 10
providing telecommuting options for their employees. Intermountain is competing with 11
local organizations for talent and also other employers from other states that attempt to 12
hire employees that live in Idaho with no requirement to relocate. This has forced the 13
Company to create job offers that are higher in the salary range when compared to 2016. 14
Additionally, many more of the qualified applicants who apply for positions with the 15
Company either have competing offers at other companies or receive counter offers at 16
their current employer. Finally, the Company has experienced a significant increase in 17
sign-on bonuses and additional vacation offered by competitor companies to successful 18
applicants, which has caused Intermountain to increase the frequency and dollar amount 19
of bonuses and vacation it offers to new hires, including some bargained positions, to 20
remain competitive in the market. 21
Q. Please explain the Company’s increased costs to provide its total compensation and 22
benefits package to its employees since its last general rate case in 2016? 23
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A. The cost of the Company’s total cash compensation package that it provides to 1
employees has increased approximately 4.5% each year since 2016. This number 2
includes approximately 3.5% for annual merit increases plus 1% for additions to total 3
headcount. There are many reasons for this increase, including increased headcount in 4
districts with rapidly-growing markets, the provision of temporary COVID-19 benefits, 5
increasing labor market pressures, and positions added to comply with newly-enacted 6
environmental and other industry-specific regulations. Increased costs of wages results in 7
additional increases to the costs of the potential incentive plan payouts and the employer 8
401(k) matching contributions. 9
The costs to the Company of its medical plan package has increased 10
approximately 4.2% annually each of the last 5 years, which is less than the national 11
average of approximately 6.5% - 7.5% annually. These costs are the result of a 12
combination of many factors, including new specialty drugs being made available for 13
various conditions that recently had no treatment option and general inflation of medical 14
care in general. The Company has successfully implemented various programs to slow 15
this cost increase, including enacting a high-deductible health care plan with health care 16
savings plan, providing options for video doctor and therapist visits, on-demand on-line 17
therapy options, a program to help employees prevent diabetes and heart disease, and a 18
program for employees with sudden and severe medical conditions to assist them with 19
finding specialists, second opinions and alternative treatment options. The Company has 20
also slowly begun to shift a larger percentage of the increases in the cost of the medical 21
program to employees; for example, in 2022 employees paid approximately 8% of the 22
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total premium for medical coverage and in 2023 they will pay approximately 9% of the 1
total premium. 2
Q. Does the Company account for potential offsetting costs as part of its budgeting 3
process for wage increases? 4
A. Intermountain’s budgeting process for wage increases is a comprehensive process that 5
accounts for factors that both increase and decrease wage-related costs. For example, 6
managers are instructed to account for employees who are ineligible for pay increases 7
because they were recently hired, recently promoted, or received another type of wage 8
adjustment. Moreover, employees who receive a marginal or unacceptable performance 9
score on their annual reviews are ineligible for wage increases the following year. 10
Finally, salary recovery through attrition offsets the costs for wage adjustments. 11
Q. How does the Company’s total cash compensation package benefit customers? 12
A. The Company’s base compensation benefits customers by effectively meeting the need to 13
compensate employees fairly and competitively to assure the retention of a qualified 14
workforce to provide safe and reliable service to all its customers. 15
Additionally, the Company’s incentive compensation plan benefits customers by 16
creating incentives for employees to focus on key objectives, including cybersecurity, 17
operational efficiency, and high-quality customer service. Using incentive compensation 18
as a component of total cash compensation also allows the Company to be competitive in 19
the labor market with lower fixed costs in the form of base pay. Finally, utilizing both 20
base pay and incentive compensation encourages employees to focus on the key metrics 21
that benefit its customers. 22
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Q. Please summarize the Company’s proposed adjustments to the test year wages 1
included in the revenue requirement in this case. 2
A. To adjust test year wages for this case, the Company made a pro forma wage adjustment 3
that consists of two components. The first component normalizes the wages of 4
incremental employees that began employment at some point during the test year. The 5
second component calculates the impact of the 2023 wage increases for bargained and 6
non-bargained employees. The bargained employee increase has not been negotiated yet, 7
but the Company is currently including a 3.5% annual increase, which is within the 8
average range of past increases negotiated in the 2019 – 2023 collective bargaining 9
agreement. The non-bargained increase is currently 4.5%, which is the amount approved 10
by Ms. Kivisto in November of 2022. Included in the non-bargained wage increase are 11
increases associated with MDU Utilities Group and MDU Resources employees that are 12
allocated to Intermountain rather than directly assigned. The result of this adjustment is 13
discussed in more detail in the direct testimony of Company witness Mr. Darrington. 14
Q. Does the Company anticipate updating its proposed pro forma adjustments during 15
this proceeding with respect to the estimated 2023 increases? 16
A. Yes, as items are approved, finalized and implemented for 2023 salaries, that information 17
will be included in updated pro forma adjustments. 18
Q. Does this conclude your testimony? 19
A. Yes, it does. 20