20230517Direct M. Louis - Settlement.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF INTERMOUNTAIN )GAS COMPANY'S APPLICATION FOR )CASE NO.INT-G-22-07
AUTHORITY TO INCREASE ITS RATES )ANDCHARGESFORNATURALGAS )SERVICE IN THE STATE OF IDAHO )
DIRECT TESTIMONY OF MICHAEL LOUIS
IN SUPPORT OF THE SETTLEMENT
STIPULATION
IDAHO PUBLIC UTILITIES COMMISSION
MAY 17,2023
1 Q.Please state your name and business address for
2 the record.
3 A.My name is Michael Louis.My business address
4 is 11331 W.Chinden Blvd.,Ste.201-A,Boise,ID 83714.
5 Q.By whom are you employed and in what capacity?
6 A.I am employed by the Idaho Public Utilities
7 Commission ("Commission")as the Engineering Section
8 Program Manager.
9 Q.What is your educational and professional
10 background?
11 A.Please see a summary of my educational and
12 professional background in Exhibit No.101.
13 Q.What is the purpose of your testimony in this
14 proceeding?
15 A.The purpose of my testimony is to describe the
16 proposed comprehensive Stipulation and Settlement
17 ("Settlement")and explain Staff's support.
18 Q.Please summarize your testimony.
19 A.The proposed Settlement would provide a base
20 rate revenue increase of 2.75%or $3.05 million on June
21 01,2023.1 Based on Staff's comprehensive review of
22
23 1 on page 9 of the Settlement,it states that the increase in
revenue requirement reflects a 2.75%"overall"increase as
24 illustrated in Exhibit 1 of the Settlement.This percentage andwhatisreflectedinExhibit1isthebaseraterevenueincrease not
25 an overall increase since an overall increase would include the costofgaswhichisintheCompany's Purchased Gas Adjustment Rate.
CASE NO.INT-G-22-07 LOUIS,M.(Stip)105/17/23 STAFF
1 Intermountain Gas Company's ("Company"or
2 "Intermountain")Application,a thorough audit of the
3 Company's books and records resulting in a detailed
4 identification of adjustments to the revenue requirement,
5 an extensive negotiation with the intervening parties in
6 the case,and thoughtful consideration of the alternative
7 to settlement,Staff believes that the proposed
8 Settlement is in the public interest,is fair,just,and
9 reasonable;and should be approved by the Commission.
10 Q.How is your testimony organized?
11 A.My testimony is structured under the following
12 sections:
13 I.Background
14 II.Staff Investigation
15 III.The Settlement Process
16 IV.Staff Support for the Settlement
17 A.Revenue Requirement
18 B.Allocation of the Revenue Requirement
19 C.Rate Design
20 D.Other Terms and Conditions
21 Background
22 Q.Please provide an overview of the Company's
23 Application?
24 A.The Company filed its Application on December
25 1,2022,requesting a $11.3 million increase in base rate
CASE NO.INT-G-22-07 LOUIS,M.(Stip)205/17/23 STAFF
1 recovery or an increase of 10.3%.On March 9,2023,the
2 Company filed an amended Application adjusting the
3 increase to $6.8 million or a base rate revenue increase
4 of 6.9%.The Company proposed an overall rate of return
5 ("ROR")of 7.37%and a Return on Equity ("ROE")of 10.3%.
6 The Company's proposed changes were based on a
7 2022 test year,with actuals from January through
8 September 2022 and estimates from October through
9 December 2022,which the Company updated with actuals in
10 early March 2023.
11 The Company proposed movement towards cost of
12 service based on their cost-of-service study ("COSS").
13 As proposed,under-allocated Residential Customers were
14 limited to 125%of the total relative system increase,
15 while the highest over-allocated customers,interruptible
16 Transport Customers,were limited to 25%of the overall
17 system increase.All other customers were proposed to
18 receive the remainder of the increase at 53%.
19 Finally,the Company proposed changes in
20 customer charges,increasing Residential Customer charges
21 from $5.50 to $9.00 and $8.00 for Residential and
22 interruptible Residential Customers,respectively;
23 increasing General Service Customer charges from $9.50 to
24 $15.00 for both General Service and interruptible General
25 Service Customers;and establishing customer charges
CASE NO.INT-G-22-07 LOUIS,M.(Stip)305/17/23 STAFF
1 where none currently exist of $150.00 for Large Volume
2 and firm Transport Service Customers and $300.00 for
3 interruptible Transport Customers.The Company also
4 proposed changes in the rate block thresholds for Large
5 Volume Customers reducing them so that they are relevant
6 to historic usage patterns.
7 Q.How was the case processed after the case was
8 filed?
9 A.The Commission issued Notices of Application
10 and Intervention and granted intervenor status to the
11 Alliance of Western Energy Consumers ("AWEC"),the City
12 of Boise,and the Idaho Conservation League ("ICL").The
13 Commission approved a procedural schedule and a
14 settlement conference was held on March 30th and 313t.A
15 comprehensive Settlement was reached by all parties and a
16 motion to approve it was filed with the Commission on
17 April 5,2023.
18 Staff's Investigation
19 Q.Could you please describe Staff's investigation
20 leading up to the settlement conference?
21 A.Yes.Staff's approach prior to the settlement
22 conference was to comprehensively review the Company's
23 filing to identify adjustments to the revenue requirement
24 request and make recommendations for allocation of the
25 revenue requirement and rate design in preparation to
CASE NO.INT-G-22-07 LOUIS,M.(Stip)405/17/23 STAFF
1 file testimony for a fully-litigated proceeding.Four
2 auditors,five utility analysts,and one engineer were
3 assigned to the case and submitted over 120 discovery
4 requests to investigate all aspects of the case.Staff
5 performed an on-site audit on January 26 and 27 and on
6 March 1 through the 326,and held several electronic
7 meetings with the Company to conduct its investigation.
8 For the revenue requirement,the four auditors
9 reviewed the test year results of operations,O&M
10 expenses,capital budgets and spending,and verified
11 thousands of calculations and assumptions related to
12 labor expenses,incentive plans,employee benefits and
13 pension expenses to ensure an appropriate level of
14 expenditure.In addition,an auditor performed an
15 extensive analysis of the cost of capital and capital
16 structure.
17 In addition to the auditors,four of the
18 utility analysts and the engineer assigned to the case
19 performed an extensive review of capital projects to
20 determine if the projects included for recovery were
21 prudently incurred.They also reviewed several of the
22 miscellaneous proposals included in the filing such as
23 updating the credits for non-utility LNG sales and
24 resolution of in-person pay station transaction fees.
25 One utility analyst was assigned to review the
CASE NO.INT-G-22-07 LOUIS,M.(Stip)505/17/23 STAFF
1 normalization of consumption,cost of service,and rate
2 design.Because of the number of issues related to
3 normalization of consumption and cost of service,the
4 Company and Staff met on several occasions prior to the
5 case being filed to improve what was filed in this case.
6 Staff also worked with the Company to completely redesign
7 the Company's line extension policy that was at issue in
8 the last general rate case so it was no longer an issue
9 in this case.
10 The Settlement Process
11 Q.Can you describe the process used during these
12 settlement negotiations?
13 A.Yes,I can.The Settlement conference was
14 conducted on March 30th and 313t of 2023 with all
15 intervening parties in attendance.Each party described
16 and provided justification for its proposed revenue
17 requirement adjustments,and positions for consumption
18 normalization,cost of service,rate design,or other
19 issues.Questions and discussions occurred prior to
20 adjourning for the day.
21 At the start of the second day meeting,the
22 Company presented their counter proposal for the revenue
23 requirement.Time was given for intervening parties and
24 Staff to evaluate and discuss the proposal.Negotiations
25 continued until the parties reached a compromise on a
CASE NO.INT-G-22-07 LOUIS,M.(Stip)605/17/23 STAFF
1 tentative revenue increase of $3.05 million.
2 After an agreement on the revenue requirement
3 was reached,the only two open issues identified from the
4 previous day was the allocation of the revenue
5 requirement and Company proposed changes to customer
6 charges.With consideration of the COSS results,it was
7 agreed that the Company's proposals on movement towards
8 cost of service was reasonable.
9 Regarding changes to customer charges,each
10 party was able to restate their preferences and reasons
11 for their position.After negotiation,small changes
12 were made to the Company's proposal and agreed upon by
13 all parties.
14 Q.Were there other issues discussed during the
15 settlement?
16 A.Yes.Several issues were identified during the
17 discussions that would improve future rate cases.Action
18 items were identified for inclusion in the agreement.
19 Staff's Support for the Settlement
20 Q.How did Staff determine that the overall
21 Settlement was reasonable?
22 A.In every settlement evaluation,Staff and other
23 parties must determine if the agreement provides a better
24 overall outcome than could be expected at hearing.Staff
25 looked at each revenue requirement adjustment and other
CASE NO.INT-G-22-07 LOUIS,M.(Stip)705/17/23 STAFF
1 issues under consideration and determined that the
2 overall agreement was as good or better than what could
3 be expected by fully litigating the case.All
4 intervening parties to the case,including other customer
5 groups and those representing customers with
6 environmental interests,agreed to support or not oppose
7 the Settlement.
8 In addition,Staff evaluated the issues from
9 the last general rate case (INT-G-16-02)including:
10 inadequately justified rate case expenses from the 2016
11 general rate case,the lack of a load study for
12 determining cost of service,issues related to
13 normalization of consumption,updating the Company's line
14 extension policy,and treatment of in-person payment
15 transaction fees.These issues were addressed through
16 the Company's Application,efforts prior to filing the
17 Application,or as part of the Settlement.
18 Revenue Requirement
19 Q.Please describe the terms of the Settlement
20 agreement regarding the revenue requirement.
21 A.Under the terms of the Settlement,the Company
22 would receive a $3.05 million or 2.75%base rate revenue
23 increase effective on June 01,2023.This represents
24 $8.25 million in total adjustments to the revenue
25 requirement compared to the Company's $11.3 million
CASE NO.INT-G-22-07 LOUIS,M.(Stip)805/17/23 STAFF
1 initially proposed increase.The parties agreed to a
2 9.50%return on equity ("ROE"),which is a reduction of
3 80 basis points from the Company's proposed 10.3%ROE.
4 Q.Can you explain why Staff believes the 9.5%ROE
5 is reasonable?
6 A.Yes.Staff believes a ROE of 9.5%is
7 reasonable because it is within the range of
8 reasonableness established by Staff as part of its ROE
9 evaluation.It is consistent with authorized ROEs for
10 other electric and gas utilities operating nationally and
11 in the Northwest.It is also consistent with the
12 Commission's most recent authorization of a 9.5%ROE in
13 Order No.35692,issued March 1,2023,for Gem State
14 Water Company.A 9.5%ROE should allow the Company to
15 maintain its ability to attract new capital from equity
16 markets to finance capital investments to grow and
17 maintain its operations.
18 Q.Other than ROE,can you describe Staff's
19 adjustments to the Company's proposed Revenue Requirement
20 Staff identified through its investigation prior to
21 Settlement?
22 A.Yes.Besides the adjustment for ROE,Staff
23 identified 16 additional Revenue Requirement adjustments.
24 Three of the items were adjustments to rate base while
25 the remaining 13 adjustments were expense related.
I
CASE NO.INT-G-22-07 LOUIS,M.(Stip)905/17/23 STAFF
1 The rate base items included assets Staff
2 believed were not used and useful by the end of the test
3 year and infrastructure that should be offset by
4 contributions-in-aid-of-construction payments from
5 customers.
6 The largest expense items included:removal of
7 pay increases beyond the test year;removal of incentive
8 payments for non-executive employees Staff believed were
9 being paid to increase shareholder value rather than for
10 the benefit of customers;removal of several credit card
11 transactions and other miscellaneous expenses;an
12 adjustment for costs of the multi-year corporate Maximo
13 information technology project due to realization of
14 benefits not likely to occur until more of the project is
15 implemented;adjustments for parent company (MDU
16 Resources)expenses and affiliate transactions Staff
17 could not tie to benefits realized by Intermountain's
18 customers;and adjustments to rate case expenses
19 inadequately justified or improperly amortizing over a
20 reasonable period.
21 Q.Why does Staff believe the revenue requirement
22 is reasonable?
23 A.Staff has a good understanding of the
24 adjustments that the Commission typically supports based
25 on experience in past cases and a good understanding of
CASE NO.INT-G-22-07 LOUIS,M.(Stip)1005/17/23 STAFF
1 regulatory cost-of-service principles.Staff assessed
2 the likelihood that each adjustment would be accepted by
3 the Commission and determined a target range it believed
4 would be acceptable for settlement.Only if the proposed
5 revenue requir-ement in settlement was within that range,
6 Staff would proceed with the settlement and filing with
7 the Commission.Otherwise,Staff would be inclined to
8 walk away from the negotiations and allow the case to go
9 to hearing.
10 Consumption Normalization
11 Q.Does Staff support the Company's normalization
12 of the test year consumption used for billing
13 determinants in rates and normalization of the test year
14 revenue in the revenue requirement included in the
15 Settlement?
16 A.Yes.Staff believes the Company's proposed
17 normalized consumption used in the Settlement is
18 reasonable based on the methods used to weather normalize
19 test year consumption.
20 Q.Was consumption normalization an issue in the
21 last general rate case?
22 A.Yes,it was.There were significant issues
23 Staff identified including issues with the data used in
24 the linear regression model to weather normalize the test
25 year consumption and several issues with the model
CASE NO.INT-G-22-07 LOUIS,M.(Stip)1105/17/23 STAFF
1 itself.
2 Q.Were these issues resolved?
3 A.Yes.Staff and the Company met several times
4 between the last rate case and when this case was filed.
5 Almost all of the issues Staff identified were resolved
6 and those improvements were included in the Company's
7 Application.There were a couple of issues in this case
8 that Staff identified in the proposed model to improve
9 its accuracy,but the Company's resulting weather
10 normalized consumption was well within an acceptable
11 level of error.
12 Q.Please characterize these issues in the model.
13 A.Staff identified modifications to the model
14 that would improve its accuracy.Without these
15 modifications,it could push the results to an
16 unacceptable level of error in a future rate case under
17 different circumstances.Staff proposed these items be
18 addressed in a workshop after this case has concluded in
19 preparation for the next general rate case.
20 Allocation of the Revenue Requirement
21 Q.Does Staff support the class allocation of the
22 revenue requirement that is used in the Settlement?
23 A.Yes.Staff believes the Company's proposed
24 movements towards cost of service for the various classes
25 and adopted in the Settlement is reasonable for three
CASE NO.INT-G-22-07 LOUIS,M.(Stip)1205/17/23 STAFF
1 reasons.
2 First the COSS submitted with the Application
3 was based on a recent load study.Lack of a recent load
4 study was the most important reason why the Company's
5 COSS was not used in the previous general rate case.
6 Second,the COSS utilized accepted methods for
7 separating the costs each class of customers cause in the
8 Company's system so that the parties could determine how
9 far each class is from paying their equitable share of
10 the Company's costs based on present rates.
11 Finally,Staff believes that the method,as
12 described earlier in my testimony,struck a good balance
13 of making movements towards each class's cost of service
14 while maintaining the Commission's past values of
15 gradualism when changing rates.
16 Rate Design
17 Q.Does Staff support changes in the rate design
18 included in the Settlement?
19 A.Yes.Staff believes that the increases in the
20 monthly customer charge in customer's bills negotiated
21 and accepted by the parties to the Settlement and the
22 reductions in Large Volume Customer rate block thresholds
23 proposed in the Company's Application also included in
24 the Settlement are reasonable.
25 Q.What changes to the customer charge were
CASE NO.INT-G-22-07 LOUIS,M.(Stip)1305/17/23 STAFF
1 included in the Settlement?
2 A.The parties agreed to the increases in the
3 customer charge and establishment of new customer charges
4 included in Company's Application,with the exception of
5 the customer charge for firm Residential Customers.The
6 parties agreed to increase the charge to $8.00 per bill
7 rather than $9.00 as proposed by the Company.
8 Q.Why does Staff support the increase in the
9 customer charges in the Settlement?
10 A.Staff believes the increases in customer
11 charges to be reasonable for several reasons.Customer
12 charges should be based on fixed costs.Concerns
13 regarding reducing the incentive of energy efficiency by
14 decreasing the amount of cost recovered through the
15 volumetric rate are not as relevant in the Company's rate
16 structure as they are in other utility rate structures.
17 The Company's rate structure is bifurcated with all of
18 the short-term variable costs associated with the cost
19 and transportation of gas being recovered through the
20 Purchased Gas Adjustment ("PGA")filing,which are 100%
21 recovered through a volumetric rate.Most of the cost
22 included in the Company's base rates and subject to
23 examination in this case are fixed costs over the short
24 term and do not vary based on the amount of the gas
25 commodity sold.However,customers may not differentiate
CASE NO.INT-G-22-07 LOUIS,M.(Stip)1405/17/23 STAFF
1 the price signals of different rates within their utility
2 bills,so there could be some reduction in the incentive
3 to conserve.
4 On the other hand,increasing the customer
5 charge provides the Company with more stable recovery of
6 its fixed costs,which vary little throughout the year.
7 This is especially important for gas utilities which see
8 significant swings in their seasonal revenue streams from
9 winter space heating.Staff believes the modest
10 increases in the customer charge for all customer classes
11 strike a balance.
12 Q.Does Staff support the changes in the Large
13 Volume Customer rate block thresholds?
14 A.Yes.The usage patterns of existing Large
15 Volume Customers make the current rate block thresholds
16 irrelevant since none of the Large Volume Customers
17 approach the threshold amounts in the current rate blocks
18 with the peak amount of gas they consume.Staff believes
19 the new rate block thresholds are reasonable given the
20 class's current usage patterns.
21 Other Terms and Conditions
22 Q.Are there other terms and conditions not
23 already discussed that Staff supports?
24 A.Yes.Additional terms include:1.Company
25 action items to provide access to information on costs
CASE NO.INT-G-22-07 LOUIS,M.(Stip)1505/17/23 STAFF
1 and the allocation of those costs from its parent Company
2 and affiliates prior to the next rate case;2.resolution
3 of issues related to in-person pay station transaction
4 fees;and 3.changes to non-utility LNG Sales credits.
5 Q.Does Staff support the action items related to
6 access to and allocation of corporate affiliate costs
7 included in the Settlement?
8 A.Yes.Through Staff's initial investigation,
9 Staff questioned the allocation of costs from MDU
10 resources and affiliates because of a lack of access to
11 the information.Staff believes these action items
12 should resolve these issues in the next general rate
13 case.
14 Q.Does Staff support the resolution of issues
15 related to in-person pay station transaction fees
16 accepted in the Settlement?
17 A.Yes.The Company proposed to embed in-person
18 payment transaction fees in base rates in this filing and
19 collect deferred fees from October 1,2022,through
20 February 1,2023,through the PGA filing.Staff believes
21 this to be reasonable.
22 Q.Does Staff support the Company's proposal to
23 update the amount of the credit for Liquid Natural Gas
24 ("LNG")off-system sales as reflected in the Settlement?
25 A.Yes.The Company proposed in its Application,
CASE NO.INT-G-22-07 LOUIS,M.(Stip)1605/17/23 STAFF
1 and the parties accepted,updating non-utility LNG sales
2 credits.Staff reviewed the workpapers included in the
3 Application and believes the update to the capital credit
4 of $0.03 and O&M credit of $0.04 for every gallon of LNG
5 sold will adequately recover those costs caused by non-
6 utility LNG customers,thus protecting the Company's core
7 customers.
8 Q.Does this conclude your testimony in this
9 proceeding?
10 A.Yes,it does.
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
CASE NO.INT-G-22-07 LOUIS,M.(Stip)1705/17/23 STAFF
Professional Qualifications
Of
Michael Louis
Program Manager -Engineering
Idaho Public Utilities Commission
EDUCATION
Mr.Louis received his B.S.and M.S.degrees in IndustrialEngineeringwithconcentrationsinmanufacturingsystemsandengineeringeconomicsfromPurdueUniversityin1985and1992,respectively.He also received his Masters in Public Policy andAdministrationatBoiseStateUniversityin2005.In addition
to his formal education,Mr.Louis has attended Michigan StateUniversityInstituteofPublicUtilitiesAnnualRegulatoryStudiesProgram,NARUC Utility Rate School,and Electricity Grid
School.
BUSINESS EXPERIENCE
Mr.Louis is currently the Staff Engineering ProgramManagerovertheEngineeringSectionattheIdahoPublic
Utilities Commission where he has supervised Staff and worked on
a variety of cases to regulate electric,natural gas,and waterutilities.His assignments and responsibilities include casesinvolvingprudencedeterminationofmajorutilityinvestments
and power supply cost,integrated resource plans,costadjustmentmechanisms,reviews of power purchase agreements and
customer special contracts,demand-side management,sales ofutilitiesandtheirassets,avoided cost ratemaking for PURPA,
class and jurisdictional cost allocation using cost of serviceprinciples,rate design,and a variety of engineering studiesinvolvingthedesignandoperationofpublicutilitysystems.
Mr.Louis'work experience also includes 18 years ofindustrial/commercial practice at General Motors,Hewlett-Packard,Jabil Circuit,and Albertsons Companies developing,managing,and improving manufacturing systems and operations,planning processes,and supply chains.He has also spent six
years at Boise State University where he administrated and
conducted energy policy research as the Assistant Director of
the Energy Policy Institute and taught classes in program andprojectmanagementandEnergyPolicyintheDepartmentofPublicPolicyandAdministration.
Exhibit No.101
Case No.INT-G-22-07
M.Louis,Staff
05/17/23
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 17th DAY OF MAY 2023,SERVEDTHEFOREGOINGDIRECTTESTIMONYOFMICHAELLOUISINSUPPORTOFTHESETTLEMENTSTIPULATION,IN CASE NO.INT-G-22-07,BY E-MAILING ACOPYTHEREOF,TO THE FOLLOWING:
LORI BLATTNER PRESTON N CARTER
DIR -REGULATORY AFFAIRS GIVENS PURSLEY LLP
INTERMOUNTAIN GAS CO 601 W BANNOCK ST
PO BOX 7608 BOISE ID 83702
BOISE ID 83707 E-MAIL:[e-mail]-MAIL:lori.blattner intgas.com [e-mail]
CHAD M STOKES
CABLE HUSTON LLP
1455 SW BROADWAY
STE 1500
PORTLAND OR 97201
E-MAIL:[e-mail]
[e-mail]
SECRE ARY
CERTIFICATE OF SERVICE