HomeMy WebLinkAbout28109.docBEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF INTERMOUNTAIN GAS COMPANY FOR AUTHORITY TO CHANGE ITS PRICES. )
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) CASE NO. INT-G-99-1
ORDER NO. 28109
On May 14, 1999, Intermountain Gas Company (IGC; Company) filed an Application with the Idaho Public Utilities Commission (Commission) for authority to place into effect new rate schedules that would result in an overall increase of approximately $9.6 million in its annualized revenues. The increase reflects a change in the Company’s cost of gas and the elimination and/or imposition of a number of temporary gas and transportation cost adjustments, surcharges and credits. The Company in its filing also proposes to balance out its Purchased Gas Cost Adjustment (PGA), Account 186. The PGA Account is a deferral mechanism for over- and under-collections and for realized savings on spot market gas purchases.
The proposed adjustments reflected in the Application include changes in costs billed IGC by Williams Gas Pipelines-West (WGP-W) and other transportation companies, the elimination of temporary surcharges and credits (INT-G-98-4), an increase in the Companys weighted average cost of gas (WACOG), the benefits generated from the Companys segmentation of its firm capacity rights on WGP-Ws system, the inclusion of temporary surcharges and credits relating to gas and transportation related costs from the Companys deferred gas cost account (PGA Account 186), and an updated customer allocation of gas-related costs.
The Application proposes implementation of the following permanent and temporary changes, adjustments, surcharges and credits to IGCs tariff rates for natural gas service, sales and transportation:
Permanent Adjustments:
INT-G-98-4 Elimination of Temporary Surcharges/Credits ($ 644,603)
Change in WGP-W rates/charges $1,963,300
Change in storage costs $ 457,385
Cost of Gas Supply $5,677,983
Temporary Surcharges or Credits
Deferred Gas Costs (IGC PGA Acct 186)
NWP Refund Docket No. RP93-5 ($649,565)
Variable Cost Collection Adjustment ($ 417,248)
Uncollected Gas Costs $5,195,949
Market Segmentation ($2,189,891)
Storage credit ($ 465,603)
Fixed Gas Cost Misc ($ 709,039)
As computed by the Company, the total requested increase in revenue on an annual basis is $9,637,020 or 8.46%. The net increase in sales gas revenues is $9,405,663 or 8.61%. The increase in T-1 transportation service revenues is $182,684 or 4.56%. The net increase in T-2 transportation service revenues is $48,673 or 6.52%. The annualized change in rates by class of service per Company calculation is as follows:
Gas Sales
Revenue Avg Increase (Decrease)
/Therm Avg Increase (Decrease)
% Change Proposed Avg Price
$/Therm
RS-1 Residential
$1,212,193
3.416¢
5.66%
$0.63757
RS-2 Residential
$4,928,297
4.854¢
9.94%
$0.53698
GS-1 Genl Svc
$ 3,265,173
3.883
8.55%
$0.49323
LV-1 Large Vol. *
* T-1 tariff price plus the Weighted Average Cost of Gas (WACOG), $0.18252
(Compare WACOG INT-G-98-4: $0.15684)
WACOG = total commodity cost of gas total purchase therms
Transportation
Revenue Avg Increase (Decrease)
/Therm Avg Increase (Decrease)
% Change Proposed Avg Price
$/Therm
T-1 Transp.
$182,684
0.393
4.56%
$0.09003
T-2 Transp.
$ 48,673
0.224
6.52%
$0.03661
With the exception of the Industrial Class, IGC proposes to allocate the change in rates to each of its customer classes in accordance with its Purchased Gas Cost Adjustment tariff and approved cost-of-service methodology. (Ref. Case Nos. INT-G-95-1, INT-G-88-2, U-1034-137). Because there are no fixed costs currently recovered in the tailblock of IGCs T-1 tariff and because the proposed increase in the T-1 tariff is related to fixed costs (except for TF-1 commodity charge), a cents-per-therm increase is made only to the first two blocks of the T-1 tariff. All three blocks of IGCs proposed T-1 tariff have been adjusted to include WGP-Ws firm transportation TF-1 commodity charge. The proposed increase in the T-2 tariff (except for TF-1 commodity charge) is fixed cost related and, therefore, a cents per therm increase was made only to the T-2 demand charge. The commodity charge component of the T-2 tariff was adjusted to include WGP-Ws firm transportation TF-1 commodity charge.
Intermountain Gas requested that its Application be processed under Modified Procedure, i.e., by written submission rather that by hearing. Commission Notices of Application and Modified Procedure in Case No. INT G 99 1 issued on June 4, 1999. The deadline for filing written comments was June 24, 1999. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. Timely comments were filed by Commission Staff and six of the Company’s customers. Three customer comments were filed out of time on June 25.
On July 1, 1999, the Commission in Case No. INT-G-99-1 issued Order No. 28087. The Company in its Application had requested an effective date of July 1, 1999. The Commission in its Order suspended the proposed July 1 effective date until August 1, 1999, making the following findings:
We find, as the Company acknowledges, that Intermountain Gas has the affirmative burden of proof as to reasonableness regarding contract fees paid to its affiliate IGI Resources. Reference Boise Water Corp v. Idaho PUC, 97 Idaho 832, 555 P.2d 163 (1976). We note that the Company did not make such an offer of proof in its Application filing. It is only with the Company’s filing of June 25th that we are provided with such offer of proof. The Commission finds that it needs more time to consider the Staff proposed “adjustments and Company responses."
Reference Idaho Code § 61-622.
The previously filed comments can be summarized as follows:
Customer Comments
The Company’s customers object to the proposed increase, object to the inadequate notice provided by the Company and request a hearing. To grant the increase, one customer suggests, will eliminate the Company’s incentive to reduce its external and internal expenses by eliminating inefficiencies. The size of the proposed increase is objected to by another customer who contends that it will create hardship among those of the elderly whose only income is social security. “What do we do,” she queries, “when we can no longer pay the price to keep warm?”
An additional customer, Ms. Sharon Ullman, in comments filed June 24 requests that the Commission reconsider its Order No. 28068 and suspend the proposed July 1 effective date for at least 30 days and hold a public hearing or provide further opportunity for written comment and closer scrutiny of the Company’s Application. Ms. Ullman notes that she did not receive the June 23 postmarked “customer notice” from IGC until June 24, the same day as the Commission deadline for filing written comments or protests. The Company notice, Ms. Ullman contends, is woefully inadequate. It is, she states, essentially a public relations document that says absolutely nothing to indicate that customer comments and/or protests are being accepted by the Commission.
Ms. Ullman in her letter also relates some frustration in her three attempts to obtain information from the Company’s general manager of marketing and public relations, who, she states, instead of simply providing answers to questions regarding the Application, chose to question her with apparent suspicion about who she was and her interest in the case.
Ms. Ullman contends that by holding a public hearing in this case, or at the very least extending the public comment period, the Commission can help the public to understand that their circumstances, opinions and input are of concern to the Commission and that public input is welcomed and adequately sought.
Staff Comments
Commission Staff proposes a number of adjustments to the Company’s filing, reducing the Company proposed $9,637,020 increase in revenue requirement by $1,258,409, for an adjusted total annual revenue increase of $8,378,611.
Staff contends that ratepayers should not be required to pay interest on an over-refund attributed to Company miscalculation ($2,000,000 estimate; $983,937 actual). Reference FERC Docket No. RP-96-367—NWP settlement refund. Removal of interest would result in a ($15,885) adjustment. Additionally, Staff proposes that a post-filing company discovered ($72,671) adjustment and credit be allocated immediately rather than deferred, as the Company prefers, until the Company’s next annual tracker. Also reference FERC Docket No. RP 96-367.
The remaining Staff adjustments are related to the management or administrative fee paid by IGC to its affiliate IGI Resources, Inc., permanent adjustment ($552,763) and temporary surcharge or credit adjustment ($617,090). Staff contends that the management or administrative fee paid to IGI Resources is unreasonable, that transactions between IGC and IGI Resources are not at arms length and that IGC cannot simply rely on the fact that expenditures were incurred but has the affirmative burden of proving the reasonableness of its affiliated transactions. (Cited authority omitted). In an attempt to assess whether the administrative fee paid to IGI Resources is market-based, Staff compares the nature of services provided by IGI Resources with the management services provided to Avista Utilities by its unregulated affiliate, Avista Energy. Although the fee is the same ($.005/therm), Staff points out that there are significant differences:
This Commission in Order No. 27908, dated February 5, 1999, Case No. WWP-G-98-4, approved a proposed agreement between Avista Corporation dba Avista Utilities—Washington Water Division (WWP) and Avista Energy. This order allows Avista Energy, the marketing affiliate, to supply gas, act as agent in regard to storage, and to manage existing transportation and supply contracts. For this service Avista Energy will receive an adder of .005¢ per therm. While this service seems much the same as that provided by IGI Resources to IGC and appears to prove that IGI Resources’ management fee is market based, Staff must point out some very big differences.
WWP and IGC have completely different philosophies with respect to gas supply. WWP relies mainly on spot or very short term contracts while IGC relies on long term contracts with producers that are based on an index plus a premium. Avista Energy will provide firm gas service, will charge WWP a Weighted Average Cost of Gas (WACOG) based on market index prices and will bear the risk of procurement of supply at this price. If Avista Energy fails to get the supply at the calculated WACOG it will absorb the cost.
IGI Resources, on the other hand, bears no risk for the cost of gas as all costs for IGC’s supplies are directly passed to the customers through the PGA. This includes the long-term contracts that are at the index plus an adder to the producer in addition to the IGI management fee.
Consider an example with an Indexed WACOG of .150¢ per therm; for WWP the cost of a therm would then be .155¢ per therm (.150¢ +.005¢) if Avista Energy had to pay .175¢ per therm for the gas the cost to WWP is still .155¢ per therm. For IGC the producer index price could be .150¢ per therm plus .005¢ per therm or it could be .175¢ per therm plus .005¢ per therm. Then IGI Resources would add their .005¢ per therm for a total supply cost of .160¢ per therm or .185¢ per therm which would then be passed on to the ratepayer in the PGA (note this example is not based on actual costs to either company and does not show IGC hedges). The point of this example is not the cost, but that IGI Resources has no risk for the cost while Avista Energy does.
Although the Commission, Staff contends, could disallow all payments to IGI Resources for administrative services because the Company has not met its burden of proof as to the reasonableness of the fee paid to its affiliate, Staff suggests that the Avista adder could be used to judge whether the price paid for gas management services by IGC is reasonable. The risk assumed by Avista Energy, Staff contends, must also be considered. Staff believes that a reasonable price for the service provided by IGI Resources is between 0 and $.005 per therm. Because Staff believes that there is value to the service, the reasonable cost should be greater than 0; but because there is not risk involved and no incentive for IGI Resources to provide the lowest cost service, Staff contends that the price should be less than $.005. Staff believes the midpoint of $.0025 is a reasonable price to impute for this service. This adjustment reduces the temporary surcharge by $617,090 and the permanent charge by $552,763.
Although proposing no adjustment, Staff notes that the contribution of IGC to Gas Research Institute (GRI) is a contribution and not a payment of a filed rate under NWP’s FERC tariff. IGC has made the election to voluntarily contribute to GRI at high load factor of $.26/Dth demand charge and $0.88/Dth commodity charge. This contribution to R&D is included in the 1999 transportation charges. The cost to ratepayers, Staff calculates, would be approximately $70,000. Staff notes that this money will go to a project of IGC’s choice. The Company has yet to determine which project it will support. If the Commission approves the contribution to GRI, Staff believes that the Company should submit the project to the Commission for its approval. This would assure that all ratepayers receive a benefit from the project.
Company Reply
On June 25, the Company filed Reply Comments. The Company objects to Staff proposed adjustments and recommends that its Application be approved as submitted.
As to the Staff proposed interest adjustment ($15,885) on the over-refund, the Company contends that the miscalculation was based on two errors:
Refund estimated by Williams Gas Pipeline-West (Williams) was too high.
Williams in its estimate and in initially making the refund, failed to separate IGI IGI Resources from Intermountain Gas Company.
This is simply a true-up the Company contends and interest is appropriate because IGC customers have received the benefit. On a prospective basis, IGC states that it will abide by a Commission decision to defer all pipeline refunds until known and confirmed.
As to Staff proposed adjustment for the management and administrative service fee paid by IGC to its affiliate IGI Resources, the Company disputes Staff’s contentions and purports to provide evidence as to the reasonableness of the fee. As more specifically set out in its comments, IGC believes that the Commission can rely on either of two grounds based on precedent (either the prior IGI Resources fee approvals or the Avista fee approval) to independently justify continuance of the fee paid to IGI Resources. Further, any of the six grounds based on market value (1989 CP National / IGI Resources Agreement, WWP’s continuation of the CP National Agreement following its purchase of CP National in 1991, the increasing complexity and risk associated with the contract, the increasing Consumer Price Index, new services provided by IGI Resources (hedging program; segmentation of capacity; enhanced gas storage program) , and the Avista fee paid to its marketing affiliate) could also, the Company contends, be independently relied upon by the Commission to approve the fee paid to IGI Resources. Finally, the Company represents that the three areas relating to value of service (cost savings, reliability, and price stability) could each independently justify the fee paid to IGI Resources. Taken together, the Company contends that the evidence appears to be conclusive.
Notwithstanding its offer of proof, the Company contends that the Commission Staff in this case arbitrarily proposes that the management fee be reduced on a going forward basis to $.0025. The Company contends that Staff’s position appears to be trying to retroactively apply a new rate to a period to which the work has already been performed.
Regarding the Notice provided in this case, the Company states that in addition to mailing individual notices of the rate change to customers, articles appeared in Boise, Pocatello, Idaho Falls, Twin Falls, Montpelier and Kuna newspapers. Additionally, the Company states that television and radio coverage occurred throughout its service territory. In reviewing the letters filed by its customers, the Company notes that some of its customers appear to misunderstand the nature of this case. This is a tracker case, the Company contends, not a general rate case.
COMMISSION FINDINGS
The Commission has now reviewed and fully considered the filings of record in Case No. INT-G-99-1 including the comments filed by Commission Staff, the Company’s customers and the reply comments of Intermountain Gas. We continue to find that the public interest regarding the requested change in rates does not require a public hearing to consider the issues presented and that it is reasonable to process the Application and issue an Order without further notice or public comment. Reference IDAPA 31.01.01.204.
We address Staff recommendations and proposed adjustments in this case as follows:
Gas Research Institute—Voluntary Contribution
The Commission finds that it is reasonable for IGC to leverage its investment in research and development (R&D) by contributing to cooperative research organizations such as Gas Research Institute (GRI). We have long recognized the value and benefit to gas customers and the industry of GRI’s R&D programs and continue to support the Company’s involvement in GRI. We recognize that as a consequence of transitioning to a more competitive industry, the nature of GRI funding is transitioning from mandatory FERC approved surcharges to voluntary contributions. We find the Company’s proposed level of investment to be reasonable. We expect that the Company in managing its customers’ dollars will choose to invest wisely in R&D programs that will provide timely benefits to it and its customers. We find no reason to require that the Company submit the R&D program selected by it for Commission approval.
Williams Settlement—$72,671 Adjustment and Credit
The Commission finds Staff’s proposed inclusion of the additional $72,671 FERC Docket RP-96-367 related credit in this tracker adjustment to be reasonable. The credit amount is known and measurable and should be factored as an offset into what is otherwise a sizeable PGA increase. Therefore, we reject the Company’s proposal to defer allocation of this credit until next year’s tracker.
Interest Adjustment ($15,885)
The Commission finds Staff’s proposed interest adjustment to be reasonable. The Company contends that the over-refund (also FERC Docket RP-96-367) was a result of a miscalculation and that its customers have benefited from receipt of those monies. The Commission believes that this miscalculation was a result in part from the Company’s contracting practice and relationship with IGI Resources, its affiliate. We encourage the Company to take appropriate steps to ensure that such confusion at the FERC level does not occur in the future.
Management Fees—IGI Resources
Staff challenges the reasonableness of the .005 MMBTU administrative fee paid by IGC to IGI Resources, Inc., rejects the nature of proof offered by IGC (e.g., CP National contract ending 1996; identified savings) and discounts the fee based on a comparison of relative risk in a similar Commission approved service contract between Avista Utilities and Avista Energy. Staff requests auditable documentation reflecting the cost to provide the service and/or a market evaluation showing verifiable current and independent market rates for the fee. Staff contends that the Company has not shown that the identified savings would not have been achieved by another marketer or in-house if Intermountain Gas had maintained their ability to do their own gas-related activities. The Company responds that it has no reason to believe that any other marketer could have achieved the same level of cost savings, reliability, and price stability that Resources has achieved.
The Commission finds that the developed record in this case provides no supportable basis for adjusting the administrative fee. The representations of the Company, while admittedly self-serving, have not been successfully rebutted. The IGC / IGI and Avista Utilities / Avista Energy contracts, we find are similar, but not equivalent. While Staff has made a best effort estimate in this case to distinguish and compare the nature of services provided under each contract, we find that an adjustment cannot be made without further information. The Commission recognizes that Intermountain Gas has historically served its gas customers well. The gas industry, however, is continuing to transition to a more competitive market. IGI Resources is no longer the sole marketer operating in IGC’s service area. We caution the Company that it should not become complacent with its existing relationship with IGI. We direct the Company to develop a means of better verifying for itself and the Commission the cost savings that it attributes to its relationship with IGI Resources. The Company is also encouraged to periodically test the waters to determine whether other marketers have the ability to provide similar or better services at a competitive price. The Company’s gas customers who remain captive and without choice are owed no less a duty of vigilance. In closing we remind the Company of the assurances that it gave to the Legislature in this most recent session regarding the Commission’s access to affiliate records and our ability to deny affiliate expense.
Recognizing the changes that continue to occur in the industry, we direct Staff to conduct a study and report back to the Commission with its recommendations as to the continued reasonableness of the Company’s PGA tracker.
The Commission has reviewed and considered the Company’s Application in Case No. INT-G-99-1 together with the attached exhibits and workpapers. The Company in this case has requested a $9,637,020 increase in its annualized revenues. Based on our review and analysis, we find it appropriate, just and reasonable to approve the requested increase with the aforementioned adjustments for an authorized adjusted annual increase in revenue of $9,548,135 or 8.38%. We further find it reasonable that the change in rates and charges be implemented for an effective date of August 1, 1999. The Company is directed to file compliance tariffs conforming with this Order. Our approval includes the permanent adjustments, the temporary gas cost adjustments, surcharges and credits, and a balancing out of the Company’s deferred PGA Account 186. We further agree that the changes should be tracked through to the customers as proposed in the Company’s Application.
CONCLUSION OF LAW
The Idaho Public Utilities Commission has jurisdiction over this matter and Intermountain Gas Company, a gas utility, pursuant to the authority and power granted under Title 61 of the Idaho Code and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described and qualified above, IT IS HEREBY ORDERED and Intermountain Gas Company is hereby authorized to change its rate and charges for RS-1, RS-2, GS-1 and LV-1/T-1/T-2 customers in the manner reflected in the Company’s amended tariff sheets heretofore filed, with adjustments as described above for an effective date of implementation of August 1, 1999. The amended tariff sheets to be filed by the Company should comport with an authorized adjusted annual revenue requirement increase of $9,548,135 or 8.38%.
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. 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 _______ day of July 1999.
DENNIS S. HANSEN, PRESIDENT
MARSHA H. SMITH, COMMISSIONER
PAUL KJELLANDER, COMMISSIONER
ATTEST:
Myrna J. Walters
Commission Secretary
vld/O:INT-G-99-1_sw3
ORDER NO. 28109 1
Office of the Secretary
Service Date
July 30, 1999