19990625.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
MYRNA WALTERS
DON HOWELL
STEPHANIE MILLER
TONYA CLARK
RON LAW
MADONNA FAUNCE
DAVID SCOTT
WORKING FILE

FROM:

DATE: June 25, 1999

RE: CASE NO. INT-G-99-1 (Intermountain Gas)
ANNUAL GAS TRACKER

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 Companys weighted average cost of gas (WACOG), the benefits generated from the Companys segmentation of its firm capacity rights on WGP-Ws system, the inclusion of temporary surcharges and credits relating to gas and transportation related costs from the Companys 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 IGCs 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 IGCs 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 IGCs proposed T-1 tariff have been adjusted to include WGP-Ws 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-Ws firm transportation TF-1 commodity charge.
Intermountain Gas requests that its Application be processed under Modified Procedure, i.e., by written submission rather that by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. The Company has requested an effective date of July 1, 1999.
Commission Notices of Application and Modified Procedure in Case No. INTG991 issued on June 4, 1999. The deadline for filing written comments was June 24. Comments were filed by the Commission Staff and three of the Company’s residential customers (attached).
Customer Comments
Two of the Company’s customers protest the proposed increase. 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 the other 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?” A hearing is requested.
The third 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 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, Mike Huntington, 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 what was 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 two 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. 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 tracker. Also reference FERC Docket No. RP 96-367.
The remaining Staff adjustments are related to the management fee paid by IGC to its affiliate IGI Resources, Inc., permanent adjustment ($552,763) and temporary surcharge or credit adjustment ($617,090). Staff contends that the management or administrative fee paid to IGI Resources is unreasonable, that transactions between IGC and Resources are not at arms length and that IGC cannot simply rely on the fact that expenditures were incurred but has the affirmative burden of proving the reasonableness of its affiliated transactions. (Cited authority omitted). In an attempt to assess whether the administrative fee paid to Resources is market-based, Staff compares the nature of services provided by Resources with the services provided to Avista Utilities by its unregulated affiliate, Avista Energy. Although the fee is the same ($.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 Washington Water Power (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 Resources to IGC and appears to prove that 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. 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 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 Resources has no risk for the cost while Avista Energy does.

Although the Commission, Staff contends, could disallow all payments to Resources for administrative services because the Company has not met its burden of proof, 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 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 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.

Commission Decision
The Company in its Application has requested a July 1 effective date. A hearing and/or extension of the comment period has been requested in comments filed by the Company’s customers. Should the proposed effective date be suspended? Should a public hearing or further comment period be established?
If the Commission determines that suspension is inappropriate, should the Company’s Application be approved? As filed or with Staff proposed adjustments? What is the Commission’s preference? The Company has indicated that it intends to file a written response with the Commission.

vld/M:INT-G-99-1_sw3

DECISION MEMORANDUM 1