20180522Comments - Intermountain Gas.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
Street Address for Express Mail:
4]2 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attomey for the Staff of the
Idaho Public Utilities Commission
IN THE MATTER OF THE INVESTIGATION
INTO THE IMPACT OF FEDERAL TAX CODE
REVISIONS ON UTILITY COSTS AND
RATEMAKING
RECEIVED
20lB HAY 22 AH l0: rr2
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
CASE NO. GNR.U.18-01
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COMMENTS OF THE
COMMISSION STAFF IN
SUPPORT OF SETTLEMENT
STIPULATION RE:
INTERMOUNTAIN GAS
COMPANY
The Staff of the Idaho Public Utilities Commission comments as follows on the
Stipulation and Settlement ("Settlement Stipulation") and Motion to Approve Settlement
Stipulation and Request for Modified Procedure relating to Intermountain Gas Company
("Intermountain" or the "Company").
BACKGROUND
On December 22,2017, the President signed into law the Tax Cuts and Jobs Act of 2017
("TCJA"). Effective January 1,2018, the TCJA decreased the federal corporate tax rate from 35
percent to 2l percent. In response, the Commission opened this multi-utility case to investigate
whether to adjust the rates of certain utilities that benefit from the reduced tax rate. See Order
No. 33965. The Commission directed all affected utilities-including the Company-to
ISTAFF COMMENTS MAY 22,2018
immediately account for the tax benefits as a regulatory liability, and to report on how the tax
changes affected them, and how resulting benefits could be passed on to customers. See id.
at l-2.
The Company filed its report on March 23,2018. In its report, the Company proposed
using the 2016 test year from its last rate case (NT-G-16-02) to calculate the benefits from the
TCJA. Using a2016 test year would have resulted in a $4,966,895 rate decrease.
A settlement conference was held at the Commission offices on May 7,2018.
Representatives of Intermountain, Alliance of Western Energy Consumers, and Commission
Staff (collectively, the "Parties") attended this meeting. Through discussions and compromise,
the Parties agreed to the proposed Settlement Stipulation.
On May 10, 2018, Intermountain filed Settlement Stipulation, which was signed by all
Parties. The Settlement Stipulation, if approved, would result in the Company returning to
customers, S5,111,303 of tax benefits the Company has realized under the TCJA, ona2017
normalized basis. Furthermore, the deferred liability on the Company's books would be credited
back to customers as part of the Company's next Purchased Gas Cost Adjustment ("PGA").
STAFF REVIEW
After thoroughly reviewing the Settlement Stipulation, Staff supports its resolution of the
TCJA's impact on the Company. Staff believes the Settlement Stipulation is in the public
interest and is afair,just, and reasonable compromise that provides customers 100% of the
benef,rts the Company receives under the TCJA and Idaho state tax rate changes. The Settlement
Stipulation is discussed further below.
Summarv of Stipulated Tax Benefit
The Settlement Stipulation proposes returning the entire benefit amount of $5,1 I 1,303 to
customers as a uniform percentage decrease to each customer class based on the base revenue set
in the Company's last rate case. See Order No. 33879 (Case No. INT-G-16-02). This rate
reduction will be a credit to the volumetric rates. The monthly service charge will remain
unchanged. See Settlement Stipulation Attachment 1, page l. The amount consists of the
components described below and illustrated in Table 1.
2STAFF COMMENTS MAY 22,2018
Table l: Summary of Tax benefits
I Income Tax Benefit
2 Deferred Income Tax - Plant
3 Deferred Income Tax - Non Plant
4 Amortization of Investment Tax Credits
5 Total Benefit
6 Revenue Conversion Factor
7 Total Benefit Returned to Customers
Revenue Requirement
$ 2,750,730
$ t ,189,021
$ (154,543)
$ (47,482)
$3,737,726
t_36749
s 5,111,303
Permanent (or Long-Term) Tax Benefits
The Parties agree that Intermountain will reduce its base rates by $5.1 million to account
for the benefits received from the TCJA. The long-term benefits consist of the following
components:
(1) Income Tax Benefit: The TCJA's primary provision reduced the federal corporate tax
rate from 35Yo to 2lYo. After the TCJA passed, the Governor of Idaho signed House
Bill 463 reducing the Idaho State Corporate Income Tax rate to 6.925% (previously
7.4%). Reducing the state and federal income tax rates decreases the Company's
income tax expense by $2.75 million based on2017 financial information.
(2) Deferred Income Tax Benefit - Plant: As of December 20, 2017, deferred tax
amounts had to be revalued at the lower corporate tax rate, resulting in Excess
Deferred Income Tax ("EDIT") balances. Balances associated with regulatory utility
operations result in a balance sheet reclassification from defened tax to deferred
regulatory asset or liability. The revaluation effected both plant and non-plant
balances. For plant-related EDIT, the Company must amortize the balance over the
remaining life of the associated assets in accordance with the Intemal Revenue
Service's ("IRS") Average Rate Assumption Method ("ARAM"), in order to comply
with the IRS's normalization rules. As shown in the Table, the annual permanent
benefit from the plant excess deferred amortization is about $1.2 million.
(3) Deferred Income Tax Benefit - Non Plant: Balances associated with non-plant EDIT
are not required to be amortized over the remaining life of the associated assets. For
JSTAFF COMMENTS MAY 22,20t8
Intermountain, the non-plant EDIT results in a regulatory asset to be collected from
customers. The Settlement Stipulation provides that the non-plant EDIT will be
amortized over a ten-year period, resulting in an annual surcharge to customers of
$ I 54,543.
(4) Amortization of ITC: Because of the TCJA, the Company updated its estimated
amortization of Investment Tax Credits ("ITCs"). The amortizationof the ITC
amounts is also not required to be amortized using ARAM. The Parties agree the
Company will amortize these amounts over ten years, resulting in an annual
surcharge of $47,482.
(5) Revenue Conversion Factor: The Revenue Conversion Factor increases the gross
amount of payments to account for taxes, uncollectables, and other revenue sensitive
adjustments. The total of the above four items must be multiplied by the Revenue
Conversion Factor to fully account for all the tax benefits of the TCJA. After
accounting for tax changes, the Revenue Conversion Factor decreased from the
1.67055 approved in Case No. INT-G-16-02 to 1.36749, which results in a total of
$5,1 1 1,303 in benefits to customers.
January 1 - May 31,201i Delerred Liabilitv
Per Commission Order No. 33965, the Company began to "immediately account for the
financial benefits from the January 1, 2018 tax rate reduction to 2lo/o," by treating the benefits as
a deferred regulatory liability. The monthly deferral is being recorded by the Company and will
include the tax benefit of reducing current and deferred income tax expense to 27o/o, as well as
the monthly amortization of the excess plant ADFIT from January 1,2018 - May 31,2018. The
Parties agree the Company will return this liability to customers over l2 months in the
Company's next PGA filing, to be effective October 1,2018.
STAFF RECOMMENDATIONS
Staff believes the Settlement Stipulation is just, fair, and reasonable, and in the public
interest. The Settlement Stipulation reasonably resolves this matter as it pertains to
Intermountain Gas, while returning all benefits from the TCJA to customers. Staff thus
recommends the Commission approve the Settlement Stipulation.
4STAFF COMMENTS MAY 22,2018
Respectfully submitted this LZ ^d day of May 2018.
/C/ 4,L
Karl T. Klein
Deputy Attomey General
Technical Staff: Joe Terry
Johan Kalala-Kasanda
Donn English
Umisc/comments/gnrul 8. lkkjtjk stip comments Intermountain Gas
5STAFF COMMENTS MAY 22,2018
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 22ND DAY OF MAY 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. GNR-U-18-01, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
MICHAEL P MoGRATH
DIR _ REGULATORY AFFAIRS
INTERMOLINTAIN GAS CO
PO BOX 7608
BOISE ID 83707
E-MAIL: [e-mail]
JONATHAN J. CAVANAGH
8609 CABLE HUSTON LLP
IOOl SW FIFTH AVE., SUITE 2OOO
PORTLAND, OR 9]204-1136
E-mail: j cavanash@.cablehuston.com
PRESTON N. CARTER
GIVENS PURSLEY LLP
60I W. BANNOCK ST.
BOISE,ID 83702
E-mail : prestoncarter@, givenspursley. com
,L/,A-r-ffi
CERTIFICATE OF SERVICE