20170215Finklea Rebuttal with Exhibit 319.pdf

BEFORE THE PUBLIC UTILMY COMIIdISSION
OF IDAHO
RECE IVED
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IN TIIE MATTER OT TIIE
APPTTCATION OF INTERMOI]NTAIN
GAS COMPAI\TY FOR TIM
AUTIIORITY TO CIIANGE ITS RATES
AND CHARGES T'OR NATURAL GAS
SERVICE TO NATTJRAL GAS
CUSTOMERS IN TIIE STATE OF
IDAHO
Case No. INT-G-16-02
REBUTTAL TESTIMOIIW OT'EDWARD A. FIhIKI,EA
ON BEHALT'OF NORTHWEST INDUSTRIAL GAS USERS
February 14,2017
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PLEASE STATE YOTIR NAME AND YOUR EMPLOYER.
My name is Edward A. Finklea, and I am an attorney serving as the Executive Director
of the Northwest Industrial Gas Users (NWIGU").
PLEASE SUMMARIZE YOUR EDUCATIONAL BACKGROUND AND
EXPERIENCE.
My resume is attached as Exhibit 319 to this testimony.
ON WHOSE BEHALF ARE YOU APPEARING IN THIS PROCEEDING?
I am appearing on behalf of NWIGU. NWIGU member companies purchase sales and
transportation service from local distribution companies ("LDCs") in Idaho, Washington
and Oregon, including Intermountain Gas Company ("IGC" or the "Company").
WHAT IS THE PTJRPOSE OF YOT]R TESTIMONY?
The purpose of my rebuttal testimony is to respond to the Direct Testimony of Idaho
Public Utilities Commission Staff witness Michael Morrison. In particular, I will respond
to Mr. Morrison's position that all rate classes of customers should receive a rate increase
despite the results shown in the company's cost of service study.
DID YOU FILE DIRECT TESTIMONY?
No.
WHAT IS MR. MORRISON'S PROPSAL FOR SPREADING ANY RATE
INCREASE GRATNED IN THIS PROCEEDING?
Mr. Morrison is recommending that any revenue deficiency found to exist be spread to all
customers on an equal percentage of the margin being collected from each rate class. For
natural gas LDCs the margin is the difference between the delivery rate and the
FINKLEA (Di-Reb)
Northwest Industrial Gas Users
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commodity cost of the gas. For transportation customers, who are only purchasing cross-
town delivery service from the LDC, the "margin" is the entire rate.
a. WHAT REVENUE ALLOCATTON DO YOU RECOMMEND?
I support the revenue allocation recommended by the Company, with decreases going to
Industrial Schedule LV-l and Firm Transportation Rate T-4, and the entire increase going
to other schedules. I support that allocation because it is consistent with the result of
Intermountain's cost of service study and is fully supported by the analysis of Mr.
Gorman regarding cost of service.
WHY DO YOU DISAGREE WITH MR. MORRISON'S PROPOSED REVEI\UE
ALLOCATION?
There are three primary reasons I disagree. First, there is no competing cost of service
analysis that supports any other rate spread. While Mr. Morison has criticisms of the
company's cost of service study, no alternative has been proposed for consideration by
the Commission. Second, this case is unique in that it has been over 30 years since
Intermountain had a rate case, so to ignore the results of the cost study and simply kick
the issue to the next rate case offers no resolution of what has been, by the Company's
own analysis, a misallocation of costs for many, many years. Essentially,
Intermountain's industrial rates have been too high for a very long time and Mr.
Morrison's recommendation is to simply make that situation worse by allocating an
unjustifiable rate increase to these customers. Third, ignoring the results of the cost of
service study sends all the wrong price signals to customers regarding the value of firm
FINKLEA (Di-Reb)
Northwest Industrial Gas Users
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delivery service from Intermountain and how costs are incurred to provide that firm
service on a peak day.
WHY SHOULD THE COMMISSION ACCEPT THE RESULTS OF THE
COMPAIVY'S COST OF SERVICE STUDY?
The Commission should accept the results because two very experienced analysts, Ms.
Blattner and Mr. Gorman, have carefully studied how Intermountain's cost are incurred
and both reached independent conclusions that support each other. In addition, the
results are consistent with how I understand costs are incurred when transporting natural
gas. The capacity of the system is designed to meet peak day demand. Since LDCs only
deliver gas, unlike electric utilities that generate, transmit and deliver electricity, we are
only concerned about allocating fairly the delivery costs. If costs are to follow benefits in
the natural gas delivery business, then the customer classes that impose peak day
requirements should pay for those delivery capabilities. Mr. Morrison's criticism of the
company's cost study deflects, but does not rebut, this basic principle of cost causation in
the natural gas distribution industry.
In addition, the results of the cost of service studies do not point to minor misallocations
between the customer classes, but a significant misalignment between cost incurrence and
rates. Thus, the results should not be ignored in this proceeding by allocating all
customer classes a rate increase. Mr. Morrison's recommendation would exacerbate the
existing misallocations.
FINKLEA (Di-Reb)
Northwest Industrial Gas Users
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CAN YOU POINT TO AI\ EXAMPLE TO RATESETTING FOR IDAHO
NATURAL GAS CUSTOMERS THAT RECOGNIZES THE PEAK CAPACITY
NATURE OF COST INCT]RRANCE IN THE DELIVERY OF NATURAL GAS?
Not directly on cross town delivery, but the interstate transportation of gas by
Intermountain's supplying pipeline recognizes this approach. Northwest Pipeline serves
Intermountain and that pipeline's rates are set by the Federal Energy Regulatory
Commission ("FERC"). FERC uses straight fixed variable rate design to establish
interstate pipeline rates. All fixed costs are allocated to the capacity charge and
Northwest Pipeline assesses those charges based on the customer's contract demand.
Thus, all fixed costs of the interstate pipeline system are collected through demand
charges that are based on contract demand. During peak period events no shipper can
exceed their contract demand, and peak usage sets the level of the charges. Those
charges are paid every month regardless of actualusage. FERC's method of setting rates
has been in place since the 1990s and has effectively allocated pipeline capacity in
accordance with customers' demands they place on the pipeline system. Intermountain's
cost of service study in essence follows the FERC method of assigning costs and
assessing charges.
WHY DO YOU CONSIDER THIS CASE UNIQUB?
This case is unique because it has been since 1985 that the Company had a general rate
case. This adds a sense of urgency to addressing the misallocation that currently exists.
The rates established in 1985 can be assumed to have reflected cost of service among the
customers classes as they existed at that time. However, much has changed in the
ensuing 32 years. For example, Intermountain only provided bundled sales service in
1985 and the interstate pipeline only provided bundled sales service as well. The
FINKLEA (Di-Reb)
Northwest Industrial Gas Users
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transportation rates Intermountain has charged since the advent of transportation service
in the late 1980s reflect the margins on the industrial sales schedules from 32 years ago.
Since that time, facilities that served customers at the time have significantly depreciated.
Similarly, new services have been brought to many customers. The service territory of
Intermountain also looks very differentthan it did in 1985. Thus, it is very importantto
review the results of a current cost of service study before setting new rates.
From the perspective of many of NWIGU's members who have been long time
customers of Intermountain, the results of the cost of service study imply that for many
years they have paid rates in excess of cost of service, and they have therefore been
subsidizing residential and commercial service, perhaps for decades. This raises a
question of fundamental fairness for industrial customers if the rate disparities are then
ignored in this case and instead become exacerbated by the revenue allocation
recommended by Mr. Morrison.
NWIGU sponsored the work of Mr. Gorman to determine if Intermountain 's cost study
was accurate. Mr. Gorman's careful analysis confirms that Intermountain has performed
a cost study consistent with cost causation principles well recognized in the natural gas in
industry. Based on this record, after going decades without rate adjustments, I find Mr.
Morrison's recommendation to be insufficient to warrant a departure from the
Company's filed proposal and it provides no sound basis for assessing a rate increase to
Intermoutain's industrial schedules.
FINKLEA (Di-Reb)
Northwest Industrial Gas Users
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ARE INACCURATE PRICE SIGNALS SENT TO INTERMOUNTAIN'S
CUSTOMERS IF INDUSTRIAL RATES ARE INCREASED DESPITE THE
CROSS-SUBSIDIES SHOWN BY THE COMPANY'S COST STUDY?
Yes. Inaccurate price signals are being sent under Intermountain's current rates and the
inaccuracies will be exacerbated if Mr. Morrison's recommendations are adopted by the
Commission. Setting natural gas delivery rates consistent with cost causation principles
is an important objective of ratemaking if the Company and the Commission want
customers to have accurate price signals to enable customers to make efficient
consumption decisions in purchasing gas distribution capacity, If the industrial class
pays too much for distribution service, it impedes economic development by creating
price signals for customers to seek alternatives to natural gas service when the
alternatives may not be competitive on a strict cost of service basis. Loss of these
inflated margin customers would cause earnings and credit impairment to the utility
because the lost revenue would exceed cost avoidance or revenue that could be gained by
serving another customer in a different rate class that is paying a subsidized rate.
Conversely, for customers that pay too little for gas delivery services, the price signal
may incent an increased demand, which would result in the utility collecting too little
incremental revenue compared to the incremental cost for serving those customers.
Similarly, if residential and commercial distribution service is underpriced, that gives the
wrong price signal to those consumers. Under-pricing residential and commercial service
undercuts efforts to implement demand side management programs targeted at reducing
consumption during peak periods. Residential conservation programs, for example, are
undercut if the gas delivery service is underpriced during peak usage periods as
FINKLEA (Di-Reb)
Northwest Industrial Gas Users
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customers may chose to take the subsidized service over investing in conservation
measures that would decrease their consumption.
Properly pricing distribution service is very important in this environment where natural
gas commodity prices are low. Delivery charges collected by Intermountain today are a
much higher percentage of the burner tip price of natural gas than ten years ago when
commodity prices were so high. Unregulated commodity markets give consumers the
proper price signals regarding the commodity price of gas, but those price signals can be
undercut ifthe delivery charges do not reflect cost ofservice.
WHAT RESULT ARE YOU RECOMMENDING THE COMMISSON ADOPT?
The Commission should approve the rate reductions requested by Intermountain for
Industrial Schedules LV-l and Firm Transportation Rate T-4. Since the size of the
overall rate increase in this proceeding should be smaller than what was requested by
Intermountain, the size of the increase for residential and commercial customers should
be reduced by the entire decrease in the overall rate increase. That way residential and
commercial customers see a smaller increase than was requested by the company. The
realignment of rates requested by Intermountain will be accomplished without as high an
increase for residential and commercial customers as was initially requested. This
adjustment eases the impact of the reallocation on residential and commercial customers.
So NWIGU agrees that if Intermountain gets a smaller overall rate increase than the one
it filed for, the size of the industrial rate decreases should be no more than what
Intermountain requested.
FINKLEA (Di-Reb)
Northwest Industrial Gas Users
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NWIGU supports Staff witness Mr. Morrison's suggestion that all parties embark on a
collaborative process to refine the cost of service study and make further adjustments in a
future Intermountain rate case. Adjustments could be made in a future case without
causing any customer class to experience too great an increase. lf instead an increase that
is not justified by Intermountain's cost of service study is allocated to industrial
customers anyway in this case, to correct the misallocation in the future would take a
greater increase for residential and commercial customers. NWIGU's recommendation is
a responsible outcome and recognizes that adjustments to the cost of service study may
be necessary in the future.
Q. DOES THrS CONCLDTIE YOrIR TESTIMONY?
A. Yes.
FINKLEA (Di-Reb)
Northwest Industrial Gas Users
8
Chad M. Stokes (OSB No. 004007)
Tommy A. Brooks (OSB No. 076071)
Cable Huston LLP
l00l SW Fifth Ave., Suite 2000
Portland, OR 97204-1136
Telephone: [phone]
Facsimile: [phone]
cstokes@cablehuston. com
tbrooks("0cablehu ston.com
Michael C. Creamer (ISB No.4030)
Givens Pursley LLP
601 W. Bannock St.
Boise, lD 83702
Telephone: [phone]
Facsimile: (208) -388-1300
m cc(rl s i v g n sp_Ursle v. c0m
Attorneys for Northwest Industrial Gas Users
BEFORE THE PUBLIC UTILITY COMMISSION OF IDAHO
IN THE MATTER OF THE
APPLICATION OF INTERMOUNTAIN
GAS COMPAI\TY FOR THE
AUTHORITY TO CHANGE ITS RATES
AND CHARGES FOR NATI]RAL GAS
SERVICE TO NATURAL GAS
CUSTOMERS IN THE STATE OF
IDAHO
Case No. INT-G-16-02
EXHIBIT NO.3I9
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EdvvadA Finklea
545 Grandview Drive
Ashland, OR 97520
541-708-6338 ofc
503-413-0156 cell
E-mail: [e-mail]
Primary
Professional
Experience
Employment
History
Lead counsel for the Northwest lndustrial Gas Users
("NWIGU') from 1986 until 2008 in all regulatory
interventions concerning Williams Gas Pipeline West and
TransCanada Gas Transmission Northwest, and before state
regulatory commissions concerning regulation of the five
regional natural gas local distribution companies ("LDCs").
Represented NWIGU before the Federal Energy Regulatory
Commission in interstate pipeline rate and certiflcate
proceedings, before the Oregon Public Utility Commission in
natural gas rate and other regulatory proceedings, before the
Washington Utilities and Transportation Commission in
natural gas rate, safety and other regulatory proceedings and
in proceedings before the ldaho Public Utility Commission..
Executive Director for the Northwest lndustrial Gas Users,
August 2012 to present
Adjunct Professor at Northwestern School of Law, Lewis and
Clark College "Law and Economics" Current
Senior Counsel, NiSource Corporate Services lnc.
Regulatory counsel to interstate pipeline, representing
company before Federal Energy Regulatory Commission
and advising company on federal regulatory compliance and
business transactions. November, 2009 to November,2011
Executive Director, Energy Action Northwest, Organization
advocated for siting and permitting of interstate pipelines,
liquefied natural gas terminals, and high voltage
transmission projects in Oregon and Washington.
Represented organization before state legislature and in
media relations. July, 2008 to October, 2009
ExhibitNo.319
Case No. INT-G-16-02
E. Finklea, NWIGU
Page I of4
Summary of
Professional
Engagements
Partner, Cable Huston Benedict Haagensen & Lloyd. Private
law practice specializing in energy law. 2004 - July 2008.
Managing Partner, Energy Advocates LLP. Founded firm
with offices in Portland, Oregon and Washington D.C. 1997-
2003
Partner, Ball Janik LLP. 1994-1997
Partner, Heller Ehrman White & McAuliffe. 1990-1994
Partner, Tonkin Torp Galen Marmaduke & Booth. 1986-1990
Associate, Garvey Schubert. 1 986-1 988
Assistant General Counsel to Northwest Natural Gas
handling state regulatory matters and providing counsel to
the company on energy projects, including a landfill gas
project. 1984-1986
Counsel to the Bonneville Power Administration litigating
electric rate issues in administrative hearings and defending
BPA before the Ninth Circuit Court of Appeals. 1982-1984
Trial Attorney for the Federal Energy Regulatory
Commission in hydroelectric licensing and co-generation
regulation. 1981-1982
Law Clerk for the Council on Wage and Price Stability,
Executive Office of the President of the United States,
1980-81
Represented Columbia Gulf Transmission in general rate
proceeding before the Federal Energy Regulatory
Commission.
Represented applicants in proceeding before Federal Energy
Regulatory Commission seeking authorization to provide
incentive fuel mechanism and natural gas hub services.
Represented industrial gas consumers in contract
negotiations for the purchase of natural gas commodity and
interstate pipeline services.
Exhibit No. 319
Case No. INT-G-I6-02
E. Finklea, NWIGU
Page 2 of 4
Counsel to a medical center interconnecting a cogeneration
plant with an investor-owned utility and advising client on
long-term gas purchasing arrangement for electric
generation.
Represented numerous clients to secure direct connections
to interstate pipelines, addressing all regulatory issues
involving certification of connecting facilities and operations
of private pipelines.
Represented liquefied natural gas developer in governmental
relations associated with securing federal and local permits
for development of an energy project.
Represented customers in negotiating special contracts for
purchasing natural gas distribution services from local
utilities,
Represented public port authority in a pipeline siting issue.
Represented Eugene Water and Electric Board in select
issues concerni ng Bonnevi I le Power Ad m inistration.
Represented irrigation farmers in electric rate dispute
involving FERC-licensed hydroelectric project before the
Oregon Public Utility Commission.
Represented clients in trial court and appellate litigation on
energy-related issues.
Represented industrial customer in anti-trust litigation and
FERC refund proceedings stemming tor 2000-2001 Western
Energy Crisis.
Represented induskial electric customers in the restructuring
of electric utilities in Oregon.
Represented an oil company shipper on an intrastate oil
pipeline in rate proceeding before the Washington Utilities
and Transportation Commission.
ExhibitNo.3l9
Case No. INT-G-16-02
E. Finklea, NWIGU
Page 3 of4
Education
Prcfessional
Memberchips
lndividual clients while in private practice in addition to
NWIGU included Alcoa, Armstrong World lndustries, Blue
Heron Paper, Boeing, ESCO, James River Paper (now
Georgia Pacific) JR Simplot, Legacy Health Systems,
MicroChip Technology, NorthernStar Natural Gas, Texaco
Gas Marketing, Valley Medical Center, WaferTech, Wah
Chang, West Linn Paper, and Weyerhaeuser.
BA in Political Science from the University of Minnesota
1974
J.D. Northwestern School of Law, Lewis and Clark College
1980
Admitted to practice law in the States of Oregon and Texas
and before several Federal district and appellate courts.
Adjunct Professor at Northwestern School of Law, Lewis and
Clark College "Northwest Energy Law". 1984 to 2005
Past Chairman of "Energy, Telecom and Utilities" section of the
Oregon State Bar.
Member of the Federal Energy Bar Association.
Lecturer: Buying and Selling Electric Power in the West, Law
Seminars lnternational Conference. Presentations on natural gas
industry. 2004 to 2009,
Exhibit No. 319
Case No. INT-G-I6-02
E. Finklea, NWIGU
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