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HomeMy WebLinkAbout20180502Comments.pdfJonathan J. Cavanagh, ISB No. 8609 Chad M. Stokes, OSB No. 004007 Cable Huston LLP l00l SW Fifth Ave., Suite 2000 Portland, OR 97204-1 1 36 Telephone: (503) 224-3092 Facsimile: (503) 224-317 6 jcavanagh@cablehuston. com cstokes@cab lehr.rston. com Attorneys for the Alliance of Western Energy Consumers BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MATTER OF THE APPLICATION OF INTERMOUNTAIN GAS COMPAIYY F'OR AUTHORITY TO IMPLEMENT AIY INF'RASTRUCTURE INTEGRITY MANAGEMENT MECHANISM rIEC E IVE D Iill8 F|l.Y -2 At{ 9: 0S rf ,! t '!!. r:! Iill tAll' ,i'l "-i I LJt'iLlLri i lr. i i t:l:: il:Cir{MlSSlON CASE NO. INT.G-I7.07 COMMENTS OF THE ALLIANCE OX'WESTERN ENERGY CONSUMERS ) ) ) ) ) ) ) I. INTRODUCTION COMES NOW intervenor, the Alliance of Western Energy Consumers ("AWEC") (formerly the Northwest Industrial Gas Users), by and through the above counsel and, hereby submits these comments in response to the Application for Authority to Implement an Infrastructure Integrity Management Mechanism (the "Application") filed by Intermountain Gas Company ("Intermountain" or "Company") on December 18, 2017. The Application contains a request to develop a new ratemaking mechanism which Intermountain referrers to as an Infrastructure Integrity Management Mechanism (the "Proposed Mechanism"). COMMENTS OF AWEC - 1 These comments are in response to the Idaho Public Utilities Commission's ("Commission") Order 34008, giving notice of the Application, and indicating that this matter will proceed under Modified Procedure, authorizing interested persons to file written comments in support or opposition, and providing rights of participation by filing a Petition to Intervene. AWEC's Petition to Intervene was granted February 5, 2018 by Order No. 33981. II. COMMENTS AWEC appreciates this opportunity to provide comments on the Proposed Mechanism. In summary, AWEC recommends that the Commission reject the Application of Intermountain in this case. Intermountain has the obligation to provide safe and reliable service, and its prudently incurred costs are properly recovered through traditional ratemaking processes. Intermountain seeks to depart from the traditional form of cost recovery and is asking to implement a disfavored form of single-issue ratemaking, which results in an upside only to Intermountain to the detriment of its customers. Further, Intermountain has not justified the Proposed Mechanism and has failed to identify any reason why traditional ratemaking is not sufficient to recover the expenditures associated with its capital investment program. Intermountain's next general rate case is the proper place to address the issues associated with the plant retirements and replacements described in Intermountain's Application. In a general rate case, a holistic review of Intermountain's costs, revenues, and rate base can take place, and it is that process that can best determine whether overall rates are just, reasonable and in the public interest. Single-issue ratemaking occurs when utility rates are adjusted in response to a change in cost or revenue items considered in isolation. By considering an operating expense or rate base COMMENTS OF AWEC .2 item in isolation, single-issue ratemaking ignores other factors that otherwise influence the utility's operating results, some of which could, if properly considered, move revenue requirements in the opposite direction from the single-issue change. Single issue ratemaking in general is beneficial to shareholders and harmful to customers. When a utility regulatory commission determines the appropriateness of a cost that a utility seeks to recover from its customers, the standard practice is to review and consider all relevant factors as part ofa general rate case, rather thanjust certain factors in isolation. Considering some costs or revenues in isolation might cause a commission to allow a utility to increase rates or defer costs in the area singled-out without recognizing counterbalancing savings in another areas. It might also cause a commission to approve a level of rate base that exceeds the actual level of rate base used and useful to provide services to ratepayers. Because single- issue ratemaking focuses on specific costs in isolation, the Commission should view such proposals with great caution. When faced with a cost recovery mechanism like the one presented in the Application, it is important to bear in mind that utility ratemaking is not an exercise in expense reimbursement. The opportunity for utility cost recovery is established in the rates approved by the Commission. In practice, costs and revenues are almost certain to differ from what was projected at the time rates were set. The simple fact that a utility incurs a cost that differs from what was anticipated when rates were set does not create an obligation on the part of the regulator to establish a mechanism for reimbursement. By law, the Commission is only authorized to change rates upon a determination that existing rates do not meet the requirements in ldaho Code $ 6l-502, i.e. if they are not just, reasonable, non-discriminatory, and insufficient. Further, rates must be based upon a level of rate base that is found to be used and useful under ldaho Code $ 6l-502A. COMMENTS OF AWEC - 3 There are limited situations, such as a change in federal tax ratesl or significant changes in fuelcosts,2 in which singling out certain items for immediate rate recovery, tracker-increases, or deferred recovery is appropriate. As a general matter, however, such cases involve costs which are beyond the control of the utility and are not appropriate for routine investments such as those for safety improvements. For the propose of considering whether Intermountain's overall rates meet the ratemaking requirements of the Idaho Code, it is more appropriate to consider such investments - like those Intermountain mentioned in its Application - in a general rate case rather than through a tracker mechanism. To be clear, AWEC's position is not that Intermountain cannot recover prudently incurred safety costs. Rather, the question raised in this docket is ohhen" such cost recovery of prudently incurred safety costs are appropriate (either through trackers or in a rate proceeding). Intermountain has the obligation to operate safely and to make investments to secure and maintain its gas distribution system. A fundamental part of the regulatory compact is that utilities must maintain their systems and be in compliance with state and federals laws, which change from time to time. AWEC supports Intermountain making necessary investments to ensure that its gas distribution network is sound, reliable and 100 percent in compliance with all safety regulations, and agrees that those prudently incurred costs are recoverable. What has not been shown, however, is that Idaho's ratemaking process is in any way impeding Intermountain from making the necessary investments while still earning fair returns on its investments. The rate setting process grants local distribution companies ("LDC") a considerable depreciation expense at the IPUC Case No. U-1500-164, OrderNo.21640, (December, 1987) In the Matter of the Investigation of the Effects of Revisions of the Federol Income Tax Code Upon the Cost of Service of Regulated Utilities. Simplot v. Intermountain Gqs Co,l02ldaho 341, 630P.zd 133 (1981).2 COMMENTS OF AWEC - 4 time new rates are set, and the rate base is also established. LDCs also earn a return on their established rate base, even though the rate base declines with depreciation. That added revenue should provide the funds necessary to make capital investments without harming the utility's earnings, even if revenues are flat. There is no showing in this proceeding that infrastructure investments in the coming years will so exceed the allowed depreciation expense and the financial incentive that comes from having a fixed rate base. Nor has Intermountain presented evidence that regulatory lag is eroding earnings due to enhanced investment in safety related improvements. It is further noteworthy that Intermountain's single issue ratemaking request has to do with the recovery of capital associated with utility plant. In contrast, most instances of single- issue ratemaking approved by the Commission have been related to operating expenses, such as extraordinary power or gas commodity costs. Under Idaho's used and useful statute, special considerations must be taken for plant and the Proposed Mechanism would not allow for those considerations. Intermountain's mechanism conflicts with the used and useful statue because it would result in a return on a level of rate base exceeding the used and useful level. While Intermountain proposes to track additions to rate base, it excludes the corresponding subtractions from rate base that have occurred since the last general rate case. In contrast to capital additions, retirements of existing plant necessary for Intermountain's safety program are not tracked individually in rate base. To account for retirements, the depreciation reserve amount increases in a manner coresponding to the level of retirements expected in a particular period based on the life characteristics of the utility's property. While Intermountain accounts for accumulated depreciation reserves on the new plant additions, the Proposed Mechanism does not COMMENTS OF AWEC . 5 consider the incremental depreciation reserves that have accrued on existing plant in service. By excluding incremental depreciation reseryes on existing plant in service, Intermountain has ignored the revenue requirement effect of retiring existing plant in order to implement its safety program, effectively providing it with a return on property that has been taken out of service. In addition, the proposal for incremental depreciation expenses in the Application would also inflate Intermountan's return o/its investment. The Application does not consider the way that plant retirements have impacted gross plant levels since Intermountain's last general rate case. While an individual plant retirement has no impact on overall rate base, the retired property is removed from, and does impact, gross plant balances. In rate base, the retirement is offset by corresponding reduction to depreciation reserves. In net operating income, however, depreciation expenses are calculated based on gross plant, and the retirement of existing plant results in a corresponding reduction to depreciation expense. Since Intermountain's application does not consider the impact of plant retirements on depreciation expense, approval of the Application would result in Intermountain over-recovering its investment in utility plant. Safety trackers and other similar mechanisms unfairly burden ratepayers and benefit the utility and its shareholders. A simple example illustrates this point. COMMENTS OF AWEC - 6 Table I Base Rate vs. Tracker Recovery Illustration ($000) In this example, base rates are set in year 1 through arate case. The rates are set to recover the utility's net rate base investments. Then we move to the year following the year 1 rate case, and the system safety additions are added in two different ways (Option l-Rate Case) and Option 2 (Tracker). Option 1 continues base rate cost recovery with the safety improvements through arate case filing as shown in the second column from the right. Option I includes the impact of the additions, as well as the offsetting impacts associated with incremental depreciation reserves and retirements. In Option 2, base rates do not change but a tracker filing for new safety investments has been put into place (no rate case), as shown in the last column on the right. COMMENTS OF AWEC - 7 Test Year Additions* Depr. Resrvs. Retrflmts Option I Rate Case Option 2 Tracker (a)(b)(c)(d)(e)=I(aXd) (0=I(aXb) Rate Base Cross Plant ACCDep Net Plant 25,000 (7,500) 1,000 (2s)(625) (500) 500 25,500 (7,650) 26,000 (7,525) 17,500 500 (1,125) 975 (62s)17,850 18,475 500 (1,125) Wofting Capital ADIT Rate Base 500 (t,t2s) 16,875 975 98 25 (62s) (63) fi,n5 12850 Net Oper.Inc. (10%) Inconp Tax Depr. fu. (2.5%) Revenue Req. 1,688 224 625 (13) 1,723 229 638 1,785 237 650 2,537 t23 (63)( l3)2,589 2,659 Relative Increase * Represents Safety Tracker Revenues 2,lo/o 4.80h In Option l, the incremental plant investment is added to rate base and accumulated depreciation reserye and ADIT are reducing rate base. The "net" increase in rate base reflects the rate base additions net of reductions. Rates are set based on net plant changes. In Option 2, base rates are not changed and no rate proceeding is assumed to take place. A tracker charge is imposed for all incremental or new plant investment. Here, the combination of base rate set in the last rate case and the addition of the tracker surcharge results in customers paying more than the "net" change in the utility's plant investment. The reduction in plant caused by increases in accumulated depreciation are not reflected in either base rates or the tracker. The tracker is intended to capture all increases in new safety investments, without any offset. In other words, in Option 2,base rates and the tracker reflect plant additions, but do not reflect plant reductions. In summary, customers pay more through trackers than they would have paid through rate case recovery because all charges are not synchronized to accurately reflect changes in "net" plant. Absent extraordinary circumstances that warrant a safety tracker, this is not fair, just or reasonable. ilt COMMENTS OF AWEC - 8 As described more fully above, AWEC respectfully requests that Intermountain's Application be rejected. The costs associated with Intermountain's Proposed Mechanism are more appropriately considered in a general rate proceeding. RESPECTFULLY SUBMITTED this lst day of May 2018. 4-r- Jonathan J. Cavanagh, ISB No. 8609 Chad M. Stokes, OSB No. 004007 Cable Huston LLP l00l SW Fifth Ave., Suite 2000 Portland, OR 97204-l I 36 Telephone: (503) 224-3092 Facsimile: (503) 224-317 6 j cavanaelh@cablehuston. com cstokes@cablehuston. com Attorneys for the Alliance of Western Energy Consumers COMMENTS OF AWEC - 9 CERTIFICATE OF SERVICE I HEREBY CERTIFY that on the lst day of May 2018 I caused an original and seven (7) copies of the foregoing to be served upon: Diane M. Hanian, Secretary Idaho Public Utilities Commission 472 W . Washington Street Boise, ID 83702 by mailing via Federal Express the same to the above-named at the last known address(s) as set forth above and sending a copy via First Class mail and electronic mail to the email addresses below. Michael P. McGrath Director, Regulatory Affairs Intermountain Gas Company PO Box 7608 Boise, lD 83707 mike.mcerath@intgas.com Preston N. Carter Givens Pursley LLP 601 W. Bannock St. Boise,lD 83702 prestoncarter@ givenspursl ey. com Edward A. Finklea Director of Natural Gas Alliance of Western Energy Consumers 545 Grandview Drive Ashland, OR 97520 efi nklea@awec. solutions Camille Christen Deputy Attorney General Idaho Public Utilities Commission 472W. Washington P.O. Box 83720 Boise, lD 83720 Camille. christen@puc. idaho. eov Chad M. Stokes CERTIFICATE OF SERVICE - I