Intermountain Gas proposes 8 percent PGA reduction
For the second consecutive year, Intermountain Gas is proposing to reduce rates, reflecting lower than anticipated costs for purchasing gas supply. The company is proposing an average 8.1 percent decrease to residential bills. The Idaho Public Utilities Commission is taking comment through Sept. 18 on the company’s proposal.
Each year, Intermountain Gas rates are adjusted through a Purchased Gas Cost Adjustment (PGA) mechanism. The adjustment does not change the base rates paid by customers, but does impact the size of a surcharge that is adjusted annually to adapt to the always varying costs of buying gas from suppliers and related transportation and storage expenses.
Factors typically beyond the company’s control impact the PGA. Natural disasters – such as the Gulf hurricanes two years ago – severe winter weather or decreased production from drilling, can impact supply and, hence, wholesale gas prices. Since Intermountain Gas does not drill its own wells, it is wholly dependent on the wholesale gas market. Last year’s PGA was a 4 percent decrease, while in 2005, the PGA was a 27 percent increase.
To hedge against price volatility, the company buys gas during the traditionally lower-priced summer season and stores it for use in the winter when wholesale prices are higher. As a financial hedge, the company buys on the forward market when it believes prices are reasonable and may trend upward if purchased later.
Whether the PGA is an increase or a decrease, it does not impact company earnings. Similar to the electric utilities’ annual Power Cost Adjustment (PCA) process, an increase or decrease in the yearly PGA goes directly to wholesale suppliers in the event of an increase or to customers in the event of a decrease. Money collected through the PGA cannot go to salaries, equipment or other needs, but must go directly to paying for gas supply, transportation and storage. When the cost of purchasing gas is higher than the amount customers pay in the current surcharge, the surcharge is increased. When gas supply purchases are less than that covered in the surcharge, the reduction goes directly to customers.
Intermountain Gas, which serves about 280,000 customers in its southern Idaho territory, has not had a change to its base rate since 1985.
If approved, the proposed PGA reduction would bring average customer bills down by 8.1 percent. An average customer using natural gas for both space and water heating would experience an average $6 per month decrease. A residential customer using natural gas for space heating only would see an average reduction of about $4 per month. Commercial customer rates would go down by about $29 per month, or 8.7 percent. Industrial customers who use Intermountain’s delivery service, but do not buy their gas from the company, would experience a rate increase of about 9.5 percent, according to the company’s proposal.
According to Intermountain Gas, an increased number of drilling rigs searching for new gas supply and an increase in gas production resulted in lower wholesale prices for gas. Intermountain Gas also benefited from lower transportation costs resulting from a settlement to the general rate case filed before the Federal Energy Regulatory Corporation by Northwest Pipeline Corporation, which transports Intermountain Gas’ over its pipelines into Idaho.
The commission’s job is to review the application to see if Intermountain Gas was prudent in its gas purchasing decisions and if it executed hedges properly to protect customers against price volatility. The commission will proceed under a modified procedure that allows the case to be handled through written public comments rather than by public hearing. However, comments may request a public hearing.
Those wishing to submit comments must do so by no later than Sept. 18. Comments are accepted via e-mail by accessing the commission’s homepage at www.puc.idaho.gov and clicking on "Comments & Questions." Fill in the case number (INT-G-07-03) and enter your comments. Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to (208) 334-3762.
A full text of the commission’s order, along with the company’s application and other documents, are available on the commission’s Web site. Click on “File Room” and then on “Gas Cases” and scroll down to the above case number.