OF JOE SCHWARTZENBERGER

Transcription

1 6 8 9 Department of Public Service Regulation Montana Public Service Commission Docket No. D0.9.9 Natural Gas General Filing NorthWestern Energy PREFILED DIRECT TESTIMONY OF JOE SCHWARTZENBERGER 0 ON BEHALF OF NORTHWESTERN ENERGY Table of Contents Description Starting Page No. Witness Information Purpose of Testimony 6 Revenue Requirement, Embedded Cost of Service, and Rate Design Relationships 8 Embedded Cost of Service/Rate Design Overview and Objectives and 6 9 NorthWestern's Moderation Proposal 0 Billing Impacts - Revenue Requirement, Embedded Cost of Service, and Rate Design Natural Gas Tariff Changes Exhibits 6 Exhibit_(JS-) - Natural Gas Revenue Requirement, Embedded Allocated Cost of Service, Moderation and Rate Design Flow Diagram/Moderation Analysis 8 Exhibit_(JS-) - "Proposed" Natural Gas Embedded Allocated Cost of Service, 9 Moderation and Rate Design Billing Impacts 0 Exhibit_(JS-) - Natural Gas Line Extensions - Free Primary Line Extension Allowance per Service Computation JS-

2 Q. Witness Information Please state your name and business address. A. My name is Joe Schwartzenberger. My business address is 0 East Broadway, Butte, Montana Q. A. Q. A. By whom are you employed and in what capacity? I am NorthWestern Energy's ("NWE" or "NorthWestern") Director of Regulatory Affairs. Please summarize your education and employment experience. I attended Montana State University ("MSU"), receiving a Bachelor of Science degree in Mechanical Engineering Technology in 98. I also received a Master of Business Administration degree from the University of Montana in 000. During my career, I have attended various seminars and sessions 6 regarding engineering, business, utility, and regulatory subjects. registered Professional Engineer in Montana. I am a After graduating MSU, I was employed by Bechtel Power Corporation as a field engineer in Colstrip, Montana and began my career with the Montana Power Company ("MPC") in 986 as a Plant Engineer in Colstrip. I relocated to Butte, Montana with MPC and progressed through a number of engineering positions becoming Manager of Technical Services in 99 with responsibility for providing technical support for MPC's Demand-Side JS-

3 Management ("DSM") programs. In 99, I was promoted to Director of Operations with responsibility for managing an unregulated energy services subsidiary of MPC. In 00, I transferred to MPC's Government and 6 Regulatory Affairs Department as Manager of Regulatory Support Services with primary responsibility for NorthWestern's Universal System Benefits ("USB") and DSM programs. I was promoted to my current position in Q. A. Q. A. What are your responsibilities as Director of Regulatory Affairs? I am the director responsible for state and federal regulatory activities, DSM and USB programs, electric load research, electric load forecasting, and collecting and managing electric load data to meet various internal and external needs in Montana. I regularly participate in the preparation and/or consideration of the testimony, exhibits and work papers in NorthWestern's proceedings before the Montana Public Service Commission ("MPSC" or "Commission") and the Federal Energy Regulatory Commission ("FERC"). Purpose of Testimony What is the purpose of your testimony in this proceeding? I am NorthWestern's policy witness for the natural gas allocated cost of service and rate design portion of this filing. My testimony, which relates JS-

4 specifically to NorthWestern's embedded cost of service ("EGOS") and rate design ("RD") proposals, accomplishes the following:. Describes how the revenue requirement, EGOS and RD elements contained in this filing are related;. Discusses the objectives of the cost allocation and RD components of this filing;. Introduces NorthWestern's EGOS proposal, including rate moderation;. Presents the total collective billing impacts of the revenue requirement, EGOS and RD proposals in this filing;. Proposes an update to the General Service Free Primary Line Extension Allowance in NorthWestern's Natural Gas Line Extension Policy to reflect the related RD proposals; and 6. Generally describes the changes to NorthWestern's Natural Gas Tariffs resulting from the proposals in this filing. 6 Q. 8 9 A. Revenue Requirement. EGOS, and RD Relationships Please describe how the revenue requirement, ECOS and RD proposals contained in this filing are related. Four specific rate-making steps are incorporated in this filing, and all are 0 regular components of general rate filings. These steps and the resulting breakout of costs by customer rate class are illustrated on Page of Exhibit_(JS-) - Natural Gas Revenue Requirement, Embedded Allocated JS-

5 Cost of Service, Moderation and Rate Design Flow Diagram. A general description of each step follows: Revenue Requirement - This step determines the test year natural gas transmission, distribution, and storage (or natural gas delivery 6 services) system revenue requirement based on revenues, operating expenses, taxes, interest paid on debts owed, depreciation expense, 8 and return on rate base. Historic actual information is adjusted for 9 known and measurable changes occurring months beyond the 0 actual year. Allocated Cost of Service - This step allocates the respective costs of providing utility services that make up the total revenue requirement to the various utility customer classes (e.g., Residential and General Service) based on their use of the natural gas delivery system. The 6 ECOS study in this filing reflects the use of embedded (accounting) cost allocation techniques. 8 9 Customer Class Revenue Moderations - This step adjusts the ECOS 0 results by class of service to mitigate significant billing impacts by customer class when compared to current rates. Moderation can be thought of as the initial step in RD. JS-

6 Rate Design - This final step establishes the individual rates that are ultimately used to bill customers. Rates are designed to collect the moderated revenues on a class-by-cass basis. The RD proposals included in this filing were guided by the results of the ECOS study. 6 8 ECOS/RD Overview and Objectives and NorthWestern's Moderation Proposal Q. Please provide a brief overview of NorthWestern's ECOS and RD proposals in this filing. 0 9 A. The ECOS and RD portion of this filing is presented in my testimony and exhibits and in the testimony and exhibits of Mr. Gary Goble of Management Applications Consulting, along with and in support of Statement Hand supporting work papers, Statement L and supporting work papers, and Statement M and supporting work papers. This material is comprised of ECOS/RD analyses, results, and proposals for natural gas delivery service. 6 Q. You state above that the ECOS study included in this filing is based on embedded costs. Has NorthWestern also included an allocated cost of 8 service study based on marginal costs? 9 A. No. Order No. 06i in Docket No authorized NorthWestern to 0 file an embedded cost of service analysis for delivery services in its next general rate case. This is that filing for the natural gas utility. JS-6

7 Q. Has NorthWestern included natural gas supply allocated cost of service and RD proposals in this filing? A. No. NorthWestern conducted a marginal cost-based natural gas supply allocated cost of service study in Docket No The results of that study showed minor differences between winter and summer commodity 6 costs as a whole and almost no differences within seasons. The interclass summer-to-winter commodity cost differentials were also minor. In that 8 docket, NorthWestern testified that the relatively small differences were not 9 necessarily surprising given that its natural gas supply acquisition practices 0 and the implementation of the natural gas supply tracker were aimed, in part, at dampening price volatility including seasonal rate swings. NWE concluded that the cost differences did not support seasonal natural gas rates and proposed that the natural gas supply tracker rate remain the system average unit cost as it was then computed. 6 NorthWestern's natural gas procurement activities continue to focus on mitigating the impacts of price volatility including seasonal price differences, 8 design of the natural gas supply tracker rate has not changed appreciably, 9 and natural gas prices have decreased considerably since the marginal 0 allocated cost of service study included in Docket No was conducted. For these reasons, NWE believes it is unlikely that the results of a marginal allocated cost of service study would support marginal cost-based JS-

8 natural gas supply rates at this time and, therefore, has not included such a study or natural gas supply rate design proposals in this filing Q. A. Q. What are NWE's primary objectives for the ECOS/RD portion of this filing? NorthWestern's primary objectives for EGOS and RD are the proper allocation of the costs of providing natural gas delivery services among the various customer classes based on cost causation and the development of rate design structures that recover these costs. As a practical matter, costs should be allocated between classes of customers to assure that customers make appropriate contributions to the costs they cause, while being mindful of other factors important to sound rate design including bill impacts. How were the ECOS and RD studies and proposals included in this filing developed? 6 A. Mr. Goble performed the EGOS and RD analyses. His testimony presents 8 the EGOS/RD methodologies used, the analyses he conducted with assistance and guidance from NorthWestern personnel, and the associated 9 results. The EGOS moderation analysis is presented on Page of 0 Exhibit_(JS-) and discussed further below. In general, and as already discussed, NorthWestern's proposals are properly based on the EGOS study for purposes of determining revenue requirement JS-8

9 responsibility by class. The ECOS study uses historic test period data from the revenue requirement portion of this filing (i.e., calendar year 0 adjusted for known and measurable changes) so that the total of the class revenue requirement responsibilities is equal to the requested revenue requirement. The class revenue requirement responsibilities are then 6 8 moderated to establish revenue targets for each rate class, and delivery services rates are designed based on the ECOS study to collect the moderated class revenue requirement responsibilities. 9 0 Q. A. What is meant by moderation and why is it necessary? A comparison of the costs by class of service resulting from the ECOS study to current rate revenues by class revealed some large disparities. Rate moderation gives consideration to the overall billing impact of these cost shifts on rates when compared to current rates. Consistent with standard rate 6 design practice, NorthWestern moderated the ECOS study results to mitigate significant bill impacts by class Cost of service allocation studies embody a process aimed at assigning costs to customers based on the services they receive. If one believes that rates should be based solely on the concept that the "cost causer pays," it would be appropriate to use the ECOS study raw results to establish rates. Most, including NWE, agree that while assigning costs to the cost causer is an important consideration in setting rates, there are other considerations, such JS-9

10 6 as bill impacts, that are just as important. The raw results of NWE's EGOS study suggest that significant changes in revenue obligations for certain classes are in order. NWE believes it is important and proper to work toward achieving rates that reflect costs, but given the large rate adjustments that would be required to achieve this in a single rate case, NWE recommends taking incremental steps toward this objective and thus moderated the raw EGOS study results to that end For example, Distribution Firm Transportation Natural Gas Service customers would experience an increase of approximate 6% in natural gas delivery services rates if the raw results from the EGOS study were used to set rates without consideration of rate moderation. As a result of moderation, NWE proposes that this customer class instead receive an 8% increase, as shown on Page of Exhibit_(JS-) Q. A. Have you prepared an exhibit that reflects the combined effect by customer rate class of the revenue requirement, ECOS, and RD proposals contained in this filing? Yes, Page of Exhibit_(JS-) presents the proposed by-class natural gas cost allocation analyses, before and after moderation. The following table can be used as a guide to review this page: JS-0

11 Natural Gas Transportation, Distribution and Storage Embedded Delivery Service Current Rate Revenues by class compared Columns E, G, I and J; Lines to Proposed Revenue Requirement to Revenues by class resulting from a uniform percent increase, including dollar and percent differences. Proposed raw ECOS Revenues compared Columns E, L, Nand 0; Lines to Current Rate Revenues, including dollar to and percent differences. Columns Nand 0 present the combined impact of the Revenue Requirement increase and ECOS reallocations by class before any moderation. Proposed ECOS impacts only including Columns G, L, Q and R; Lines dollar and percent differences. to Proposed Embedded Moderated Revenues Columns E, N, 0 and Q; Lines compared to Current Rate Revenues, to 8 including dollar and percent differences. Q. What were the general guidelines that NorthWestern considered in establishing the proposed moderated revenues? A. As discussed above, the primary goal of moderation is to lessen the billing impacts that would otherwise result from implementation of the raw ECOS study results. The general guidelines used to determine moderation in this 6 filing were: JS-

12 Q. 8 A.. Consideration of net billing impacts, percent and dollars, from the collective effects of the proposed revenue requirement, ECOS and RD proposals;. Providing no class a rate decrease even if the ECOS study showed a decrease was necessary to match the cost of service;. Consideration of the direction and magnitude of the differences between the ECOS results and the current rate revenues;. Movement toward the class embedded delivery costs as identified by the ECOS study, and limiting the residential class to the uniform percentage increase based on the proposed revenue requirement adjustment.; and. Capping the maximum ECOS increase for any other class at 8% for natural gas delivery service. Billing Impacts - Revenue Requirement, ECOS, and RD Have you prepared monthly customer billing impacts resulting from NorthWestern's proposals in this filing? Yes. Monthly billing impacts have been prepared for each natural gas rate 9 class. Exhibit_(JS-) presents the associated billing impacts for the 0 collective revenue requirement, ECOS study, moderation, and RD proposals in this filing. This exhibit presents each of the individual billing rates for each rate class. However, only the delivery service rates are affected by this filing. JS-

13 For example, refer to the table starting on Line of Page of Exhibit_(JS-) showing the billing impacts for a Natural Gas Residential Customer using 00 therms per month. Columns 0 and E present current rate information, Columns G and H present proposed rate information, and Columns J and K present the dollar and percent differences between current and proposed 6 rates. 8 Below these computations starting on Line is a table of billing impacts for 9 selected monthly natural gas usages. The Total Bill Changes and Percent 0 Changes in Columns J and K are calculated for each of the consumption values ranging from 0 to,90 therms in Column H. The detailed rate component presentation (shown on Lines through 8) is based on 00 therms and keys off of the value in Column B, Row 0. The number of customers included in each consumption range is provided for February and August 0 in Columns E and G. This table also shows the billing impacts 6 and customer counts for the average consumption for February and August. 8 Except for presentation of the impacts for average consumption, which is 9 included for both the Residential and General Service classes, the billing 0 impact analysis for the other classes includes similar layouts and computations. JS-

14 Q. Please summarize the billing impacts resulting from the revenue requirement, ECOS, and RD proposals in this filing. A. Following are some key statistics:. For the 0 test year, the average Residential Natural Gas customer used therms in February and therms in August. Such a customer 6 will receive an increase on the total February bill of 6.89% or $6.6 and an increase on the total August bill of.9% or $.. 8. Residential customers using 0 to 0 therms per month will receive an 9 increase on the total bill ranging from.% to.% or $.6 to $ A Residential customer using 00 therms per month will receive an increase of.% on the total bill or $.69.. A Residential customer using 00 therms per month will receive an increase of 6. % on the total bill or $9... For the 0 test year, the average General Service customer used 6 therms in February and therms in August. Such a customer will 6 receive an increase on the total February bill of 6.6% or $.9 and an increase on the total August bill of 9.% or $ General Service customers using 0 to 0 therms per month will receive an 9 increase on the total bill ranging from 8.98% to.0% or $. to $ A General Service customer using 00 therms per month will receive an increase of 8.% on the total bill or $ A General Service customer using 000 therms per month will receive an increase on the total bill of 6.9% or $6.6. JS-

15 6 9. Distribution Firm Transportation Natural Gas Service customers receive a total bill increase ranging from.% to approximately.% depending on throughput. 0. Transmission Firm Transportation Natural Gas Service customers receive a total bill increase ranging from approximately.% to 8.8% depending on throughput Q. A. Q. A. Natural Gas Tariff Changes Is a marked-up copy of the tariffs that NWE proposes to implement included in this filing? Yes. Volume I of this filing includes a tab labeled "Marked-Up Tariffs" which includes a copy of each natural gas utility tariff relevant to this filing. An entire copy of each tariff has been included, with the specific information that NorthWestern proposes to change highlighted and/or red-lined. Please describe the nature of the proposed changes. In each rate section of each tariff, the current rates have been crossed out 8 and highlighted. Next to each of the current rates, the corresponding 9 0 proposed rate has been inserted and highlighted. impacted by this filing remain unchanged. Rates that are not Note that NorthWestern is proposing to update the free primary line extension allowance for General Service customers in Rule 6, Line Extensions, to reflect JS-

16 the RD proposals in this filing. A change to the Residential free line extension allowance is not necessary at this time because the allowance for residential customers is currently $900 and the updated value based on the RD proposals in this filing is $89. NorthWestern is not proposing to change the methodology used to determine the free line extension allowance. Refer to 6 Exhibit_(JS-). 8 Q. 9 A. Does this conclude your testimony? Yes, it does. JS-6

17 Docket Exhibit_(JS-0 ) Page of Natural Gas Revenue Requirement, Embedded Allocated Cost of Service, Moderation and Rate Design Flow Diagram Natural Gas Revenue Requirement Natural Gas Revenue Requirement Embedded Allocated Cost of Service $,80, $'0'SO $6,9, Residential Natural Gas Service General Natural Gas Service $6, $S08,S9 Firm Utility Gas Contract Service Distribution Firm Transportation Natural Gas Service Transportation Firm Transportation Natural Gas Service Firm Storage Natural Gas Service Moderated Class Revenues Residential Natural Gas Service General Natural Gas Service firm Utility Gas Contract Service Distribution Firm Transportation Natural Gas Service Transportation Firm Transportation Natural Gas Service Firm Storage Natural Gas Service C'::...-=--==-=-.:."=".:::-...::-= Rate Design...,

18 Docket No Exhibit_(JS-0 ) Pageof I..i.. Firm! Dislril A A Tra--,FIn Gas Service I Natural Gas Service Gas Contract Servici Subleta r Natural I I FI G IHI -.l& L IMI I I Energy - Natural Gas Utility I and Storage Delivery Service j Cost of Service i $ Difference I % 0 8,, ECOSI,8,8: (0.08 8,:.% ECOS 8,8,6,6) -,889,96,9 ),9) n ECOS Difference _.% 66.0%.%.0%.86% 0.00% )8U rbu In!err ounding_,8,.68 $.8 >, tesidential Natural Gas Service ;enera[ Natural Gas Service Utility Gas Contract Service ibullan Firm Transportation Nclluri;ll \;IClI:i t:rvii;i:l Natural Gas_Sryic ),,:,,l.% 00.00%,60,,60,,!i,,..60 8,99 6.,8,.%.0% 8.00% _llooo/ J',,- Percent of nbedded Costs 98.0%.8% 6.% 8.00%.% 00.00% Plus: DBU TBU I,60,8,8,,68.,.9_% Total.6% 9//0 Exhibit_(JS-0)

19 ----, Docket No. D0.9.9 Exhibit_(JS-0) Pageof B --" I F -',ur J..:.IU'-'.lY ti IMonthly: 0 - Typical Bil e per Meter Il.';, ;:;,;:;:L'BiA Tolal8 Rate Amount $ 6.8 $ 6.8 Proposed Design Rates TotalBfII Bill Rate Amount Chan e Change $ 8. $ 8. $.6.% s fill Disl.ribu. tlcn Charge 6 Ir?nsmission Charge Iy(,;harg DBU GTAC t..!!p!zati6n [ill USBe $ $ $ 0.9 g,q:8 $. _._--- ( ) $ 0.0 J $ J.060 $.6 ),0090 $ $ I $.8 $ $ 0.09 $ % $ 0.99 $.9 $.99 8.% $ $.8 $ 0.8.% S $ 9.99 $ O.OO, $ $ o.oo $ ( $ (0.0) $ % $ $ (0.0) $ $ $ $ $ $.6 $ $ ( $ (0.9) $ - ':0::t $ $.00 $ $ $ 6.6 $.6% lli '0,8 I,09 C :f'?& r:f:['ffijt;lj,8 "',6,8 I Therms Tota!.!li Percent,00,000,000,000 ou.6 I.%.%,]';9% :: '"--':"-'"' ".% ",,,",,, ' I _'_.'_ ; % 9,..% % J:\Exhlbjt{JS 0

20 . -l"'jor :w A, I FIG H K Energy Docket No Exhibit_(JS 0) Page of. 'Elri6'ragr'Naj9'If;<!: _ ell'u!;:",,,,';",'......,"h.,uuy I s Typical.", ;, ',;'- A(Pirsled? 0>:>,','J, Proposed Design Rates ITo Chan e Iy Service Charge p. e@cu.fioto00) $ 8.98% ' Commodity Charges: M DIstribution Charge Transmission Charge Storage Charge GaSSuppjYChar9 pferred Gas Cost,.0.0( - $ $ 8.8 $ $ 0.0 $. 9.68% 0.8 $ $.88 $ %.9 $ $.9 $ 0.0.0% 9.99 $ $ 9.99 $ % - $ -$ - $ % 0.0 $ ) $ 0.0 $ % (0.0) $(0.000) $ (0.0 $ % n nnn00 $ - $ _ 0.00% $ $.6 $ - O.OO (o.:.:ii.oo). -!(O.0090) $ 0.9 $ % $( $ (.00 $ % $ 6. $. 6.00% $. $.6 8.% d balance from Thenn_'_!_L.Total Bill! Percent F' Jo ill lsi 6!Augusl 90B 689,08,8, _! 6,0 0 -' % 0 $.66.0% 0 $.0.0% 0 - $.9 0.8% "\ ""yc'jl'[ g,y''' 9Tj'i -8% '-';'00 $.6 0 $ 9..6% 0 $.0.0% }::g - ",?m:?,:rn' 'T'9 00 $.8 6.% 000 $ % 000 $ % 000 $ % 000 $ % 8000 $ % 000 $. 6.0% 000 $,08.9.OO% J:\Exhlblt_(JS 0)

21 Docket No. D0.9.9 Exhibit_(JS-0) Page of A B c D E F 6 Inputs - Schedule No. D-FTG- Meter No. Customer Tier or r- - 9 MDDQ 0 0 Therms,Usage,000 Schedule No. D-FTG- I Distribution Business Unit Firm Transportation Natural Gas Service 0Ein'ciICOraerjNo'[(; 6 ii:l iiti'a8ji.l,jll Monthly Service Charge per Meter: 8 9 Meter Per Meter 0 No. Cu. Ft. ger hour Charge,000 to,000 $ 0.6,000 to 0,000 $ 8. 0,00 to 0,000 $ 6.9 > 0,000 $ 89.D 6 PLUS: Distribution Charge: ($/MDDQ) 8 Monthly Reservation Rate for Maximum Daily 9 Delivery Quantity (MDDQ) $ GTAC Amortization (MDDQ) $ (0.000) USBC- Tier $ USBC- Tier $ CTC-GP- Credit Tier $ ( ) CTC-RA- Credit Tier $ ( ) 8 CTC-RA- Credit Tier $ (0.0090) 9 0 MDDQ Therms Current Bill Total D-FTG- Bill 00 $ $ $ $ ,000 $. 00,000 $ ,000 $ ,000,000 $,00. 0,00,000 $,. I I G H Embedded Cost Study Proposed Per Meter Charge $ 8. $. $ 86. $ 6. $ $ (0.000) $ $ $ ( ) $ ( ) $ (0.0090) Proposed Bill Increase Total Bill Change $ 80.6 $ 8.8 $ 80.9 $. $.6 $ 0.6 $. $ 0.8 $ 8.6 $.8 $. $.90 $,0.8 $.0 $,99.8 $ 9.6 $,99.6 $.86 I I Percent.0%.0%.86%.86% 6.0% 6.0%.%.%.8% J:\Exhibit_(J-0) 9//0

22 Docket No Exhibit_IJS-0) Page 0f r-rtab'-cr-d'--e-'----f--'-----g---'--h--'---'i--' I 6 I Inputs -, No. D-FTG'l I IMeter No. Tier or: 9 IMDDQ 0 ITherm Usage,000 l 6 I I I I 6,No. T-FTG- T, ; Unit - Firm' I 'INatural GalS Service 6 I II Service Charge per M,ter: 69 Meter 0 I.!'!Q, C Ft. Der our,000 to 0,000 0,00 to 0,000 > 0,000 6 PLUS: 8, Rate for LR, O"on'i'v 80 I 8 i 'Charge (Therm) 8 IGTAC, 8 8 Las I Total Bill ,00,800,Dail Therms ,000,000,000 $ $ $ 0,000 I $ 90,000 I $ Per Meter 0... $ $ $ Current Bill ,8.9 $ 6,9.90 $ I Cost Slue y Per Meter I Bill Total Bill Chanae ,9.96 I $. $ 6,. Percent.8% 8.8% 8.6% 8.6%.%.8%.68%.8%.% 0e '0 0 I J:\Exhibit_IJ-0) 9//0

23 Docket No Exhibit_(JS-0) Page of A I NorthWestern Energy - I Free Primary Line Extension Allowance Service 6 Natural Gas Utility Customer Usage 8 No. Customers 9 Annual Ave Usage Therms. I. Number of years to recover free line extension Total TD&S Rate (Proposed Embedded) $ 6 Ave Annual Usage Therm Free Extension Allowance $ 8 Free Extension Allowance per Therm , _.. _-- NaturalGas Free Allowance Amounts {I!erlariffsl Residential (Flat Rate per Servi<:e) General Service (per Therm) I: B Residential 8,,68 8, 80 Residential _ $ $ C Gen Serv 68,98,0,600,06 Gen Serv J:IExhibit_(JS-0) 9//0