20060925_1681.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:DONOVAN E. WALKER
DATE:SEPTEMBER 19, 2006
SUBJECT:A VISTA'S 2006 PURCHASED GAS COST ADJUSTMENT (PGA),
CASE NO. A VU-06-
On September 14, 2006, Avista Utilities filed its annual Purchased Gas Cost
Adjustment (PGA) Application with the Commission requesting authority to place new rate
schedules in effect as of November 1 , 2006 that will increase its annual natural gas revenues by
approximately $2.7 million (3.2%). The PGA mechanism is used to adjust rates to reflect
changes in the costs for the purchase of gas from wholesale suppliers including transportation
storage, and other related costs of acquiring natural gas. Avista s earnings will not be increased
as a result of the proposed changes in prices and revenues. The Company requests that the
Application be processed by Modified Procedure.
THE APPLICATION
According to Avista s Application if the requested price increase is approved the
Company s annual revenue will increase by approximately $2.7 million or about 3.2%. The
average residential or small commercial customer using 65 therms per month would see an
estimated increase of$2.41 per month (3%).
A vista states that it purchases natural gas for customer usage and transports this gas
over various pipelines for delivery to customers. The Company defers the effect of timing
differences due to implementation ofrate changes and differences between the Company s actual
Weighted Average Cost of Gas (WACOG) purchased and the WACOG embedded in rates.
A vista also defers the revenue received from the release of its storage capacity as well as various
pipeline refunds or charges and miscellaneous revenue received from gas related transactions.
DECISION MEMORANDUM
Avista requests an increase in the WACOG from its present 78.600 cents per therm
to 84.712 cents per therm, an increase of approximately 6.112 cents. The proposed W ACOG is
based on a weighting of forward natural gas prices on August 16, 2006, and the Company
hedges executed to date. The Company executes hedges to fix the price of gas on approximately
66% of its estimated annual gas sales for the year, and uses a dollar-cost averaging approach for
volumes to be hedged, with those volumes divided into 45-day execution windows between
February 15 and November 15. The Company states that it has completed approximately 85% of
its scheduled hedges for the upcoming PGA year, November 2006 through October 2007 at a
weighted average price of $0.873 per thermo
This past year the Company has begun incorporating an amount of longer-term
hedges into its purchase portfolio to provide an additional degree of rate stability.
Approximately 11% of the total purchases for the next year have been hedged at a three-year
fixed price. The Company s plan is to keep layering-in three-year fixed price hedges until these
hedges represent one-third of the portfolio going forward. This plan has been incorporated into
the Company s Risk Management Policy and provided to Commission Staff.
The Company s proposed rates in this filing also incorporate the proposed rate
increases filed by the Company s two main pipeline suppliers, Northwest Pipeline and Gas
Transmission Northwest. The proposed pipeline rates, while not yet approved, are set to begin
being billed to Avista on January 1 , 2007. The Company states that while these pipeline rate
increases are substantial, the effect on the Company s proposed rates in this filing is completely
mitigated by an increase in the estimated revenue to be received from pipeline capacity releases.
The Company is also proposing a change in the present amortization rate, which is
used to refund or surcharge customers the difference between actual gas costs and projected gas
costs from the last PGA filing over the past year. Avista proposes to decrease the amortization
rate from the present surcharge of 5.027 cents per therm to 3.420 cents per thermo The Company
states it has an estimated deferred gas cost balance of approximately $2.8 million as of October
, 2006, reflecting higher gas costs than projected during the past year. The proposed
amortization rate of 3.420 cents per therm is expected to recover this balance over 12 months.
The Company states that notice of its proposed increase in price has been
accomplished by posting a notice at each of the Company s district offices in Idaho, a press
DECISION MEMORANDUM
release distributed to various informational agencies, and a separate notice to each of its Idaho
gas customers included in their billing. A vista attached copies of these notices to its Application.
STAFF RECOMMENDATION
Given the proposed effective date of November 1 , 2006, Staff recommends that this
case be processed by Modified Procedure with comments due by October 24, 2005.
CO MMISSI ON D ECISI
Does the Commission preliminarily find that the public interest may not require a hearing
to consider the issues presented, and that this proceeding may be processed under
Modified Procedure?
Does the Commission wish to direct Staff to conduct a Public Workshop, pursuant to
Rule 125, prior to Staff filing comments in this case?
Does the Commission wish to schedule a Public Hearing for this matter?
DECISION MEMORANDUM