20240904AVU to Staff 32 Supplemental Attachment B - Idaho PCA Settlement Language.pdf

Chelan Slice (2024)

As a part of the 2023 Avista Idaho general rate case (Case No. AVU-E-23-01), the parties agreed
to a methodology related to how, for the rate plan, the Chelan Hydro contract of 2024 would be
handled. Below is the agreement:

Staff and the Company request that the Settling Parties review and provide
feedback and/or agreement related to the calculation methods stipulated in
Paragraphs 11. (iii.)(a.) and 11. (iii.)(b.) of the Settlement that was approved
through Commission Order No. 35909. The calculation methods are to ensure that
the actual cost of the Chelan Hydro (“Chelan”) and Columbia Basin Hydro (“CBH”)
contracted generation will be included in the PCA using the lower of market cost or
contract cost, and to allow the Company to recover all or some of the
approximately $1.007 million annual cost of the CBH transmission to the extent
that market prices are higher than the cost of CBH generation with the cost of
transmission.

Staff and the Company developed a proposal intended to meet the intent of the
Settlement and protect customers from unreasonable costs. The mechanism first
separately calculates the daily valuation of the generation for CBH and Chelan
using the Mid-C on and off-peak volume-weighted average price as well as the
valuation of the generation using the contract price. The value that is passed as
actual cost in the PCA is the lower of the monthly total valuation of market or
contract. For CBH, the daily cost of transmission is included in the valuation of
contract.

The new Chelan contract started in January 2024, and provided energy through the end of the
June 30, 2024 PCA year.

1. Avista Filing – When Avista filed its PCA in this case, it included workpapers demonstrating how
it complied with the agreement noted above. Avista provided spreadsheets that used actual
generation received from Chelan, and multiplied that by a calculated MWh rate. That rate was
determined by taking the monthly fixed contract price of $1.755 million, and dividing it by the
estimated MWhs it was contemplated to receive in each month. Under that methodology,
Avista’s shareholders absorbed a total expense over the six month period of $356,186 (Idaho
share).

2. PCA Audit of Contract Invoices – Through Staff’s review, it was determined that Avista’s
approach utilizing an inferred per MWh rate was not correct, as the inferred rate multiplied by
the actual generation received did not add up to the fixed monthly invoice amount for Chelan of
$1.755 million (system). What Avista should have done was take the fixed monthly price and
divide that by the actual MWhs received, to obtain the actual per MWh rate. For example, for
February 2024, Avista utilized a $51.06 per MWh price (again, based on estimated volumes and
not actuals), rather than a $82.53 per MWh price (which was based on the fixed monthly contract
Mid-C
Contract Actual
Invoice Amt
1. Original Avista
Shareholder
Absorbed
2.Staff's
Understanding of
Settlement
Agreement
Jan-24 7,156,142$ 1,755,720$ -$ -$
Feb-24 1,024,745$ 1,755,720$ (61,682)$ (730,976)$
Mar-24 929,623$ 1,755,720$ (401,685)$ (826,098)$
Apr-24 837,306$ 1,755,720$ (222,625)$ (918,414)$
May-24 905,486$ 1,755,720$ (156,620)$ (850,235)$
Jun-24 1,021,353$ 1,755,720$ (190,709)$ (734,367)$
YTD System Total 11,874,654$ 10,534,322$ (1,033,321)$ (4,060,090)$
Idaho's Share (356,186)$ (1,399,513)$
invoice divided by actual MWhs delivered). Table No. 1 below provides the difference between
the two methods:

Table No. 1 – Avista vs. Staff Review

Table No. 1 above shows that for Idaho’s share, Avista absorbed $356,186 utilizing its
methodology. Under the strict reading the of settlement language discussed earlier, however,
Avista should have absorbed $1,399,513, or an additional $1,043,327.

3. Avista-Staff Discussions – On September 4, 2024, Commission Staff and Avista met to discuss
our mutual understanding of what the settlement agreement meant, and what the proper
accounting should be, given that this settlement agreement for this contract was new. A key tenet
that both Staff and Avista recalled from settlement, and what was a theme for the call, was that
the agreement was not meant to be punitive to the Company, but rather meant to hold customers
harmless from the Chelan contract during the Two -Year Rate Plan. As such, Avista proffered that
the methodology it utilized in the PCA was not appropriate, but neither was the methodology
agreed to because it has unintended consequences. Table No. 2 below demonstrates that what
was missing from the methodology was January, where the Chelan contract provided enormous
benefits for Idaho customers, yet those benefits are ignored if the contract price for that month
was less than the market proxy.

Table No. 2 – Added Benefits of Chelan

Table No. 2 above adds in a few items. First is the January benefit from the Chelan contract.
Wholesale power prices during the Martin Luther King holiday cold snap were extraordinary,
hitting nearly $1,000 per MWh. As such, the lower priced Chelan contract provided nearly $5.4
million in customer benefit (system) in January alone. When we reviewed the entire six month
period, Idaho customers actually benefitted from the agreement by $415,811. Yet, under a strict
reading of the settlement agreement, Avista’s shareholders would actually have to absorb
$1,399,513 (the sum of $356,186 already absorbed by shareholders plus an additional
$1,043,327), yet customers would benefit by $415,811.

4. Compromise Position – After a collaborative discussion between Staff and Avista, the parties
reached a compromise that (1) meets the intent of the original settlement discussions (i.e., no
harm to Idaho customers), (2) removes unintended consequences not known when the
settlement was made (i.e., having a month like January with extreme benefits that otherwise
would be ignored), and (3) is reasonable and fair to Avista and customers alike.

Table No. 3 – Staff/Avista Compromise Position

Mid-C
Contract Actual
Invoice Amt
1. Original Avista
Shareholder
Absorbed
2.Staff's
Understanding of
Settlement
Agreement
3. Added Chelan
Benefits
Jan-24 7,156,142$ 1,755,720$ -$ -$ 5,400,422$
Feb-24 1,024,745$ 1,755,720$ (61,682)$ (730,976)$ (730,976)$
Mar-24 929,623$ 1,755,720$ (401,685)$ (826,098)$ (826,098)$
Apr-24 837,306$ 1,755,720$ (222,625)$ (918,414)$ (918,414)$
May-24 905,486$ 1,755,720$ (156,620)$ (850,235)$ (850,235)$
Jun-24 1,021,353$ 1,755,720$ (190,709)$ (734,367)$ (734,367)$
YTD System Total 11,874,654$ 10,534,322$ (1,033,321)$ (4,060,090)$ 1,340,332$
Idaho's Share (356,186)$ (1,399,513)$ 462,013$
Avista 10% PCA Absorbed Already (Idaho Share)46,201$
Customer 90% Benefit (Idaho Share)415,811$
Total Benefits (Idaho Share)462,013$
4. Compromise Position (All Idaho's Share)
Avista's Shareholders Expense per Settlement (1,399,513)$
Less Avista's Shareholder Expense already realized 356,186$
Less Customer's 90% Benefit (415,811)$
Incremental Shareholder Expense/Customer Rebate (627,516)$
As shown in Table No. 3 above, the compromise reached by Staff and Avista would recognize that
the settlement calls for Avista’s shareholders to absorb $1,399,513, but also recognizes that it
already absorbed $356,186. What should not be ignored, however, is the fact that customers
benefitted from this contract during the PCA period, and it would not be fair, just, nor reasonable
that customers would benefit, while shareholders would be harmed when the goal of the
settlement that set forth this methodology was really one of “do no harm”. As such, Staff and
Avista have agreed that Idaho’s share of the PCA benefits shown in Table No. 2 of $415,811 should
be netted against any additional shareholder expense. Table No. 3 does just that and shows that
Avista would increase the PCA rebate by $627,516. This meets the intent of the settlement
agreement, is fair to customers, and fair to Avista based on our discussions. Further, Avista and
Staff believe this is the appropriate methodology to utilize for the 7/2024 through 6/2025 PCA
review period and prospectively, until such time as the treatment for the Chelan contract
modified in a future general rate case or rate proceeding.