20240920Application Attachment Exhibit 2 - 2024 Idaho FCA Extension.pdf

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Fixed Cost Adjustment Mechanisms - Idaho
April 10, 2024

Agenda
1 . Overview of FCA Mechanisms
2 . FCA Mechanics
3 . How Has FCA Performed
4 . FCA Next Steps
5 . Questions
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Overview of the Fixed Cost Adjustment Mechanisms
The purpose of the electric and natural gas FCA Mechanisms is to break the link between the
Company's Commission-authorized revenues from energy sales, such that the Company's
revenues will be recognized based on the number of customers served under the applicable
service schedules.
The FCA Mechanisms allow the Company to:
1 ) defer the difference between actual FCA-related revenue approved for recovery in the
Company's last general rate case; and
2) file a tariff to surcharge or rebate, by rate group, the total deferred amount accumulated in
the deferred revenue accounts for the prior July through June time-period. (the deferral period
is 12 months ended June 30)
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What are the benefits of the FCA
Fixed cost adjustment mechanisms are intended to encourage conservation and allow
customers more control over their bills. Further, the proposed FCA will remove any
financial disincentive of the Company to encourage energy conservation. (Order No. 33437
in AVU-E/G-15-05/01 )
FCA's also remove any throughput incentive utilities may have to increase revenues and
earnings
As consumers broadly engage in energy efficiency, all ratepayers may benefit as the high
costs of new power plants, transmission lines and pipelines may be reduced or avoided.
Decoupling may also reduce volatility in energy bills due to weather and other factors, and
it reduces risk for utilities too. It preserves customers' incentive for efficiency while
removing utilities disincentives.*
* www.ase.org/resources/utility-rate-decoupling-0
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What are the mechanics of the FCA Mechanisms?
The electric FCA mechanism applies to Schedules 1 , 11 , 127 211 227 31 and 32.
Electric Customers are segregated into 2 groups.
• Group 1 - Schedule 1
• Group 2 - Schedules 11 , 127 21 , 227 317 32.
The natural gas FCA mechanism applies to Schedules 101 , 111 and 112.
Natural Gas Customers are segregated into 2 groups.
• Group 1 - Schedule 101
• Group 2 - Schedules 111 and 112.
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What are the mechanics of the FCA Mechanisms?
For purposes of simplicity, the mechanics of the electric FCA Mechanism are shown (the
mechanics for the natural gas FCA are similar).
Monthly Allowed Delivery Revenue Per Customer is calculated as follows:
• Step 1 — Determine the Total Rate Revenue - The Total Rate Revenue is equal to the final
base rate revenue approved in the Company's last general rate case.
• Step 2 — Determine Variable Power Supply Revenue - The Normalized kWhs by rate
schedule from the last approved general rate case are multiplied by the approved Load
Change Adjustment Rate (LCAR) to determine the total Variable Power Supply Revenue.
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What are the mechanics of the FCA Mechanisms?
Monthly Allowed Delivery Revenue Per Customer is calculated as follows (con't):
Step 3 — Determine Delivery and Power Plant Revenue for test period existing
customers, the mechanism subtracts the Variable Power Supply Revenue from the Total
Rate Revenue.
For new electric customers, the mechanism also subtracts the Fixed Production and
Transmission Revenue from the Total Rate Revenue.
Natural Gas FCA mechanism removes Fixed Production and Underground Storage
for new customers.
Step 4 — Remove Basic Charge Revenue — Because the FCA mechanism only tracks
revenue that varies with customer energy usage, the revenue from Fixed Charges is
removed.
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What are the mechanics of the FCA Mechanisms?
Monthly Allowed Delivery Revenue Per Customer is calculated as follows (con't):
• Step 5 — Determine FCA Revenue — FCA Revenue is equal to the Delivery and Power
Plant Revenue (Step 3) minus the Basic Charge Revenue (Step 4).
• Step 6 — Determine the FCA Revenue per Customer — Divide the FCA Revenue (by Rate
Group) by the approved Rate Year number of Customers (by Rate Group) to determine
the annual Allowed FCA Revenue per Customer (by Rate Group)
• Step 7 — Determine the Monthly FCA Revenue per Customer - The annual FCA Revenue
per customer is shaped based on the monthly kWh usage from the rate year.
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What are the mechanics of the FCA Mechanisms?
Monthly FCA Deferral is calculated as follows:
• Step 1 — Determine the actual number of customers each month.
• Step 2 — Multiply the actual number of customers by the applicable monthly Allowed FCA
Revenue per Customer. The result of this calculation is the total Allowed FCA Revenue for the
applicable month.
• Step 3 — Determine the actual revenue collected in the applicable month.
• Step 4 — Calculate the amount of fixed charge revenue included in total actual monthly
revenue.
• Step 5 — For existing customers, multiply actual kWh sales by the approved Load Change
Adjustment Rate. For new customers, multiply actual kWh sales by both the approved Load
Change Adjustment Rate and the approved Fixed Production and Transmission Revenue rate.
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What are the mechanics of the FCA Mechanisms?
Monthly FCA Deferral is calculated as follows (con't):
• Step 6 For existing customers, subtract the basic charge revenue and the variable power
supply revenue from the total actual monthly revenue. The result is the Actual FCA Revenue.
For new customers, subtract the basic charge revenue and the fixed and variable production
and transmission revenue from the actual monthly revenue (for electric). The result is the
Actual FCA Revenue.
• Step 7 The difference between the Actual FCA Revenue (Step 6) and the Allowed FCA
Revenue (Step 2) is calculated, and the resulting balance is deferred by the Company. Interest
on the deferred balance will accrue at the Customer Deposit Rate.
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What are the mechanics of the FCA Mechanisms?
Annual Rate Adjustment Filings
• Avista files for recovery or refund by August 1 following the deferral period ending June 30 in
which deferral balances were calculated.
• Electric FCA rates become effective on October 1 and Natural Gas rates become effective on
November 1 following the deferral period ending June 30 in which deferral balances were
calculated.
• 3% Annual Rate Increase Limitation:
The amount of the incremental proposed rate adjustment under this Schedule cannot
reflect more than a 3% rate increase. There is no limit to the level of the FCA rebate.
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Have the Mechanisms Been Independently Reviewed ?
Yes, in a way, twice!
H . Gil Peach and Associates, in 2023, conducted a thorough review of the mechanics and
calculations of Avista's Decoupling Mechanisms in Washington.
The Mechanisms in Washington and Idaho are almost identical.
"The decoupling mechanisms have worked as expected to stabilize revenue without
impacting utility operations and energy efficiency programs. We also found no evidence of
adverse impacts to any customer groups. Since the program continues to work as planned,
we recommend the electric and natural gas mechanisms be continued."
"We find no conclusive evidence of current adverse impact of decoupling on cost control,
operational efficiency, price signals or service quality."
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Changes Implemented after Review #1
1 . Annual True-up for New Customers — Avista now applies a new customer true-
up in the last month of the deferral period to capture annual allowed Revenue per Customer
on annual average customers.
2. Timing of Deferral Period — Avista changed the deferral period to be 12 months
ended June 30 instead of December 31 of each year. This is to reduce the time between the
end of the deferral and the new rate taking effect.
3. Timing of Quarterly Reports — The quarterly reporting requirement was extended
from 45 to 60 days to avoid having to file confidential reports prior to an earning release.
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How have the FICA Mechanisms performed ?
Electric Results for 2020 through 2023
FCA Tariff Filing 2020 2021 2022 2023
Res Non-Res Res Non-Res Res Non-Res Res Non-Res
Deferred Revenue $ 337,502 $ 109,351 $(2,260,697) $2,011,841 $(5,039,128) $(246,046) $(7,180,059) $(555,724)
Add Prior Year Residual Balance $ (9,294) $ 7,242 $ (35,117) $ 18,516 $ 28,019 $(108,817) $ 351,473 $ 38,943
Add Interest through 9/30 $ 8,208 $ 2,851 $ (16,130) $ 15,170 $ (35,731) $ (2,313) $ (99,787) $ (8,013)
Add Revenue Related Expense Adj. $ (2,511) $ (2,761) $ (11,463) $ 3,802 $ (27,841) $ 1,621 $ (27,189) $ 1,115
Total Requested Recovery $ 333,905 $ 116,684 $(2,323,407) $2,049,329 $(5,074,681) $(355,554) $(6,955,562) $(523,679)
Customer Surcharge/Rebate Revenue $ 333,905 $ 116,684 $(2,323,407) $2,049,329 $(5,074,681) $(355,554) $(6,955,562) $(523,679)
Carryover Deferred Revenue $ - $ - $ - $ - $ - $ - $ - $ -
Surcharge/(Rebate) Rate $ 0.00028 $ 0.00011 $ (0.00189) $ 0.00197 $ (0.00405) $(0.00034) $ (0.00540) $(0.00048)
A Positive rate represents a surcharge to customers and a negative
rate represents a rebate to customers
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How have the FCA Mechanisms performed ?
Natural Gas Results for 2020 through 2023
FCA Tariff Filing 2020 2021 2022 2023
Res Non-Res Res Non-Res Res Non-Res Res Non-Res
Deferred Revenue $ (517,162) $ (175,310) $ (324,456) $ (130,431) $ (743,688) $ 99,328 $ (820,233) $(181,388)
Add Prior Year Residual Balance $ 22,393 $ 2,617 $ (6,663) $ (918) $ 34,722 $ 2,930 $ (24,538) $ 9,991
Add Interestthrough 10/31 $ (12,200) $ (4,347) $ (2,211) $ (964) $ (4,895) $ 741 $ (11,224) $ (2,589)
Add Revenue Related Expense Adj. $ (2,830) $ (1,092) $ (1,536) $ (604) $ (3,419) $ 385 $ (3,552) $ (577)
Total Requested Recovery $ (509,799) $ (178,131) $ (334,866) $ (132,916) $ (717,280) $ 103,384 $ (859,547) $(174,563)
Customer Surcharge/Rebate Revenue $ (509,799) $ (178,131) $ (334,866) $ (132,916) $ (717,280) $ 103,384 $ (859,547) $(174,563)
Carryover Deferred Revenue $ - $ - $ - $ - $ - $ - $ - $ -
Surcharge/(Rebate) Rate $ (0.00783) $ (0.00687) $ (0.00493) $ (0.00490) $ (0.01020) $ 0.00381 $ (0.01219) $(0.00632)
A Positive rate represents a surcharge to customers and a negative
rate represents a rebate to customers
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What are the next steps for the FCA in Idaho?
• The FCA mechanism will expire on March 31 , 2025.
• In 2024 Avista will apply to extend the FCA Mechanism through August 31 , 2027.
• Avista is not contemplating any changes to the FCA mechanism.
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