20241217Staff Comments .pdf

RECEIVED
Tuesday, December 17, 2024 2:05:50 PM
IDAHO PUBLIC
UTILITIES COMMISSION
ADAM TRIPLETT
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10221
Street Address for Express Mail:
11331 W CHINDEN BLVD, BLDG 8, SUITE 201-A
BOISE, ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA )
CORPORATION'S APPLICATION FOR THE ) CASE NO. AVU-E-24-11 AND
EXTENSION OF AVISTA'S ELECTRIC AND ) CASE NO. AVU-G-24-04
NATURAL GAS FIXED COST ADJUSTMENT )
MECHANISMS IN THE STATE OF IDAHO )
COMMENTS OF THE
COMMISSION STAFF
COMMISSION STAFF ("STAFF") OF the Idaho Public Utilities Commission
("Commission"), by and through its Attorney of record, Adam Triplett, Deputy Attorney
General, submits the following comments.
BACKGROUND
On September 20, 2024, Avista Corporation("Company") applied to extend its electric
and natural gas Fixed Cost Adjustment Mechanisms ("FCA Mechanisms" or"Mechanisms")
through August 31, 2029. According to the Application, the FCA Mechanisms are set to expire
on March 31, 2025. Consequently, the Company seeks an extension to the Company's electric
and natural gas FCA Mechanism Tariff Schedules 75 and 175, effective April 1, 2025.
The FCA Mechanism is a rate adjustment mechanism designed to break the link between
the amount of energy a utility sells and the Commission-authorized revenue it collects to recover
fixed costs of providing service, thus decoupling the utility's revenues from sales. Decoupling is
STAFF COMMENTS 1 DECEMBER 17, 2024

intended to remove a utility's disincentive to pursue energy efficiency savings and to stabilize
rates for customers.
On October 10, 2024, the Commission issued a Notice of Application and Notice of
Intervention Deadline, setting a deadline for interested persons to intervene. Order No. 36351.
No parties intervened.
HISTORY OF AVISTA'S FCA
In Order No. 33437, Case Nos. AVU-E-15-05 and AVU-G-15-01, the Commission
approved Avista's electric and natural gas FCA Mechanisms on a three-year pilot program. The
Order also set forth how the FCA Mechanism works, including: rates of existing versus new
customers, quarterly reporting, annual filings, interest, accounting, and 3%rate increase cap. On
June 15, 2018, the Commission approved an addendum to the settlement stipulation which
extended the term of the Company's FCA for an additional year. See Order No. 34085. Pursuant
to the addendum to the settlement stipulation, the Company, Commission Staff, and interested
parties met on March 27, 2019, to review the effectiveness of the FCA mechanism.
In Order No. 34502, Case Nos. AVU-E-19-06 and AVU-G-19-03, the Commission
approved the extension of the FCA Mechanisms to March 31, 2025. The Company also
committed to attending a workshop with Commission Staff and interested parties to discuss the
future of the FCA Mechanisms. The workshop was held on April 10, 2024.
STAFF ANALYSIS
Staff recommends the Commission approve the Company's request for the extension of
its electric and natural gas FCA Mechanisms through August 31, 2029. Staffs recommendation
is based on its review of the Company's Application, the testimony of Company witness Mr. Joel
Anderson, the attachments thereto, and the Avista Decoupling Evaluation("Evaluation")by H.
Gil Peach&Associates. Staff supports the extension because it provides benefits to both the
Company and customers; however, Staff still has concerns about certain aspects of the FCA
Mechanisms, as discussed below.
In 2022, the Company contracted with an independent party to evaluate its FCA
Mechanisms. The final report was filed on January 18, 2024. The results are also briefly
discussed below.
STAFF COMMENTS 2 DECEMBER 17, 2024

BENEFITS TO BOTH CUSTOMERS AND COMPANY
In the review of this case, and the yearly FCA annual rate filings, Staff has determined
that the FCA Mechanism provides benefits to both the Company and its customers.
First, the FCA Mechanisms provide important protections for customers, such as
removing the Company's incentive to increase sales. By separating sales from revenues, the
disincentive to promote conservation is removed, as is any incentive for the utility to increase
sales.
Another way customers benefit from the FCA Mechanisms is the refund or credit of any
excess sales revenue on a per customer basis greater than that approved by the Commission. For
example, a cold winter could lead to increased sales. If customers use more than what is
embedded in rates, the excess revenue is credited back to customers the following year.
The FCA Mechanisms also provide protection for the Company. Absent the FCA
Mechanisms, in periods of declining use-per-customer, the Company would under-recover its
fixed costs of providing service to its customers in the periods between general rate case filings.
"The revenue provided to Avista through an FCA would not represent additional revenue to the
Company over and above what is needed to recover its costs; it represents restoration of revenues
that the Commission has already determined should be provided to the utility from the last rate
case, on a per-customer basis." Anderson Testimony pg. 9. Without the FCA Mechanisms, if a
cool summer results in lower sales and insufficient revenue to cover fixed cost, a subsequent
FCA rate increase helps make up the shortfall. According to the Decoupling Evaluation:
"Avista's decoupling mechanism has had a stabilizing effect on revenue, reducing variability in
half for electric and by one-fifth for natural gas of variability without decoupling." Decoupling
Evaluation at 1-1. Revenue stabilization reduces financial risk and can help reduce the
Company's cost of equity. Lower equity costs benefit Avista and when passed on to customers,
help mitigate customer rate increases.
The Company's FCA Mechanisms contain an annual rate increase threshold of three
percent. The three percent annual rate increase limitation ensures that the amount of a rate
adjustment does not exceed more than three percent in any given year, reducing the likelihood of
rate shock. This limitation is another reason why Staff approves the extension of the FCA
Mechanism.
STAFF COMMENTS 3 DECEMBER 17, 2024

STAFF CONCERNS
Staff has stated in past comments, while the Company's FCA Mechanisms are effective
at shielding utility revenues from the reduction in sales produced by energy efficiency, the
mechanism also removes much of the Company's fixed cost risk of reduced sales attributable to
many other factors. These factors include weather, economic cycles, improved building codes
and standards, improved appliance standards, and behavioral responses to higher electric bills.
Addressing the risk associated with fixed cost recovery has value from the Company's standpoint
because it stabilizes revenue and may lower capital costs. Staff has stated that customers should
share in the benefits of lower capital costs.
Utility Companies, not just Avista, often claim that an FCA Mechanism removes a
utility's disincentive to pursue energy efficiency savings. However, in the Evaluation, it said:
"no reason to suggest a relationship between decoupling and conservation results
for program savings, expenditures, or customers served. These relationships are as
likely to have occurred in the absence of decoupling as they occurred with
decoupling."
H. Gil &Associates at 4-13.
However, the Evaluation still maintains that the FCA Mechanisms are useful because
they provide a yearly opportunity to adjust rates according to weather and other issues that affect
load, in a timely manner. The Evaluation stated:
"The major driver of change in energy use is now climate change operationalized
as the declining trend of Heating Degree Days. Decoupling is, going forward,best
understood as a climate change practice, incorporating more timely revenue
recovery."
Id.
Staff supports the Company's request for an extension in this case because the Company
has been open to refining the mechanisms over time and because the Company's demonstrated
efforts to address and remedy stakeholders' concerns with the FCA Mechanisms. For example,
since implementation of the FCA Mechanisms, the Company has proposed several modifications
that have been accepted by the Commission.
AVISTA DECOUPLING EVALUATION
In 2022, the Company contracted with an independent party to conduct an evaluation of
its FCA Mechanisms between the years 2020 and 2022. As part of the approval of the
Company's Decoupling Mechanisms in Washington, the Washington Utilities and
STAFF COMMENTS 4 DECEMBER 17, 2024

Transportation Commission required a third-party evaluation, paid for by Avista shareholders, to
be completed by the end of 2023. The purpose of the evaluation was to:
"address decoupling's effect on revenues, its impact on conservation, the extent to which
the allowed revenues are recovering their allocated cost of service by customer class, and
the extent to which fixed costs are recovered in fixed charges for the customer classes
excluded from the Washington Decoupling Mechanisms."
Anderson Testimony at 4.
The Evaluation showed approval of the FCA Mechanisms and provided a short list of
recommendations, the first recommendation being the continued use of the FCA Mechanisms.
The summary conclusion as stated on Page 1 of the Final Report states that"(w)e find that
Avista's decoupling is working well within the specific window of time examined." Evaluation
at 8-21. More specifically, "we find no conclusive evidence of any current adverse impact of
decoupling on cost control, operational efficiency, price signals, or service quality." Id.
In the Decoupling Evaluation, H. Gil Peach & Associates looked into whether the FCA
rate and deferrals were calculated in accordance with the Commission orders approving the
mechanisms. On page 1-99 of the Evaluation, the report explained: "We find the deferrals and
rates for Decoupling to have been calculated by the Company in accordance with the
Commission guidance as operationalized by the methodological specification in Schedule 75 and
Schedule 175."
STAFF RECOMMENDATION
Staff recommends the Commission approve the Company's request for the extension of
its electric and natural gas FCA Mechanisms through August 31, 2029.
Respectfully submitted this 17th day of December 2024.
L/
Adam Triplett
Deputy Attorney General
Technical Staff: Laura Conilogue
I:\Utility\UMISC\COMMENTS\AVU-E-24-11 and AVU-G-24-04 Comments.docx
STAFF COMMENTS 5 DECEMBER 17, 2024

CERTIFICATE OF SERVICE
�
I HEREBY CERTIFY THAT I HAVE THIS r DAY OF DECEMBER 2024,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF , IN CASE
NO. AVU-E-24-11/AVU-G-24-04, BY E-MAILING A COPY THEREOF TO THE
FOLLOWING:
PATRICK EHRBAR DAVID J MEYER
DIR OF REGULATORY AFFAIRS VP & CHIEF COUNSEL
AVISTA CORPORATION AVISTA CORPORATION
PO BOX 3727 PO BOX 3727
SPOKANE WA 99220-3727 SPOKANE WA 99220-3727
E-mail: patrick.ehrbargavistacorp.com E-mail: david.meyergavistacorp.com
docketsgavistacorp.com
PATRICIA JORDAN, SCCTETARY
CERTIFICATE OF SERVICE