20250313Final_Order_No_36509.pdf

Office of the Secretary
Service Date
March 13,2025
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA ) CASE NO. AVU-E-24-11
CORPORATION'S APPLICATION FOR THE ) AVU-G-24-04
EXTENSION OF AVISTA'S ELECTRIC AND )
NATURAL GAS FIXED COST ) ORDER NO. 36509
ADJUSTMENT MECHANISMS IN THE )
STATE OF IDAHO )
On September 20, 2024, Avista Corporation ("Company") applied to extend its electric
and natural gas Fixed Cost Adjustment Mechanisms ("FCA 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.
On October 10, 2024, the Commission issued a Notice of Application and Notice of
Intervention Deadline. Order No. 36351. No parties intervened.
On November 25, 2024, the Commission issued a Notice of Modified Procedure, setting
public comment and Company reply deadlines. Commission Staff ("Staff') filed the only
comments.
Having reviewed the record, the Commission now issues this Order approving the
Company's Application.
THE APPLICATION
The FCA Mechanisms are rate adjustment mechanisms designed to break the link between
the amount of energy a utility sells and the Commission-authorized revenue collected to recover
fixed costs of providing service. This uncouples the utility's revenues from sales. Decoupling is
intended to remove a utility's disincentive to pursue energy efficiency savings and to stabilize rates
for customers.
The Commission approved the Company's electric and natural gas FCA Mechanisms as a
three-year pilot program in 2015. Order No. 33437. The Company's FCA Mechanisms initially
became effective on January 1, 2016. The order approving this initial pilot program set forth how
the FCA Mechanisms work,including: rates of existing versus new customers,quarterly reporting,
annual filings, interest, accounting, and 3% rate increase cap. After an initial one-year extension,
ORDER NO. 36509 1

and during which the effectiveness of the FCA Mechanisms was reviewed, the Commission
subsequently extended the duration of the FCA Mechanisms to March 31,2025. Order No. 34502.
The Company seeks to extend the effective period of its electric and natural gas FCA Mechanism
Tariff Schedules 75 and 175 through August 31, 2029.
STAFF COMMENTS
After reviewing the Application, supporting testimony, and the Company's Decoupling
Evaluation ("Evaluation"), Staff recommended the Commission approve the Company's request
to extend the FCA Mechanisms! Despite harboring some concerns over some aspects of the FCA
Mechanisms, Staff believed these mechanisms benefit the Company and its customers.
1. Customer Benefits
Staff believed that, by separating revenue from sales, the FCA Mechanisms protect
customers by eliminating: (1) the incentive for the Company to increase sales; and (2) the
disincentive to promote conservation. Staff also noted that the refund or credit of sales revenue
exceeding that approved by the Commission is an additional benefit to customers. Additionally,
Staff indicated that the 3% annual rate increase limitation in the FCA Mechanisms reduces the
likelihood of rate shock, providing further justification for Staff s support of their continuation.
2. Company Benefits
Staff believed the FCA Mechanisms protect the Company from under-recovering its fixed
costs during periods of reduced use-per-customer. Staff referenced testimony from a Company
employee submitted in support of the Application stating that with the FCA Mechanisms, the
Company collects revenues in amounts the Commission determined the Company should recover
in the Company's last rate case—not additional revenue the Company would not otherwise
receive. Staff also observed that the Company's Evaluation indicated that the FCA Mechanisms
stabilize the Company's revenue—halving electric revenue variability and reducing gas variability
by 20%. Staff asserted that this revenue stabilization lowers the Company's financial risk. This
' In 2022,the Company engaged a third-party to develop and author the Evaluation. This document,required by the
Commission's Washington State counterpart, was intended to analyze the effect of the FCA Mechanisms on
conservation and the extent of cost recovery occurring across the Company's customer classes from 2020 to 2022.
Additionally, the Evaluation determined that (1) the FCA Mechanisms effectively decoupled revenue from sales
during the timeframe evaluated; (2) there was no conclusive evidence of adverse effects resulting from the FCA
Mechanisms, and (3) deferral amounts had been properly calculated. According, the Evaluation recommended
continued use of the FCA Mechanisms.
ORDER NO. 36509 2

can reduce the Company's cost of equity which can indirectly benefit customers through smaller
rate increases.
3. Staff Concerns
Staff reiterated a concern expressed in prior cases that the Company and customers do not
equally share in the benefits the FCA Mechanisms provide. Specifically, Staff noted that, in
addition to shielding utility revenues from reduced sales resulting from energy efficiency,the FCA
Mechanisms also significantly reduce fixed-cost risk associated with various other factors—
including weather, economic cycles, improved building codes and standards, improved appliance
standards, and behavioral responses to higher electric bills. Reducing these risks stabilizes the
Company's revenue and may lower capital costs, benefiting the Company. Staff believed
customers should share the benefits of such lower capital costs.
Staff also noted the general trend among utilities, including the Company, to claim that an
FCA Mechanism removes a utility's disincentive to pursue energy efficiency savings. However,
in the Evaluation, it stated that nothing suggested "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. Nevertheless,the Evaluation asserted that the FCA Mechanisms remain
useful by providing an annual opportunity to timely adjust rates in response to weather and other
load influencing factors.
Despite the concerns described above, Staff supported extending the FCA Mechanisms
because of the Company's openness to reforming them and demonstrated efforts to address and
remedy stakeholder concerns.
COMMISSION FINDINGS AND DECISION
The Commission has jurisdiction over the Company and this matter under Title 61 of the
Idaho Code,including Idaho Code §§ 61-501, 61-502, and 61-503. The Commission has reviewed
the record and finds extending the Company's FCA Mechanisms through August 31, 2029 to be
fair,just, reasonable, and in the public interest. The FCA Mechanisms benefit the Company and
its customers without jeopardizing the Company's recovery of fixed costs. Moreover, there is no
evidence indicating that extending the FCA Mechanisms through August 31, 2029, risks harming
the Company or its customers.
ORDER NO. 36509 3

We acknowledge Staff s concerns regarding whether customers benefit from the FCA rate
adjustments for weather and other factors.According to the Evaluation,decoupling the Company's
revenues from sales did not improve conservation results for program savings, expenditures, or
customers served. In light of this, the Evaluation asserted that the FCA Mechanisms should be
characterized as a means of timely revenue recovery in response to variations in weather patterns.
Even if the FCA Mechanisms have not directly increased conservation,they still benefit customers
by eliminating the Company's incentive to increase sales. Additionally, based on the Company's
past receptiveness to reforming the FCA Mechanisms to redress stakeholder concerns, we
anticipate that the Company will continue to work with interested parties to address the concerns
described in Staff s comments.
ORDER
IT IS HEREBY ORDERED that the Company's Application is approved and its FCA
Mechanisms are extended through August 31, 2029, effective as of April 1, 2025.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within 21-days of the service date of this Order with regard to any matter decided
in this Order. Within seven(7) days after any person has petitioned for reconsideration, any other
person may cross-petition for reconsideration. See Idaho Code § 61-626.
ORDER NO. 36509 4

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 13th day of
March 2025.
G
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EDWARD LOD E, SIDENT
R. HAMMOND JR., COMMISSIONER
DAYN HA IE, COMMISSIONER
ATTEST:
MAW A ar&ojA
Commission Secretary
L\Legal\ELECTRIC\AVUE2411_G2404_FCA Ex[\orders\AVUE2411_G2404_fmal_9.docx
ORDER NO. 36509 5