20100902Vol I Technical Boise.pdf

ORIGINAL
.BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION DBA AVISTA CASE NO. AVU-E-10-01
UTILITIES FOR AUTHORITY TO CASE NO. AVU-G-10-01
INCREASE ITS RATES AND CHARGES FOR
ELECTRIC AND NATURAL GAS SERVICE
IN IDAHO
BEFORE
COMMISSIONER MACK REDFORD (Presiding)
COMMISSIONER MARSHA SMITH
COMMISSIONER JIM KEMPTON.
PLACE:Commission Hearing Room
472 West Washington
Boise, Idaho
DATE:August 26, 2010
VOLUME I - Pages 1 - 128
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CSB REPORTING
Constance S. Bucy, CSR No. 187
23876 Applewood Way * Wilder, Idaho 83676
[phone] * [phone]
Email csb(iheritagewifi.com
t:~.::(/i:
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1 APPEARANCES
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3 For the Staff:
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7 For Avista Corporation:
Donald L. Howell, II, Esq.
and Kristine A. Sasser, Esq.
Deputy Attorneys General
472 West Washington
Boise, Idaho 83720-0074
David J. Meyer, Esq.
Vice President & Chief Counsel
Avista Corporation
Post Office Box 3727
Spokane Washington 99220
RICHARDSON & 0' LEARY
by Peter J. Richardson, Esq.
515 North 27th Street
Boise, Idaho 83702
McDEVITT & MILLER
by Dean J. Miller, Esq.
420 West Bannock Street
Boise, Idaho 83702
Brady M. Purdy, Esq.
Attorney at Law
2019 North 17th Street
Boise, Idaho 83702
Benjamin J. Otto
Idaho Conservation League
Post Office Box 844
Boise, Idaho 83701
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For Clearwater Paper~
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For Idaho Forest Group:
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For CAPAI:
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For Idaho Conservation
League:
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APPEARANCES
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3 WITNESS EXAMINATION BY
4 Randy Lobb
(Staff)Mr. Howell (Direct)
Prefiled Direct Testimony
Commissioner Smith
Commissioner Kempton
Commissioner Redford
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6
7 Kelly o. Norwood
(Avista)
Mr. Meyer (Direct)
Prefiled Direct Testimony
Commissioner Smith
Commissioner Kempton
Commissioner Redford
Commissioner Smith
Commissioner Kempton
Commissioner Smith
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12
Teri Ottens
(CAPAI)
Mr. Purdy (Direct)
Prefiled Direct Testimony
Commissioner Kempton
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16 EXHIBITS
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18 NUMBER DESCRIPTION
19 FOR THE STAFF:
101. Stipulation and Settlement Premarked
Admitted
102. Residential Rate Impact of
Proposed Settlement Premarked
Admitted
103. Memorandum of Understanding Premarked
Admitted
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INDEX/EXHIBITS
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1 BOISE, IDAHO, THURSDAY, AUGUST 26, 2010, 9:30 A. M.
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4 COMMISSIONER REDFORD: My name is Mack
5 Redford.I'm a Commissioner of the Idaho Public
6 Utilities Commission and Chairman of this hearing. Also
7 in attendance today are Public Utili ties Commissioners
8 Jim Kempton, who is also the president of the Commission,
9 and Marsha Smith, a Commissioner. We make up the Idaho
10 Public Utilities Commission. This is the time and place
11 set for the hearing in the matter of the application of
12 Avista Corporation dba Avista Utili ties for authority to
13 increase its rates and charges for electric and natural
14 gas service in Idaho. Public notice of this hearing was
15 given on August 4, 2010.
16 Some preliminary matters which I'd like to
17 go through, based upon settlement discussions, the
18 participating parties agreed to resolve and settle all
19 issues raised in this case. On July 26, 2010, the
20 settling parties filed their settlement stipulation with
21 the Commission. On July 29, the Commission issued a
22 Notice of Proposed Settlement outlining the maj or
23 elements in the parties' settlement proposal.
24 Briefly, the proposal settlement, the
25 parties have agreed that annual revenues of Avista' s
CSB REPORTING
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1 COLLOQUY
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1 electric and natural gas service may increase by $21.25
2 million or 9.25 percent and $1.85 million or 2.62,
3 respecti vely, for electricity and gas. Additionally, the
4 parties agreed to offset 17.5 million of deferred state
5 tax, income tax, over a two-year period. The tax offset
6 will result in an average net increase in base rates of
7 3.59 percent for electrical service and an average
8 increase of 1.9 percent for natural gas service. The
9 parties propose that the new electric and natural gas
10 rates will become effective October 1, 2010.
11 First of all, I'd like to take the
12 appearances of the parties. I will begin with Avista and
13 then the Staff and then the other parties and
14 intervenors, so I'LL turn it over to you, sir.
15 MR. MEYER: Thank you, Chairman Redford.
16 I am David Meyer and I'll j ust give you a short form of
17 the appearance, David Meyer for Avista.
18 COMMISSIONER REDFORD: Okay, IMr. Howell.
19 MR. HOWELL: For the Commission Staff,
20 Donald Howell and Kristine Sasser, Deputy Attorneys
21 General, representing the Commission Staff in this
22 matter.
23 COMMISSIONER REDFORD: Why don't we start
24 in the back row with Mr. Richardson.
25 MR. RICHARDSON: Thank you, Mr. Chairman.
CSB REPORTING
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2 COLLOQUY
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1 Peter Richardson on behalf of Clearwater Paper Company
2 and with me is Howard Ray, plant manager.
3 MR. PURDY: Mr. Chairman, Brad Purdy on
4 behalf of the Community Action Partnership Association of
5 Idaho and with me is Ms. Teri Ottens.
6 MR. OTTO: Mr. Chairman, I'm Benjamin Otto
7 wi th the Idaho Conservation League.
8 COMMISSIONER REDFORD: Briefly for Avista,
9 could you tell me how many witnesses you're going to
10 have?
11 MR. MEYER: Yes, we will just have Mr.
12 Norwood testifying today.
13 COMMISSIONER REDFORD: Mr. Howell?
14 MR. HOWELL: Mr. Chairman, we have one
15 wi tness.
16 COMMISSIONER REDFORD: Okay, and
17 Mr. Richardson?
18 MR. RICHARDSON: Mr. Chairman, we have no
19 witnesses.
20 MR. PURDY: One witness, Mr. Chairman.
21 MR. OTTO: No witnesses, Mr. Chairman.
22 COMMISSIONER REDFORD: Thank you. Do any
23 of the parties prior to time of getting to the hearing
24 have an opening statement?
25 MR. MEYER: Avista has none.
CSB REPORTING
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3 COLLOQUY
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1 MR. HOWELL: Staff has none.
2 COMMISSIONER REDFORD: Mr. Richardson?
3 MR. RICHARDSON: We have no opening
4 statement, Mr. Chairman.
5 COMMISSIONER REDFORD: Mr. Purdy?
6 MR. PURDY: None, sir, thank you.
7 MR. OTTO: No, sir.
8 COMMISSIONER REDFORD: Thank you. One
9 preliminary matter which I wanted to raise is the
10 question of comments which the Commission has received
11 during the pendency of this case. As they stand now, the
12 comments are simply comments and they are not evidence.
13 They are not exhibits and I was wondering, my question of
14 the parties is how do you feel those comments should be
15 taken? One, they can either stand as what they are right
16 now as simply comments that are not evidence or we could
17 notwi thstanding the fact that there's no
18 cross-examination or anyone here to present those
19 comments, we could leave them just that way or we could,
20 the Commission could, take them into consideration.
21 They've already been read by the
22 Commissioners and I don't know whether by the parties,
23 but it just seems to me that those comments should have
24 some sort of a place. Unless the parties really object,
25 I would li ke to have them just stand the way they are and
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4 COLLOQUY
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1 note that while we have read them and whatever weight
2 they have we'll take that into consideration, but they
3 won't be formal exhibits, unless someone has any other
4 way which they would like to see them.
5 MR. MEYER: Chairman Redford, Avista does
6 not obj ect to that approach.
7 MR. HOWELL: Mr. Chairman, the Staff
8 thinks that that is a satisfactory way to handle these
9 comments. Staff would not like to see them read into the
10 record since there is no sponsoring witness, there is no
11 one to cross-examine and at least in the case of the
12 ICAN, they are opposed, but they have no witness here
13 sponsoring the comments, so I think from the Staff iS
14 perspective, it would simply -- these should simply stand
15 as comments and accorded the weight that other parties'
16 comments or that other persons i comments are afforded.
17 COMMISSIONER SMITH: Mr. Chairman?
18 COMMISSIONER REDFORD: Commissioner Smith.
19 COMMISSIONER SMITH: ICAN hasn't even --
20 isn't even represented here today.
21 MR. HOWELL: That's correct,
22 Madam Commissioner.
23 COMMISSIONER REDFORD: Okay, well, I think
24 we'll--
25 MR. OTTO: Commissioner?
CSB REPORTING
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5 COLLOQUY
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1 COMMISSIONER REDFORD: Yes.
2 MR. OTTO: If I might weigh in being the
3 only party who is here and also submitted comments, I
4 recogni ze that it i S not the normal course of affairs to
5 just submit comments without testimony and a witness to
6 present those in these type of hearings. I'd submit that
7 it's really just a statement of position of our party and
8 I fully accept the stance that you've taken and
9 appreciate the other parties just considering those as a
10 statement of our position.
11 COMMISSIONER REDFORD: Okay, thank you.
12 Well, I think we'll go ahead on that basis. Does anyone
13 need any further clarification on what it is I'm
14 proposing? Hearing none. Well, as Avista is the
15 Applicant and the moving party, I will now turn this
16 matter over to Mr. Meyer.
17 MR. MEYER: Unless you would prefer
18 otherwise, we spoke in advance of the hearing, Staff and
19 Avista, and I know Mr. Lobb is sponsoring the stipulation
20 as the exhibits and we thought that Mr. Lobb might go
21 first. We're certainly more than willing to put Mr.
22 Norwood up first if that's your preference.
23 COMMISSIONER REDFORD: That's perfectly
24 all right. Do you agree, Mr. Howell?
25 MR. HOWELL: That's fine with the Staff.
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6 COLLOQUY
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COMMISSIONER REDFORD: Okay, then,
Mr. Howell, I'LL turn this matter over to you.
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4 to the stand.
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MR. HOWELL: Staff would call Randy Lobb
COMMISSIONER REDFORD: Okay, Mr. Lobb,
6 Commissioner Smith will take your oath and your
7 particulars.
8
9 RANDY LOBB,
10 produced as a witness at the instance of the Staff,
11 having been first duly sworn, was examined and testified
12 as follows:
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15 Mr. HowelL.
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20 BY MR. HOWELL:
21 Q
COMMISSIONER REDFORD: Please proceed
MR. HOWELL: Than k you, Mr. Cha i rman .
DIRECT EXAMINATION
Mr. Lobb, would you state your name and
22 spell your last for the record, please?
23 A My name is Randy Lobb, L-o-b-b.
And, Mr. Lobb, whom are you employed by
25 and in what capacity?
CSB REPORTING
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24 Q
7 LOBB (Di)Staff
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1 A I'm employed by the Idaho Public Utili ties
2 Commission. I'm the administrator of the utili ties
3 division.
4 Q And are you the same Randy Lobb that
5 prepared supporting testimony and stipulation and
6 settlement dated August 5?
7 A Yes, I am.
8 Q And if I were to as k -- well, are there
9 any changes or corrections to your testimony?
10 A No, there is not.
11 Q And if I were to ask you the questions
12 laid out in your prefiled testimony dated August 5, would
13 your answers be the same today?
14 A Yes, they would.
15 MR. HOWELL: Mr. Chairman, I would move
16 that Mr. Lobb i s testimony be spread upon the record and
17 his Exhibits 101, which is the stipulation in this
18 matter, 102 and 103 be marked for identification.
COMMISSIONER REDFORD: So ordered.
20 (The following prefiled testimony of Mr.
21 Randy Lobb is spread upon the record.)
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8 LOBB (Di)Staff
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1 Q. Please state your name and business address for
2 the record.
3 A.My name is Randy Lobb and my business address
4 is 472 West Washington Street, Boise, Idaho.
5 Q.By whom are you employed?
6 A.I am employed by the Idaho Public Utili ties
7 Commission as Utilities Division Administrator.
8 Q.What is your educational and professional
9 background?
10 A.I received a Bachelor of Science Degree in
11 Agricultural Engineering from the University of Idaho in
12 1980 and worked for the Idaho Department of Water
13 Resources from June of 1980 to November of 1987. I
14 received my Idaho license as a registered professional
15 Civil Engineer in 1985 and began work at the Idaho Public
16 Utilities Commission in December of 1987. My duties at
17 the Commission currently include case management and
18 oversight of all technical Staff assigned to Commission
19 filings.I have conducted analysis of utility rate
20 applications, rate design, proposed tariffs and customer
21 petitions.I have testified in numerous proceedings
22 before the Commission including cases dealing with rate
23 structure, cost of service, power supply, line
24 extensions, regulatory policy and facility acquisitions.
25 Q.What is the purpose of your testimony in this
CASE NOS. AVU-E-10-1
& AVU-G-10-1
9 LOBB, R. (Di) 1
STAFF
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1 case?
2 A.The purpose of my testimony is to describe the
3 Stipulation (the Proposed Settlement) filed in this case
4 and to explain the rationale for Staff's support.
5 Q.Please summarize your testimony.
6 A.Staff believes that the comprehensive Proposed
7 Settlement resolving all issues in the general rate case
8 and agreed to by all parties participating in the
9 settlement process1 is in the public interest, is just
10 and reasonable and should be approved by the Commission.
Q.How is your testimony organized?
12 A.My testimony is subdivided under the following
13 headings:
14 Stipulation Overview Page 2
The Settlement Process Page 5
Revenue Increase and DSIT Page 7
Class Cost of Service Page 14
Rate Design Page 17
DSM Prudency page 19
Consumer Issues Page 22
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22 Stipulation Overview
23 Q.Please provide an overview of the Stipulation
24 and Settlement.
25 A.The Stipulation filed with the Commission
CASE NOS. AVU-E-I0-1
& AVU-G-10-1
10 LOBB, R. (Di) 2
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1 The Idaho Community Action Network and North Idaho
Energy Logs, Inc., as intervenors, were provided notice
of the settlement discussions, but did not participate.
CASE NOS. AVU-E-10-1
& AVU-G-10-1
LOBB, R. (Di) 2a
STAFF
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1 provides for an annual overall increase in electric base
2 revenue of $21.25 million or 9.25%. This increase is
3 partially mitigated for the first two years by using $17
4 million in Deferred State Income Tax (DSIT) credits to
5 offset a portion of the increase.
6 With the credit offset, the first year average
7 net increase for electric service will be $8.25 million
8 or 3.59% effective October 1,2010. The second year
9 increase will be an additional $ 9 million or 3.92% and
10 the third year increase when all credits are exhausted
11 will be an additional $4 million or 1.74%.
12 The Stipulation provides for an overall
13 increase in natural gas revenue of $1.85 million or
14 2.62%. This increase is mitigated in the first year by
15 using $500,000 in DSIT credits to offset a portion of the
16 increase. With the credit, the first year revenue
17 increase will be $1.35 million or 1.9% effective October
18 1, 2010. The remaining increase of 0.72% will occur in
19 the second year when the credit expires.
20 The Stipulation and Settlement specifically
21 identifies annual power supply cost levels for the Power
22 Cost Adj ustment (PCA) mechanism, supports a prudency
23 finding for 2008 and 2009 Demand Side Management (DSM)
24 expenditures, specifies rate spread to the individual
25 classes and supports increased funding for low income DSM
CASE NOS. AVU-E-10-1
& AVU-G-10-1
12 LOBB, R. (Di) 3
STAFF
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1 programs. The Stipulation also addresses accounting
2 treatment for the Coeur d' Alene Tribe Settlement costs,
3 Spokane River Relicensing costs, Colstrip lawsuit costs
4 and Jackson Prairie Storage costs.
5 Finally, the Stipulation provides for workshops
6 and discussion among the parties and the Company on a
7 variety of issues including class cost of service, first
8 block residential rate levels, and a variety of other
9 consumer issues.
10 Al though the Stipulation represents a
11 comprehensive settlement of all revenue requirement
12 issues in the case, it does not specifically identify
13 revenue adj ustments to the Company's case or specify an
14 authorized return on equity (ROE).
15 Q.How does the annual revenue requirement
16 increase for electric and gas service proposed in the
17 Stipulation compare to the increase originally proposed
18 by Avista?
19 A.Avista originally proposed to increase annual
20 electric revenue by $32.114 million or 13.98% and
21 increase annual natural gas revenue by $2.575 million or
22 3.6%. The Stipulated Settlement provides for an increase
23 in annual electric revenue of $21.25 million or
24 approximately 66% of the original request. That increase
25 is further reduced by $13 million for one year and then
CASE NOS. AVU-E-I0-1
& AVU-G-10-1
13 LOBB, R. (Di) 4
STAFF
1 by $4 million in the second year using the DSIT credits..2 Instead of paying an
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CASE NOS.AVU-E-10-1 14 LOBB,R.(Di)4a
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1 additional $32.114 million from October 1, 2010 to
2 October 1, 2011, electric customers will only pay an
3 additional $8.25 million or 26% of the original request.
4 Through September 30, 2012, customers will pay a total of
5 $25.5 million in additional electric costs or 40% of the
6 $ 64.228 million that would have been required under the
7 Company's original proposal.
8 The Stipulated Settlement provides for an
9 increase in annual natural gas revenue of $1.85 million
10 or 70% of the Company i s original request. With the DSIT
11 credit, the first year increase is $1.35 million or 52%
12 of the Company's original request. The Stipulation and
13 Settlement is attached as Staff Exhibit No. 101.
14 The Settlement Process
15 Q.Would you please describe the process leading
16 to the Stipulated Settlement?
17 A.Yes. The Company contacted Staff the week of
18 June 14, 2010 to discuss the possibility of scheduling a
19 settlement workshop. Staff was scheduled to complete its
20 company audit the same week and needed time to review its
21 findings and develop its revenue requirement
22 recommendations for hearing. Staff positions on cost of
23 service, rate design and consumer issues were already
24 well developed.
25 All parties were invited to at tend orparticipate
CASE NOS. AVU-E-10-1
& AVU-G-I0-1
15 LOBB, R. (Di) 5
STAFF
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1 by phone in the settlement workshops on July 6 and July 8
2 in the Commission hearing room. Parties participating in
3 both workshops included Commission Staff, Avista,
4 Clearwater Paper Company, the Community Action
5 Partnership Association of Idaho (CAPAI), the Idaho
6 Conservation League and the Snake River Alliance. Idaho
7 Forest Group only participated in the second workshop.
8 Settlement discussions were dominated by
9 revenue requirement issues with additional discussions on
10 other issues such as cost of service, rate design, low
11 income weatherization funding and other customer service
12 commi tments. Revenue requirement discussion was framed
13 by the electric and natural gas service increases
14 proposed by the Company and the preliminary increase
15 recommendation of Staff for electric service of
16 approximately $16.4 million or 51% of the Company's
17 proposal and for natural gas service of $792,000 or 31%
18 of the Company i s original proposal.
19 At the July 6, 2010 workshop the Company first
20 proposed using $17.5 million in DSIT credits to mitigate
21 the electric and gas service increases. Based on these
22 revenue requirement positions and the positions of the
23 parties on various other issues, negotiations ensued and
24 the Stipulated Settlement was reached.
25 Q.How did the Commission Staff evaluate the
CASE NOS. AVU-E-I0-1
& AVU-G-10-1
16 LOBB, R. (Di) 6
STAFF
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1 Stipulated Settlement to determine that it was
2 reasonable?
3 A.In this case as in other past general rate
4 cases, Staff evaluated the merits of the Stipulated
5 Settlement by comparing it to the expected outcome if the
6 case proceeded to hearing. In other words, Staff had to
7 determine which process would result in the best deal for
8 customers. In Staff's view, the best deal for customers
9 is the lowest justifiable annual revenue requirement.
10 While the Commissioners make the ultimate
11 decision on Company revenue requirement based on the
12 record at hearing , it is the parties to the case that
13 make revenue requirement adjustment recommendations on
14 the record for the Commission to decide. The outcome at
15 hearing in terms of revenue requirement must therefore be
16 evaluated based on both the adjustments to the Company's
17 revenue request that are presented on the record and how
18 the Commission might decide each adjustment.
19 Revenue Increase and DSIT
20 Q.What type of adj ustments to the Company's
21 proposed revenue requirement had Staff identified and
22 what was the dollar value of those adjustments?
23 A.As previously indicated, Staff's preliminary
24 estimate of downward adjustments to the Company's
25 proposed electric revenue increase of $32.114 million
CASE NOS. AVU-E-10-1
& AVU-G-10-1
17 LOBB, R. (Di) 7
STAFF
.1 totaled approximately $15.7 million (a $16.4 million,
2 7.1%
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CASE NOS.AVU-E-10-1 18 LOBB,R.(Di)7a
& AVU-G-10-1 STAFF
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1 increase) and approximately $1.78 million (a $792,000,
2 1.12% increase) on the natural gas service side. The big
3 ticket issues identified by Staff for electric service
4 included: an annual reduction in power supply costs of
5 $6.8 million; a reduction in Return On Equity (ROE) to
6 10% for an annual revenue reduction of $4.3 million;
7 elimination of all salary increases back to January 1,
8 2009 for a revenue reduction of $1.35 million,
9 elimination of Lancaster transmission wheeling expense of
10 $1.6 million; and elimination of working capital of $1.26
11 million. The remaining identified reduction of $550,000
12 in annual revenue consisted of 10 other individual
13 adjustments.
14 On the natural gas side, Staff adjustments for
15 ROE, salaries and removal of Jackson Prairie storage
16 costs represented $1.5 million of the total identified
17 revenue requirement reduction of $1.78 million.
18 Q.How confident was Staff that its adj ustments
19 could be justified on the record and accepted by the
20 Commission upon hearing?
21 A.Staff took a very aggressive approach to
22 developing its revenue requirement adj ustments in
23 preparation for testimony and in preparing for settlement
24 negotiations.It is unlikely that all of the preliminary
25 adjustments presented by Staff in negotiations would havesurvi ved ongoing review to be presented at hearing and it
CASE NOS. AVU-E-10-1
& AVU-G-10-1
19 LOBB, R. (Di) 8
STAFF
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1 is unlikely that all of the adjustments presented at
2 hearing would have been accepted by the Commission.
3 For example, Staff proposed eliminating 90% of
4 the wheeling costs associated with the Lancaster power
5 plant. These costs are actually incurred by Avista to
6 wheel Lancaster power through Bonneville Power
7 Administration's (BPA) system to Avista' s service
8 terri tory. While a reasonable argument could have been
9 made to reduce the costs, it is questionable whether all
10 of the recommended reduction would have been accepted.
11 In addition, Staff had to further develop
12 justification to support the level of proposed reductions
13 in salaries, ROE and working capital before it was
14 presented in testimony. Company rebuttal at hearing
15 could have presented arguments that some or all of the
16 reductions were unjustified. On the gas service side,
17 Staff would have had to offset the proposed revenue
18 requirement reduction for removal of Jackson Prairie
19 storage with benefits included in the Company's case that
20 resulted from the addition of low cost natural gas
21 storage.
22 Finally, Staff could not ignore the $17.5
23 million in DSIT benefits offered by the Company as part
24 of the settlement. Given the complicated nature of the
25 accrual and the difficulty in identifying the level of
CASE NOS. AVU-E-10-1
& AVU-G-10-1
20 LOBB, R. (Di) 9
STAFF
1 tax benefits already returned to customers,Staff was not.2 confident that
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CASE NOS.AVU-E-10-1 21 LOBB,R.(Di)9a& AVU-G-10-1 STAFF
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1 it could justify this level of credit to customers at
2 hearing.
3 Q.How were the DSIT benefi ts derived and why are
4 they now available to offset the present rate increase?
5 A.The deferred state income taxes are booked when
6 there is a difference between the state income taxes paid
7 and the amount reflected on the Company's books. When
8 taxes and benefits are flowed through to customers, no
9 DSIT is booked. When taxes and benefits are normalized,
10 DSIT is booked.
11 Under normalization, the differential is then
12 distributed to customers over the life of the assets.
13 Federal and State tax laws usually dictate when
14 normalization must occur. There are other accounting
15 areas where the Company may elect to use either the
16 flow-through method or the normalization method. This
17 election once made is followed unless properly changed.
18 The DSIT amounts discussed here are a result of Idaho
19 taxes. No Federal or Washington State amounts are at
20 issue.
21 Avista originally flowed these items through
22 but changed to normalization when deregulation was being
23 explored by many entities, both companies and
24 commissions. Due to the timing of rate cases, not all
25 DSIT reflecting the normalization methodology was
CASE NOS. AVU-E-10-1
& AVU-G-10-1
22 LOBB, R. (Di) 10
STAFF
.1 included in rates.In the last general rate cases,Case
2 Nos.AVU-E-09-1 and
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23
24.25
CASE NOS.AVU-E-10-1 23 LOBB,R.(Di)lOa
& AVU-G-10-1 STAFF
.1 AVU-G-09-1, the Company used the flow-through method for
2 state income tax. With that change in accounting
3 treatment, deferrals would not be booked. That left the
4 DSIT balance of approximately $11 million on the books
5 wi th a portion of those benefits belonging to customers.
6 Avista offered the full amount of $17.5 million ($11
7 million grossed-up for taxes) as rate mitigation in the
8 Settlement.
9 Q.Would all of the DSIT benefits used to mitigate
10 the rate increase in settlement have been available to
11 customers if this case had gone to hearing?
.12
13
14
A.No. Staff believes that for a period of time
DSIT was booked at a different level than was reflected
in rates. In other words, customers actually received
15 more tax benefits during the period than are reflected in
16 the booked DSIT. Therefore, it could be demonstrated
17 that the Company rather than customers is entitled to a
18 larger portion of the $17.5 million DSIT.
19 Unfortunately, the mismatch in booked tax
20 versus the ratemaking treatment over time makes it nearly
21 impossible to accurately determine the exact allocation
22 between customers and shareholders of the $11 Million
23 ($17.5 million after tax gross-up) total DSIT booked
24 during the period. It would require extensive study to.25 track the actual amounts normalized in each case
CASE NOS. AVU-E-10-1
& AVU-G-10-1
24 LOBB, R. (Di) 11
STAFF
1 especially when there was a settlement or the amount is.2 not shown in the
3
4 /
5
6 /
7
8 /
9
10
11
12.13
14
15
16
17
18
19
20
21
22
23
24.25
CASE NOS.AVU-E-10-1 25 LOBB,R.(Di)11a
& AVU-G-10-1 STAFF
.
.
.
1 rate case orders. Not only would it be time consuming
2 and costly but the result could be subj ect to dispute.
3 The Stipulated Settlement credits all of the DSIT to
4 customers for maximum benefit.
5 Q.Did any other party to the case indicate intent
6 to address the Company proposed revenue requirement in
7 the rate case?
8 A.One party indicated that it might address
9 appropriate ROE for the Company. Other than that, no
10 parties planned to address revenue requirement issues.
11 Q.Why are a new return on equity and other
12 specific revenue requirement adjustments not specified in
13 the Stipulation?
14 A. Specific adjustments and ROE were not specified
15 in the Stipulation to £acilitate agreement on the overall
16 revenue requirement. While the settlement parties
17 generally agreed on a reasonable level of revenue, there
18 was stark disagreement on the individual adj ustments
19 proposed to reach that revenue level. This was
20 particularly true with respect to ROE. Rather than
21 specify an ROE that all parties could not support, the
22 Stipulation simply specified an overall revenue
23 requirement that could be fully supported.
24
25
Q.Is the Company precluded from filing general
rate cases over the next three years?
CASE NOS. AVU-E-10-1
& AVU-G-10-1 26 LOBB, R. (Di) 12
STAFF
.
.
.
1 A. No. However, the issue of a rate case
2 moratorium was discussed during negotiations. While
3 Staff was concerned over the potential for multiple base
4 rate increases in a single year and requested a
5 moratorium as part of the Settlement package, it was not
6 included in the final Stipulation. In exchange for the
7 moratorium, the Company required an additional increase
8 in revenue requirement that Staff and other parties were
9 unable to support. The moratorium condition was
10 therefore dropped in lieu of a lower overall revenue
11 increase in this case.
12 Q.Could you please summarize why Staff supports
13 the revenue requirement portion of the Stipulation?
14 A. Yes. Staff maintains that the combination of
15 reduced base rate revenue requirement and the use of DSIT
16 benefits to mitigate the increases as specified in the
17 Stipulation is a better deal for customers than could
18 have been achievable through hearings. Staff's best case
19 scenario would have resulted in additional revenue of
20 approximately $32.7 million over two years ($16.34
21 million each year), if all Staff adjustments proposed at
22 settlement were accepted by the Commission. The
23 Stipulated Settlement specifies additional electric
24 revenue of $25.5 million over the two year period ($8.25
25 million in year one and 17.25 million in year two).
CASE NOS. AVU-E-10-1
& AVU-G-10-1
27 LOBB, R. (Di) 13
STAFF
.1
2 had
3
4 /
5
6 /
7
8 /
9
10
11
12.13
14
15
16
17
18
19
20
21
22
23
24.25
Given that neither Staff nor any other party
CASE NOS. AVU-E-10-1
& AVU-G-10-1
28 LOBB, R. (Di) 13a
STAFF
.
.
.
1 identified any DSIT benefits available to customers prior
2 to settlement discussions, it is unclear how thoroughly
3 this information could have been reviewed before prefiled
4 direct testimony was due. Based on a preliminary review
5 by Staff, it appears that over half of the $17.5 million
6 DSIT might not have been normalized in rates so
7 effectively may have already been flowed through to
8 customers in past electric and natural gas rates.In any
9 case, the amount of the DSIT available to customers would
10 be subj ect to dispute at hearing. However, with the
11 Stipulated Settlement customers receive the full $17.5
12 million of the DSIT benefit.
13 Class Cost of Service
14 Q. Please describe the Stipulated Settlement with
15 respect to electric customer class cost of service and
16 revenue spread among classes.
17 A.The Stipulation does not accept the Company's
18 originally proposed class cost of service study but uses
19 a less modified version of the cost of service study last
20 approved by the Commission. The parties then agreed to
21 move all classes one quarter of the way to "full" cost of
22 service as proposed in the Company's original
23 application.
24 Q.What was the cost of service modification and
25 what was its impact?A. The cost of service study originally submitted
CASE NOS. AVU-E-10-1
& AVU-G-10-1
29 LOBB, R. (Di) 14
STAFF
.
.
.
1 by the Company in this case showed that several customer
2 classes were below cost of service including the
3 residential class and several classes were above cost of
4 service. The Company then proposed that all customer
5 classes be moved one quarter of the way to "Full" cost of
6 service. This means that once the overall revenue
7 requirement increase is determined, those classes below
8 cost of service would receive a larger portion of the
9 increase and those above cost of service would receive a
10 smaller portion of the increase.
11 The cost of service methodology initially
12 proposed by the Company deviated from previously accepted
13 cost of service methodology in three significant ways.
14 It proposed a unique approach to the peak credit
15 classification of production costs as energy or demand
16 related; it classified all transmission costs as demand
17 related instead of a split between demand and energy; and
18 it used seven coincident peaks instead of all twelve
19 monthly coincident peaks in formulating the maj or demand
20 allocator. All of these proposed changes benefitted
21 large, high load factor customers or customer groups.
22 The Company proposed the cost of service
23 changes to benefit these customers because the Company
24 observed that they were struggling in today' s economy.
25 Several large customers had down-sized and at least one
had gone
CASE NOS. AVU-E-10-1
& AVU-G-10-1
30 LOBB, R. (Di) 15
STAFF
.
.
.
lout of business. Staff observed that when costs are
2 shifted away from large customers they are shifted to the
3 other customer classes including the residential class,
4 all of whom are also experiencing the downturn in the
5 economy. In settlement, Staff accepted the classification
6 that all transmission costs be demand related only
7 because it is a more common cost of service practice.
8 The overall effect of settlement on cost of
9 service is an increase in the cost responsibility of the
10 residential class over what would have been allocated
11 under previously approved cost of service methodology,
12 but a lower allocation than that originally proposed by
13 the Company.
14 All parties agreed that the one quarter move to
15 full cost of service as originally proposed by the
16 Company was reasonable. Staff recognizes that this
17 relatively small move leaves some substantial room for
18 movement in future cases.
19 Q.Did the parties agree to evaluate electric cost
20 of service prior to the next Avista general rate case?
21 A.Yes. The parties agreed as part of the
22 Stipulation to convene a public workshop to discuss the
23 possibility of revising the peak credit method of
24 classifying production costs. Possible revisions include
25 the monthly production cost weightings (12cp vs. 7cp) and
CASE NOS. AVU-E-10-1
& AVU-G-10-1 31 LOBB, R. (Di) 16
STAFF
.
.
.
14
1 allocation of transmission costs.
2 Q. What did the parties agree to with respect to
3 natural gas cost of service?
4 A.The parties agreed to accept the Company's
5 proposed cost of service methodology and move all classes
6 60% toward full cost of service except for transportation
7 service which will be moved fully to cost of service.
8 Staff supported this position because the methodology was
9 previously approved by the Commission and class increases
10 required to achieve 60% of full cost of service were all
11 within a reasonable range. Staff also supported a full
12 decrease in transportation rates to provide a more
13 accurate price signal reflecting cost of service for that
class.
15 Rate Design
16 Q.The Stipulation provides for an increase in the
17 monthly electric residential customer charge. Why does
18 Staff support the increase?
19 A.The Company originally proposed to increase the
20 monthly electric and natural gas customer charges from
21 the current $4. 60/month to $6.75/month and from
22 $4.00/month to $6.75/ month, respectively. The
23 Stipulation limits the increase in the electric customer
24 charge to $0. 40/month from the current $4. 60/month to
25 $5.00 /month. No change in the monthly natural gas
customer charge is proposed in the Stipulation.
CASE NOS. AVU-E-10-1
& AVU-G-10-1
32 LOBB, R. (Di) 17
STAFF
.
.
.
1 Staff supported the limited customer charge
2 increase as part of a negotiated settlement and to
3 recognize the increased investment made by the Company to
4 install more sophisticated automated meters.
5 Q.Are there any other rate design changes
6 specified in the Stipulation?
7 A.No. The residential energy rate differential
8 for electric energy consumption between the first and
9 second block will not change from the differential that
10 currently exists. This is consistent with the Company's
11 original proposal and provides a reasonable spread
12 between the first and second blocks in Staff's opinion.
13 The Stipulation does include a provision to convene a
14 public workshop prior to the Company's next general rate
15 case to discuss the appropriate threshold between the
16 size of the first tier and second tier energy blocks for
17 residential electric service. Staff welcomes such a
18 discussion.
19 Q.What are the new first year residential energy
20 rates and what is the impact on customer bills?
21 A.The base residential energy rates will increase
22 from $0. 0695/kWh to $0.0777 5/kWh for the first 600 kWh
23 per month and from $0.07867 /kWh to $0. 08691/kWh for
24 energy use above 600 kWh per month. The differential
25 between the first and second block rate is maintained at
CASE NOS. AVU-E-10-1
& AVU-G-10-1
33 LOBB, R. (Di) 18
STAFF
.
.
20
21
22
23
24.25
1 $0. 0092/kWh. The first year base energy rates with the
2 DSIT credit is
3
4 /
5
6 /
7
8 /
9
10
11
12
13
14
15
16
17
18
19
CASE NOS. AVU-E-10-1
& AVU-G-10-1
34 LOBB, R. (Di) 18a
STAFF
.
.
.
1 $0.0735/kWh for the first 600 kWh per month and
2 $0.0818/kWh for energy use above 600 kWh per month. The
3 residential rate impact of the proposed Stipulation and
4 Settlement is shown on Staff Exhibit No. 102.
5 Natural gas rate changes for all customer
6 classes are shown on page 7 of Attachment B to the
7 Stipulation and Settlement.
8 DSM Prudency
9 Q.The Stipulation in this case includes an
10 agreement that Avista' s demand side management (DSM)
11 expenses in 2008 and 2009 were prudently incurred for the
12 benefi t of its Idaho customers. What are the costs
13 associated with DSM for those two years?
14 A. The testimony filed by Avista does not state
15 Idaho-specific DSM costs, but the Company's 2008 and 2009
16 DSM annual reports contain this information. Table
17 14(EG) in the 2008 report indicates that $4,079,015 was
18 spent for DSM funded by Idaho electricity customers and
19 that $2,143,380 was spent for DSM funded by Idaho natural
20 gas customers. Similarly, Tables 11 and 12 in the 2009
21 report show Idaho electricity-funded DSM costs of
22 $5,335,909 and $2,468,528 of costs funded by Idaho
23 natural gas customers.
24 Total DSM expenditures in Idaho for 2008 and
25 2009 were $9,414,924 funded by electricity customers and
$4,611,908 funded by natural gas customers.
CASE NOS. AVU-E-10-1
& AVU-G-10-1
35 LOBB, R. (Di) 19
STAFF
.
.
.
i Q. How will the approximate $14 million spent by
2 Avista for DSM programs affect electric and natural gas
3 rates?
4 A.DSM costs will have no direct effect on
5 tariffed energy rates because Avista' s electricity and
6 natural gas DSM programs are funded through energy
7 efficiency tariff riders, Schedules 91 and 191,
8 respecti vely. Indirectly, however, prudent and
9 cost-effective DSM programs, by definition, reduce the
10 total of all bills paid by Avista' s customers. In short,
11 while customers do pay for Avista' s DSM programs through
12 the energy efficiency tariff riders, a prudency finding
13 for past expenses will not affect the base rates under
14 consideration in this case.
15 Q.Why does Staff support a prudency finding for
16 2008/2009 DSM expenditures as part of the settlement in
17 this case?
18 A.Staff believes that Avista' s DSM efforts in
19 2008 and 2009 were generally reasonable and
20 cost-effecti ve and that sufficient progress is being made
21 toward improving the processes and transparency of its
22 program evaluations.
23 In last year's rate case (AVU-E-O 9-01 and
24 AVU-G-09-01), the Staff recommended that Avista i s request
25 for a prudency finding of its January through November
CASE NOS. AVU-E-10-1
& AVU-G-10-1 36 LOBB, R. (Di) 20
STAFF
.1 2008 DSM costs be deferred " . . . until such time that the
2 Company is able to provide comprehensi ve evaluationsmore
3 of its DSM
4
5 /
6
7 /
8
9 /
10
11
12.13
14
15
16
17
18
19
20
21
22
23
24.25
CASE NOS.AVU-E-10-1 37 LOBB,R.(Di)20a
& AVU-G-10-1 STAFF
.1 programs and efforts." After the conclusion of that
2 case, the Staff convened a DSM evaluation workshop with
3 Avista Utili ties, Idaho Power Company and Rocky Mountain
4 Power. The outcome of the workshop was a Memorandum of
5 Understanding (MOU) signed in December 2009 by Staff and
6 a representative of each of the three utilities. The MOU
7 included evaluation and reporting prerequisites that will
8 allow Staff to evaluate DSM prudency requests by the
9 utili ties. Because the MOD agreement was not reached
10 until the end of 2009, it contained language indicating
11 Staff would allow reasonable leniency for reporting DSM
12 program evaluations through 2009. The MOU also contained.13
14
15
specific language allowing Avista Utilities to re-file
its 2008 DSM prudency request without Staff opposition.
Q.Please describe Avista' s progress in its DSM
16 evaluation and reporting since the MOU was signed.
17 A.As a result of the Commission deferring
18 Avista' s request for a DSM prudency finding in Case Nos.
19 AVU-E-09-01 and AVU-G-09-01, the aforementioned MOU, and
20 similar DSM evaluation questions being raised in a
21 Washington Utili ties and Transportation Commission
22 docket, Avista formed a collaborative process to examine
23 DSM evaluation and low-income program issues. As part of
24 this effort, the Company has been diligently working on a.25 comprehensive DSM Evaluation, Measurement and
Verification (EM&V) Framework
CASE NOS. AVU-E-10-1
& AVU-G-10-1
38 LOBB, R. (Di) 21
STAFF
.
.
1 for review by collaborative members, including the IPUC
2 Staff. The Company has contracted with
3 nationally-respected DSM evaluation experts to improve
4 its own understanding as well as the collaborative's
5 understanding of evaluation best practices. The Company
6 recently reorganized its DSM group to further separate
7 DSM evaluation, policy and planning from DSM
8 implementation. Finally, the Company's Energy Efficiency
9 Annual Report filed on April 1, 2010, which shows 2009
10 DSM performance, is much more detailed than its former
11 "Triple-E" reports. In short, although Avista' s DSM
12 evaluation and reporting are not yet at the level
13 anticipated by the MOU, and Staff has suggested further
14 refinements as part of its comments in Case No.
15 AVD-G-10-02, the Company appears to be making reasonable
16 progress toward addressing remaining insufficiencies.
17 Thus Staff is exercising the "reasonable and necessary
18 leeway" during transition years as contemplated by the
19 MOU. The MOD is attached as Staff Exhibit No. 103.
20 Consumer Issues
21 Q.Could you please describe the basis of Staff's
22 support for the Service Commitments described in Section
23 16 (c) of the Stipulation?
.24
25
A.Yes. The Company has agreed to address several
areas of concern to Staff. Perhaps most important with
CASE NOS. AVU-E-10-1
& AVU-G-10-1
39 LOBB, R. (Di) 22
STAFF
.
.
.
1 respect to rate impact, the Company has committed to
2 review its policies and address in its next general rate
3 case the appropriateness of charging for services it now
4 provides without charge to customers or other parties,
5 e. g., establishing new accounts or managing
6 tenant/landlord accounts. The Company also will
7 re-examine its existing non-recurring charges to
8 determine whether those amounts cover a reasonable
9 portion of the Company's current cost to provide those
10 services. Staff believes it is prudent to re-examine the
11 cost of providing non-recurring or on-going services,
12 particularly where those services are discretionary and
13 are clearly linked to a particular customer or
14 third-party rather than customers in general.
15 Appropriately pricing such services more closely aligns
16 costs with benefits and reduces the upward pressure on
17 rates.
18 The Company has agreed to use its best efforts
19 to meet or exceed its current service level standard (the
20 percentage of calls answered within a defined number of
21 seconds) as established by the Company. Utili ties must
22 be accessible to customers, and an important measure of
23 that accessibility is how promptly calls from customers
24 are answered. Staff has expressed concerns in the past
25 about both the Company's service level standard (80% of
CASE NOS. AVU-E-10-1
& AVU-G-10-1
40 LOBB, R. (Di) 23
STAFF
1 calls answered within 60 seconds)and the Company's.2 performance
3
4 /
5
6 /
7
8 /
9
10
11
12
13.14
15
16
17
18
19
20
21
22
23
24.25
CASE NOS.AVU-E-10-1 41 LOBB,R.(Di)23a& AVU-G-10-1 STAFF
.
.
.
1 in reaching the goals it has set for itself. Given
2 Avista's target, which should be readily achievable,
3 Staff believes it is necessary that the Company focus its
4 attention on improving its performance in this area.
5 Avista has agreed to hold at least five energy
6 conservation workshops for senior citizens in different
7 Idaho communities prior to December 31, 2011. This
8 program is targeted to seniors who might find themselves
9 in tight financial situations that cause them to reduce
10 their use of space heating in order to cut monthly bills.
11 The primary goal of the workshops is to provide education
12 on how to conserve energy without compromising comfort,
13 heal th, and safety. This program has been offered in
14 Washington, but not in Idaho. The Company previously
15 indicated to Staff that it would implement the program in
16 Idaho in 2009, but that did not occur.
17 The Company has agreed to begin tracking and
18 reporting to the Commission monthly data regarding
19 customer credit activity. Staff is in the process of
20 developing a database to track residential customer
21 arrearages, service disconnections, and reconnect ions .
22 The data will enhance Staff's ability to more promptly
23 identify and respond to credit-related issues and more
24 fully inform the Commission on issues related to future
25 policy development.
The Company has also agreed to actively manage
CASE NOS. AVU-E-10-1
& AVU-G-10-1
42 LOBB, R. (Di) 24
STAFF
.
.
.
1 the Low Income Weatherization and Low Income Energy
2 Conservation Education Programs to assure that the stated
3 goals and obj ecti ves of these programs are achieved and
4 that costs associated with these programs are prudently
5 incurred. Consistent with the terms of the DSM prudency
6 MOU mentioned above, Staff believes these customer-funded
7 programs need to be actively managed, not merely
8 underwri tten.
9 Q.Would you please explain Staff's support for
10 addi tional funding for low income weatherization and low
11 income DSM education?
12 A.Yes. Staff agreed to an increase in low income
13 weatherization funding and additional funding for low
14 income education programs in an effort to continue
15 improvement in energy affordabili ty. The increase in low
16 income weatherization and education funding helps fill a
17 growing need for programs that assist customers in
18 reducing their monthly bills. They also save energy and
19 help to reduce Company uncollectible billings to the
20 benefi t of all customers. With the Company's improved
21 commitment to program oversight, Staff anticipates that
22 the cost effectiveness of these programs will improve.
23 Q.Has the Company agreed to work with Staff to
24 address some of the other concerns it has raised?
25 Yes.In coordination with Staff, Avista willA.
CASE NOS. AVU-E-10-1
& AVU-G-10-1
LOBB, R. (Di) 25
STAFF
43
.1 develop and conduct a study on its deposit policy and
2 practices with respect to residential customers. Among
3 the obj ecti ves of the study would be to determine if
4 current deposit policy correctly identifies customers who
5 pose a credit risk to the Company, encourages customers
6 who pose a credit risk to improve payment habits, and
7 reduces the amount of credit and collection activity as
8 well as bad debt associated with those customer accounts.
9 An earlier deposit study independently conducted by
10 Avista fell short of Staff's expectations and the hope is
11 that a more collaborative approach will answer key
12 questions about the efficacy of collecting deposits,.13 particularly with respect to influencing individual
14 customers' payment behavior.
15 The Company also will work with Commission
16 Staff to address Staff's concerns about Avista' s policies
17 and practices with respect to:(a) opening and closing
18 customer accounts and (b) offering term payment
19 arrangements to customers. Staff has identified several
20 issues that fall under these two topics that require
21 further discussion in order to more fully resolve. Given
22 its posi ti ve working relationship with Avista and the
2 3 Company' s commitment in this case, Staff expects to be
24 able to reach resolution on these issues..25 Q.Does this conclude your direct testimony in
CASE NOS. AVU-E-10-1
& AVU-G-10-1
LOBB, R. (Di) 26
STAFF
44
CASE NOS. AVU-E-10-1
& AVU-G-10-1
45 LOBB, R. (Di) 27
STAFF
.
.
.
1
2 open hearing.)
(The following proceedings were had in
MR. HOWELL: With that, Mr. Chairman, Mr.
4 Lobb is available for questions.
3
5
6 Mr. Meyer?
7
8
9
10 Mr. Chairman.
11
12
13
14
15
COMMISSIONER REDFORD: Thank you.
MR. MEYER: I have no cross. Thank you.
COMMISSIONER REDFORD: Mr. Richardson?
MR. RICHARDSON: I have no questions,
COMMISSIONER REDFORD: Any questions?
MR. PURDY: No questions. Thank you .
COMMISSIONER REDFORD: Any questions?
MR. OTTO: None, sir.
COMMISSIONER REDFORD: Well, inasmuch as
16 there are no questions, I will ask the Commission if they
17 have any questions. You thought I was going to leave you
19
18 out, didn't you?
20 wouldn't.
21
COMMISSIONER SMITH: No, I knew you
22 Commissioner Smith.
COMMISSIONER REDFORD: Go ahead,
23
24
25
CSB REPORTING
[phone]
46 LOBBStaff
.1 EXAMINATION
2
3 BY COMMISSIONER SMITH:
4 Q Mr. Lobb, in this settlement agreement,
5 the state deferred income taxes have been used to kind of
6 buy down the rate increase for two years, what happens in
7 Year 3?
8 A In Year 3 the credit, the final year the
9 credi t, would go away and the rates would go up to the
10 full base rate increase that is stipulated and specified
11 in the stipulation, so we start with a base rate increase
12 of, I think it's, 25.5 million, it's bought down by 13.13
14
million in the first year. I think it's 2.72 million in
the second year, and then the last year is 1.74. Let me
15 check on that. I want to make sure that's correct.
16 MR. HOWELL: And Mr. Chairman, to speed
17 this up, Mr. Lobb might want to look at page 4 of his
18 Exhibit 101.
19 THE WITNESS: Yes, on page 4, it shows
20 exactly what will happen. It provides an increase in
21 base rates of 21.25 million and that is bought down by 13
22 million in Year 1 and then 4 million in Year 2, and then
23 at the end of Year 2, the 4 million goes away and so base
24 rates will be maintained at 21.25 million from that point.25 forward absent other rate increases.
CSB REPORTING
[phone]
47 LOBB (Com)Staff
.
.
.
1 Q BY COMMISSIONER SMITH: Right; so if there
2 are no other rate increases, by Year 3 the rates will
3 have risen 9.25 percent?
4 A That's correct.
5 Q On page 19 your testimony, you talk about
6 the demand side management expenses in 2008 and 2009 and
7 you -- I guess my question is the DSM surcharge was
8 increased in a separate case; correct?
9 A For the gas rider- only, not for the
10 electric. The electric rider was not increased, has not
11 been increased for quite some time.
12 Q And I'm confused because I thought we had
13 a case for that.
14 A We had a case for PacifiCorp to increase
15 the rider and we recently increased that to, I believe,
16 4. 72 percent, but not the electric rider for this
17 Company.
18 Q But the gas rider is increased?
19 A Yes, it has been increased.
20 Q So that raises the bill in addition to
21 anything that happens in this case?
22 A That's correct.
23 COMMISSIONER SMITH: Okay, thank you.
24 COMMISSIONER REDFORD: Commissioner
25 Kempton?
CSB REPORTING
[phone]
48 LOBB (Com)Staff
.
.
.
1 COMMISSIONER KEMPTON: Thank you,
2 Mr. Chairman.
3
4 EXAMINATION
5
6 BY COMMISSIONER KEMPTON:
7 Q I have a couple of questions. Most of the
8 questions that I have as I went through the stipulation
9 have actually been answered in the testimony by Mr. Lobb
10 and I'm curious about, Mr. Lobb, the expression of
11 purpose associated with rate spread when it comes to
12 assigning transmission 100 percent to demand.If you do
13 it here, does it set precedence in the future for
14 assigning transmission totally to demand?
15 A One of the things the stipulation includes
16 is a workshop to look at cost of service issues,
17 including whether it is reasonable to assign transmission
18 100 percent based on demand, among other things the 12CP
19 versus 7CP, so the Staff believed that it was a more
20 common practice in cost of service to allocate
21 transmission on 100 percent demand.It's been done in
22 other jurisdictions and other cost of service
23 methodologies approved by the Commission, so we thought
24 that was a reasonable step to take as part of the
25 settlement process, but we will certainly look at that as
CSB REPORTING
[phone]
49 LOBB (Com)Staff
.
.
1 well as many other factors in the future.
2 Q And Commissioner Smith caught the question
3 that I had on the out-year happenings after we run
4 through the allocation of the $17.5 million through three
5 years, so I don't have a question there. I had a
6 question in relationship, and I don't know if I'm going
7 to find it on the tab, okay, on page 2 of the stipulation
8 and settlement agreement that's presented by Avista,
9 there's an item that the Company will work with the
10 Commission Staff to address Staff's concerns about
11 Avista' s policies and practices with respect to opening
12 and closing customer accounts and offering term payment
13 arrangements to customers. I had a note here as to what
14 those concerns were, but again, in looking back at your
15 testimony, I see that you went into some detail there in
16 the areas related to practices not currently happening
17 but anticipated to happen in the future. That's
18 essentially the gist of that section; right?
19 A Yes, it's things that the Staff are
20 currently concerned about with regard to the consumer
21 issues that we want to continue to work with the Company
22 on, get some resolution.
23 Q Okay, then I had a question on DSM and I
24 tabbed it, but if I don't find it here real quick, I'm.25 just going to -- okay, under the energy efficiency
CSB REPORTING
[phone]
50 LOBB (Com)Staff
.1 expenditures and prudence for those, there's quite a long
2 discourse that you present on the acceptance of this
3 section as being prudent and reasonable and it
4 essentially in my mind boils down to terms in the MOU
5 between the three utili ties regulated by the Commission
6 and the Commission Staff related to future practices and
7 anticipations in determining prudency and then the
8 long-term cost effectiveness of those programs, but it
9 seems to me that there's enough uncertainty in things
10 that have and have not started in this, so really what it
11 boils down to is the condition that's in the MOU on
12 reasonable and necessary as the primary condition on.13
14
15
which you're moving forward as the recommendation for
acceptance.
A We anticipated a period prior to reporting
16 based upon the MOU, future reporting, whereby the Company
17 hadn't necessarily conducted all of the studies and
18 evaluation, applied the evaluation methodology that we
19 believed they should have and reported those activities
20 in their annual DSM reports and so as a condition of the
21 MOU, we tried to factor in that transition from what they
22 were doing that we believed was not quite adequate to
23 what the MOD specifies that they will do in the future,
24 and as part of that MOU and the agreement between Staff.25 and the utili ties, we would provide some leniency,
CSB REPORTING
[phone]
51 LOBB (Com)Staff
.1 recognizing that it's very difficult for them to go back
2 and do evaluations on past programs and expenditures, but
3 if they do it going forward, then we would look at that
4 in the light that they haven't done the evaluations that
5 we thought were necessary, so it's a transition period
6 and that's what is recognized in the MOU and that's what
7 we're applying for the '08-' 09 expenditures.
8 Q Okay, then the last question has to do
9 with ROE and that comes out of your testimony and the
10 indication of the fact that it was an area where there
11 was considerable disagreements on specific areas of
12 assignment, but in general, everybody signed on to a.13 general ROE that was acceptable for the purposes of the
14 stipulation. One of the concerns that I always have in
15 settlements when you're not looking at the full rate case
16 because you recognize that there are particular interests
17 of particular groups in trying to define particular
18 return on investments, on equity, there are certain
19 perceptions of how they think the Company should be
20 functioning in terms of the revenue line and so it's not
21 something where in a settlement we're moving directly
22 forward, it's more like we're tacking into the wind and
23 we're getting to the same -- we have an objective, but
24 it's not necessarily the one that -- it is the one that.25 everybody can agree to, but it's a conglomeration of
CSB REPORTING
[phone]
52 LOBB (Com)Staff
.1 separate interests in separate issues that in this case
2 you went into quite long detail on the different
3 interests of the individual parties on ROE. Would you in
4 light of that expansive introduction, would you give your
5 comment on how you see the ROE that's been established in
6 this case, the settlement?
7 A Well, first of all, I would state that
8 there is no ROE established in this case. What the
9 parties agreed to is an overall revenue requirement that
10 didn't specify in fact, the Company came in and made a
11 request for a revenue requirement that included a
12 specific ROE. The Staff made adj ustment proposals and.13 ROE proposals that got the revenue requirement down to a
14 level that we believed was appropriate, and during
15 negotiations, there was disagreement on both the
16 adjustments that the Staff had proposed and the ROE that
17 was proposed and there was no agreement on ROE. We could
18 agree on an overall revenue requirement total, but the
19 parties could not agree on an ROE and so what we decided
20 to do was not specify an ROE and for the purposes of
21 those methodologies that needed an ROE, we would use the
22 one last approved by the Commission, but otherwise, there
23 would be no specified ROE.
24 It would be left to people looking at the.25 deal and seeing what was for specific adjustments and
CSB REPORTING
[phone]
53 LOBB (Com)Staff
.1 expenses and what might be an ROE that would fallout of
2 that, but we believed that it was easier to arrive at a
3 revenue requirement and we were able to do that, but if
4 we had tried to specify an ROE, either the Staff or the
5 Company would have obj ected to that.
6 COMMISSIONER KEMPTON: Thank you for
7 fine-tuning my comment on that, because I recognized in
8 the long run that it was a revenue requirement that
9 prevailed and I was careless in the way I used the ROE
10 characterization in terms of what the final one would be
11 for the Company, so I appreciate that clarification. I
.
.
12 have no further questions, Mr. Chairman.
13 COMMISSIONER REDFORD: Thank you.
14
15 EXAMINATION
16
17 BY COMMISSIONER REDFORD:
18 Mr. Lobb, just a couple of questions withQ
19 regard to the tax credit. I f you know, is the tax
20 credi t, and I'm not a tax lawyer so I don't know, one
21 which you either use the creditor you lose the credit?
22 Do you know whether or not -- maybe Avista can handle
23 that question.
24 My understanding is that the credit isA
25 simply an overpayment that's booked on taxes that are
CSB REPORTING
[phone]
54 LOBB (Com)Staff
.
.
.
1 included in rates and taxes actually paid by the
2 Company.
3 Q Okay.
4 So generally, under normalized taxA
5 methodology, the customers would get that back over time
6 under the normal course of events, but given the change
7 in the tax methodology, flow-through versus normalization
8 that occurred since the late '90s, there is a question as
9 to how much has been actually flowed through,how much
has been normali zed,how much has been paid by customers,
how much tax has not been paid by customers over that
period,so it raises the issue of mismatch between taxes
10
11
12
13 paid by customers and taxes that the Company actually
14 paid.
15 Q But in any event,the customers get the
benefi t of the tax credit in any event?
A Well,with the settlement and the $17.5
million which is the grossed-up 11 million that was
16
17
18
19 deferred, customers get all of that benefit and there's
20 no dispute about how much they're entitled to.
21 I'm just a little concerned why you choseQ
22 two years as the payback period for the tax credit. The
23 reason I say that is because at the end of the two years,
24 or starting the third year, there's going to be, without
25 some other proceeding there's going to be, a large jump
CSB REPORTING
[phone]
55 LOBB (Com)Staff
.1 in rates to make up for the monies that were used by the
2 tax credit.
3 A That's true. There's lots of
4 permutations, I think, that you could have looked at and
5 we looked at quite a few different combinations of first
6 year, second year, third year, how you might spread the
7 tax credit and mitigate the increase. We tried not to
8 have an inordinately large increase in a single year. I
9 think we're 3. 6, we're about 3.9 in the second year. The
10 parties, I believed, wanted the vast maj ori ty of the
11 credi ts in the first year to mitigate the first year
12 increase and then deal with the loss of that credit in.13 the next year and so that's what we tried to do. We
14 tried to front-load the credit to reduce the first year
15 increase, recognizing that that's going to create a
16 larger increase than otherwise would occur in the second
17 year.
18 Q Now, what do we do starting the third
19 year, because it seems to me like after two years have
20 passed that you certainly need to test the effect of that
21 on what the present financial condition of the Company
22 is? Do you envision that we will come back and before
23 those new rates go into effect, do we have some sort of a
24 proceeding to test what the impact on the ROE would be,.25 what the impact on other financial issues having had two
CSB REPORTING
[phone]
56 LOBB (Com)
Staff
.1 years pass?
2 A Well, unfortunately, I believe the Company
3 is going to come in with other general rate cases on top
4 of this phased-in increase that we have agreed to in this
5 case. As far as the Staff is concerned, we have agreed
6 to a base rate increase and that's not subject to later
7 review as part of the stipulation. What will be subj ect
8 to later review is any additional increase on top of this
9 phased-in amount that we have agreed to in this case.
10 Q But don't misunderstand me, I don't obj ect
11 to the way it's been done, I just had wondered how the
12 effect was going to be on the third year given the.13 passage of two years.
14 A Well, most of the increase is in Year 1
15 and Year 2. The third year increase over the prior year
16 will be relatively small. I think it's -- let me look on
17 page 4 -- I think it's 1.74.
18 COMMISSIONER REDFORD: Well, I don't have
19 any further questions, Mr. Lobb. Thank you.
20 COMMISSIONER SMITH: Mr. Chairman?
21 COMMISSIONER REDFORD: Yes, Commissioner
22 Smith.
23 COMMISSIONER SMITH: Could you please
24 remind me what was the last authorized return on equity.25 for this Company? I didn't pick it out or is that a
CSB REPORTING
[phone]
57 LOBB (Com)Staff
.1 question for Mr. Norwood?
2 THE WITNESS: I don't have that
3 information. I think it was 10.5, but I would have to
4 check.
5
6 Norwood.
7
8
9
COMMISSIONER SMITH: I'll check with Mr.
THE WITNESS: Okay.
COMMISSIONER SMITH: Thank you.
COMMISSIONER REDFORD: I have no further
10 questions. Does that conclude -- excuse me, I'll turn it
11 over for cross-examination.
.12
13
14 any questions?
15
16
17
18
19
20
21
22
MR. HOWELL: Staff has no redirect.
COMMISSIONER REDFORD: Okay, do you have
MR. MEYER: No, Your Honor.
COMMISSIONER REDFORD: Mr. Richardson?
MR. RICHARDSON: No, Mr. Chairman.
COMMISSIONER REDFORD: Mr. Purdy?
MR. PURDY: None.
COMMISSIONER REDFORD: Sir?
MR. OTTO: None.
COMMISSIONER REDFORD: Okay, thank you.
23 You may be excused.
24 (The witness left the stand.).25 MR. HOWELL: Mr. Chairman, that concludes
CSB REPORTING
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58 LOBB (Com)Staff
.1 the Staff's case.
2 COMMISSIONER REDFORD: Are you going to
3 offer the stipulation now or later?
4 MR. HOWELL: It might be appropriate after
5 you've heard all the testimony from the other parties
6 that we would then accept the exhibits and the
7 stipulation is already a matter of record.
8 COMMISSIONER REDFORD: Okay. Sir?
9 MR. MEYER: Very good, Chairman Redford,
10 call Mr. Norwood to the stand.
11
12.
.
KELLY O. NORWOOD,
13 produced as a witness at the instance of the Avista
14 Corporation, having been first duly sworn, was examined
15 and testified as follows:
16
17 DIRECT EXAMINATION
18
19 BY MR. MEYER:
20 Mr. Norwood, for the record, would youQ
21 please state your name and your employer?
22 Yes, Kelly Norwood. I work for AvistaA
2 3 Utilities.
24 And have you prepared prefiled testimonyQ
25 in support of the stipulation?
CSB REPORTING
[phone]
59 NORWOOD (Di)
Avista Corporation
.1 A Yes, I have.
Do you have any changes or corrections to
No, I do not.
So if I were to ask you the questions that
6 appear in that prefiled testimony, would your answers be
2 Q
Yes.
The information contained therein is true
10 and correct to the best of your knowledge?
11
12.13
3 make to that?
4 A
5 Q
7 the same?
8 A
9 Q
A Yes.
MR. MEYER: With that, Mr. Chairman, I ask
that Mr. Norwood's testimony be entered into the record
14 as if read.
15 COMMISSIONER REDFORD: Fine.
16 (The following prefiled testimony of Mr.
17 Kelly Norwood is spread upon the record.)
.
18
19
20
21
22
23
24
25
CSB REPORTING
[phone]
60 NORWOOD (Di)
Avista Corporation
.1 I . INTRODUCTION
2 Q.Please state your name, employer and business
3 address.
4 A.My name is Kelly O. Norwood and I am employed
5 as the Vice-President of State and Federal Regulation for
6 Avista Utilities ("Company" or "Avista"), at 1411 East
7 Mission Avenue, Spokane, Washington.
8 Q.Would you briefly describe your educational
9 background and professional experience?
10 A.Yes.I am a graduate of Eastern Washington
11 University with a Bachelor of Arts Degree in Business
12 Administration, majoring in Accounting.I joined the.13 Company in June of 1981. Over the past 29 years, I have
14 spent approximately 18 years in the Rates Department with
15 involvement in cost of service, rate design, revenue
16 requirements and other aspects of ratemaking. I spent
17 approximately 11 years in the Energy Resources Department
18 (power supply and natural gas supply) in a variety of
19 roles, with involvement in resource planning, system
20 operations, resource analysis, negotiation of power
21 contracts, and risk management. I was appointed
22 Vice-President of State & Federal Regulation in March
23 2002.
24 Q.What is the scope of your pre-filed testimony.25 in this proceeding?
61 Norwood, Di 1
Avista Corporation
.
10
11
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20
21
.
1 A. The purpose of my testimony is to describe and
2 support the Stipulation and Settlement (" Stipulation") ,
3
4 /
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8 /
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62 Norwood, Di la
Avista Corporation
.
.
.
1 filed on July 26, 2010 between the Staff of the Idaho
2 Public Utilities Commission (" Staff"), Clearwater Paper
3 Corporation ("Clearwater"), Idaho Forest Group, LLC
4 (" Idaho Forest"), the Community Action Partnership
5 Association of Idaho ("CAPAI"), the Snake River Alliance
6 (" Snake River"), the Idaho Conservation League
7 ("Conservation League"), and the Company, which, if
8 approved by the Commission, would resolve all of the
9 issues in the Company's filing. These entities are
1 0 collectively referred to as the "Parties," and represent
11 all parties in the above-referenced cases that
12 participated in settlement discussions. 1
13 The Stipulation is the product of settlement
14 discussions held in the Commission offices on July 6 and
15 8, 2010, which were attended by signatories to the
16 Stipulation. The Stipulation between the Parties
1 7 resolved all issues associated with the calculation of
18 the Company's requested revenue requirement, all issues
19 related to rate spread and rate design, provides
20 additional funding for low income energy efficiency
21 measures and education, and also provides for future
22 workshops to address certain customer service-related
23 issues.
24 The Stipulation represents a compromise among
25 differing points of view. Concessions were made by all
63 Norwood, Di 2
Avista Corporation
.
.
.
1 Parties to reach a balancing of interests.As will be
2 explained in the
3
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6 /
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8 /
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10
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13
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15
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20
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24 1 The Idaho Community Action Network and North Idaho Energy Logs f Inc. f as
intervenors f were provided notice of the settlement discussions f but did not
25 participate _
64 Norwood, Di 2a
Avista Corporation
.
.
.
1 following testimony, the Stipulation represents a fair,
2 just and reasonable compromise of the issues and is in
3 the public interest.
4 Q.Please explain how the Parties arrived at the
5 Stipulation in this proceeding.
6 A.The Stipulation is the end result of extensive
7 audi t work conducted through the discovery process and
8 hard bargaining by all Parties in this proceeding. I
9 would like to express my appreciation to all Parties
10 involved in this proceeding for their efforts in arriving
11 at this Stipulation and to this Commission for your
12 willingness to hear this matter promptly, in light of the
13 proposed October 1 effective date.
14 Q. Would you briefly summarize the Stipulation?
15 A.Yes. Under the terms of the settlement
16 agreement, Avista would be allowed to implement revised
17 tariff schedules designed to recover $21.25 million in
18 addi tional annual electric revenue, which represents a
19 9.25% increase in electric annual base tariff revenues.
20 Avista would also be allowed to implement revised tariff
21 schedules designed to recover $1.85 million in additional
22 annual natural gas revenue, which represents a 2.6%
23 increase in natural gas annual base tariff revenues.
24 Included in the Stipulation is a rate impact mitigation
25 plan wherein the increases are partially offset by $17.5
65 Norwood, Di 3
Avista Corporation
.
.
.
20
21
22
23
24
25
1 million of Deferred State Income Taxes (DSIT) that would
2 be passed through to customers.
3
4 /
5
6 /
7
8 /
9
10
11
12
13
14
15
16
17
18
19
66 Norwood, Di 3a
Avista Corporation
.
.
.
1 This DSIT represents the balance of Idaho state deferred
2 income taxes from prior years, which is discussed below.
3 The Parties agree that this settlement is not
4 contingent upon any specific methodology for individual
5 components of the revenue requirement determination, but
6 all Parties support the overall increase to the Company's
7 revenue requirement, and agree that the overall increase
8 represents a fair, just and reasonable compromise of the
9 issues in this proceeding and that this Stipulation is in
10 the public interest.
11 As part of the Stipulation, the annual funding level
12 of the existing low-income Demand Side Management
13 programs would be increased to $700,000, up from the
14 current $465,000. The funding to assist low-income
15 energy efficiency outreach and education would be
16 increased from $25,000 to $40,000.
17 Q.Would you briefly summarize the rate impact
18 mitigation plan?
19 A.Yes. The DSIT reflected on the Company's
20 balance sheet totals approximately $11.1 million, and
21 when adjusted for the effect of the revenue conversion
22 factor of 0.63676, totals approximately $17.5 million,
23 representing normalization of state income taxes for a
24 period of years. As part of this mitigation plan, the
25 Parties agree to credit $17 million of the DSIT to
67 Norwood, Di 4
Avista Corporation
.1 electric customers over two years to help offset the rate
2 impact,and $0.5 million to natural
3
4 /
5
6 /
7
8 /
9
10
11
12.13
14
15
16
17
18
19
20
21
22
23
24.25
68 Norwood,Di 4aAvistaCorporation
.
.
.
1-'gas customers for one year to help offset a portion of
2 the first year rate increase.
3 The $17 million DSIT credit would offset electric
4 prices for customers for two years, reducing the impact
5 of the electric rate increase effective Oct. 1, 2010,
6 from an overall 9.25 percent to 3.59 percent.wi th the
7 offsetting credit, a residential customer using an
8 average of 1,000 kilowatt-hours a month would see a $3.50
9 per month increase, or 4.3 percent, for a revised monthly
10 bill of $84.40.
11 As part of the phase-in of the DSIT, electric rates
12 would increase 3.92 percent Oct. 1, 2011, and 1.74
13 percent Oct. 1, 2012, after which the temporary credi t
14 would expire.This is shown in the following table:
15
16 Year 1
(October 1,2010)
Year 2
(October 1,2011)
Year 3
(October 1,2012)
17
Total Increase $21.25 mion 9.25% $21.25 mion 9.25%$21.25 mion 9.25%
18 ".".............~...... ..., -.." . - ...j ......~.... -..
Less - DSIT Credit $0.00 mion O.()/o$13.00 mion '; 5.66%,$4.00 mion 1.74%
19 Less - Prior Increase $0.00 mion. 0.00.$8.25 mion 3.59% $17.25 mion 7.51%
20 Net Increase to
Customers 54.00 millon 1.74%
21
22 The DSIT credit would reduce, for one year, the
23 natural gas rate increase from 2.6 percent to 1.9
24 percent.The revised monthly bill for a customer using
25 an average of 65 therms a month would increase $ 1.71 from
69 Norwood, Di 5
Avista Corporation
.1 $57.69 to $59.40.
2 Q.Please elaborate the DSIT funds that areon
3 being used to mitigate the impact of the rate increase.
4
5 /
6
7 /
8
9 /
10
11
12.13
14
15
16
17
18
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20
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24.25
70 Norwood,Di 5aAvistaCorporation
.
.
.
1 A. Deferred SIT (DSIT) has been on the Company's
2 books since the mid-1990s. Deferrals ceased when rates
3 were approved in Case Nos. AVU-E-09-01 and AVU-G-09-01
4 that reflected the flow-through method for state income
5 taxes. The switch to the flow-through method provided
6 the opportunity to make the DSIT balances available to
7 partially offset the general rate case electric and
8 natural gas rate increases.
9 The DSIT balances were created by the differences
10 between book and tax depreciation. The tax effect of the
11 difference between book and tax depreciation was deferred
12 and created the balance of deferred state income taxes.
13 The balance of deferred state income taxes is the
14 resul t of normalizing state income taxes for ratemaking
15 purposes. Case Nos. AVU-E-09-01 and AVU-G-09-01
16 reflected the switch to the flow-through method for state
17 income taxes.
18 II. HISTORY OF FILING
19 Q.Please describe the Company's general rate case
20 request, as filed.
21 A.On March 23, 2010, Avista filed an Application
22 wi th the Commission for authority to increase revenue for
23 electric and natural gas service in Idaho by 14% and
24 3.6% , respectively.If approved, the Company's revenues
25 for electric base retail rates would have increased by
$32.1
71 Norwood, Di 6
Avista Corporation
.
.
.
1 million annually; Company revenues for natural gas
2 service would have increased by $2. 6 million annually.
3 The Company proposed to spread the electric revenue
4 increase by rate schedule, utilizing the results of the
5 cost of service study, on a basis which: 1) moved the
6 rates for all the schedules closer to the cost of
7 providing service, and 2) resulted in a reasonable range
8 in the proposed percentage increase across the schedules.
9 The Company also proposed to raise the monthly electric
10 residential basic charge to $6.75 from the current $4.60
11 charge.
12 The Company proposed utilizing the results of the
13 natural gas cost of service study, as a guide in
14 spreading the overall revenue increase to its natural gas
15 service schedules and proposed to raise the natural gas
16 residential basic charge to $6.75 from the current $4.00.
17 Q.What are the primary factors causing the
18 Company's request for an electric rate increase in this
19 filing?
20 A.The Company's electric request is driven
21 primarily by an increase in production and transmission
22 expenses, due to the addition of the Lancaster plant
23 Power Purchase Agreement (PPA) in base rates, the
2 4 termination of some low-cost power purchases, reduced
25 hydro generation, and increased fuel costs. These costs
72 Norwood, Di 7
Avista Corporation
.
.
.
13
14
15
16
17
18
19
20
21
22
23
24
25
1 equate to approximately 80% of the Company's overall
2 request. In addition, 12% of the request is due to
3 investing large amounts of capital in the Company's hydro
4 and thermal generation proj ects, and
5
6 /
7
8 /
9
10 /
11
12
73 Norwood, Di 7 a
Avista Corporation
.
.
.
1 transmission and distribution upgrades.In addition, the
2 Company continues to experience increasing costs related
3 to meeting new reliability standards, from additional
4 compliance requirements, and the need to replace aging
5 infrastructure.It is simply not possible to cut other
6 costs enough to offset these cost increases, as explained
7 in the Company's original filing.
8 Q.What are the primary factors driving the
9 Company's request for a natural gas rate increase?
10 A.The Company's natural gas request is primarily
11 driven by the inclusion in this case of the increased
12 plant investment and inventory associated with the
13 transfer of additional capacity and deli verabili ty in the
14 Jackson Prairie Storage facility from Avista Energy to
15 Avista Utilities, effective May 1, 2011. Other changes
16 are due to various operating cost components, mainly
17 administrati ve and general expenditures.
18 III. ELEMENTS OF THE STIPULATION
19 Q.Please describe the terms of the Stipulation
20 entered into by the Parties.
21 A.While the Parties to the stipulation agreed
22 that this would be a settlement with no party accepting a
23 specific methodology for certain elements of the revenue
24 requirement determination, the Stipulation does specify
25 an agreed-upon level of power supply costs upon which to
74 Norwood, Di 8
Avista Corporation
.
.
.
20
21
22
23
24
25
1 set the new base power supply costs for the monthly power
2 cost
3
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19
75 Norwood, Di 8a
Avista Corporation
.
.
.
1 adj ustment (PCA) calculation purposes, and it identifies
2 other specific items that I will address in my testimony
3 below.
4 Q.Where is the new level of power supply costs
5 for the PCA calculation purposes found in the agreement?
6 A.The agreed-upon level of power supply costs for
7 the monthly PCA calculation purposes is provided in
8 Attachment A to the Stipulation.
9 Q.What is the proposed effective date of the
10 Stipulation?
11 A.The Parties have requested implementation of
12 the Stipulation on October 1, 2010. This proposed
13 effecti ve date is an integral part of the Stipulation
14 that was part of the negotiated resolution of all of the
15 issues.
16 Q.Please explain the settlement terms relating to
17 the recovery of Lancaster costs.
18 A.The Lancaster power plant is a 275 MW gas-fired
19 combined-cycle combustion turbine located in Rathdrum,
20 Idaho. Avista Utili ties will purchase all of the output
21 of the plant through 2026. In Case No. AVU-E-09-01, a
22 settlement was reached in which the purchase of the
23 output from the Lancaster generating plant was found to
24 be reasonable with the recovery of the fixed and variable
25 costs through the PCA. Those costs have now been
76 Norwood, Di 9
Avista Corporation
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1 incorporated into the base revenue requirement in this
2 case.
3
4 /
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6 /
7
8 /
9
77 Norwood, Di 9a
Avista Corporation
.
.
.
1 Q. Please explain the settlement terms relating to
2 cost of service.
3 A.As part of this rate case, the Company prepared
4 an analysis of using a peak credit method of classifying
5 production costs, allocating 100% of transmission costs
6 to demand, and allocating transmission costs to reflect
7 any peak and off-peak seasonal cost differences over
8 seven months, rather than assuming an equal weighting
9 over twelve months. The Parties agree to take into
10 account, for purposes of rate spread in this proceeding,
11 the allocation of 100% of transmission costs to demand.
12 The Parties have otherwise agreed to exchange information
13 and convene a public workshop, prior to the Company's
14 next general rate case, with respect to the possible use
15 of a revised peak credit method for classifying
16 production costs, as well as consideration of the use of
17 a 12 CP (whether "weighted" or not) versus a 7 CP or
18 other method for allocating transmission costs.
19 The Parties have also agreed to move all electric
20 rate schedules approximately 25% toward unity (except for
21 the Street and Area Lighting Schedules, which will
22 recei ve a percentage increase equal to the overall
23 increase in revenue requirement).
24 The Parties agreed to move all natural gas rate
25 schedules approximately 60% toward unity (except for
78 Norwood, Di 10
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1 Transportation Service Schedule 146, which will receive a
2 full decrease to unity).
3 Q.Please explain the settlement terms relating to
4 prudence of energy efficiency expenditures.
5 A.The Parties agree that Avista' s expenditures
6 for electric and natural gas energy efficiency programs
7 from January 1, 2008 through November 30, 2008, and from
8 December 1, 2008 through December 31, 2009 are prudent
9 and recoverable.
10 Q.Please describe the customer service-related
11 portion of the Stipulation.
12 A.There are three areas that were addressed in
13 the Stipulation, as follows:
14 (a) Low-Income Weatherization Funding - The Parties
15 agree that the annual level of funding of $465,000 to the
16 Communi ty Action Partnership (CAP) agencies for funding
17 of weatherization (which includes administrative
18 overhead) should be increased to $700,000. The
19 continuation and level of such funding will be revisited
20 in the Company's next general rate filing, or other
21 appropriate proceeding. This total amount will be funded
22 through the Energy Efficiency Tariff Rider (Schedules 91
23 and 191).
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(b)Funding for Outreach for Low-Income
Conservation - The Parties agree to annual funding of
79 Norwood, Di 11
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.1 $40,000 to the Idaho CAP for purposes of providing
2 low-income outreach and education concerning
3 conservation.This amount will be
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1 funded through the Energy Efficiency Tariff Rider
2 (Schedules 91 and 191), and will be in addition to the
3 $700,000 of Low-Income Weatherization Funding. The
4 continuation and level of such funding will be revisited
5 in the Company's next general rate filing or other
6 appropriate proceedings.
7 (c) Other Service Commitments - The Parties agree
8 to several other service commitments as follows:
9 (i) The Company will review its policies and
10 address in its next general rate case the
11 appropriateness of charging for services it now
12 provides without charge to customers or other
13 parties, e. g., establishing new accounts or
14 managing tenant/landlord accounts. The Company
will also reexamine its existing non-recurring
charges to determine whether those amounts
cover a reasonable portion of the Company's
current cost to provide those services.
(ii) The Company will use its best efforts to meet
or exceed its current contact center service
level standards.
(iii) In coordination with Staff, the Company will
develop and conduct a study on Avista' s deposit
policy and practices with respect to
residential customers. Among the obj ecti ves of
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the study would be to determine if the current
deposit policy correctly identifies customers
82 Norwood, Di 12a
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1 who pose a credit risk to the Company, whether
2 it encourages customers who pose a credit risk
3 to improve payment habits, and whether it
4 reduces the amount of credit and collection
5 acti vi ty as well as bad debt associated with
6 those customer accounts.
7 (iv) The Company will hold at least five Senior
8 Energy Conservation workshops in different
9 Idaho communities prior to December 31, 2011.
10 (v)The Company will begin tracking and reporting
11 to the Commission monthly data regarding
12 customer credit acti vi ty.
13 (vi) The Company will actively monitor the Low
14 Income Weatherization and Low Income Energy
15 Conservation Education Programs to assure that
16 the stated goals and obj ecti ves of these
17 programs are achieved and that costs associated
18 wi th these programs are prudently incurred.
19 (vii) The Company will work with Commission Staff to
20 address Staff's concerns about Avista' s
21 policies and practices with respect to: (a)
22 opening and closing customer accounts, and (b)
23 offering term payment arrangements to
24 customers.
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1 Q. Does the Company have other programs in place
2 to mitigate the impacts on customers of the proposed rate
3 increase?
4 A.Yes. We have a history of making it a priority
5 wi thin our Company to maintain meaningful programs to
6 assist our customers that are least able to pay their
7 energy bills. We also have programs to assist our entire
8 customer base, i. e., not just our low-income customers.
9 Some of the key programs that we offer or support are as
10 follows:
11 Programs designed to assist customers include:
12 .Increased DSM Energy Efficiency Programs and
Funding. In January 2009 Avista proposed, and the
IPUC approved, modifications to the Company's energy
efficiency program offerings. The modifications
further broadened the technical and financial
support Avista provides to its customers, and
provides customers with increased opportunity to
manage their energy bills. In 2008 Avista also
launched the award-winning "Every Little Bit" energy
efficiency promotional campaign which integrates all
of the Company's energy efficiency programs into onelocation.
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18 .Project Share. Proj ect Share is a voluntary program
allowing customers to donate funds that are
distributed through community action agencies to
customers in need. In addition to the customer and
employee contributions in 2009 of $81,700 in Idaho,
the Company contributed $111,800, Idaho's share, to
the program in 2009.
19
.Comfort Level Billing. The Company offers the
option for all customers to pay the same bill amount
each month of the year by averaging their annual
usage. Under this program, customers can avoid
unpredictable winter heating bills.
84 Norwood, Di 14
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Payment Arrangements. The Company's Contact Center
Representatives work with customers to set up
payment arrangements to pay energy bills.
85 Norwood, Di 14a
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1 .CARS Program. Customer Assistance Referral
and Evaluation Services provides assistance to
special-needs customers through access to specially
trained (CARES) representatives who provide
referrals to area agencies and churches for help
with housing, utilities, medical assistance, etc.
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Gatekeepers Program. Avista has implemented the
Gatekeepers Program, a program that trains field
personnel to be aware of signs that a customer maybe having difficulty with daily living tasks (e.g.,
paper or mail not collected, disheveled appearance,
etc). The CARES representatives conducted training
of company-wide field personnel who come into
contact with residential customers on a regular
basis. In the event employees identify a customer
having difficulty, the employee is asked to notify
the CARES representatives who would contact
appropriate community resources for assistance.
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7
8
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11 .Senior Energy Outreach. Avista has developed
specific strategic outreach efforts to reach our
more vulnerable customers (seniors and disabled
customers) with energy efficiency information thatemphasizes comfort and safety.
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14 .Senior Publications. Avista has created a one-page
advertisement that has been placed in senior
resource directories and targeted senior
publications to reach seniors with information about
energy efficiency, Comfort Level Billing, Avista
CARES and energy assistance. A brochure with the
same information has also been created for
distribution through senior meal delivery programs
and other senior home-care programs.
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19 .Power to Conserve. In partnership with KREM
television, a half-hour television program is
annually developed that covers low-cost and no-cost
ways to save energy at home. The goal of the
program is to help limited income seniors and other
vulnerable populations with their energy bills by
providing home energy conservation education. The
program provides helpful energy conservation tips,
information on community resources and ways for
customers to manage their energy bills. A DVD of
the program has also been produced which is included
as part of energy conservation kits provided in
senior conservation workshops.
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1 .Every Little Bit House. In partnership with KREM
television, the long-running "Power to Conserve"
program was updated to profile energy efficiency
work done on an actual Avista customer's home
utilizing the low income weatherization program
provided by SNAP. The program utilizes a series of
commercial vignettes that are specifically targeted
to provide helpful energy conservation tips,
information on community resources and ways for
customers to manage their energy bills. Its primary
target audience is limited income, senior and
vulnerable customers.
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8 Q.Please describe the accounting treatment agreed
9 to by the Parties for three specific issues.
10 A.The Parties agree to the accounting treatment
11 for the following items:
12 (a) Coeur d' Alene Tribe Settlement and Spokane
13 River Relicensing Deferrals - The Parties agree to a
14 ten-year amortization of the remaining balances beginning
15 October 1, 2010 of the CDA Settlement Deferral, the
16 Spokane River Deferral, and the Spokane River PM&E
17 Deferral.
18 (b) Colstrip Lawsuit Settlement - The Parties agree
19 to eliminate the amortization of the deferred costs, due
20 to insurance proceeds received subsequent to the original
21 filing of the case.
22 (c)Jackson Prairie (JP) Storage - The parties
23 agree to the revised accounting treatment proposed by the
24 Company for its existing cushion gas using the net book
25 value of the utility assets at February 2010 to record
87 Norwood, Di 16
Avista Corporation
.1 the transfer of the cushion gas from non-recoverable
2 (FERC Account No.352.3),which is a depreciable asset,
3 to recoverable (FERC
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1 Account No. 117.1), which is a non-depreciable asset.
2 The JP assets that will transfer from Avista Energy on
3 May 1, 2011, will include plant assets, operations and
4 maintenance expenses, as well as cushion gas that will be
5 recorded in both recoverable and non-recoverable FERC
6 accounts using a similar allocation method.
7 iv. RATE SPREAD & RATE DESIGN
8 Q.How did the Stipulation address rate spread?
9 A.The table on Page 3 of Attachment B of the
10 Stipulation shows the impact on the energy rates under
11 each service schedule of the agreed-upon electric
12 increase. The proposed electric revenue increase of
13 $21,250,000 represents an overall increase of 9.25% in
14 base rates and is spread based on the Company's proposed
15 methodology of moving all electric rate schedules
16 approximately 25% toward unity (except for the Street and
17 Area Lighting Schedules, which will receive a percentage
18 increase equal to the overall increase in revenue
19 requirement). The application of the DSIT credit to
20 electric customers is spread based on each schedule's
21 contribution to the general increase in this case, which
22 represents a first year reduction in revenue of 5.66%.
23 The first year net increase to electric revenue as a
24 result of the general increase and the DSIT credit is
25 3.59% of base rates.
89 Norwood, Di 17
Avista Corporation
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1 Page 8 of the Stipulation shows the impact on each
2 service schedule of the agreed-upon natural gas
3 increases. The increased natural gas revenue requirement
4 of $1,850,000 represents an overall increase of 2.6% in
5 base rates. The natural gas increase is spread based on
6 the Company's proposed methodology of moving all natural
7 gas rate schedules approximately 60% towards unity
8 (except for the Transportation Service Schedule 146,
9 which will receive a full movement to unity). The
10 application of the DSIT credit to natural gas customers
11 is spread based on each schedule's contribution to base
12 revenues including the general increase in this case. The
13 net increase to natural gas revenue as a result of the
14 general increase and the DSIT credit is 1.9% of base
15 rates.
16 What is the basis of the Stipulation relatingQ.
17 to the rate design?
18 A.The Stipulation outlined increases in the basic
19 charges, monthly minimum charges, and demand charges in
20 Schedules 11, 21, 25, and 31, as shown in Attachment B,
21 page 3 of the Stipulation. Otherwise, a uniform
22 percentage increase is applied to each energy rate wi thin
23 each electric service schedule excluding Schedule 1,
24 residential service where block differentials remain
25 constant.
90 Norwood, Di 18
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1 The Parties also agreed that the current residential
2 electric basic charge of $4.60 would be increased to
3 $5.00
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91 Norwood, Di 18a
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1 per month and the residential natural gas basic charge of
2 $4.00 per month would remain unchanged.
3 V. CONCLUSION
4 Q.What is the effect of the Stipulation?
5 A.The Stipulation represents a negotiated
6 compromise on a variety of issues among the Parties.
7 Thus, the Parties have agreed that no particular party
8 shall be deemed to have approved the facts, principles,
9 methods, or theories employed by any other in arriving at
10 these stipulated provisions, and that the terms
11 incorporated should not be viewed as precedent setting in
12 subsequent proceedings except as expressly provided.
13 Q.In conclusion, why is this Stipulation in the
14 public interest?
15 A.This Stipulation strikes a reasonable balance
16 between the interests of the Company and its customers,
17 including its low-income customers. As such, it
18 represents a reasonable compromise among differing
19 interests and points of view.
20 The Parties have agreed that the Company has
21 demonstrated need for a revenue requirement increase for
22 both its electric and natural gas customers. The
23 Stipulation provides for recovery of these costs. In the
24 final analysis, however, any settlement reflects a
25 compromise in the give-and-take of negotiations. The
92 Norwood, Di 19
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1 Commission, therefore, has before it a Stipulation that
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1 by sound analysis and supporting evidence, the approval
2 of which is in the public interest.
3 Q.Does this conclude your pre-filed direct
4 testimony?
5 A.Yes, it does.
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94 Norwood, Di 20
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1
2 open hearing.)
(The following proceedings were had in
MR. MEYER: Thank you, and he is available
COMMISSIONER REDFORD: Mr. Howell?
MR. HOWELL: No questions, Mr. Chairman.
COMMISSIONER REDFORD: Mr. Richardson?
MR. RICHARDSON: No questions,
COMMISSIONER REDFORD: Mr. Purdy?
MR. PURDY: No questions.
COMMISSIONER REDFORD: Sir?
MR. OTTO: No questions.
COMMISSIONER REDFORD: Thank you. Are
17 there any questions from the Commission? Commissioner
3
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5 for cross.
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8 Thank you.
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11 Mr. Chairman.
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18 Smith.
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EXAMINATION
22 BY COMMISSIONER SMITH:
23 Q Yes, Mr. Norwood, could you refresh my
24 memory on when the Commission last authorized a return on
25 equity for the Company and what that is?
CSB REPORTING
[phone]
95 NORWOOD (Com)
Avista Corporation
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1 A Yes, in the case last year with rates
2 effective October 1st, or was it August 1st, the ROE was
3 10.5 percent.
4 Q So it was authorized sometime in 2009?
5 A That's correct. I believe it was in July
6 of 2009.
7 Q Okay. I believe that's my only question,
8 except I guess I have a nagging concern about the
9 Company's customer relations and I'm wondering, I don't
10 even know how to pose a question about it, but do you
11 have any comments on things getting any better or are you
12 doing anything different?
13 A We are doing things different. We are
14 concerned about customer satisfaction, which I'm going to
15 set that aside for just a minute, because as we talk with
16 customers who do business with us, when we put in new
17 service, when they call with bill issues, what we're
18 finding is that the customers are rating us at 90 plus
19 percent in terms of satisfaction, so that part of it, I
20 think, is going well.
21 The other part of it, though, does have to
22 do with customer understanding of why our prices have
23 gone up and why we're asking for an increase in this
24 economy, so some things we're doing differently now,
25 we've had -- our regional business partners have started
CSB REPORTING
[phone]
96 NORWOOD (Com)
Avista Corporation
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1 to send e-mails in the past year to the business leaders
2 in the communi ties that we serve and out of that, we had
3 five different city councils ask us to come and make
4 presentations to them to explain to them why our costs
5 are going up and why there's a need to increase rates, so
6 myself and a couple of other folks went out to five
7 different cities, Rathdrum, Spirit Lake, Post Falls,
8 Harrison, and Hayden, and made presentations to the city
9 councils, and what we found is once they heard the
10 information and understood the information, we also had
11 opportunity before and after those meetings to talk with
12 some of the customers that were there and through the
13 city council members and the mayors, then that helped
14 them a lot, I think, to better understand what the
15 changes are that are going on for us and why there is a
16 need to increase rates even in this economic
17 circumstance.
18 We also had one of the business leaders in
19 Post Falls ask us to come over, so I went over and spent
20 an hour-and-a-half with him. He meets with a group of 40
21 to 50 business leaders in Post Falls, so in the time that
22 I spent with him, I think that was also helpful, so
23 that's something different that we're doing now that we
24 haven't done in the past.
25 Another thing that we're doing is we found
CSB REPORTING
[phone]
97 NORWOOD (Com)
Avista Corporation
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1 that customers -- we're trying to find out where we're at
2 and how do we meet that need and what we're finding is a
3 lot of them are getting their information over the
4 Internet and so now we're very much involved in the past
5 year with social media. We have a blog now, which I know
6 very little about, but we have folks now that are posting
7 information on a blog, basically on a website, to give
8 more information to those that are on the Internet. We
9 also have someone using Twitter where we have customers
10 now that are asking us questions, challenging us, making
11 comments and so now we're actually responding to
12 customers through Twitter and giving them answers to
13 their questions, so there's a number of different methods
14 that we're using now to better communiçate to customers,
15 and what we're finding is that they may not like the
16 increases that are coming, but at least they better
17 understand and we're able to answer their questions, so I
18 think that's helpful.
19 COMMISSIONER SMITH: And I think that
20 those of us who have been around longer do have to
21 recognize that some of the younger customers have
22 different ways of communication than we're used to and so
23 I'll be waiting to see your Facebook page if I ever go on
24 Facebook. Thank you.
25 COMMISSIONER REDFORD: Commissioner
CSB REPORTING
[phone]
98 NORWOOD (Com)
Avista Corporation
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1 Kempton.
2 COMMISSIONER KEMPTON: Thank you,
3 Mr. Chairman.
4
5 EXAMINATION
6
7 BY COMMISSIONER KEMPTON:
8 Q Mr. Norwood, I have just one question or
9 derivatives thereof. When the salary -- were salary and
10 benefits examined during the time that you were
11 developing this settlement?
12 A Yes, they were.
13 Q And did benefits include the type of
14 retirement program that you have in effect?
15 A First of all, Staff did their audit and
16 they had lots of questions around, some around, salaries
17 and benefits, so that has been looked at. In fact, in
18 the past couple of years we've made changes to the
19 retirement plan for new employees that reduces the
20 retirement benefit for them and so that's one of the
21 areas that we've changed. Also, with medical premiums,
22 we've changed the plan recently to where, especially for
23 retirees, they're now paying a higher percentage of the
24 premiums as well as regular employees, so there's a
25 number of those changes that have occurred, but we find
CSB REPORTING
[phone]
99 NORWOOD (Com)
Avista Corporation
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1 as we file these cases Staff looks at all of those
2 issues.
3 Q The maj ori ty of your retirement benefits
4 are a defined benefit?
5 A That is correct.
6 And with the new employees it's at leastQ
7 in part a contribution program, not necessarily defined
8 contribution, but a contribution program to supplement
9 the defined benefit program?
10 The change that was made was to reduceA
11 basically the multiplier, so it's still a defined benefit
12 program for new employees, but it's a smaller benefit
13 wi th a smaller multiplier. We also have a 401 (k) plan.
14 That's where employees can contribute to that and there
15 is a matching there, a percentage of what employees put
16 in and that would supplement, then, the retirement
17 plan.
18 Do you -- are you familiar with theQ
19 defined benefit program to the extent that we could talk
20 about the numbers in general terms of where you are in
21 those? I think that you had a reduction in which you
22 have anticipated, like, in 2009 or 2010 you're around
23 $40 million, again very general terms and not intended to
24 reflect something that is necessarily in the record
25 before us, and that that may be dropping by as much as
CSB REPORTING
[phone]
100 NORWOOD (Com)
Avista Corporation
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1 half going into 2010 or 2011; is that true?
2 A The contribution is going to drop or has
3 dropped for 2010 versus 2009, but that was reflected in
4 the filing that we made. We actually made that change,
5 so that what is reflected in rates is consistent with --
6 is what is actually being contributed related to the plan
7 and we do expect that that contribution which now I think
8 is in the neighborhood of $20 million going forward will
9 be at that level for a number of years, and we did some
10 analysis on this plan to look at defined benefit versus
11 defined contribution and if you look at it over the long
12 term, we've seen that there are a period of years where
13 your contributions will be high for a number of years,
14 but then we've gone, like in the '90s as an example,
15 where the contributions were near zero, so if you look at
16 the retirement plan over a long period of time, which is
17 what it's designed to do in the first place, actually
18 what we found is it's actually less costly to do it that
19 way than to do the defined contribution plan, so it' s a
20 matter of getting through these times when the
21 contributions need to be high and get to a period where
22 the contributions can be lower.
23 COMMISSIONER KEMPTON: Okay, thank you.
CSB REPORTING
[phone]
101 NORWOOD (Com)
Avista Corporation
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1 EXAMINATION
2
3 BY COMMISSIONER REDFORD:
4 Q I only have one question and I think that
5 we all get questions from ratepayers, it doesn't seem to
6 make any difference whether it's the Company, the Staff
7 or the Commissioners, that kind of go like this: I've
8 taken you at your word that we need to conserve energy
9 and I've done so and it's apparent in my bill that my
10 usage has decreased and yet, my rates have gone up. How
11 do you respond to those questions? I've had a hard time
12 trying to respond to those questions and I just wondered
13 if you have some magic words you use to assuage the
14 concern of consumers.
15 A Well, I always try to start with the facts
16 and the facts are that if a customer has any opportunity
17 to reduce their energy usage, then that is good for them
18 in terms of reducing their bill and, you know, we have a
19 lot of information out there with low cost /no cost ideas
20 on how to conserve energy, but I also get the comment
21 back, well, I've done all of that or I've done a lot of
22 that, and so for them, if they truly have done all of
23 that, then there may be a limited amount they can do
24 going forward, but apart from that, it also makes sense
25 for us to continue to encourage their neighbors and
CSB REPORTING
[phone]
102 NORWOOD (Com)
Avista Corporation
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1 others to continue to do everything they can to conserve
2 energy, because the reality is, I don't have the numbers
3 in my head, but the cost of our energy efficiency
4 programs, there's low cost, no cost as well as higher
5 cost energy efficiency measures, but as a package, I
6 think they're in the range of two-and-a-half to three
7 cents per kilowatt-hour to reduce energy, which is much
8 less costly than having to build a new power plant, so to
9 the extent that we can encourage everyone to use less
10 energy, that will keep rates at a lower level than if
11 those individuals don't do that.
12 I recently myself had -- Avista is
13 sponsoring a home energy audit, I had someone come in and
14 do an energy audit at my home and I was actually
15 surprised at all .the ideas that they had on things that
16 you can do to conserve energy and it's just a matter of
17 having the information and being aware of what you can do
18 because there's quite a bit, actually.
19 COMMISSIONER REDFORD: But there's always
20 that nagging concern that having done all those things,
21 my rates are still going up. I guess we just all have to
22 respond to those questions the best we can.I have no
23 further questions.
24 I see Commissioner Smith writing there, so
25 do you have any questions?
CSB REPORTING
[phone]
103 NORWOOD (Com)
Avista Corporation
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1 EXAMINATION
2
3 BY COMMISSIONER SMITH:
4 Q I was just going to as k Mr. Norwood to
5 remind me, Avista goes to the market for a portion of
6 their energy needs; is that correct?
7 A We actually have enough energy and
8 capaci ty to serve our load with our resources. The
9 reason that we would go to the market to buy some of the
10 power is because there are some instances where it's
11 cheaper to buy the electricity than to buy the gas and
12 run our thermal plants, so that's why you'll see quite a
13 few wholesale purchases is it's just less costly to buy
14 it than to run the gas and generate it.
15 Q So economics being good, you would be an
16 energy exporter?
17 A That's correct, but, you know, with the
18 natural gas plants that we have, it sets the market for
19 the price of power and so if market prices go up, we'll
20 obviously run our natural gas plants and sell it at the
21 marketplace.
22 COMMISSIONER SMITH: Thank you for that
23 clarification.
24 COMMISSIONER REDFORD: Do you have any
25 further questions, Commissioner Kempton?
.
CSB REPORTING
[phone]
104 NORWOOD (Com)
Avista Corporation
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1 COMMISSIONER KEMPTON: Mr. Chairman, I
2 would like to follow up on the question that you asked in
3 a little different context.
4
5 EXAMINATION
6
7 BY COMMISSIONER KEMPTON:
8 Q I agree that a customer who weatherizes
9 their home on their own nickel gets the benefit of the
10 weatherization as far as reducing their bill. What
11 reduces the amount that they could expect from the fact
12 that they have done what they did and they get the
13 benefi t because they're not using their power, direct
14 conservation calculation, is the fact that they may get a
15 surcharge on top of that because of the loss of the
16 amount of power that he saved on his own nickel under
17 programs for decoupling where it's difficult to decide
18 what it is that actually causes in total the loss of load
19 that goes into the next cost adj ustment or in whatever
20 process is used to implement the decoupling mechanism.
21 I had a discussion with NEEA yesterday and
22 we were talking in and around this subj ect. It's
23 difficul t to convince the man on the street when you use
24 a simple example like I just did that he isn't winding up
25 worse off than he would be all things being considered if
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105 NORWOOD (Com)
Avista Corporation
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1 we didn't have the energy efficiency riders or we didn't
2 have the decoupling mechanisms.I don't know how you
3 sol ve that because all of us in this room understand the
4 benefi t of a decoupling program, but on the other hand,
5 at the user's end, they do have an argument that niggles
6 at the conscience of the Commission.
7 A Yes, conceptually, you know, if one thinks
8 about it just intui ti vely, they might come to the
9 conclusion or the question about whether they're really
10 benefi ting by implementing energy efficiency, but I think
11 here's a good way to look at that: Right now if we were
12 to build a new combined cycle gas plant, which is
13
14
probably the next non-renewable plant that would be
buil t, you're probably talking a total cost in the
15 neighborhood of eight cents per kilowatt-hour.
16 If you look at the energy efficiency, as I
17 mentioned earlier, you're probably in the neighborhood of
18 three cents a kilowatt-hour.If customers do not engage
19 in energy efficiency, what they are going to see on that
20 bill is the cost of that next plant which is going to be
21 eight cents. They're better off to pay the three cents
22 initially, and then you talk about the lost margin
23 associated with using less energy which is really related
24 to the distribution and administrative and general costs,
25 so there is a component there that if customers don't use
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106 NORWOOD (Com)
Avista Corporation
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1 it, then that part needs to be spread to everyone else,
2 but if you look at the total with energy efficiency at
3 three cents plus or minus, plus that increment, it's
4 still much less than the cost of that next power plant
5 which is in the neighborhood of eight cents a
6 kilowatt-hour.
7 The other factor that you have to consider
8 is that as we continue to hook up customers, which we're
9 doing even in this economy, you're going to spread some
10 of those fixed costs over more customers which will help
11 to keep that increase to a lower level, so bottom line,
12 if you spend the time to think through it, it's
13 defini tely much less costly to spend the money on energy
14 efficiency even in spite of the decoupling lost margin
15 issue as opposed to not doing energy efficiency and just
16 building new power plants.
17 Q Would you agree, Mr. Norwood, or disagree
18 that that argument becomes a little convoluted when you
19 have renewable portfolio standards that are requiring the
20 construction of those same combined cycle plants to
21 supply base load for, say for example, wind farms coming
22 in where it's something completely external to the needs
23 of the customer being directed by renewable portfolio
24 standards which has a sidled influence not in energy use
25 effect?
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107 NORWOOD (Com)
Avista Corporation
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1 A I think that's going to be interesting and
2 for us, I think we're in a little bit of a unique
3 si tuation in that we have been upgrading our hydro plants
4 which allows us to use those additional renewable credits
5 in the State of Washington to meet our need and so we i re
6 actually in good shape in terms of adding renewables
7 until 2016. We've bought some credits which begins in
8 2012, but bigger picture as we go forward in this,
9 because we have a hydro system, because we have two
10 different combined cycle gas plants now which we can use
11 to flex and integrate wind, I think that's going to help
12 us as we add wind going forward so that we wouldn't have
13 to add additional generation to integrate wind, and
14 another thing that we're starting to look at, actually,
15 is as the region goes from roughly 3,000 megawatts of
16 capacity of wind right now to, I think, by the end of '13
17 they're talking about 6,000 megawatts of wind, we're
18 actually looking at the effects that's going to have on
19 wholesale market prices, and what we're seeing is a lot
20 of -- not a lot of, but a meaningful amount of negative
21 pricing in some periods of the year, which means that
22 we're actually going to start to look at maybe simple
23 cycle plants going forward, because if we have more
24 negati ve pricing in the marketplace where the only way
25 you get your credits is if the wind runs and so you're
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108 NORWOOD (Com)
Avista Corporation
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1 going to pay someone to take your energy, which is where
2 the negative pricing comes from, we're looking at the
3 possibili ty of building peakers instead of base load gas
4 going forward based on our resource mix which would be
5 less costly, much less costly, going forward, so I think
6 it's going to be interesting to watch this over the next
7 fi ve to seven years as this develops.
8 COMMISSIONER KEMPTON: I have no further
9 questions, Mr. Chairman.
10 COMMISSIONER REDFORD: Commissioner
11 Smith.
12
13 EXAMINATION
14
15 BY COMMISSIONER SMITH:
16 Q Yes, I was interested by your comment that
17 you're adding customers even in this economy and so my
18 question is, does that mean that your load is growing or
19 that your customer count is growing or just where are you
20 in terms of load growth?
21 A I'm trying to remember my numbers, but I
22 think that both load growth and customer growth is right
23 at one-and-a-half percent in the next couple of years,
24 which means use per customer is staying fairly flat.
25 Q So are those actuals or is that forecast?
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109 NORWOOD (Com)
Avista Corporation
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1 What have you seen in the past --
2 A In terms of what we've seen, we had a
3 really abnormal warm winter, which means, you know, after
4 you weather correct it, what we're seeing is that the
5 load growth is indeed in line, both customer growth and
6 load growth when you weather normalize it is in line,
7 with our forecast, which is in that one-and-a-half
8 percent range for electric, and gas is slightly higher,
9 two percent, plus or minus.
10 COMMISSIONER SMITH: Thank you.
11 COMMISSIONER REDFORD: Thank you. Are
12 there any questions as a result of the Commission
13 questions from any of the parties? Hearing none, you may
14 step down, sir.
15 (The witness left the stand.)
16 MR. MILLER: Mr. Chairman?
17 COMMISSIONER REDFORD: Yes, excuse me, Mr.
18 Miller, welcome.
19 MR. MILLER: Dean J. Miller on behalf of
20 Idaho Forest Group. I was a few minutes late for the
21 start and I apologize for that.
22 COMMISSIONER REDFORD: Okay, we'll take
23 your appearance.
24 MR. MILLER: Thank you.
25 COMMISSIONER REDFORD: And as a result of
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110 NORWOOD (Com)
Avista Corporation
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21
22
23
24
25
1 whenever you came in, do you have any questions for Mr.
2 Norwood?
3 MR. MILLER: Can you repeat his testimony?
4 I don't have any questions.
5 COMMISSIONER REDFORD: You lose. Do you
6 have any further witnesses?
7 MR. MEYER: We do not.
8 COMMISSIONER REDFORD: So you in effect
9 rest your case. I can't recall, do any of the
10 intervenors have witnesses? I think, Mr. Purdy, you
11 do.
12 MR. PURDY: Yes, sir.
13 COMMISSIONER REDFORD: Okay, please call
14 your witness.
15 MR. PDRDY: Thank you. Community Action
16 Partnership Association of Idaho calls Teri Ottens.
17
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111 NORWOOD (Com)
Avista Corporation
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20
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1 TERI OTTENS,
2 produced as a witness at the instance of the Community
3 Action Partnership Association of Idaho, having been
4 first duly sworn, was examined and testified as follows:
5
6 DIRECT EXAMINATION
7
8 BY MR. PURDY:
9 Q Would you please state and spell your name
10 and provide your business address?
11 A Teri Ottens, T-e-r-i O-t-t-e-n-s, 5420
12 West Franklin, Suite E, Boise, Idaho.
13 Q By whom are you employed or retained in
14 this matter and in what capacity?
15 A I am representing the Community Action
16 Partnership Association of Idaho as the expert in low
17 income issues.
18 Q And have you previously filed direct
19 testimony in this case consisting of eight pages?
A I have.
Q There are no exhibits to your testimony;
22 is that correct?
23
24
25
A That's correct.
Q Do you have any corrections or revisions
to that testimony?
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112 OTTENS (Di)
CAPAI
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1 A I do not.
MR. PURDY: With that, Mr. Chairman, I
3 would ask or move that the direct testimony of Ms. Teri
2
4 Ot tens be spread upon the record as read.
5 COMMISSIONER REDFORD: Granted.
6 (The following prefiled testimony of Ms.
7 Teri Ottens is spread upon the record.)
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113 OTTENS (Di)
CAPAI
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1 I. INTRODUCTION
2 Q:Please state your name and business address.
3 A:My name is Teri Ottens. I am the Policy
4 Director of the Community Action Partnership Association
5 of Idaho headquartered at 5400 W. Franklin, Suite G,
6 Boise, Idaho, 83705.
7 Q:On whose behalf are you testifying in this
8 proceeding?
9 A:The Community Action Partnership Association of
10 Idaho ("CAPAI") Board of Directors asked me to present
11 the views of an expert on, and advocate for, low income
12 customers of AVISTA Corporation (AVISTA). CAPAI' s
13 participation in this proceeding reflects our
14 organization's view that low income people are an
15 important part of AVISTA' s customer base, and that these
16 customers would be significantly impacted by the proposed
17 changes to the Company' s electric service schedules, as
18 originally filed.
19 Q:Please describe CAPAI' s organization and the
20 functions it performs, relevant to its involvement in
21 this case.
22 A:CAPAI is an association of Idaho's six
23 Community Action Partnerships, the Community Council of
24 Idaho and the Canyon County Organization on Aging,
25 Weatherization and Human Services, all dedicated to
114 OTTENS (Di)2
CAPAI
.
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1 promoting self-sufficiency through removing the causes
2 and conditions of poverty in Idaho's communi ties.
3 Q:What are the Community Action Partnerships?
4 A:Community Action Partnerships ("CAPs") are
5 private, nonprofit organizations that fight poverty.
6 Each CAP has a designated service area. Combining all
7 CAPS, every county in Idaho is served. CAPS design their
8 various programs to meet the unique needs of communities
9 located within their respective service areas. Not every
10 CAP provides all of the following services, but all work
11 wi th people to promote and support increased
12 self-sufficiency. Programs provided by CAPS include:
13 employment preparation and dispatch, education
14 assistance, child care, emergency food, senior
15 independence and support,
16
17 /
18
19 /
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21 /
22
23
24
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115 OTTENS (Di)2a
CAPAI
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1 clothing, home weatherization, energy assistance,
2 affordable housing , health care access, telephone payment
3 assistance, and much more.
4 Q:Have you testified before this Commission in
5 other proceedings?
6 A:Yes, I have testified and/or provided comments
7 as an expert on behalf of CAPAI in numerous cases
8 invol ving AVISTA, PacifiCorp, Idaho Power Company,
9 Intermountain Gas, and United Water.
10 II. SUMY
11 Q:Please summarize your testimony in this case?
12 A:The purpose of CAPAI' s testimony in this case
13 is to support the negotiated settlement stipulation
14 previously filed with the Commission. The details of
15 CAPAI' s recommendations, which are incorporated into the
16 stipulation and agreed to by all signatories, are set
17 forth in the following section.
18 Q.Are there any exhibits to your testimony in
19 this case?
20 A.No, other than that I incorporate by reference
21 the Settlement Stipulation.
22 III. BACKGROUND/RECOMMNDATIONS
23 A.Background
24 Q:By way of background, why has CAPAI intervened
25 in this particular proceeding?
116 OTTENS (Di)3
CAPAI
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20
21
22
23
24
25
1 A: CAPAI is concerned that the combined proposed
2 increases in fees and rates will add to the already heavy
3 energy cost burden that low income families in Idaho
4 face, particularly in these difficult economic times.
5 Q:Can you provide poverty statistics for Idaho?
6 A:According to the Idaho Department of Commerce,
7 12.6% of the State's population, when using the 2006
8 Census data, falls within federal poverty guidelines and
9 an additional 12.4% fall within the state guidelines set
10 at 150% of poverty levels. The 2006 Census
11
12 /
13
14 /
15
16 /
17
18
19
117 OTTENS (Di)3a
CAPAI
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1 reveals that those living in poverty are categorized as
2 8.7% elderly, 15.1% children, 9.8% all other families,
3 28.5% single mothers and 26.4% all others.
4 How does this translate to energyQ:
5 "affordabili ty?"
6 According to the U. S. Department of Energy, theA:
7 "affordability burden" for total home energy is set
8 nationwide at 6% of gross household income and the burden
9 for home heating is set at 2% of gross household income.
10 In Idaho, there was a gap in the 2008/2009 heating season
11 of over $75 million between what Idahoans can afford to
12 pay (based on federal standards) for energy and what was
13 actually paid. Currently, the LIHEAP program sends
14 approximately $25.6 million (for energy assistance,
15 weatherization and administration) to Idaho.
16 B.Settlement Stipulation
17 Would you please provide an overall summary ofQ.
18 the settlement reached by the parties in this case?
19 Yes. Unless otherwise stated, my comments areA.
20 limi ted to AVISTA' s operations related to the provision
21 of electric, not gas, service. Generally speaking, the
22 Stipulation does not attempt to address, let alone
23 resolve, every aspect of AVISTA' s rate case filing.
24 Rather, it constitutes an agreement on the overall
25 revenue requirement increase, revenue allocation among
118 OTTENS (Di) 4
CAPAI
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20
21
22
23
1 customer classes, certain rate design and other
2 miscellaneous issues.
3 Q.What are the specific terms of the settlement
4 as they affect CAPAI' s interests?
5 A.First, the Stipulation provides for an increase
6 to the Company's revenue requirement of $21.25 million
7 annuallyl (electric revenue; gas is an additional $1.85
8 million), phased-in over a period of three (3) years.
9 All signatories to the Stipulation agree that it is in
10 the overall best interest of the Company's general body
11 of ratepayers.
12 Q.Did CAPAI actively participate in this
13 proceeding?
14
15 /
16
17 /
18
19 /
24 1 An increase of 9.25% compared to the 14% originally proposed by
AVISTA.
25
119 OTTENS (Di)4a
CAPAI
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.
.
1 A. Yes, beginning with a thorough review of the
2 filing itself to becoming a formal party and, ultimately,
3 to successfully negotiating a settlement, filing this
4 testimony and participating in the technical hearing to
5 be conducted in this case, CAPAI has exercised all of its
6 rights and responsibilities as a full and formal party.
7 Will you please identify those additionalQ.
8 components of the settlement that were of particular
9 concern and relevance to CAPAI?
10 First, CAPAI believes that AVISTA' s firstA.Yes.
11 tier block consumption (600 Kwh) for its residential rate
12 schedule, is less than the actual monthly
13 non-discretionary usage by residential customers,
14 including consumption for electric space heating. Absent
15 addi tional information and analysis, CAPAI is not yet
16 prepared to recommend a specific level of consumption
17 that should constitute AVISTA' s first tier block for its
18 residential rates. As the settlement Stipulation states,
19 a future collaboration will be conducted between CAPAI
20 and AVISTA and all other interested persons.
21 CAPAI naturally values the fact that AVISTA has
22 agreed to a reduction in the amount of revenue
23 requirement increase from the originally requested 14.0%
24 to 9.25%. Furthermore, the "rate mitigation" aspect by
25 which the increase will be phased-in over three years
120 OTTENS (Di) 5
CAPAI
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1 somewhat alleviates what would otherwise be a rate shock
2 were the full amount of the increase to go into effect
3 immediately.
4 CAPAI also notes that the level of increase to the
5 fixed monthly charge (an increase from $4.60 to $5.00)
6 will be considerably less than originally proposed.
7 CAPAI believes that, although not enough to
8 completely satisfy the existing need, the Company's
9 agreement to increase the annual low-income
10 weatherization program funding level from $465,000.00 to
11 $700,000.00 is a sizeable increase. Also, the continued
12 funding of the low-income outreach conservation and
13 education program in the amount of $40,000.00 provides
14 benefits to LIHEAP recipients.
15
16 /
17
18 /
19
20 /
21
22
23
24
25
121 OTTENS (Di)5a
CAPAI
.
.
.
1 CAPAI notes that there is currently underway a
2 collaborati ve process the obj ecti ve of which, among other
3 things, is to determine the need for and availability of
4 resources to adequately satisfy the need for additional
5 low-income weatherization funding. CAPAI commends AVISTA
6 for being an integral part of that collaborative and will
7 continue to work with the Company at every opportunity to
8 ensure that it takes into consideration the needs of its
9 low-income Idaho customers.
10 Q.Is there anything else you wish to add to your
11 assessment of the settlement proposed for approval in
12 this case?
13 A. Yes. Like any settlement of a contested
14 matter, all parties represented their respective
15 consti tuents' specific interests and perspectives.
16 Obviously, there are many issues on which the parties
17 disagree with the Company and, with each other. Having
18 said that, it is CAPAI' s position that the settlement
19 Stipulation reflects the best result that could be
20 reasonably expected within the context and circumstances
2 i of this particular proceeding.
22 Q.Does CAPAI have any particular goals for the
23 future regarding AVISTA?
24 A.Yes. CAPAI hopes that AVISTA continues to
25 demonstrate concern for its low-income customers in Idaho
122 OTTENS (Di) 6
CAPAI
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18
19
20
21
22
23
24
25
1 not only through adequate funding of its low-income
2 weatherization program, but also through support of other
3 reasonable efforts to assist low-income customers and,
4 therefore, the general body of AVISTA' s ratepayers.
5 Though it is unreasonable to expect that CAPAI and AVISTA
6 will always be in agreement on every issue and that every
7 rate case in the future will be settled, CAPAI commends
8 AVISTA for its effort and compromise to reach settlement
9 of CAPAI' s issues of concern in this case.
10 v.CONCLUSION
11 Q:Does that conclude your testimony?
12 A:Yes it does.
13
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17
123 OTTENS (Di)6a
CAPAI
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1
2 open hearing.)
(The following proceedings were had in
COMMISSIONER REDFORD: And now you offer
4 her for cross-examination?
10
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3
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9
13 Mr. Chairman.
MR. PURDY: Yes.
COMMISSIONER REDFORD: Mr. Howell?
MR. HOWELL: No questions.
COMMISSIONER REDFORD: Mr. Meyer?
MR. MEYER: No questions.
MR. MILLER: No, thank you.
COMMISSIONER REDFORD: Mr. Richardson?
MR. RICHARDSON: No questions,
COMMISSIONER REDFORD: And you, sir?
MR. OTTO: None.
COMMISSIONER REDFORD: I guess are there
17 any questions from the Commission?
14
15
16
18
19
20
EXAMINATION
21 BY COMMISSIONER KEMPTON:
22 Q I have one question just so you won't feel
23 that your trip to the stand was in vein. Can you tell me
24 or elaborate a little bit on how you perceive the
25 inverted tiered rate that we have as far as the effect on
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124 OTTENS (Com)
CAPAI
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10
1 lower income people? I'd like to get a little better
2 take on how you see that.
3 We recognize some issues with the tieredA
4 rate and that is why you see in this stipulation an
5 agreement that the Avista will meet with us at a future
6 time to talk about that issue and whether or not the
7 tiered rates are appropriate. We have some concerns
8 where the various levels are set, particularly the first
9 level.
Q And am I to understand that that would be
11 part of a general workshop or in fact something that
12 they're going to do with you individually first and then
13 go into a general workshop? How do you see that working
14 out in the future?
15 A I think that what we've agreed to in the
16 stipulation is a collaborative and I'm not sure we've
17 addressed the mechanism in which we're going to start
18 that discussion, but I'm sure it will end up here
19 eventually.
20 COMMISSIONER KEMPTON: That's all I have,
21 Mr. Chairman.
22 COMMISSIONER REDFORD: Commissioner Smith?
23 COMMISSIONER SMITH: No questions.
24 COMMISSIONER REDFORD: I have no
25 questions.
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[phone]
125 OTTENS (Com)
CAPAI
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1 THE WITNESS: Thank you.
2 COMMISSIONER REDFORD: You may step down.
3 (The witness left the stand.)
4 COMMISSIONER REDFORD: Are there any other
5 parties who wish to present further evidence or
6 testimony? Hearing none. Does any party wish to provide
7 a closing statement? Do you consider that further
8 briefing is not appropriate? There will be no further
9 briefing, so I guess this concludes the hearing. As per
10 usual, the Commission will have the record prepared and
11 we will deliberate on this matter as being fully
12 submi tted and we will
13 COMMISSIONER SMITH: After tonight.
14 COMMISSIONER REDFORD: After tonight,
15 excuse me. There is a public hearing tonight and it will
16 start at 8: 00 0' clock Mountain Standard Time and 7: 00
17 0' clock Pacific Standard Time, so we'll all be here. If
18 you want to be here with us, that's fine. If not, that's
19 fine, too.20 Yes, sir?
21 MR. MEYER: Just one other offer, I think
22 you were going to offer the stipulation.
23 MR. HOWELL: Staff would move that the
24 Commission accept Mr. Lobb's exhibits which include the
25 stipulation which is already a pleading in this matter.
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126 COLLOQUY
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20
1 COMMISSIONER REDFORD: They will be
2 admitted.
3 (Staff Exhibit Nos. 101-103 were admitted
4 into evidence.)
5 MR. PURDY: Mr. Chairman?
6 COMMISSIONER REDFORD: Yes, sir.
7 MR. PURDY: Brad Purdy here on behalf of
8 Community Action. Is it a fair assumption that all
9 peti tions for intervenor funding pursuant to Rule 164
10 shall be submitted wi thin 14 days from today' s date?
11 COMMISSIONER REDFORD: Whatever the rule
12 says.
13 MR. PURDY: All right.
14 COMMISSIONER REDFORD: Maybe Mr. Howell
15 can enlighten us.
16 MR. HOWELL: Mr. Chairman, I would think
17 that the trigger date would be this hearing today and
18 that petitions for intervenor funding would be due 14
19 days from today' s date.
COMMISSIONER REDFORD: Okay, is that
21 acceptable?
22
23
MR. PURDY: Thank you, yes.
COMMISSIONER REDFORD: I f there's nothing
24 else to come before the Commission, we'll stand
25 adjourned.
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127 COLLOQUY
1 MR.MEYER:Thank you,Mr.Chairman..2 COMMISSIONER REDFORD:Thank you,and
3 thank you for all attending.
4 (The Hearing adj ourned at 10: 30 a.m. )
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