20020826_245.pdf

TO:
FROM:
DATE:
RE:
DECISION MEMORANDUM
CO MMISSI 0 NER KJELLAND ER
co MMISSI 0 NER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
BILL EASTLAKE
TONY A CLARK
DON HOWELL
DAVE SCHUNKE
KEITH HESSING
KATHY STOCKTON
RANDY LOBB
LYNN ANDERSON
GENE FADNESS
WORKING FILE
SCOTT WOODBURY
AUGUST 22, 2002
CASE NO. A VU-02-(A vista)
POWER COST ADJUSTMENT (PCA) SURCHARGE
APPLICATION FOR EXTENSION
On August 9, 2002, Avista Corporation doing business as Avista Utilities (Avista;
Company) filed an Application with the Idaho Public Utilities Commission (Commission)
requesting a continuation of the electric Schedule 66 Power Cost Adjustment (PCA) surcharge of
19.4% ($23.6 million) currently scheduled to expire on October 11 , 2002. The Company
present surcharge was authorized by the Commission in Order No. 28876 in Case No. A VU-
01-11. In approving the existing surcharge, the Commission directed the Company to file a
status report 60 days prior to expiration of the authorized surcharge period. In its Order, the
Commission stated
, "
if that status report and our review of the actual PCA deferral balance
supports continuation of the surcharge, we anticipate continuation of the surcharge for an
additional period.As reflected in its filing, Avista states that the current status of the
DECISION MEMORANDUM
authorized surcharge period. Avista in that case estimated that the $30 million deferral balance
at June 30, 2001 , absent rate recovery would increase to $69 million at December 2001 , $72
million at the end of 2002 and $88 million at the end of 2003. The Company requested a 27-
month surcharge period through December 2003. In its Order, the Commission stated
, "
if that
status report and our review of the actual PCA deferral balance (at the end of 12 months)
supports continuation of the surcharge, we anticipate continuation of the surcharge for an
additional period.
As reported by the Company the PCA deferral balance was $45.6 million at June 30
2002. The deferred cost balances as reflected in the Company s PCA account are as follows:
Deferral balance at June 30, 2001
Deferrals July 2001 through June 2002
Transfer of under-rebate
Transfer of under-surcharge
PGE monetization accelerated amortization
Interest
SubTotal-Account 186.38 balance at June 30, 2002
Revenues collected October 12, 2001-June 30, 2002
Unrecovered balance at June 30, 2002
$30 007 057
442 371
(49 073)
342 069
(20 783 521)
764.590
723 493
(15.123.265)
$45 600 228
As reflected in the Company s previous PCA filing, hydroelectric generation through
June 2001 for Avista was the lowest in the 73 years of record. The Company reports that it
continued to experience those very low stream flow conditions through the remainder of 2001.
The record low hydroelectric conditions in 2001 , the Company states, required it to purchase
energy in the forward short-term wholesale market to replace the lost generation and cover its
energy deficiencies. These purchases, the Company contends, were made at unprecedented high
wholesale market prices and caused deferral balances to increase substantially. The
extraordinary power supply circumstances through mid-2001 , especially the record low stream
flows, the Company contends, continued to impact the Company s power cost deferral balances
for the remainder of the year and into 2002. In fact, the Company states that of the deferrals of
$48.4 million recorded between July 2001 and June 2002, approximately $46 million occurred
during the last half of 2001 with the remaining $2 million occurring in the first half of 2002.
To mitigate the increased power costs, A vista states that it has increased operation
its thermal resources, and has aggressively pursued conservation and load curtailment programs.
However, the Company states that the costs associated with the hydroelectric conditions, the cost
DECISION MEMORANDUM
of short-term power market purchases and increased thermal fuel costs have exceeded the
benefits these measures provided.
The Company contends that investor concern surrounding its cash flows, deferral
balances and the ability to recover costs in a timely manner have had an impact on the
Company s finances that continues today. Avista s credit ratings, it states, are presently below
investment grade and the rating agencies characterize the Company s outlook as negative.
A vista contends that it is important for the Company to regain an investment grade rating as soon
as possible so that longer term debt can be refinanced on more reasonable terms, benefiting
customers with lower debt-related costs. Credit rates, the Company contends, will take time to
be restored and continuation of the current surcharge, the Company contends, is one of the keys
for A vista to continue to improve its financial condition.
A vista requests that the carrying charge applied to the unamortized PCA deferral
balance be increased from the current customer deposit rate to a level that it contends is more
reflective of the longer-term nature of the recovery period. Avista reports that the Company
embedded cost of debt as of June 30, 2002, is 8.88% , incorporating both long- and short-term
debt. The Company proposes that the carrying charge be increased to a rate of 6%, as was
recently authorized for Idaho Power.
The rates set forth under the proposed PCA Schedule 66 reflect an annual revenue
surcharge amount of $23.6 million, or 19.4%. As proposed by the Company, the Schedule 66
rates would not change. The use of the deferred credit related to the monetization of the Portland
General Electric (PGE) Sale Agreement as an offset to the power deferral balance to reduce the
overall rate impact to customers, the Company notes, will continue through the end of 2002.
After that point, the ongoing PCA deferral entries will be adjusted to reflect the fact that the PGE
credit has been fully returned to customers.
The Company proposes the continuation of the surcharge for a 12-month period
beginning October 12, 2002, and continuing through October 11 , 2003. Prior to expiration of
that term, the Company would file a status report with the Commission and request a
continuation of the surcharge as necessary, to allow recovery of any unrecovered PCA balance.
A vista requests that its Application be processed by Modified Procedure, i., by
written submission rather than by hearing. Reference Commission Rules of Procedure, IDAP A
31.01.01.201-204.
DECISION MEMORANDUM
Commission Decision
Staff recommends that the Commission process the Company s Application pursuant
to Modified Procedure. Does the Commission agree?
Scott Woodbury
Vld/M:A VUEO206
DECISION MEMORANDUM