20021003_286.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LA W
BILL EASTLAKE
LOU ANN WESTERFIELD
DON HOWELL
RANDY LOBB
KATHY STOCKTON
TERRI CARLOCK
KEITH HESSING
DAVE SCHUNKE
TONY A CLARK
BEV BARKER
GENE FADNESS
WORKING FILE
FROM:LISA NORDSTROM
DATE:OCTOBER 1, 2002
RE:IN THE MATTER OF THE APPLICATION OF A VISTA CORPORATION
FOR A MODIFICATION TO THE RESIDENTIAL AND SMALL FARM
ENERGY RATE ADJUSTMENT CREDIT, CASE NO. A VU-02-
On August 30, 2002, Avista Corporation filed an Application seeking modification of
the residential and small farm Energy Rate Adjustment Credit. A vista proposed that the credit be
increased from 0.337~ per kilowatt-hour (kWh) to 0.347~/kWh effective October 12, 2002. The
purpose of the energy rate adjustment credit is to pass through the estimated benefits of the
Residential Exchange Settlement Agreement between A vista and the Bonneville Power
Administration (BP A) to qualifying electric residential and small farm customers. In the Notice
of Application and Modified Procedure issued September 9, 2002, the Commission solicited
comments regarding Avista s Application. Order No. 29111. No comments were received other
than those submitted by Commission Staff.
DECISION MEMORANDUM
THE RESIDENTIAL EXCHANGE SETTLEMNT AGREEMENT
The Northwest Regional Power Act established a Residential Exchange Program to
provide benefits to residential and small farm consumers of Pacific Northwest utilities. The
Settlement Agreement between Avista and BPA settles the Parties' rights and obligations for the
Residential Exchange Program for the ten-year term of the Agreement, October 1 2001 through
September 30, 2011. Under the Settlement Agreement, Avista received rights to 90 average
megawatts (aMW) of benefits from the federal hydropower system beginning October 2001.
A vista receives the 90 aMW in the form of both monetary and firm power sale benefits that are
expected to total $3 310 988.
Monetary Benefit:A vista receives 42 aMW (29 aMW Washington, 13 aMW Idaho)
of the 90 aMW of benefits in the form of a monthly monetary payment. The amount of the
payment is determined by taking the difference between BPA's Forward Flat-Block Price
Forecast ($38/MWh) and the residential load base rate at 100 percent load factor ($19.7l/MWh)
multiplied by the annual amount of energy. The energy amount of the monetary benefit is fixed
for the first five years of the contract, October 2001 through September 2006. BP A shall, no
later than October 2005 notify Avista of the amount of monetary benefit expressed in annual
aMW, for which payments will be made to Avista during the period October 2006 through
September 2011.
Firm Power Sale Benefit:The Settlement Agreement gives Avista 48 aMW (33
aMW Washington, 15 aMW Idaho) of firm power benefits. In September 2001 , Avista elected
to terminate the Firm Power Sale Agreement and convert it to monetary benefit for the first five
years.
A vista noted that the benefits credited to customers are different than the actual
benefits received from BP A under the Settlement Agreement due to differences in actual and
estimated retail loads. Also, BP A has a Cost Recovery Adjustment Clause (CRAC) that has
three components: "load-based" CRAC
, "
financial-based" CRAC, and "safety-net" CRAC. The
initial 42 aMW of monetary benefit is subject only to the safety-net CRAC component. If the
safety-net component is triggered, the amount of benefit received from BP A is reduced.
Furthermore, BP A has determined that a terminated Firm Power Sale Agreement converted to
monetary benefit (as Avista has done) is subject to all three CRAC components. In its filing,
Avista proposed an adjustment to true-up the difference between the benefits credited to
DECISION MEMORANDUM
customers and the actual benefits received from PBA during the first contract year, October
2002 through September 30, 2002.
ENERGY RATE ADJUSTMENT CREDIT
The proposed rate credit of 0.347~/kWh is based on estimated benefits for the second
contract year of the ten-year Agreement, which covers the period October 2002 through
September 30, 2003 , as well as an estimated true-up for the first contract year. Avista proposed
to pass this credit through on a uniform cents per kilowatt-hour basis to all qualifying customers
served under Schedules , and 48. When factoring this modified credit into customer
rates, the bill of a residential customer using 1 000 kWh per month would decrease by 5.54%, or
$3.47 per month. The percentage decrease for a customer using 600 kWh per month would be
62%, or $2.08 per month. The decrease for a customer using 1,400 kWh per month would be
50%, or $4.86 per month. The Company requested an effective date of October 12, 2002
which is 12 months from the date that the rate credit was initiated on October 12 2001.
STAFF COMMENTS
Staff noted that the BP A credit was first put in place last year by Order No. 28869 in
Case No. A VU-Ol-13. That case also established the method to calculate the credit on an
annual basis, which is based on the: 1) estimated dollar and kWh amounts for the coming year
and 2) known dollar and kWh amounts from the previous year that can be verified through audit.
Staff stated that the estimated amounts need to be relatively accurate to avoid large true-ups.
Moreover, actual amounts from the past year must later be audited to verify the accuracy of the
true-up since it will effect the rate proposed for the coming year. In this case, Staff found the
proposed true-up increases the credit and represents 6% of the total.
Staff audited the Company s workpapers that support the entries into the deferral
accounts. The Company properly accounted for the BP A credit in compliance with Order No.
28869 and Staff found the actual amounts recorded in Account 254 to be correct.
Staff reviewed the true-up calculations and found them to be acceptable. According
to Staff's calculations, the actual true-up balance as of August 31 , 2002 was $318,470.40. The
Company estimated the true-up balance as of November 30, 2002 to be ($213 544.32) based on
amounts projected for the months of August through November. The estimates for August 2002
were reasonably close to the actuals for August, supporting the Company s use of a partial
projection in establishing the new energy rate adjustment credit. Staff believes it is reasonable to
DECISION MEMORANDUM
include the estimates in the calculation along with the forecast to determine next year s rate
credit.
As Order No. 28869 directed, the Company is using the customer deposit rate to
calculate the carrying charges. The interest rate changes annually on January 1. Although
A vista did not change the customer deposit rate until April 2002, Staff verified that the Company
has made the proper correcting entries back to January. The actual amount of interest recorded
as of August 30, 2002 is $6 538.85.
The Staff recommended approval of the Company proposed BP Credit of
347~/kWh with an effective date of October 12, 2002. Staff believes that the previously
approved methodology for determining the credit has been applied as intended by the
Commission and Staff's audit has verified the true-up amounts. Avista s estimate of the BPA
credit amounts and energy sales subject to the credit have proven to be accurate as evidenced by
the true-up amounts and the small adjustment in the amount of the credit.
COMMISSION DECISION
Does the Commission wish to approve A vista s Application to modify the Residential
and Small Farm Energy Rate Adjustment Credit?
M:A VUEO207 Jn2
DECISION MEMORANDUM