20090707Vol V (Boise) Pgs 613-778.pdf

OR'GJ~J.lj'
-BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION FOR THE
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC AND
NATURAL GAS SERVICE TO ELECTRIC
AND NATURAL GAS CUSTOMERS IN THE
STATE OF IDAHO.
CASE NOS.
AVU-E-Q9-01
AVU-G-09-01
TECHNICAL HEARING
HEARING BEFORE
COMMISSIONER MACK A. REDFORD (Presiding)
COMMISSIONER MARSHA H. SMITH
COMMISSIONER JIM D. KEMPTON-
PLACE:Commission Hearing Room
472 West Washington Street
Boise, Idaho
DATE:June 29, 2009
VOLUME V - Pages 613-778
c: ~:: ~i-
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'2:
POST OFFICE BOX 578
BOISE, IDAHO 83701
208-336-9208
-HEDRICK
COURT REPORTING
tel'" tk ~ tJlfaJt¡.líru 19
ÃÌmnm~inc:
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1 APPEARANCES
2
3 For the Staff:DONALD L. HOWELL, II, Esq.
-and-
KRISTINE A. SASSER, Esq.
Deputy Attorneys General
472 West Washington
Boise, Idaho 83702
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5
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For Avista:DAVID J. MEYER, Esq.
Avista Corporation
Post Office Box 3727
Spokane, Washington 99220-3727
7
8
9 For Idaho Forest Group:McDEVITT & MILLER, LLP
by DEAN J. MILLER, Esq.
420 West Bannock Street
Boise, Idaho 83702
For Clearwater Paper Corp.:GIVENS PURSLEY, LLP
by MICHAEL C. CREAMER, Esq.
601 West Bannock Street
Boise, Idaho 8370213
14 For Idaho Cons. League:BETSY BRIDGE
Idaho Conservation League
710 North Sixth Street
Boise, Idaho 83702
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For CAPAI:BRAD M. PURDY, Esq.
Attorney at Law
2019 North Seventeenth Street
Boise, Idaho 83702
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HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
APPEARANCES
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1 I N D E X
2 WITNESS EXAMINATION BY PAGE
3 Prefiled Direct 614
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
630
652
662
680
706
710
718
724
745
763
765
767
770
775
Terri Carlock
(Staff)
4
5
Matt Elam
(Staff)
Prefiled Direct
6 Bryan Lanspery
(Staff)
Prefiled Direct
7
8
Marilyn Parker
(Staff)
Prefiled Direct
9 Curtis Thaden
(Staff)
Prefiled Direct
10
11
Larry A. Crowley
(Idaho Forest Group)
Prefiled Direct
12 Dennis E. Peseau
(Clearwater Paper Corp.)
Prefiled Direct
13
14
Teri Ottens
(CAPAI)
Prefiled Direct
15 Kelly Norwood
(Avista -
Prefiled Direct in Support
of Settlement
16
17
Randy Lobb
(Staff)
Prefiled Direct in Support
of Settlement
18 Kelly Norwood
(Avista)
Mr. Meyer (Direct)
Commissioner Smith
Commissioner Kempton
Commissioner Redford
19
Randy Lobb
(Staff)
Mr. Howell (Direct)
INDEX
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1 EXHIBITS
2
NUMBER
For Avista:
PAGE
3
4
1.Avista Corporate Business Premarked
Organizational Structure, Morris, 2 pgs Admitted 777
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Remarked 764
Admitted 764
5
6 2.Schedules 1 and 2, Thies, 4 pgs
7
3.Schedules 1 - 10, Avera, 56 pgs
8
9 4.Schedules 1 - 5, Storro, 55 pgs
(Including compact disk)
10
5.Schedules 1 and 2, Kalich, 4 pgs
11
12 6.Schedules 1 - 4, Johnson, 12 pgs
13
7.Schedules 1 and 2, Kopczynski, 16 pgs
14
15 8.Schedules 1 and 2, Kinney, 2 pgs
16
9.Schedules 1 and 2, DeFelice, 2 pgs
17
18 10.Schedules 1 and 2, Andrews, 19 pgs
19
11.Schedules 1 - 6, Knox, 27 pgs
12.Schedules 1 - 6, Hirschkorn, 72 pgs
13.Summary of Demand-Side Management,
Folsom, 3 pgs
14.(Originally marked as Exhibit No.1,
Norwood, in support of Stipulation.)
Idaho Electric Proposed Increase by
Schedule
EXHIBITS
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1 EXHIBITS (continued)
2
15.(Originally marked as Exhibit No.2,
Norwood, in support of Stipulation.)
Stipulation and Settlement, 23 pgs
Marked 15
Remarked 764
Admitted 764
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
3
4
5 For the Staff:
6 101.Henry Hub Gas Forward
7
102.Pro Forma Natural Gas Prices
8
9 103.Dispatch Model Prices Summary
10
104.Dispatch Model Pro Forma Costs
Staff Adj usted, 3 pgs11
12 105.Power Supply Expense
13
106.Staff Adjusted Power Supply Pro Forma
Idaho Jurisdiction, 2 pgs14
15 107.Staff Adj ustments to Index Contracts,
2 pgs
16
108.Coeur d' Alene Tribe Settlement, 2 pgs
17
109.Calculation of General Revenue
Requirement, Gas, 2 pgs
19
110.Adjustments Allocated to Both Gas and
Electric Jurisdictions
111.Gas Results of Operation
112.Allocation of President and CEO
Compensation
113.Six-year History of Incentive Payments
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
EXHIBITS
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1 EXHIBITS (continued)
2
114.Adj ustment to Gas Nonrevenue Blankets Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
120.Gas Revenue Increase by Service Sched. Premarked
Admitted 777
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
Premarked
Admitted 777
122.Gas Cost of Service Increase Comparison Premarkedby Service Schedule Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
127.Demographics - Avista Service Terri tory Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
3
4 115.Electric Specific Adjustments
5
116.Calculation of General Revenue
Requirement, 2 pgs6
7 117.Electric Results of Operation, Idaho
Pro Forma Results, 2 pgs
8
118.Electric Results of Operation, Idaho
Restated Results, 4 pgs9
10 119.Cost of Long-Term Debt Detail, 2pgs
11
12
13 121.Gas Present and Proposed Rate
Components by Schedule
14
15
16 123.Gas Present Billing Rate Components
17
124.Electric Present and Proposed Rate
Components by Schedule, 2 pgs18
19 125.Avista Complaints and Inquiries,
2004-2008
126.Complaints & Inquiries by Utility,
2004-2008
128.2009 Federal Poverty Level Guidelines
129.Map, Avista Service Area
EXHIBITS
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1 EXHIBITS (continued)
Statement of Occupational and Premarked
Educational History and Qualifications, Admitted 777
Dennis E. Peseau, 3 pgs
2
130.March 2009 Idaho and US Unemployment
Data, 4 pgs
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
Premarked
Admitted 777
3
4 131.Idaho Moratorium/Payment Plan
Participants & Defaults
5
132.New Avista Payment Plans, 2 pgs
6
7 133.Existing Avista Payment Plans, 2 pgs
8
134.Advertisement
9
10 135.Other Avista Energy Efficiency
Programs, 2 pgs
11
12 For Idaho Forest Group:
13 201.Curriculum Vitae, Larry A. Crowley,
4 pgs
14
15 For Clearwater Paper Corporation:
16 301.
17
302.Cost of Service Basic Summary, 3 pgs
303.Cost of Service Basic Summary, 3 pgs
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
EXHIBITS
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1 BOISE, IDAHO, MONDAY, JUNE 29,2009, 9:33 A.M.
2
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4 (The following prefiled testimony was
5 spread upon the record.)
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HEDRICK COURT REPORTING
P. o. BOX 578, BOISE, ID 83701
COLLOQUY
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1 Q.Please state your name and address for the
2 record.
3 A.My name is Terri Carlock. My business
4 address is 472 West Washington Street, Boise, Idaho.
5 Q.By whom are you employed and in what
6 capacity?
7 A.I am the Deputy Administrator of the
8 Utilities Division at the Idaho Public Utilities
9 Commission. I am responsible for the Accounting/Audit
10 Section and coordinating Staff's policy positions with
11 Staff Administrator Randy Lobb.
12 Q.Please outline your educational background
14
13 and experience.
A.I graduated from Boise State University in
15 1980, with B.B.A. Degrees in Accounting and Finance. I
16 have attended various regulatory, accounting, rate of
17 return, economics, finance, and ratings programs. I am
18 currently the Chair of the National Association of
19 Regulatory Utilities Commissioners (NARUC) Staff
20 Subcommittee on Accounting and Finance. I also Co-chair
21 the Task Force on International Financial Reporting
22 Standards. I previously chaired the NARUC Staff
23 Subcommittee on Economics and Finance for more than 3
25
24 years. Under this subcommittee, I also chaired the Ad
Hoc Committee on Diversification.I have been a
CASE NOS. AVU-E-09-1/AVU-G-09-1OS/29/09 614 CARLOCK, T (Di) 1
STAFF
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1 presenter .. for the Institute of Public Utilities at
2 Michigan State University and for many other conferences.
3 Since joining the Commission Staff in May 1980, I have
4 participa~ed in audits, performed financial analysis on
5 various companies, and have presented testimony before
6 this Commission on numerous occasions.
7 Q.What is the purpose of your testimony in
8 this proceeding?
9 A.The purpose of my testimony is to present
10 the Staff i s recommendation related to the overall cost of
11 capi tal for Avista Corporation (Avista) to be used in the
12 revenue requirement in these cases, AVU-E-09-1 and AVU-G-
13 09-1. i will address the appropriate capital structure,
14 cost rates and the overall rate of return.
15 Q.Please summarize your testimony.
16 A.In my testimony on the overall rate of
17 return, I am recommending a return on common equity in
18 the range of 9.5% - 10.5% with a point estimate of 10.5%.
19 The recommended overall weighted cost of capital is in
20 the range of 8.05% - 8.55% with a point estimate of 8.55%
21 to be applied to the rate base for the test year.
22 Q.Are you sponsoring any exhibi ts to accompany
23 your testimony?
24 A.Yes, I am sponsoring Staff Exhibit No. 119
25 consisting of 2 schedules.
CASE NOS. AVU-E-09-1/AVU-G-09-~15
OS/29/09 CARLOCK, T (Di) 2
STAFF
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1 Q.Have you reviewed the testimony and exhibits of
2 Avista witnesses Avera and Thies associated with the
3 return components?
4 A.Yes. Much of the theoretical approach used by
5 Avista witness Avera in his testimony and exhibits is
6 generally similar to what I have used. My judgment in
7 some areas of application results indifferent outcomes.
8 Q.Avista witness Thies discusses the progress
9 made by Avista in improved financial health. Do you
10 agree?
11 A.Yes, I do. Several years ago Avista discussed
12 its plan to improve its financial health including
13 spreading its debt maturi ties over a number of years.
14 Progress has definitely been made in this area as
15 demonstrated by the rating upgrades. On May 19, 2009,
16 Fitch upgraded Avista' s Senior secured debt to BBB+ from
17 BBB with a Stable Rating Outlook. This definitely moves
18 toward the goal stated by Company witness Thies,
19 "Avista' s goal is to operate at a level that will support
20 a strong corporate credit rating of BBB/BBB+...." (Thies
21 testimony page 5).
22 Q.What legal standards have been established for
23 determining a fair and reasonable rate of return?
24 A.The legal test of a fair rate of return for a
25 utility company was established in the Bluefield Water
CASE NOS. AVU-E-09-1/AVU-G-09-~16
OS/29/09 CARLOCK, T (Di) 3
STAFF
e 1 Works decision of the United States Supreme Court and is
2 repeated specifically in Hope Na tural Gas.
3 In Bluefield Water Works and Improvement Co. v.
4 West Virginia Public Service Commission, 262 U. S. 679,
5 692, 43 S.Ct. 675, 67 L.Ed. 1176 (1923), the Supreme
6 Court stated:
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A public utility is entitled to such rates as
will permit it to earn a return on the value
of the property which it employs for the
convenience of the public equal to that
generally being made at the same time and in
the same general part of the country on
investments in other business undertakings
which are attended by corresponding risks and
uncertainties ¡but it has no constitutional
right to profits such as are realized or
anticipated in highly profitable enterprises
or speculative ventures. The return should
be reasonably sufficient to assure confidence
in the financial soundness of the utility and
should be adequate, under efficient and
economical management, to maintain and
support its credit and enable it to raise the
money necessary for the proper discharge of
its public duties. A rate of return may be
reasonable at one time and become too high or
too low by changes affecting opportunities
for investment, the money market and businessconditions generally.
The Court stated in FPC v. Hope Natural Gas Company, 320
U . S. 591 , 603, 64 S. Ct. 281 , 8 8 L. Ed . 3 3 3 ( 1944) :
From the investor or company point of view it
is important that there be enough revenue not
only for operating expenses but also for the
capital costs of the business. These include
service on the debt and dividends on thestock.
CASE NOS. AVU-E-09-1/AVU-G-09-~1 7
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1 . .. By that standard the return to the equity
owner should be commensurate with returns on
investments in other enterprises having
corresponding risks. That return, moreover,
should be sufficient to assure confidence in
the financial integrity of the enterprise, so
as to maintain its credit and to attract
capital. (Citations omitted.)
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5
6 The Supreme Court decisions in Bluefield Water
7 Works and Hope Na tural Gas have been affirmed in In re
8 Permian Basin Area Rate Case, 390 u.s. 747, 88 S.Ct 1344,
9. 20 L.Ed 2d 312 (1968), and Duquesne Light Co. v.Barasch,
10 488 U. S. 299, 109 S.Ct. 609, 102 L.Ed.2d. 646 (1989).
11 The Idaho Supreme Court has also adopted the principles
12 established in Bluefield Water Works and Hope Natural
13 Gas. See In re Mountain States Tel. & Tel. Co. 76 Idaho
14 474, 284 P.2d 681 (1955) i General Telephone Co. v. IPUC,
15 109 Idaho 942, 712 P. 2d 643 1986) i Hayden Pines Wa ter
16 Company v. IPUC, 122 Idaho 356, 834 P.2d 873 (1992).
17 As a result of these United States and Idaho
18 Supreme Court decisions, three standards have evolved for
19 determining a fair and reasonable rate of return:
20 (1) The Financial Integrity or Credit Maintenance
21 Standardi (2) the Capital Attraction Standardi and,.
22 (3) The Comparable Earnings Standard. If the Comparable
23 Earnings Standard is met, the Financial Integrity or
24 Credit Maintenance Standard and the Capital Attraction
25 Standard will also be met, as they are an integral part
CASE NOS. AVU-E-09-1/AVU-G-09-t18
OS/29/09 CARLOCK, T (Di) 5
STAFF
e 1 of the Comparable Earnings Standard.
2 Q.Have you considered these standards in your
3 recommendation?
4 A.Yes. These cri teriahave been thoroughly
5 considered in the analysis upon which my recommendations
6 are based. It is also important to recognize that the
7 fair rate of return that allows the utility company to
8 maintain its financial integrity and. to attract capital
9 is established assuming efficient and economic
10 management, as specified by the Supreme Court in
11 Bluefield Water Works.
12 Q.Why is the return on equity calculation
13 important?e 14 A. The return on equity and the overall rate of
15 return provides the method for calculating the return
16 authorized. This return provides the level of
17 compensation to investors for the use of the capital
18 invested in the utility plant and equipment to serve
19 customers. The actual return investors receive is
20 derived from dividends and growth in stock price when the
21 shares are sold. Since the direct required return is not
22 a contractual calculation, the authorized return on
23 equity serves as the proxy.
24 Q.What approach have you used to determine the
25 cost of equity for Avista?
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CASE NOS. AVU-E-09-1/AVU-G-09-~9
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1 A.I have prima~ily evaluated two methods: the
2 Discounteâ Cash Flow (DCF) method and the Comparable
3 Earnings method.
4 Q.Please explain the Comparable Earnings method
5 and how the cost of equity is determined using this
6 approach.
7 A.The Comparable Earnings method for determining
8 the cost of equity is based upon the premise that a given
9 investment should earn its opportunity costs. In
10 competitive markets, if the return earned by a firm is
11 not equal to the return being earned on other investments
12 of similar risk, the flow of funds will be toward those
13 investments earning the higher returns. Therefore, for a
14 utility to be competitive in the financial markets, it
15 should be allowed to earn a return on equity equal to the
16 average return earned by other firms of similar risk.
17 The Comparable Earnings approach is supported by the
18 Bluefield Water Works and Hope Natural Gas decisions as a
19 basis for determining those average returns.
20 Industrial returns tend to fluctuate with
21 business cycles, increasing as the economy improves and
22 decreasing as the economy declines. Utility returns are
23 not as sensitive to fluctuations in the business cycle
24 because the demand for utility services generally tends
25 to be more stable and predictable. However, returns have
CASE NOS. AVU-E-09-1/AVU-G-09-~20
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1 fluctuated since 2000 when prices in the electricity
2 markets dramatically increased. Electricity prices have
3 not seen the dramatic spikes lately so earnings are more
4 stable.
5 Q. Please evaluate interest rate trends.
6 A. The prime interest rate has decreased in the
7 last year and half from 7.75% to the current rate of
8 3.25%. The federal funds rate and other rates have also
9 decreased this year.
10 Q.Please provide the current index levels for the
11 Dow Jones Industrial Average and the Dow Jones Utility
12 Average.
13 A. The Dow Jones Industrial Average (DJIA) closed
at 8404.04 on May 28, 2008. The DJIA all-time high of
15 14,000 was reached on July 19, 2007. The Dow Jones
14
16 Utility Average closed at 338.40 on May 28, 2008. The 52-
17 week high was 529.43 for the Dow Jones Utility Average.
18 Q.Please explain the risk differentials between
19 industrials and utilities.
20 A. Risk is a degree of uncertainty relative to a
21 company. The lower risk level associated with utilities
22 is attributable to many factors even though the
23 difference is not as great as it used to be. Utilities
24 continue to have limited competition for distribution of
25 utility services within the certificated area. With
CASE NOS. AVU-E-09-1/AVU-G-09-~21
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CARLOCK, T (Di) 8
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e 1 limited competition for regulated services, there is less
2 chance of. losses related to pricing practices, marketing
3 strategy and advertising policies. The competi ti ve risks
4 for electric utilities have changed with increasing non-
5 utility g~neration, deregulation in some states, open
6 transmission access, and changes in electricity markets.
7 However, competitive risks are limited for Avista utility
8 operations. The demand for electric utility services is
9 relatively stable and certain or increasing compared to
10 that of unregulated firms and even other utility
11 industries.
12 Competi ti ve risks continue to be average for
13 Avista than for many other electric companies primarilye14because of the low-cost source of power, the low retail
15 rates compared to national averages, and the PCA. The
16 risk differential between Avistaand other electric
17 utilities is based on the resource mix and the cost of
18 those resources. All resource mixes have risks specific
19 to resources chosen.
20 Under regulation, utilities are generally
21 allowed to recover through rates, reasonable, prudent and
22 justifiable cost expenditures related to regulated
23 services. Unregulated firms have no such assurance.
24 Utilities in general are sheltered by regulation for
25 reasonable cost recovery risks, even if it isn' t 100%,
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CASE NOS. AVU-E-09-1/AVU-G-09-l22
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1 making the average utility less risky than the average
2 unregulated industrial firm.
3 As everyone is aware, current market trends and
4 earnings levels have dramatically declined. I believe
5 Avista continues to be in a better position than many to
6 fund its near-term capital requirements with its current
7 debt authority. The current credit and investment
8 markets are making capitalization more difficult for all.
9 In my opinion, as investors reevaluate their investment
10 portfolios, utility stocks with the primary operatiàn
11 being the utility will be favored over higher risk
12 operations.
13 Nationally the electric utility industry has
seen common equity ratios decline from 46% at 12/31/200614
15 to 45% at 12/31/2007 and 44% at 6/30/2008. This means
16 long-term debt ratios increased over the respective time
17 periods i 54%,55% and 56%. Company witness Avera, Exhibit
18 No. 3 shows similar historical averages with 46.3% equity
19 and 52.5% debt. Company witness Thies shows projected
20 ratios of 52.89% equity and 47.11% debt at June 30, 2009
21 (Thies workpaper page 1). This is better than the
22 average utility common equity ratios. The capital
23 structure recommended for Avista is 50% common equity and
24 50% long-term debt. The recommended and actual equity
25 ratios for Avista are better than the national average,
CASE NOS. AVU-E-09-1/AVU-G-09-l23
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CARLOCK, T (Di) 10
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1 historical and proj ected, reflecting lower risk in this
2 category for Avista.
3 Authorized returns by State Commissions for
4 electric utilities during 2007 and the First Quarter of
5 2008 range from 9.1% in New York to 11.25% in Georgia.
6 During this period, 25 states decided cases authorizing
7 rates of return on equity. Many of the decisions, 14 out
8 of 25 or 56%, authorized a return on equity between 9.5%
9 and 10.5%.
10 Considering all of these comparisons, I believe
11 a reasonable return on equity attributed to Avista is
12 9.5% - 10.75% under the Comparable Earnings method.
13 Q. You indicated that the Discounted Cash Flow
14 method is utilized in your analysis. Please explain this
15 method.
16 A.The Discounted Cash Flow (DCF) method is based
17 upon the theory that (1) stocks are bought for the income
18 they provide (i. e., both dividends and/or gains from the
19 sale of the stock), and (2) the market price of stocks
20 equals the discounted value of all future incomes. The
21 discount rate, or cost of equity, equates the present
22 value of the stream of income to the current market price
23 of the stock. The formula to accomplish this goal is:
24
25
CASE NOS. AVU-E-09-1/AVU-G-09-~24
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e 1
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D D D P
1 2 N N
Po =PV =-------+-------+.. .+------+------
(l+ks) 1 (l+ks)2 (l+ks) N (l+ks) N
Po =
D =
ks =
N =
Current price
Dividend
Capi talization Rate, Discount Rate, or Required
Rate of Return
Latest Year Considered
The pattern of the future income stream is the
9 key factor that must be estimated in this approach. some
10 simplifying assumptions for ratemaking purposes can be
12
11 made without sacrificing the validity of the results.
13e14
Two such assumptions are:( 1) dividends per share grow
at a constant rate in perpetuity and (2 ) prices track
15 formula, where the required return "is the dividend yield
earnings. These assumptions lead to the simplified DCF
16 plus the growth rate (g):17 D
18
19
ks = + g
Po
Q.Have you factored flotation costs in with your
20 cost of capital analysis?
21 A.Yes, I have considered direct flotation costs
22 in my analysis by increasing the dividend yield component
23 of the DCF analysis. Because only direct costs should be
24 considered, I have used a flotation factor of 2% assigned
25 to the utility operations. This practice continues to be
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1 reasonable with recent issuances and expected near- term
2 issuances placed though the Company's Investment Plans
3 where the actual flotation costs are substantially lower
4 than direct market issuances. I have therefore adjusted
5 the DCF formula to include the direct flotation costs as
6 "df" .
7 Dks = ( - - - (1 + df)) + g
Po8
9 Q.What is your estimate of the current cost of
10 capital for Avista using the Discounted Cash Flow method?
11 A.The current cost of equity capital for Avista
12 using the Discounted Cash Flow method is between
13 8.67% - 10.37%. The low range of 8.67% is calculated
14 using an analyst low stock price of $20 and the growth
15 rate of 5%.
16 (($0.72/$20) 1.02) +5%
17 The high range of 10.37% is calculated using the stock
18 price of $20 and a growth rate of 6.7%.
19 (($0.72/$20) 1.02) +6.7%
20 Due to ongoing capital requirements, I believe a dividend
21 yield of 3.67% with an average growth rate of 5.25% is
22 reasonable and representative resulting in a DCF return
24
23 on equity of 8.92%.
25
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Q.How is the growth rate (g) determined?
A.The growth rate is the factor that requires the
CASE NOS. AVU-E-09-1/AVU-G-09-i26
OS/29/09 CARLOCK, T (Di) 13
STAFF
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1 most -extensive analysis in the DCF method. It is
2 important that the growth rate used in the model be
3 consistent with the dividend yield so that investor
4 expectations are accurately reflected and the growth rate
5 is not too large or too small.
6 I have used an expected growth rate of
7 5% - 6.7%. This expected growth rate was derived from an
8 analysis of various historical and projected growth
9 indicators, including growth in earnings per share,
10 growth in cash dividends per share, growth in book value
11 per share, growth in cash flow and the sustainable
12 growth.
13 Q. What are the costs related to the capital
14 structure for debt?
15 A.I accept the cost of debt of 6.6% as
16 recommended by Company witness Thies and shown on Staff
17 Exhibit No. 119, Schedule 1.
18 Q.What capital structure has Staff used for
19 Avista to determine the overall cost of capital?
20 A.Staff Exhibit No. 119, Schedule 2, shows the
21 capital structure, debt cost utilized and the overall
22 rate of return. Staff has accepted the Company proposed
23 capital structure of 50% equity and 50% debt as shown on
24 Company witness Theis Exhibit No.2, Schedule 2. These
25 ratios are reasonable in this case to calculate the
CASE NOS. AVU-E-09-1/AVU-G-09-~27
OS/29/09 CARLOCK, T (Di) 14
STAFF
e 1 overall ~ate of return.
2 Q.You indicated the cost of common equity range
3 for Avista is 9.5% - 10.75% under the Comparable Earnings
4 method and 8.67% - 10.37% under the Discounted Cash Flow
5 method. What is the cost of common equity capital you
6 are recommending?
7 A.The fair and reasonable cost of common equity
8 capital I am recommending for Avista is in the range of
9 9.5% - 10.5%. Although any point within this range is
10 reasonable, the return on equity granted would not
11 normally be at either extreme of the fair and reasonable
12 range. i utilized a point estimate of 10. 5% in
13 calculating the overall rate of return for the revenuee14requirement.
15 Q.What is the basis for your point estimate being
16 10.5% when your range is 9.5% - 10.5%?
17 A.The 10.5% return on equity point estimate
18 utilized is based on a review of market data and
19 comparables,average risk characteristics for Avista,
20 operating characteristics, the capital structure, and the
21 recently authorized return on equity of 10.5% granted
22 Idaho Power by this Commission. A point above the
23 midpoint recognized the requirement for system capital
24 investments to serve customers.
25 Q.How does your recommended return compare to the
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CASE NOS. AVU-E-09-1/AVU-G-09-S28
OS/29/09 CARLOCK, T (Di) 15
STAFF
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2
authorized returns for Avista?
A.Avista is currently authorized a 10.2% return
.3 on equity and an 8.45% overall rate of return in Idaho.
4 Avista is also currently authorized a 10.2% return on
5 equity and an 8.22% overall rate of return in Washington.
6 Staff's recommended returns are higher than currently.
7 authorized so will continue to support the ongoing
9
8 capi tal investments.
11
10 recommended for Avista?
Q.What is the overall weighted cost of capital
A.The overall weighted cost of capital
12 recommended by Staff is in the range of 8.05% - 8.55%.
13
14
For use in calculating the revenue requirement, a point
15 resulting overall rate of return of 8.55% was utilized as
estimate consisting of a return on equity of 10.5% and a
17
16 shown on Schedule 2, Staff Exhibit No. 119.
19
18 this proceeding?
Q. Does this conclude your direct testimony in
20
21
22
23
24
25
A. Yes, it does.
CASE NOS. AVU-E-09-1/AVU-G-09-~29
OS/29/09 CARLOCK, T (Di) 16
STAFF
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2 the record.
Q.Please state your name and business address for
3 A.My name is Matthew Elam. My business address is
5
4 472 West Washington Street, Boise, Idaho.
6
Q.By whom are you employed and in what capacity?
A.I am employed by the Idaho Public Utilities
7 Commission (Commission) as a Utilities Analyst in the
8 Engineering Section of the Utilities Division.
9
10
Q.What is your education and experience?
A.I graduated from Boise State University in 2004
11 earning a Bachelor of Arts degree in Economics. I also
13
12 earned a minor in Sociology. Following graduation I was
14
accepted into the Albertsons Management Development Program
15 Corporate Planning before transitioning to Research and
where I worked as a Business Analyst in Finançe and
16 Market Analysis. My primary duties included demographic
17 profiling, modeling, and demand forecasting for the purposes
18 of determining ROIC (Return on Invested Capital). In early
19 2007 I accepted a Business Analyst position with geoVue Inc.
20 where I consulted companies in a similar capacity and would
22
21 later be promoted to a Senior Business Analyst and Modeler.
23
Q.What is the purpose of your testimony?
A.Under the direction of Randy Lobb, Utili ties
24 Administrator, I will discuss the Company's Jurisdictional
25 Separations, Customer Class Cost of Service, Weather Revenue
630CASE NOS. AVU-E-09-1/AVU-G-09-1
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ELA, M. (Di) 1
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"
e 1 Normalization, and Revenue Allocation. I will discuss
2 Staff's proposal to adjust the Schedule 150 Weighted Average
3 Cost of Gas (WACOG), and provide rate recommendations for
4 the natural gas service Schedules (Schedule 101, Schedule.
5 111/112, Schedule 131/132, and Schedule 146).
6 Q.Please summarize your testimony in. this case.
I accept the Company's Jurisdictional Separations7A.
8 Methodology, ailocators and the results they produce using
9 Staff's adjusted accounting information. Those results are
10 presented in Staff witness Donn English' 's testimony. I
11 recommend maintaining the current cost of gas embedded in
12 base rates rather than shifting Schedule 150 costs into base
e 13 rates as proposed by the Company. I am proposing that the
14 Schedule 150 Weighted Average Cost of Gas (WACOG) be
15 adjusted downward to a level that offsets the Schedule 101
16 base rate increase proposed by Staff. This (WACOG)
17 adjustment will maintain the current. rates for Schedule 101
18 and reduce rates for Schedules 111/112, and Schedules
19 131/132.
20 I accept the Company's proposal to change the
21 weather revenue normalization methodology from an annually
22 updated 25-year average for normal degree days to an
23 annually updated 30-year average for normal degree days.
24 Based on Staff's overall increase in natural gas revenue, I
25
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631CASE NOS. AVU-E-09-1/AVU-G-09-1
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ELAM, M. (Di) 2
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1 propose that individual class base rates move closer to cost
2 of servïce and that no class receive a decrease.
3 I accept the Company's rate design proposals given
4 Staff's revenue requirement with the exception of increasing
8
5 the Monthly Basic Charge for Schedule 101.
6 Jurisdictional Separations
7 Q.What is the purpose of Jurisdictional Separations?
A.The Jurisdictional Separations process identifies
9 t.he appropriate share of total Company costs and revenues to
10 assign to Idaho customers for determining the Idaho
12
11 Jurisdictional revenue requirement.
13
14
15
Q.Have there been any changes to the Company's
system and jurisdictional procedures since the Company's
last general natural gas rate case, Case No. AVU-G-08-01?
A.No. As pointed out by the Company in testimony,
16 the current methodology was implemented in 1994 and has not
18
17 changed.
Q.Do you accept the Company's Jurisdictional
20
19 Separations Study?
A.Yes. I accept the methodology and allocation
21 factors proposed by the Company. However, other Staff
22 witnesses have proposed adjustments to the accounting data
23 and the Return on Equity. Staff proposes an Idaho
24 Jurisdictional revenue requirement increase of $1,894,.000
25 shown on Staff Exhibit No. 109 to Staff witness Donn
632CASE NOS. AVU-E-09-1/AVU-G-09-1
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1 English's testimony. This is a 2.89% increase, which is
2 calculated based on Staff's proposal to maintain the current
3 cost of gas embedded in base rates rather than shifting the
4 Schedule 150 costs into base rates as proposed by the
5 Company.
6 Class Cost of Service
7 Q.What is the purpose of the customer class cost of
8 service study?
9 A.A customer class cost of service study is an
10 engineering-economic study which separates the Idaho
11 Jurisdictional revenue requirement among the various Idaho
12 rate classes according to the revenue, expenses, and rate
13 base associated with providing natural gas service to
14 designated groups of customers.
15 There are three basic steps involved in a cost of
16 service study known as functionalization, classification,
17 and allocation.
18 Functionalization is the first process that
19 segregates expenses and rate base into production,
20 underground storage, and distribution categories.
21 Classification is the second process that
22 classifies expenses and rate base into demand, commodity, or
23 customer related. Demand (capacity) related costs are
24 allocated to rate schedules on the basis of each schedule's
25 contribution toward system peak demand. Commodity (energy)
CASE NOS. AVU-E-09-1/AVU-G-09-î33
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STAFF
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1 related costs are allocated based on èach rate schedule's
2 share of commodity consumption. Customer related items are
3 allocated to rate schedules based on the number of customers
4 within each schedule.
5 Allocation is the final process of assi~ning the
6 costs to various rate schedules by utilizing the allocation
7 factors selected for each specific cost item. These faètors
8 are derived from usage and customer information associated
9 with the test period results of operations.
10 Is the Company proposing to change the Cost ofQ.
11 Service method accepted by the Commission in AVU-G- 04 - 01?
12 A.No.
13 Do you accept the Company's customer class cost ofQ.
14 service study?
15 A.Yes.
16 Weather Revenue Nor.alization
17 Q.What is the purpose of the weather revenue
18 normalization process in a natural gas rate case?
19 A.The purpose of the Company's weather revenue
20 normalization adjustment is to calculate the revenue change
21 given the difference in natural gas usage (in therms) required
22 to adjust actual loads during the twelve months ended
23 September 2008 test period to the therms expected to be
24 consumed under normal weather conditions. This adjustment
25 _incorporates the elasticity of heating on weather sensitive
634CASE NOS. AVU-E-09-1/AVU-G-09-1
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1 customer groups. By comparing ten years of data on billed
2 usage per customer and billing period heating degree days in
3 a regression analysis, the Company estimates i ts wea~her
4 sensitivity factors. The resulting seasonal weather
5 sensitivity factors (use per customer per heating degree
6 day) are applied to monthly test period customers and the
7 difference between a normal heating degree days and monthly
8 test period observed heating degree days.
9 Q.How does Company witness Knox define the
10 appropriate number of heating degree days to be considered
11 normal?
12 A.The Company has proposed basing normal heating
13 degree days on a rolling 30 -year average of heating degree-
14 days reported for each month by the National Weather Service
15 for the Spokane airport weather station. For heating, the
16 30 years are included on a heating season basis, July
17 through June. This will be a rolling average, therefore for
18 each year the normal values will be adjusted to capture the
19 next heating season with the oldest data dropping off,
20 thereby encapsulating the most recent information available
21 at the end of each calendar year.
22 Q.Has the Company proposed any changes in the
23 weather normalization adjustment methodology since the
24 Company's last general rate case in Idaho (AVU-E-08-01)?
25 A.Yes. In Case No. AVU-G-08-01 the Company used a
635CASE NOS. AVU-E-09-1/AVU-G-09-1
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1 25-year rolling average to determine the normal number .of
2 heating degree days for each month. In this case an
3 additional 5 years have been included in the rolling average
4 calculation.
5 Q.Why has the Company decided to change this
6 methodology?
7 A.The Company says the change is in response to
8 concerns in another jurisdiction that a rolling 25-year
9 average may be insufficient to determine "normal" weather
10 conditions. The Company also conducted an analysis
11 revealing that while both a rolling 30 -year average and a
12 rolling 25~year average capture the long-term trend in
13 regional temperatures, the rolling 30-year average showed
14 less variability.
15 Q.Do you agree with the Company's assessment that it
16 is necessary to define normal weather conditions using a
17 rolling 30-year average?
18 A.No. I reviewed the information that was provided
19 by the Company in response to Production Request No. 80 and
20 found the reasoning for the change questionable.
21 The Company maintains that using a rolling 30-year
22 average to define normal weather conditions represents a
23 better approximation because it shows less variability in
24 climactic cycles. The conclusion I've drawn is that it' s
25 important to capture normal climactic cycles when defining
636CASE NOS. AVU-E-09-1/AVU-G-09-1OS/29/09
ELA, M. (Di) 7
STAFF
e 1 normal weather conditions. The rolling 25-year average is a
2 shorter time frame that better illustrates the normal
3 climactic. cycles.
4 In addition, the utilities regulated by the Idaho
5 Commission are beginning to file more frequent general rate
6 cases, therefore capturing the 'most recent climactic cycles
7 between filings is even more important than if utilities
8 were waiting several years to file .
9 Q.Why hasn' t Staff recommended the Company maintain
10 the same weather revenue normalization methodology in this
11 case?
12 A.In response to Staff's Production Request No. 80,
e 13 the Company was asked to compare the increase in revenue
14 required under a rolling 25-year average and a rolling 30-
15 year average for both the gas and electric filing. The net
16 difference was negligible , the electric revenue required to
17 meet the Company's revenue requirement decreased by $27,000
18 and the gas revenue required to meet the Company's revenue
19 requirement increased by $17,000. Therefore, Staff
20 recommends that the Commission accept the Company's proposed
21 weather normalization but direct the Company and Staff to
22 continue evaluating the methodology in future rate cases.
23 Revenue Allocation
24 Q.What is the purpose of the Revenue Allocation
25 process in a natural gas rate case?
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CASE NOS. AVU-E-09-1/AVU-G-09~~7
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1 A. . Allocating revenue is the process of assigning
2 each customer class a revenue increase using the results of
3 the Customer Cost of Service Study as a guideline. The Cost
4 of Service Study results represent a starting point in the
5 assessment of appropriately determining the revenue
6 requirement for various rate classes.
7 Q.What customer class revenue allocation do you
8 recommend in order to meet the Idaho Jurisdictional revenue
9 requirement?
10 A.It is my recommendation that no class receive a
11 base rate decrease and that all classes move toward cost of
12 . service. This diminishes rate shock and assigns. revenue
13 responsibili ty based on costs incurred.
14 Q. How has Company witness Knox allocated the revenue
15 of its Idaho gas special contract customers?
16 A.The Company currently has two special contract
17 customers that receive transportation service under
18 Schedules 147 and 159, IMCO and Clearwate~ Paper. Rates for
19 these customers are not being adjusted in this case, they
20 were individually negotiated under long-term fixed contracts
21 in order to cover any incremental cost and retain margin.
22 The Company has eliminated the possibility of
.23 stranded costs by depreciating the incremental facilities
24 used to serve its special contract customers. Therefore,
25 the net contribution from these special contract customers
638CASE NOS. AVU-E-09-1/AVU-G-09-1
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ELA, M. (Di) 9
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e 1 has been segregated from general rate revenue and allocated
2 back to all the other rate classes by relative rate base.
3 Staff has reviéwed the contribution associated with the
4 Company's special contract customers and determined that it
5 has been àppropriately allocated and applied to the other
6 cus tomers .
7 Q.Do you have an exhibit illustrating the revenue
8 requirement from Staff's proposed Cost of Service results?
9 A.Yes. These results are contained in Staff Exhibit
10 No. 120.
11 Q.Have you prepared an exhibit that shows the rates
12 that result in your revenue proposal?
e 13 A. Yes. I have prepared Staff Exhibit No. 121. In
addition I have prepared Staff Exhibit No. 122 that compares14
15 Staff's Revenue Allocation proposal to Avista' s Revenue
16 Allocation proposal.
17 WACOG Adjustment
18 Q.What is the purpose of determining the Weighted
19 Average Cost of Gas (WACOG)?
20 A.The WACOG is the Company's forward-looking net
21 price of purchased gàs, transportation, and storage embedded
22 in base rates and included in the Purchase Gas Cost
23 Adjustment (Schedule 150). Tyically, Schedule 150 and the
24 Gas Rate Adjustment (Schedule 155) are adjusted on November
25 1st of each year as part of the Purchased Gas Cost
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639CASE NOS. AVU-E-09-1/AVU-G-09-1
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ELAM, M. (Di) 10
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1 Adjustment (PGA). The Gas Rate Adjustment is an
2 amortization rate established to refund or surcharge
3 customers~ the difference between the Company's actual gas
4 costs (commodity price of gas, transportation, and storage)
5 and the WACOG established in the previous PGAfiling.
6 Customers get either a surcharge when market prices are
7 higher than the previous year's anticipated WACOG or a
8 credi t when market prices are lower than the previous year's
9 anticipated WACOG.
10 How is the WACOG included in the monthly billingQ.
11 rate customers pay?
12 The WACOG is collected in two parts, one part isA.
13 collected in the base rate determined by the Commission in
14 the AVU-G-04-01 case, and the other is collected in Schedule
15 150. The monthly billing rate customers pay is determined
16 by combining Schedules 150, 155 and 191 to both the portion
17 of base rate determined in the AVU-G-08-01 case unrelated to
18 the WACOG, and the base rate portion of the WACOG.
19 Currently the total gas costs make up $0. 88013/therm of the
20 billing rate for Schedules 101, and 111/112. The amount
21 included in base rates is $0. 53312/therm and the remainder
22 is collected through Schedule 150. Total gas costs make up
23 $0. 78646/therm of the Schedule 131/132 billing rate because
24 there is not a demand component given the Schedule is
25 interruptible. The amount collected in base rate is
CASE NOS. AVU-E-09-1/AVU-G-09-140
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STAFF
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1 $0.44989/therm and the remainder is collected through
2 Schedule 150. Each component (Schedules 150, 155, 191, and
3 the two parts of base rate) of the billing rate can be seen
4 in Staff Exhib~ t 123.
5 The totalcommodi ty portion collected in base
6 rates and Schedule l50 for all the Schedules is
7 $. 78646/therm (the total demand portion for Schedules 101,
8 and 111/112 is $.09367). The commodity portion collected in
9 base rate is $. 44989/therm.
10 Q.Has the Company proposed an adjustment to. the net
11 WACOG included in Schedule 150 and the billing rate
12 customers pay monthly?
l3 A. No. However the Company is proposing to move the
14 current Schedule 150 adjustment into base rate schedules.
15 Schedules 101, and 111/112 base rates would increase from
16 $0. 53312/therm to $0. 88013/therm while Schedule 150
17 decreases by a proportional amount of $. 34701/therm
18 ($0. 88013/therm-$0. 53312/therm). Schedules 131/132 base
19 rates would increase from $0. 44989/therm to $0. 78646/therm
20 while Schedule 150 decreases by a proportional amount of
21 $. 33657/therm ($0. 78646/therm-$0. 44989/therm). The net
22 effect of this change has no impact on the monthly billing
23 rate, it simply reallocates the WACOG from Schedule 150 to
24 base rate Schedules.
25 Q.Do you agree wi th the Company's proposal?
641CASE NOS. AVU-E-09-1/AVU-G-09-1
OS/29/09 ELA, M . (D i) 12
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1 A.No. The base rate is intended to reflect the
2 Company's estimate of future costs, when this is more
3 accurate customers experience less extreme volatility in PGA
4 adjustments. Given current market volatility and the recent
5 decline in commodity prices, I propose maintaining the
6 current natural gas costs included in base rates.
7 Q.Have you proposed an adjustment to the net WACOG
8 included in Schedule 150 that offsets the increase you have
9 proposed in base rates?
10 A.Yes. I propose to offset the base rate increase
11 recommended by Staff in this case by adjusting the commodity
12 portion of the WACOG to $. 76047/therm instead of the current
13 commodity portion of the WACOG of $. 78646/therm. For
Schedules 101 and 111/112, the total cost of gas would be
15 $. 85414/therm instead of $. 88013/therm. For Schedules
14
16 131/132, the total cost of gas would be $.76047 /therm
17 instead of $. 78646/therm.
18 How have you proposed to adjust the Schedule 150Q.
19 Weighted Average Cost of Gas (WACOG) component to offset the
20 base rate increase proposed by Staff?
21 A.I propose adjusting the WACOG to a level that
22 offsets the Schedule 101 increase customers receive in båse
23 rates given the proposal by Staff from the Cost of Service
24 Study. According to the Cost of Service Study, the Company
25 would receive approximately $1,460,034 in revenue by
642CASE NOS. AVU-E-09-1/AVU-G-09-1
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1 increasing base rates to Schedule 101 (General Service)
2 customers. The corresponding WACOG decline in order to
3 offset the revenue increase in base rates is approximately
4 3.0% or $. 02599/therm. This adjustment in the WACOG
5 maintains current Schedule 101 billing rates by decreasing
6 the billing rates for Schedules 111/112 (Large General
7 Service), and 131/132 (Interruptible Service). Schedule 146
8 (Transportation Service) would not be impacted by the change
9 in the WACOG and would receive the increase in base rates
10 dictated by Staff's proposal from the CUstomer Cost of
11 Service Study.
12 Q.Why is it reasonable to adjust the WACOG in order
13 to offset the Schedule 101 base rate increase proposed by
14 Staff?
15 A.This year, wholesale prices have continued to drop
16 well below the WACOG currently embedded in rates. The more
17 expensive storage gas purchased by the Company at last
18 summer's high price levels has been sold and the Company is
19 beginning to purchase natural gas at lower, favorable prices
20 for the coming year, both for injection into underground
21 storage and at hedged forward prices for delivery throughout
22 the year.
23 In order to prevent the Company from over
24 collecting from customers in its Schedule l55 Purchased Gas
25 Adjustment Account and having to refund customers through a
643CASE NOS. AVU-E-09-1/AVU-G-09-1
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1 credit in November, Staff views it appropriate to adjust the
2 WACOG now through Schedule 150. The base rate revenue
3 requirement increase proposed by Staff is small. Therefore,
4 the resulting offset in the WACOG is minor and would only
5 preemptively adjust the WACOG to a level Staff views will be
6 inevitably lower in the fall when the Company comes in for
7 its annual PGA filing. By adjusting the WACOG now through
8 Schedule 150, the Company can eliminate unnecessary
9 fluctuations in the retail prices customers pay, prevent a
10 growing deferral account balance that will be credited to
11 customers in Schedule 155 later, and collect the revenue
12 requirement proposed by Staff in base rates.
13 Q. How will your proposal to adjust the WACOG through
Schedule 150 affect Schedule 146 (Transportation Service)14
15 customers?
16 A. This adjustment will not impact Schedule 146
17 customers. Schedule 146 customers take transportation
18 service at the distribution level and purchase their own
19 natural gas and interstate pipeline transportation. To the
20 extent these customers have hedged their natural gas
21 purchases i they are beginning to see price level reductions.
22 If they have not hedged their natural gas purchases they
23 have already seen price level reductions and will continue
24 to do so. Therefore, it is Staff's proposal to determine
25
644
CASE NOS. AVU-E-09-1/AVU-G-09-1
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1 Schedule 146 customer rates based on the Cost of Service
2 results from Staff's adjusted revenue requirement.
3 Q.Has Staff been tracking the Schedule 155 Purchased
4 Gas Adj ustment Accounts in the PGA monthly reports submit ted
5 by the Company in compliance with Order No. 30646?
6 A.Yes. According to the Company's most recent May
74th PGA report which shows. a snapshot of this year's account
8 balances up until March 31st, the total balance owed to
9 customers through a credit is $6,463,503. Since the
10 Company's January 6th amortization rate went into effect,
11 the current credit balance due to customers from last year's
12 PGA period is $3,577,048. Based on this year' s costs since
13 October 1st, the amount that will be credited to customers
14 in the next PGA is $2,886,455. Since the amortization rate
15 is not dropping the deferral balance as quickly as its
16 growing, it is Staff's view that there will be a substantial
17 credit due to customers in the fall since this year's market
18 prices have dropped significantly from where the Company
19 anticipated natural gas prices to be in this year's WACOG.
20 Q.Are you aware of the Company's filing on May 14,
21 2009 to adjust. the amortization rate (s) in Schedule 155 to
22 refund additional deferred amounts accumulated since
23 November 2008 (December-April) to customers over a 12-month
24 period?
25 A.Yes.
645CASE NOS. AVU-E-09-1/AVU-G-09-1
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2
Q.Does this change your recommendation in this case?
A.No. My adjustment is to the WACOG in Schedule 150
3 not the amortization rate (s) in Schedule 155.
4 Rate Design
5 Q.What are Staff' s objectives in evaluating rate
6 design?
7 A.Staff's objectives are that base rates recover the
8 revenue requirement of each customer class given the class
9 revenue requirement recommendations shown in Staff Exhibit
10 120 i send an appropriate cost based price signal to
11 customers encouraging the wise and efficient use of energyi
12 provide rate stability and avoid unnecessary complexity or
13
14
changes.
Q. Do you have an exhibit illustrating your rate
16
15 proposals?
A.Yes. These are shown on Staff Exhibit No. 121.
18
17 Schedule 101 (General Service)
20
19 recommend for Schedule 101?
Q.What rate design does Company witness Hirschkorn
A.Without including the percentage increase
21 associated with the Company's proposal to shift some of the
22 Schedule 150 commodity costs into the energy charge base
23 rate, the Company is proposing to increase the Energy
25
24 Charges by 2.9% per therm. The Company is proposing an
646CASE NOS. AVU-E-09-1/AVU-G-09-1
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ELAM, M. (Di) 17
STAFF
e 1 overall increase in the Basic/Customer Charge of 6.3% or
2 $.2500 per month.
3 Q.Do you agree with the Company's proposed rate
4 design changes?
5 A.No. I agree with the Energy Charge changes as
6 adjusted for Staff's proposal to maintain the current cost
7 of gas in base rates , given the base rate class cost of
8 service revenue requirement increase of 2.9%, and as
9 adjusted for the WACOG decrease of approximately 3.0%.
10 However, I do not agree with the increase in the monthly
11 Basic/Customer Charge. I recommend that the customer charge
12 for this class remain unchanged.
e 13 Staff has maintained the position that the.
Basic/Customer Charge should collect meter reading and
15 billing fixed costs. With the Basic/Customer Charge at
14
16 current levels, the Company is collecting more than meter
17 reading and billing costs.
18 In addition, the Company is proposing to increase
19 the Basic/Customer Charge by 6.3% while the proposed base
20 rate increase to the class without including the proposal to
21 shift some of the Schedule 150 commodity costs is 3.1%.
22 This increase is disproportionate and unnecessary given the
23 small increase in class revenue requirement, and the
24 decrease in the WACOG proposed by Staff.
25
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647CASE NOS. AVU-E-09-1/AVU-G-09-105/~9J09 ELA, M . (D i) 18
STAFF
e 1 Schedule 111/112 (Large General Service)
2 Q.What rate design does Company witness Hirschkorn
3 recommend for Schedule 111/112?
4 A.Without including the percentage increase
5 associated with the Company's proposal to shift sòme of the
6 Schedule 150 commodity costs into the energy charge base
7 rate, the Company is proposing to increase the Energy
8 Charges for the first tier by 3.0% and increase the
9 remaining three tiers by a uniform 2.5%. The Company is
10 proposing an overall increase in the Minimum Charge of 4.2%
11 or $7.00 per month.
12 Q.Do you agree with the Company's proposed rate
e 13 design changes?
14 A.Yes. I agree with the Energy Charge and Minimum
15 Charge increase as adjusted for Staff's proposal to maintain
16 the current cost of gas in base rates , given the class cost
17 of service base. rate revenue requirement increase of 3.0%,
18 and as adjusted for the WACOG decrease of approximately
19 3.0%.
20 Q.When designing rates has Staff considered the
21 Company's concern that changing the breakeven relationship,
22 or the level of usage where the bill for Schedule 101 is
23 equivalent to the bill for Schedule 111, could result in
24 unnecessary shifting of customers between the Schedules?
25 A.Yes. However, one preventative solution the
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648CASE NOS. AVU-E-09-1/AVU-G-09-1
OS/29/09
ELA, M . (D i) 19
STAFF
e 1 Company could take to address the concern of unnecessary
2 customer shifting between Schedule 101 and Schedule 111
3 would be to designate Schedule 101 as a "Residential General
4 Service" achedule similar to the other natural gas provider
5 in the State. S.taff views this solution as a reasonable way
10
e
6 to divide residential and commercial use customers.
7 Schedule 131/132 (Interruptible Service)
8 Q.What rate design does Company witness Hirschkorn
9 recommend for Schedule 131/132?
A.Without including the percentage increase
11 associated with the Company's proposal to shift some of the
12 Schedule 150 commodity costs into the energy charge base
13 rate, the Company is proposing to increase the Energy
14 Charges by 1.7%. The Company is proposing an overall
15 increase in the Annual Minimum Deficiency Charge of 10.6% or
16 1.598 cents per thermo
17 Q.Do you agree with the Company's proposed rate
19 '
18 design changes?
A.Yes. I agree with the Energy Charge and Annual
20 Minimum Deficiency Charge increase as adjusted for Staff.' s
21 proposal to maintain the current cost of gas in base rates,. .22 given the base rate class cost of service revenue
23 requirement increase of 2.0%, and as adjusted for the WACOG
25
24 decrease of approximately 3.0%.
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649CASE NOS. AVU-E-09-1/AVU-G-09-1
OS/29/09
ELA, M. (Di) 20
STAFF
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2
1 Schedule 146 (Transportation Service)
3 recommend for Schedule 146?
Q.'What rate design does Company witness Hirschkorn
4 A.The Company is proposing to increase the Energy
5 Charges by 11.3%, and increase the Annual Minimum Usage by
6 3,128 therms.
7 Q.Do you agree with the Company's proposed rate
8 design changes?
9 A.Yes. I agree with the Energy Charge and Minimum
10 Usage increase as adjusted for Staff's proposed base rate
12
11 class cost of service revenue requirement of 2.8%.
13
14
Q.Is it possible to make a comparison between the
Schedule 146 base rate increase and the other Schedules?
15 Schedules because it is a distribution transportation
A. No. Schedule 146 is not comparable to the other
16 Schedule. Schedule 146 does not include the cost of gas or
17 interstate pipeline transportation, whereas the other sales
18 service schedules do. These customers have third party
19 marketer obligations, fees, and inherent risks of managing
20 their purchasing strategies in a fluctuating natural gas
21 market. These variables make it impossible to qualify,
22 quantify, or compare a rate increase to the increases of the
24
23 other Schedules.
Q.Does this conclude your direct testimony in this
25 proceedîng?
CASE NOS. AVU-E-09-1/AVU-G-09-~50
OS/29/09
ELAM, M. (D i) 21
STAFF
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1 Q.Please state your name and address for the
2 record.
3 A.My name is Bryan Lansperyand my business address
4 is 472 West Washington Street, Boise, Idaho.
5 Q.By whom are you employed and in what capacity?
6 A.I am employed by the Idaho Public Utilities
7 Commission as a utilities rate analyst.
8 Q.Please give a brief description of your
9 educational background and experience.
10 A.I received a Bachelor of Arts degree in Economics
11 with a social science emphasis from Boise State University
12 in 2003. I also earned a minor in Geographic Information
13 Systems from Boise State University in the same timeframe.
14 I received a Master of Arts in Economics from Washington
15 State University in 2005. My Masters workemphas~zed Labor
16 Economics and Quanti tati ve Econometric Analysis.
17 Concurrent to pursuing my Masters degree, I functioned as
18 an instructor of Introductory and Intermediate Economics as
19 well as Labor Economics.
,
20
22
21 Commission?
Q.Would you describe your duties with the
A.I was hired by the Commission in late 2005 as a
23 utilities analyst. As such, my duties revolve around
24 statistical and technical analysis of Company filings,
25 including cost/benefit analysis, resource evaluation, price
652CASE NOS. AVU-E-09-1/AVU-G-09-1
OS/29/09
LANSPERY, B. (Di) 1
STAFF
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1 forecasting, and weather normalization methods. I have
2 participated in several general rate cases, focusing on
3 power supply, cost of service, and rate design. I have
4 also been , actively engaged in integrated resource planning,
5 DSM/energy efficiency program evaluation, and revenue
6 allocation issues. I completed the Practical Skills for
7 the Electric Industry held by New Mexico State University
8 in 2006, among numerous other conferences.
9 Q.What is the purpose of your testimony?
10 A.My testimony will address the rate spread Staff
11 proposes to utilize in distributing the recommendec; 3.91%
12 increase in electric revenue requirement. I will further
13 discuss Staff's position regarding base and PCA rates
14 wi thin Avista' s customer rate schedules.
15 Q.Could you please summarize your testimony?
16 A.Yes. Staff proposes an increase in Avista' s
17 electric revenues of 3.91%, or roughly $8.62 million, as
18 noted in Staff witness Vaughn's direct testimony. Given
19 Staff's concerns about viable cost of service results, as
20 discussed by Staff witness Hessing, Staff recommends the
21 increase be distributed uniformly among rate classes.
22 Furthermore, I recommend that the increase be collected
23 solely through the energy rate. I will also provide the
24 results of Staff's adjustment to the Company's proposed 5%
25 average reduction to the current PCA rate.
CASE NOS. AVU-E-09-1/AVU-G-09-~3
OS/29/09 LASPERY, B. (Di) 2
STAFF
e 1 Q.Are you sponsoring any exhibits in support of
2 your testimony?
3 A.Yes, Staff Exhibit No. 124, consisting of two
4 pages.
5 Q.What is the impact on electric residential rates
6 of spreading the Staff's proposed increase solely on
7 energy?
8 A.By leaving the basic monthly charge at the
9 current level of $4.60, a uniform 3.91% increase in
10 revenues results in a 4.04% increase in residential energy
11 rates.
12 Q.Why do you believe that the monthly basic charge
e 13 for residential customers should remain at its current
14 level?
15 A.The Commission approved a 15% increase in the
16 monthly customer charge in the Company's last general rate
17 case (Case No. AVU-E-08-01). One of the drivers of that
18 case was the investment in advanced metering. It is
19 understood that the cost of the metering equipment will be
20 offset by reductions in meter reading and billing
21 expenditures, the components Staff traditionally believes
22 constitute the makeup of the customer charge. With low
23 levels of growth in residential customers and the minimal
24 role distribution costs play in this proceeding, I believe
25 the current basic charge adequately provides cost recovery
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654CASE NOS!. AVU-E-09-1/AVU-G- 09-1
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LASPERY, B. (Di) 3
STAFF
e 1 for metering and billing expenses.
2 Q.Are there other reasons for not increasing the
3 residential basic charge?
4 A.Yes. Given Staff's position that the basic
5 charge covers meter reading and billing, there is little if
6 any rationale for having disparate customer charges on the
7 electric and natural gas bills. The basic charge for a
8 residential electric customer is already 60 cents greater
9 than the basic charge for a gas customer, and given Staff's
10 proposal on the gas side, I do not wish to further amplify
11 the difference: In fact, once Avista has had more adequate
12 ti~e to review its advanced metering system, Staff would
13 entertain discussions on whether the efficiencies of beinge14a dual electric-gas customer should be reflected in the
15 basic monthly charge.
16 Also ,placing the revenue increase on energy
17 rates still preserves the potion of price signaling. While
18 the proposed increase is relatively small, customers will
19 have an opportunity to respond if the increase is borne in
20 the energy rates rather than the customer charge. If the
21 Commission grants Staff's revenue requirement and Avista' s
22 proposal to increase the monthly basic charge to $5.00, a
23 disproportionate share (15%) of the increase will be
24 . co.llected through the fixed monthly charge. A rate
25 increase of nearly 10% would be required to justify raising
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CASE NOS. AVU-E-09-1/AVU-G-09-~5
OS/29/09
LASPERY, B. (Di) 4
STAFF
e 1 the basic charge to $5.00 if all billing determinants were
2 to be uniformly increased.
3 Q.will applying the rate increase only to energy
4 impede Avista's ability to collect its authorized fixed
5 costs?
6 A.Minimally at most. It is true that recouping
7 fixed costs through energy rates inherently places recovery
8 at risk. Staff's proposal though is modest, and customer
9 response, i. e. reduced consumption, presumably will be
10 negligible based on price elasticity studies. Moreove~,
11 Staff's proposal puts less cost recovery on the upper tier
12 than the Company's proposal.
e 13 Q. Avista has proposed to increase the rate
14 differential between residential rate blocks to send a
15 price signal. Do you agree?
16 A.No, I do not. The Company proposes increasing
17 the differential between blocks from 13.2% to 14.6%, while
18 my proposal will keep the .differential at 13.2%.
19 Q.Does this run contrary to recent Commission
20 decisions regarding rate design and the promotion of
21 efficient energy use?
22 A.I do not believe so. Staff argued in the 2008
23 Idaho Power general rate case (Case No. IPC-E-08-10) that
24 effective rate design should rely on cost-based price
25 signals to promote efficient energy consumption. Avista is
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CASE NOS. AVU-E-09-1/AVU-G-09~r6
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LASPERY, B . (Di) 5
STAFF
e 1 in a much different situation than Idaho Power. First of
2 all, Avista has a significantly higher system load factor
3 that Idahò Power has, or in other words, Avista's system
4 doés not have the same "peakiness" Idaho Power's has (the
5 difference between Avista's highest and lowest demand by
6 month is 471 MW, as opposed to 1,130 MW for Idaho power) .
7 The resources that Avista relies on to serve its customers
8 are mostly coal-fired or hydroelectric, baseload resources,
9 and now with the proposed addition of the Lancaster
10 facility, intermediate load resources. Avista does not
11 rely on costly marginal resources to meet short durations
12 of extreme peak load as Idaho Power and Rocky Mountain
e 13 Power must. The 'cost-based' aspect of sending price
14 signals is much weaker for .Avista when compared to Idaho
15 Power.
16 Secondly, as noted in my testimony from the 2008
17 Idaho Power general rate case, rates should not unduly
18 burden a subset of residential customers. The economic
19 climate in Northern Idaho is much worse than Southern
20 Idaho. As Staff witness Thaden states in his testimony,
21 Avista's service territory has the highest poverty level in
22 the state compared to the other regulated electric
23 utilities, and a disproportionate share of customers
24 receiving LIHEAP assistance. Nearly 60% of Avista
25 customers who received LIHEAP last season live in all
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657CASE NOS. AVU-E-09-1/AVU-G-09-1
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LASPERY, B. (Di) 6
STAFF
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1 electric homes. At this time, I do not believe it is wise
2 to place the burden of the rate increase disproportionately
3 on the tail block for Avista.
4 Finally, we have no better load research data
5 than we dld one year ago. Accurate load data is the first
6 essential step to cost-based rate design. With the data
7 presumably available beginning in early 2010, I believe
8 that tinkering with rate design is premature at this point.
9 As a compromise, I believe recovering the approved revenue
10 increase through energy rates provides adequate cost
11 recovery and opportunities for energy efficiency practices
12 by customers.
13 Q. If the Commission approves a rate increase
14 greater than Staff i s proposal, would you still support
15 increasing only the energy charge?
16 A.Yes, to a point. I do believe that until the
17 load sampling data is available,. a uniform increase is
18 appropriate. As stated earlier, a rate increase of nearly
19 10% (8.7%) is necessary to warrant increasing the basic
20 charge to $5.00. Should- the Commission approve an increase
21 greater than or equal to 8.7%, I believe that all billing
22 determinants should be increased. That said, a moderate
23 increase in the basic charge may be warranted, but I would
24 not expect nor support a 25% increase in the basic charge
25 over a two-year period.
CASE NOS. AVU-E-09-1/AVU-G-093t8
OS/29/09
LASPERY, B. (Di) 7
STAFF
e 1 Q.Are you proposing that Staff's revenue increase
2 be spread only to energy for the remaining customer classes
3 as well?
4 A.Wi th the exception of the street and area
5 lighting schedules, yes, for virtually the same reasons as
6 outlined above. For street and area lighting (Schedules 41
7 through 49), Staff would support spreading the $11l,268
8 revenue increase in the manner described in Company witness
9 Hirschkorn' s direct testimony.
10 Q.Have you included Staff Exhibit No. 124 to
11 support your rate spread proposal?
12 A.Yes. In Staff Exhibit No. 124, Colqmn (b)
13 provides the current base, or tariff rates in place.e 14 Columns (c) and (d) present Staff's proposed increase in
15 rates in both percentage and nominal terms , respectively.
16 Column (e) presents Staff's calculated tariff rates based
17 on its recommended revenue increase. It is important to
18 note that this is not the billed rate as it does not
19 contain the other rate adjustments, such as the PCA and
20 Energy Efficiency Rider.
21 Q.Could you please explain the last two columns in
22 Staff Exhibit No. 124?
23 A.Yes. As Mr. Hessing describes in his direct
24 testimony, Staff proposes accepting the Company's proposal
25 to adjust the PCA surcharge rate, but prefers to adjust it
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CASE NOS. AVU-E-09-1/AVU-G-09-~59
OS/29/09 LASPERY, B. (Di) 8
STAFF
e 1 only to a level that offsets the average rate increase of
2 3.91%. Mr. Hessing has calculated the new PCA rate to be
3 0.3611 cents per kWh, or a reduction of 0.2489 cents per
4 kWh as shown in Column (f). Column (e) reports Staff's net
5 changes to rates per this case. The following table
6 summarizes the change in energy rates proposed by Staff:
7
8 Increase Change in Net
Energy.Rt.PCARate Change
Resid.(1 )4.04%(3.43%)0.61%
Gen.Srvc.(11 )4.21%(3.01%)1. 20%
Lg.Gen.Srvc.(21 )4.95%(4.47%)0.48%
Ex.Lg.Gen.Srvc.(25 )4.64%(6.11%)(1.47%)
Potlatch (25P)4.40%(6.41%)(2.01%)
Pumping Srvc.( 31)3.98%(3.48%)0.50%
9
10
11
12
e 13
14
15
16
17 Under Staff's proposal, base energy rates would increase
18 between roughly 4% and 5%, which is mostly negated for the
19 near term by the PCA reduction. Not surprisingly, high
20 load factor customers would see a temporary decrease under
21 Staff's proposal.
22 Q.What is the impact of Staff's proposal to the
23 average Avista residential electric customer's bill?
24 A.The average electric customer who uses 982 kWh a
25 month currently sees a bill of $78.47, which includes all
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CASE NOS. AVU-E-09-1/AVU-G-09-160
OS/29/09
LANSPERY, B. (Di) 9
STAFF
e 1 rate adjustments.Staff's proposal would result in a bill
2 of $78.76,an increase of 29 cents.
3 Q.Do you propose any additional adj ustments to the
4 Company's rate design?
5 A.At this time,I do not.
6 Q.Does this conclude your direct testimony in this
7 proceeding?
8 A.Yes,it does.
9
10
11
12
13e14
15
16
17
18
19
20
21
22
23
24
25
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661 (Di)CASE NOS.AVU-E- 09-1/AVU-G- 09 - I LASPERY,B.10OS/29/09 STAFF
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1 Q.Please state your name and address for the
2 record.
3 A.My name is MarilYn Parker. My business address
4 is 472 West Washington Street, Boise, Idaho.
5 Q.By whom are you employed and in what capacity?
6 A.I am employed by the Idaho Public Utilities
7 Commission as a Utilities Compliance Investigator. I
8 accepted that position with the Consumer Assistance Staff
9 in November 2002.l
10 Q.What is your educational and professional
11 background?
12 A.Prior to my employment with the Idaho Public
13 Utilities Commission, I had twenty years experience
14 working in private industry for three different utility
15 companies. In 1973 and 1974, I was employed by Central
16 Alaska Utilities, a water company in Anchorage, Alaska, as
17 the Executive Secretary to the President of the company.
18 From 1982 until 1987, I was employed as a Customer Service
19 Representative for Idaho Power Company in Salmon, Idaho.
20 From February 1989 until November 2002, I was employed by
21 Intermountain Gas Company in Customer Services. During my
22 last six years at Intermountain Gas, I supervised
23 representatives at the Customer Service Center's Emergency
24 Answering Service.
25 I received a Bachelor of Arts Degree in
662
CASE NOS. AVU-E-09-1/AVU-G-09-1
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STAFF
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1
2 University in Boise, Idaho in June of 2002.
Management and Organizational Leadership from George Fox
3 In June 2003 and June 2006, I attended the
4 National Low Income Energy Consortium Annual Conference in
5 Sacramento, California and Washington, D.C., respectively.
6
8
7 Commission?
Q.Have you previously testified before the
9
A.Yes, I have.
Q.What is the purpose of your testimony in this J
10 proceeding?
11 A'.(1) summarizing the customeri will be:
12 comments received by the Idaho Public Utilities Commission
13 regarding this casei (2) discussing Consumer Assistance
14 Staff i s stance regarding the proposed increase to Avista' s
15 monthly customer charges for its residential electric and
16 gas customersi (3) reporting on Avista's customer
17 relations over the past five yearsi and, (4) reporting on
18 the mid-term status of Avista's pilot program regarding
19 its remote disconnections and reconnections.
20 Q.Please summarize your testimony and
21 recommendations to the Commission.
22 A.I reviewed the customer comments and found that
23 the number of comments received by the Commission in this
24 case had more than tripled the number of comments received
25 in the prior two Avista general rate cases. I note that
663
CASE NOS. AVU-E-09-1/AVU-G-09-1
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PARKER, M. (Di) 2
STAFF
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1 customers appeared in their comments to be more frustrated
2 and angry at the prospect of paying more for natural gas
3 and electricity than in the past.
4 I support Staff's recommendation of no increase
5 in customer charges.
6 I address a downward trend in Avista' s telephone
7 answering service level standards at its customer service
8 centers at the same time that complaints are increasing.
9 I recommend that Avista take steps to improve ~
10 its telephone answering service level standards and report
11 to the Commission by December 2009 on how it plans to
12 accomplish this or why it should not be required to do so.
13 I identify technological advancements
14 implemented by the Company and how they have improved
15 customer service.
16 Finally, I reviewed Avista' s Remote
17 Disconnection and Reconnection Pilot Program and found
18 that it appears to be meeting its objectives.
19 Customer Comments Regarding the Proposed Rate Increase
20 Q.Have you reviewed the written customer comments
21 that have been received by the Commission regarding this
22 case?
23 A.Yes. As of May 21, 2009, 188 Avista customers
24 had submitted comments regarding the proposed increase in
25 Avista's gas and electric rates. The comments were mostly
664
CASE NOS. AVU-E-09-1/AVU-G-09-1
OS/29/09 PARKER, M. (Di) 3
STAFF
from residential customers and a few small commercial
customers who opposed any increase in rates.
Q. How does this number of comments compare to
prior Avista rate case customer comments?
A. The number of comments is significantly higher i
in fact, the number has more than tripled the number of
comments received in the prior two general rate cases. In
the 2008 case, 46 comments were received and in the 2004
case, 31 comments were received.
Q. To what do you attribute the significant
increase in customer comments?
A. The economy, nationwide and globally; is in a
downturn and nowhere is that more evident than in Avista' s
service terri tory in northern Idaho. According to the
Idaho Department of Labor, unemployment in many Idaho
counties served by Avista has nearly doubled in the past
year.
Comments regarding this proposed rate increase
have come from a broad spectrum of Avista customers, and
many comments came from customers who said they had never
commented on a rate case before. Because of the current
economic situation, it comes as no surprise that customers
feel frustrated and worried about how they will be able to
afford any increase in their electric and natural gas
rates. Staff witness Thaden discusses in greater detail
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CASE NOS. AVU-E-09-1/AVU-G-09-1
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PARKER, M. (Di) 4
STAFF
the current economic conditions in Avista's service
terri tory in his testimony. He also provides some
demographic statistics for northern Idaho.
Q. Is there any evidence in the comments received
by the Commission in this rate case that show economic
times are more difficult now than in the past?
A. In nearly all rate cases, the Commission
receives letters or e-mails from customers stating they
cannot afford any rate increases. However, in this rate ~
case, in addition to the dramatic increase in the number
of comments to the Commission, many customers expressed
not only frustration, but anger. Nearly half of the
customers who sent in comments want the Commission to
"just say no" to any rate increasesi and of those, another
one-half said it will be the Commission's fault if
customer's rates are increased. Nearly 40% of commenters
voiced strong opposition to what the customers defined
most often as exorbitant salaries of Avista's executives.
Customers often believe that the rates they pay go
primarily toward executive salaries. As shown in Staff
witness English's testimony, one-fifth of one percent of
Avista's Idaho natural gas rates and about one-third of
one percent of Avista' s Idaho electric rates go toward
executive salaries. The fundamental misunderstanding
regarding executive salaries feeds customers' frustration.
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CASE NOS. AVU-E-09-1/AVU-G-09-1
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PARKER, M. (Di) 5
STAFF
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1 Nearly one-fourth of those commenting mentioned
2 a recent article in local newspapers that stated Avista
3 had "record profits" last year and so those commenters
4 wondered why Avista would need a rate increase at this
5 time if it was already making "record profits."
6 Q.What are some of the other concerns mentioned by
7 cus tomers?
8 A.Commenters raised the same issues as have been
9 raised in prior rate cases. Many of those concerns were ~
10 from low and fixed-income customers who see basic living
11 costs rising but their wages and/or social security income
12 benefits not keeping pace. The phrases "why doesn' t
13 Avista tighten their belts" and "enough is enough" were in
14 many of the comments.
15 Proposed Customer Charge Increase
16 Q.The Company has proposed to increase its fixed
17 monthly residential customer charges from $4.00 to $4.25
18 for gas customers and from $4.60 to $5.00 for electric
19 customers. Does Staff support this increase?
20 A.No. Staff believes there should be no increase
21 to gas or electric fixed monthly customer charges at this
22 time. Staff has consistently maintained that fixed costs
23 associated with meter reading and billing should be the
24 primary determinant of customer charges. Maj or changes
25 have been made in the way customers are billed and meters
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CASE NOS. AVU-E-09-1/AVU-G-09-1
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PARKER, M. (Di) 6
STAFF
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1 are read over the past several years. With the
2 implementation of automated meter reading, for example,
3 meter reading costs will be reduced. Additionally, more
4 and more customers are choosing to receive their bills
5 online, thereby reducing postage and biii printing costs.
6 Another reason that Staff does not support an increase in
7 the fixed monthly customer charge is that Staff has
8 proposed a lower revenue requirement than Avista. Staff
9 prefers that any rate increases in this case be added to ~
10 the energy charge rather than fixed charges to give
11 customers some control over the size of their bills. When
12 rate increases are added to fixed charges, the customer
13 has no control over that portion of their bill. For these
14 reasons, Staff believes an increase in fixed customer
15 charges is not warranted at this time.
16 Customer Relations
17 Forms
18 Q.As required by Utility Customer Information Rule
19 102, were Avista' s Customer Notice and Press Release
20 included with its Application?
21 A.Yes. The Company's Customer Notice and Press
22 Release were received on January 23, 2009, and were
23 reviewed by Staff at that time. They were deemed to meet
24 the requirements of the rule.
25 Q.Have Avista's forms required by the Utility
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CASE NOS. AVU-E-09-1/AVU-G-09-1
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STAFF
Customer Relations Rules (UCRR) (IDAPA 31.21.01) been
reviewed for compliance?
A. Yes, Avista's forms were reviewed and determined
to meet the requirements of the UCRR.
Call Center Telephone Answering Standards (often referred
to as "service levels")
Q. In 2004, Avista lowered its Call Center incoming
telephone answering service level standard (the percentage
of calls answered within a defined number of seconds) from !
answering 80% of calls within 30 seconds to answering 70%
of calls within one minute. Staff expressed concern about
that decision at that time and recommended that Avista
reinstate its previous service level goal. Did Avista
change its telephone answering service level standard?
A. Yes, in January of 2005, Avista changed its goal
to answer 80% of incoming customer calls within one
minute.
Q. Has Avista met this standard?
A. Not in each year. In 2005, Avista's actual
service level average for the year was 82.1% of incoming
calls answered within one minute i in 2006 the average for
the year was 79.9% within one minutei in 2007 the annual
average was 80.7% within one minutei and, in 2008 the
annual average dropped to 75.5% within one minute.
Q. What is Avista' s current telephone service level
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CASE NOS. AVU-E-09-1/AVU-G-09-1
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PARKER, M. (Di) 8
STAFF
standard?
A. Avista has not changed its standard since
January of 2005, when it was set at answering 80% of calls
within one minute.
Q. Avista reported its actual telephone answering
service level in December of 2008 as 66.10%, which is
Avista's worst one-month service level in five years.
What is the Company's explanation for this low service
level?J
A.The Company stated that in December of 2008 in
the Coeur d' Alene area, 85 inches of snow fell in a two-
week period. The heavy snowfall increased electric outage
calls (twice as many as had been received in the prior
December), and on some days, customer service
representatives were not able to get to work due to the
bad roads. The higher than expected incoming calls and
many unavailable customer service representatives resulted
in the negative impact on the service levels that month.
Q. Does Staff have some concerns about Avista' s
service levels over the past 5 years?
A. Staff is concerned about the drop in Avista's
annual average telephone answering service level in 2008
to 75.5%. Until now, Staff believed the Company was
moving in the right direction. The significant drop in
Avista's service level occurred in a year when Avista' s
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number of complaints and inquiries to the Commission rose
sharply.
Q. Why are telephone service level standards
important?
A. Telephone service level standards measure the
accessibility of a company to its customers. Staff
expects regulated utility companies to handle customer
disputes over the telephone, as well as answer customer
questions, in a timely manner so that customers do not
have to wait "on hold" for long periods of time.
¡
Q. What were Avista' s total number of complaints
and inquiries during each of the past 5 years?
A. In 2004, the Commission's Consumer Assistance
Staff received 148 complaints and inquiries from Avista
customersi in 2005, there were 139i in 2006 the number
dropped to 128 i in 2007 the number dropped again to 119.
That was a 20% decrease from 2004 to 2007. However, in
2008, Avista complaints and inquiries jumped to 175, a 46%
increase over the prior year. See Exhibit No. 125.
Q. Regarding complaints and inquiries registered at
the Commission, how does Avista compare with other major
regulated energy companies doing business in Idaho?
A. Wi th the exception of one company, all the maj or
energy companies had increases in the number of complaints
and inquiries received by the Commission in 2008. See
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1 Exhibit No. 126. On a per customer basis, Avista had the
2 highest number of complaints and inquiries. The maj ority,
3 66%, concerned credit and collection issues.
4 Q.Does Staff have any recommendations for Avista
5 in light of the customer service issues addressed above
6 regarding the Company's decreasing service level and
7 increasing complaints and inquiries?
8 A.Yes, Staff recommends that Avista take steps to
9 improve its service level and report to the Commission how ~
10 it plans to accomplish this by December of 2009 or explain
11 why it should not be required to do so.
12 Avista's Technological Advancements
13 Q.Avista has made some significant investments in
14 technology in the last five years. What are some of those
15 investments and how has customer service benefited?
16 A.In Staff's opinion, two of the most significant
17 technological investments and improvements have been
18 "Mobile Dispatch" and "Outage Management."
19 The Mobile Dispatch system was implemented in
20 June of 2006 for the Company's natural gas service orders.
21 Mobile Dispatch allows the Company's natural gas service
22 department to operate in a nearly paperless environment.
23 Mobile Dispatch automatically dispatches work orders
24 directly to a laptop computer in the appropriate service
25 person's truck using wireless technology. When orders are
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e 1 completed, that information is sent in real time back to
2 the office where customer service representatives have
3 immediate access to that information, giving them the
4 ability to monitor the status of work orders and respond
5 to customers' inquiries. With Mobile Dispatch, customer
6 service representatives do not need to call a dispatcher
7 to ascertain the status of an order, saving time for both
8 dispatchers and customer service representatives. Most
9 importantly, it provides timely information to customers.~
10 Avista designed its own Outage Management Tool
11 (ONT) over a period of about six years. The system was
12 completed in December of 2004. The OMT allows the process
e 13 of responding to outages to be conducted in a paperless
14 environment, saving literally thousands of pieces of paper
15 associated with one large scale outage and providing real
16 time information about the outage. The most important
17 benefit of this system is the ability to restore service
18 to customers more quickly. The Company stated that it
19 estimates the OMT system saves two to four hours each day
20 when restoring service on normal outages. On extended
21 outages related to major storms, the OMT saves on average
22 24 hours in restoration time, a reduction of up to 33% in
23 restoration time in some instances.
24 Both the Mobile Dispatch and Outage Management
25 systems are further enhanced by the use of Global
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1 Positioning technology (GPS).
2 Q.Mobile Dispatch is being used only for natural
3 gas orders. Does the Company plan to use this technology
4 for electric orders?
5 A.Yes. Although Mobile Dispatch is currently
6 being used solely for natural gas service orders, the
7 Company plans to implement the system for electric service
8 orders in 2010.
9 Is Avista's OMT connected to its InteractiveQ.~
10 Voice Response (IVR) system?
11 A.Yes. In many instances, a customer may call to
l2 report an outage to Avista and the IVR can automatically
13 associate the customer's telephone number with the
14 location of an outage. In that case, the customer would
15 hear a recorded message advising that Avista was aware of
16 the outage, the cause of the outage (if known), and an
17 estimated time of repair and restoration. One of the most
18 important benefits of the two systems being linked is the
19 ability of the Company to reduce the number of employees
20 needed to answer incoming telephone calls during outages.
2l It also eliminates the need to research each customer's
22 circumstances in order to provide an adequate response.
23 Improvements to Existing Technologies
24 Q.Over the past five years, has Avista upgraded
25 any of its existing technologies? And if so, what were
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1 those improvements?
2 A.Yes. The Company redesigned its Website and
3 made improvements to i ts Interactive Voice Response (IVR)
4 system.
5 Website
6 One of the biggest enhancements to the Website
7 was the addition of the ability for customers to make
8 payment arrangements online. Customers also can start and
9 stop service and conduct almost any customer service
10 function without having to speak in person to a customer
11 service representative. Another feature added to the
12 Website was the ability of customers to sign up to receive
13 monthly billing statements via the Internet rather than
14 through the mail. Adding this ability dramatically
15 increased the number of customers who have opted to
16 receive online bills. In fact, in 2004 the Company
17 reported that less than 3,000 Idaho customers received
18 online bills. In 2009, the number of Idaho customers
19 receiving online bills had grown to 14,991. With nearly
20 15,000 customers opting to receive their bills online, the
21 annual dollar savings in postage alone is more than
22 $75,000.
23 Interactive Voice Response
24 The Interactive Voice Response (IVR) system has
25 further automated customer service functions for those
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1 customers who were asking for the ability to handle more
2 transactio~s through automation wi thout being required to
3 talk to a customer service representative. Customers who
4 wish to speak with a customer service representative,
5 however, still have the ability to wait for a prompt that
6 will allow them to do so.
7 Q.What percentage of Avista' s total incoming
8 telephone calls is handled by. its IVR and how do those
9 percentages compare to the totals at the time of the last l
10 rate case?
11 A.The use of the IVR has increased since 2004. In
12 2004, 30% of incoming calls (408,721) were handled by the
IVR compared with 43% (682,797) in 2008, indicating that
14 customers are gradually becoming more familiar and
15 comfortable with using an IVR system to accomplish many
16 transactions that were handled previously by customer
18
17 service representatives.
Q.In 2008, a provision was added to Rule 203.03 of
19 the Utility Customer Relation Rules that states,
20 "Utilities shall implement procedures designed to monitor
21 and identify customers who may be billed under an
22 inappropriate tariff schedule." Has Avista implemented
24
23 procedures to be in compliance with this new provision?
A.Yes. According to Avista, on the first of each
25 month, a report called "Rate Schedule Comparison" is
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1 generated to identify customers who may be eligible for a
2 different rate schedule. If it is determined a change in
3 rate schedule is necessary, a letter is sent advising the
4 customer of that fact, giving the customer an opportunity
5 to call the Company and discuss the proposed change. The
6 customer is also given a brochure that shows how to
7 calculate and compare the customer's current rate versus
8 the new proposed rate. Additionally, a weekly report is
9 generated to review all newly-opened accounts for J
10 potential rate changes as well.
11 Remote Disconnects and Reconnects Pilot Program
12 Q.In July of 2008, the Commission authorized
l3 Avista to implement an 18 -month pilot program for remote
14 disconnection and reconnection of customers. Order 30603,
15 Case AVU-E-07-09. In that case, Avista was ordered to
16 prepare a detailed report to the Commission at the end of
17 its pilot program. To date, how many remote devices has
18 Avista installed in Idaho?
19 A.Avista's Application proposed to install
20 approximately 600 devices. As of March 1, 2009, the
21 Company had installed 559 remote devices.
22 Q.What are some of the primary reasons the devices
23 were placed at residences of Avista's customers?
24 A.The majority of installations, 541, were for
25 credit and collection purposes. These devices were placed
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1 on homes where a customer had at least two field
2 collection visits (see definition below) or disconnections
3 for non-payment in the preceding 12 months. The remaining
4 devices were placed at residences where meter access was
5 difficult or the occupant had animals that hampered access
6 to the meter by Avista employees.
7 Q.How many times has Avista used the devices since
8 implementation of the program?
9 Avista reported that as of March 2009, it hadA.l
10 used the devices 707 times for the purpose of
11 disconnecting and/or reconnecting service.
12 Q.What is a "field collection visit?"
13 A.A field collection visit takes place when a
14 Company representative goes to the premises of a
15 delinquent customer for the purpose of disconnecting
16 service due to non-payment of the account but service is
17 not actually disconnected. If an adult at the premises
18 pays the past due amount to the Avista employee at the
19 premises prior to being disconnected, the disconnection is
21
20 avoided.
Q.Has Avista reported any problems with
23
22 installation or operation of the remote devices?
A.Avista reports it has encountered minimal
24 problems and that productivity of employees has been
25 greatly improved where the devices are installed. Field
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2 as soon âs possible.
personnel and management are eager to expand the program
3 Q.What kind of customer feedback has Avista
4 received from customers affected by the devices at their
6
5 residences?
A.Avista reported that the majority of customers
7 have been pleased with the short turnaround time for
8 restoring service after their payment obligations were
9
10
met.,#.
Q.Has the Commission received any complaints
11 regarding either installation or operation of the remote
12 devices?
13 A.Yes, the Commission has received one complaint
14 from a customer regarding a disconnection. Staff
15 concurred with the Company's action because there had been
16 5 field collection visits to that residence within the
18
17 past 12 months.
19
20
21
22
23
24
25
Q.Does this conclude your direct testimony?
A.Yes it does.
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1
2 for the racord.
Q.Please state your name and business address
3 A.My name is Curtis Thaden. My business address
4 is 472 West Washington Street, Boise, Idaho.
5
6
Q.By whom are you employed and in what capacity?
A.I am employed by the Idaho Public Utilities
7 Commission as a Utili ties Compliance Investigator. I
8 accepted that position with the Consumer Assistance Staff
9 in July 2007.
10 Q.What is your professional and educational
11 background?
12
13
A.Prior to my employment with the Idaho Public
14 private industry for Hewlett Packard in a variety of
Utilities Commission, I had 18 years experience working in
15 manufacturing positions which include Material Handler,
16 Administrative Assistant, Technical Product/Process
17 Specialist and Engineering Coordinator. In my position as
18 an Engineering Coordinator, I worked with engineering teams
19 to document and communicate, worldwide, the changes made to
20 products and manUfacturing processes. I received. an
2l Associate of Science Degree from Links School of Business
22 (now known as ITT Technical Institute) in Boise, Idaho, in
23 September of 1983. Additionally, I am a licensed real
24 estate agent in the State of Idaho.
25
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1 Q.Have you previously testified before the
2 Commission?
3
4
A.Yes, I have.
Q.What is the purpose of your testimony in this
5 proceeding?
6 A.i will be addressing the following:
7 (1) demographics of the 10 Idaho Counties in Avista's
9 to pay their bills i (3) programs offering financial
8 service territorYi (2) factors affecting customers' ability
10 assistance to Avista's Idaho customersi (4) programs,
11 payment plans and payment arrangements offered by Avista to
12 its customersi and (5) Low-Income Weatherization and other
13
14
Energy Efficiency Programs.
Q.Please summarize your recommendations to the
15 Commission as discussed in your testimony.
16 Staff recommends that the Commission:A.
17 (1) direct Avista to confer with Staff to assess the
18 effectiveness of the Company's new payment plans and
19 identify ways to decrease the number of customer defaults
20 on payment arrangements ¡and 2) encourage the Company to
21 look for new and creative ways to increase energy
22 efficiency and provide assistance to customers,
23 particularly those customers who are economically
24 disadvantaged.
25
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4
1 Demographics and Factors Affecting Bill Payment
2 Q.Has the Staff prepared a demographic profile
3 of Avista's service territory in Idaho?
A.Yes. Exhibit No. 127 includes both
5 demographics obtained from the most recent Census Bureau
6 data and unemployment data obtained from the Idaho
7 Department of Labor for each of the counties served by
8 Avista. For comparison, this Exhibit also includes
9 statistics for the State of Idaho and the United States.
10 Exhibit No. 128 shows the 2009 Federal Poverty Level (FPL)
11 Guidelines. For purposes of Staff's analysis, income at or
12 below 100% of poverty was used. A map of the ten counties
13 served by Avista can be found in Exhibit No. 129.
14 In reviewing the data, what stands out asQ.
15 particularly noteworthy?
16 A.Unemployment is a particularly acute problem
17 in Avista' s service terri tory. Seven out of the ten
18 counties within the service territory exceed the April 2008
19 seasonally adjusted state average unemployment rate of
20 7.0%.1 Five of these seven counties (Benewah, Boundary,
2l Clearwater, Idaho and Shoshone) have unemployment rates
22 exceeding 9% and rank in the state's top eleven counties
23 wi th the highest unemployment. Four of these five counties
24 (Benewah, Boundary, Clearwater, and Shoshone) have double-
25 1 At the time this testimony was pre-filed in May 2009, the most recent
forecast of unemployment data was from April 2009.
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1 digit unemployment rates.
2 When comparing each county within the service
3 territory,' it is obvious that some counties are better off
4 than others. Kootenai County has the area's highest median
5 income and the lowest percentage of individuals living in
6 poverty (11.3%). In contrast, Shoshone County has the
7 area's lowest median income and the state's highest
8 percentage of individuals living in poverty (17.5%).
9 Nine of the ten counties (Benewah, Bonner,
10 Boundary, Clearwater, Idaho, Kootenai, Lewis, Nez Perce and
11 Shoshone) exceed the state average of persons over 65 years
12 of age (11.7%). This statistic is significant because the
13 elderly tend to have special needs and are often the most
14 vulnerable members of society.
15 Seven counties (Benewah, Bonner, Boundary,
16 Clearwa ter , Idaho, Latah, Shoshone) have high percentages
17 (over 14.7%) of individuals living at or below 100% of
18 Federal Poverty Level Guidelines. This exceeds the state
19 average of 12.1%.
20 With the exception of Latah County, these
21 counties also have high unemployment rates (over 8.9%) .
22 High unemployment rates coupled with the high poverty rates
23 suggest that these counties have a large percentage of
24 individuals who are challenged with paying for life's basic
25
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1 needs. These individuals face high energy burdens. 2
2 In summary, the ten counties that comprise the
3 area that 'Avista serves have the state's highest average
4 unemployment rate (9.2%) and the state's highest average
5 poverty rate (l4.8%).
6 Q.Do the Federal Poverty Level Guidelines
7 reflect an accurate gauge of poverty in the United States
8 and Idaho?
9 A.Not necessarily. The 100% of poverty level is
10 regarded by social service organizations such as CAPAI
11 (Community Action Partnership Association of Idaho) as
12 underestimating what it costs to maintain a basic standard
13 of living. Realizing this, federal and state agencies
14 charged with the responsibility to protect human health and
15 welfare set household income eligibility limits for social
16 service programs at levels that exceed the Federal Poverty
17 Guideline's benchmark of 100% of poverty.
18 Avista's service territory has the highest
19 poverty level in the state when compared to other regulated
20 utility service areas. However, since the Federal Poverty
21 Guideline is regarded as an underestimation, the actual
22 number of those who live in poverty in Avista i s service
23 territory is even greater.
24
25
2 Energy Burden is the percentage of a household's income that is spent
on all home energy expenses, which includes all energy used for space
heating and cooling, lighting, and water heating.
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1 An example of the underestimation of those
2 living in poverty can be seen by comparing the Federal
3 Poverty Level Guideline's (FPL) estimation of Idaho
4 households living in poverty to the state's LIHEAP (Low
5 Income Home Energy Assistance Program) estimation of those
6 living in poverty and eligible for financial assistance.
7 Under the FPL 44,000 households in Idaho are at or below
8 LOO% of poverty. Under Idaho's LIHEAP Program calculations
9 (which are based upon 150% of poverty), 101,000 households
10 qualify for benefits. The difference between these two
11 estimates is 57,000 households statewide.
12
13
14
Q.What conclusion can be drawn from these
demographics?
A.Customers who are living in poverty and/or are
15 unemployed have limited or diminished financial resources
16 with which to pay utility bills. Given the recent economic
17 turmoil, Staff believes that the Census data, although
18 somewhat stale, provides a fairly good picture of Avista' S
19 customers today. In fact, there is reason to believe, as
20 discussed below, that customers may be worse off in the
21 future. Staff is concerned that a significant number of
22 Avista' s customers will have problems paying their electric
23 and natural gas bills, especially when faced with
24 increasing rates.
25 Q.What do you see as the greatest threat that
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1 could impact the ability of customers to pay their utility
2 bills?
3 A.As previously discussed, unemployment
4 continues to be a great concern. Current Idaho Department
5 of Labor data as of April 2009 ,shows a continued and
6 sustained upward trend in the state's unemployment rate,
7 which now stands at the highest level in twenty-one years
8 (7.0%). Exhibit No. 130 provides Department of Labor press
9 release excerpts (March and April 2009) pertaining to the
10 current trend in unemployment in both Idaho and the United
11 States.
12 An increase in the unemployment rate can lead
13 to an increase in the percentage of Avista customers who
14 fall below the Federal Poverty Level. As a result, more
15 strain will be placed upon agencies that provide financial
16 assistance for payment of utility bills. The number of
17 disconnections has the potential to increase as people
18 experience difficulty paying their bills. Even people who
19 were high wage earners can find themselves in a tight
20 financial situation following a layoff. Higher
21 unemployment, rising fuel costs and increasing food costs
22 are additional stresses that will have an impact on
23 people's finances.
24 Q.Do you see any other factors that might
25 inhibit a customer's ability to pay his/her utility bill?
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1 The current housing crisis (record number ofA.
2 foreclosures) has placed additional pressure on households.
3 According to RealtyTrac, Inc., the nation's
4 largest online foreclosure marketplace, Idaho is now ranked
5 eighth out of the top ten states for having the highest
6 foreclosure rates in the country. One in every 147 housing
7 units received a foreclosure filing in the first quarter of
8 2009 (January - March 2009), up 15.56% from the previous
9 quarter (October - December 2008). In just one month, from
10 February 2009 to March 2009, the foreclosure rate increased
11 a. 90% (1,921 new filings) .3 Due to the steady rise in
12 unemployment, the pressure on homeowners to maintain
13 monthly mortgage payments will most likely increase
14 throughout the year.
15 Homeowners with ARs (Adj ustable Rate
16 Mortgages) that are unable to refinance their home due to
17 declining property values and/or job loss will be faced
18 with making a higher mortgage payment when their AR resets
19 in 2009. This could cause a severe hardship on individuals
20 who are already strapped with having to pay higher utility
21 costs. Low income households are not the only ones
22 impacted. This is an issue that impacts a diverse group of
23 wage earners.
24 In October 2008, a new federal program called
25 3 Regional foreclosure data specific to Avista's service area was not
available.
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1 UHope for Homeowners" (H4H) was authorized by the Housing
2 and Economic Recovery Act of 2008. The program targets
3 homeowners who are at risk of loan default and foreclosure.
4 Lenders are allowed to voluntarily refinance delinquent
5 mortgages by "writing down" the loan amount to 90% of a
6 home's newly appraised value. The new loan is backed by
7 the Federal Housing Administration (FHA) using current
8 fixed mortgage rates that will reduce the monthly mortgage
9 payment.4
10 Q.Has the number of customers who have been
11 disconnected for non-payment increased or decreased?
12 The number of Idaho Avista residentialA.
13 customers disconnected for non-payment has greatly
14 increased over the past four calendar years (2005-2008)
15 from 4,588 to 6,959. This represents a 5l% increase in the
16 number of disconnections. Traditionally, Avista's service
17 territory suffers from higher unemployment and poverty
18 rates. As the economic downturn continues and more
19 customers struggle financially, it is apparent that a
20 greater need to provide help for those needing financial
2l assistance exists within the community. This also, presents
22 an opportunity for Avista to address the issue of
23
24
25
4As of March 2009, though $300 billion was allocated for the new
program, only one homeowner in the U.S. benefited. The major reason
for the program's lack of success is that lenders consider the program
too costly. Lenders prefer to either extend the term of the existing
loan up to 40 years or allow for interest rate reductions (temporary or
permanent). To date the program has been a failure. Source:
CNoney..com, "Hope prevents i foreclosure", March 25, 2009.
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1 disconnects due to non-payment by offering its customers
2 additional payment options, which will be discussed later.
3 When a residential customer is disconnectedQ.
4 for non-payment of their bill, does Avista require a
5 deposit to reestablish service?
6 A.Yes. For low income customers who have been
7 disconnected from service for non-payment, a deposit
8 requirement makes it more difficult for them to reestablish
9 service and further places them into debt. Staff believes
10 that the additional financial burden of a deposit
11 requirement causes a greater hardship for low income
12 customers and often presents a barrier to customers in
13 obtaining or retaining service. Allowing customers to make
14 installment payments on deposits over a period of time
15 longer than the current minimum of two months required by
16 the UCCR (Utility Customer Relation Rules) might prove
17 beneficial to the Company and affected customers. Taki~g
18 this approach may lessen the impact of an additional
19 financial burden placed upon customers.
20 Avista is currently working with Staff to
21 dèvelop a study regarding the impact and .effectiveness of
22 deposit collection. Avista offered to conduct a study in
23 its comments filed with the Commission in Case No.
24 GNR- U- 08 - 01, which addressed energy affordabili ty issues.
25 Once completed, the study can be used to evaluate deposit
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1 policies.
2 Programs Offering Financial Assistance
3 Q.What resources are available to help customers
4 pay their 'energy bills?
5 A.LIHEAP (Low Income Home Energy Assistance
6 Program) is funded by the Federal government through a
7 grant to the State of Idaho. Unlike the situation in other
8 states, state government funding is not available in Idaho
9 to help customers pay energy bills at any time of year.
10 For the 2008/2009 heating season only, a one-
11 time increase in federal funding for LIHEAP occurredi 5
12 allowing for larger benefit amounts to be given to each
13 participant. In addition, eligibility guidelines changed
14 to allow for more households to participate in the LIHEAP
15 program. The level at which a household is eligible to
16 receive assistance changed from a maximum of 150% to 160%
17 of the Federal Poverty Level Guidelines. Because this was
18 a one-time funding increase added to the yearly grant,
19 Staff anticipates the total funding amount will probably
20 decrease for the next winter heating season, and the
21 previous eligibility requirement will be reinstated to l50%
23
22 of poverty level.
24
25
5 An increase in LIHEA Funding for this past winter heating was
authorized on September 30, 2008, by HR 2638, The Consolidated
Security, Disaster Assistance, and Continuing Appropriations Act, 2009.As a iresul t, funds available to state of Idaho this past winter heating
season increased from $9,410,895 to $17,439,570.
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1 For the 2008-2009 winter heating season,
2 $2,830,660 in LIHEAP funding was distributed to 6,850
3 Avista customers in Idaho to help pay home heating bills.
4 The average amount paid to each participant was $413. The
5 table below reflects the number of Avista customers in
10
11
12
13
6 Idaho who received LIHEAP benefits and the average dollar
7 amount allocated during the last three heating seasons.
8 Regular LIHEA Funding
9 Program Year Funding #of Participants Avg.Benefit
2006/2007 $1,499,729 5,201 $288
2007/2008 $1,453,885 5,199 $280
2008/2009 $2,830,660 6,850 $4l3
14 sufficiently meet the energy needs of low income customers.
Energy Assistance funding provided by LIHEAP does not
15 Therefore, Crisis Funding benefits are available to
16 customers whose circumstances qualify them for additional
17 financial assistance under the LIHEAP program. Money is
18 not always available for Crisis Funding. Even when funds
19 are available, the number of people who can be helped is
20 quite small. For the 2008-2009 winter heating season,
21 $76,014 in Crisis Funding benefits was distributed to 130
22 Avista customers in Idaho. The average amount paid to each
23 participating customer in 2007-2008 was $585. The table
24 below reflects the number of Avista customers in Idaho who
25 received LIHEAP Crisis Funding benefits and the average
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1 dollar amount allocated during the last three heating
2 seasons.
3 Crisis LIBEA Funding
4 Program Year
5 2006/2007
6 2007/2008
7 2008/2009
Funding #of Participants Avg.Benefit
$70,196 211 $336
~78,747 177 $445
$76,014 130 $585
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8 Q.Are there other programs in place that can
9 help Idaho customers?
A.Yes. In Avista' s service terri tory, two CAP
11 Agencies (Community Action Partnership and Spokane
12 Neighborhood Action Programs) administer a program, Project
13 Share, which provides financial assistance. The program is
14 a fuel-blind fund, which means that monies are dispersed
15 towards payment of bills that are for any energy sources
16 (electric, natural gas, wood, coal, propane, kerosene and
17 oil). All money collected, with the exception of
18 administration costs, goes back to the community.
19 In the past three fiscal years (2006 - 2008),
20 Avista shareholders donated $200,425 to Proj ect Share for
21 Idahoi Avista customers in Idaho donated $210,919. Of the
22 total amount collected ($411,344), $41,134 of both the
23 shareholder and customer contribution (10% of funds
24 collected) was paid to the two CAP agencies for
25 administering the program. The table below reflects total
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dollar amounts donated by Avista customers and its
shareholders in the past three fiscal years.
Fiscal Year Avista Customers Shareholders
2006 $73,355 $50,000
2007 $63,231 $100,425
2008 $74,333 $50,000
Q.In addition to customer and shareholder
donations was any additional Project Share money provided
to assist with heating costs in each of the past three
fiscal years?
A. Yes, an additional $250,444 was available.
Therefore, during the past three fiscal years a total of
$662,118 was provided to Idaho households served by Avista.
Because Proj ect Share donations are pooled together from
both Idaho and Washington, Idaho receives an assistance
amount that is greater than the total amount that is
donated by Idaho Avista customers and shareholders. The
table below reflects the total dollar amounts paid to
assist Idaho households with their heating costs.
Fiscal Year Money Disbursed
2006 $182,104
2007 $305,700
2008 $174,314
Q. What efforts does Avista put forth to make the
community and its customers aware of Project Share?
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1 Avista publicizes Project Share through itsA.
2 website, newsletters, and monthly customer billings.
3 Avista is doing well marketing Proj ect Share and Staff
4 encourages the Company to continue promoting the program.
5 Programs, Payment Plans and Payment Arrangements
6 Q.What utility programs are in place to help
7 customers avoid being disconnected during the winter
8 months?
9 Besides LIHEAP and Project Share, the IdahoA.
10 Moratorium Program and Winter Payment Plan also address
11 this issue.
12 Idaho's Moratorium Program allows residential
13 customers whose household includes children, elderly or the
14 infirm to be protected from disconnection during the months
15 of December through February if they declare that they are
16 unable to pay their utility bill in full. However,
17 customers are not absolved of paying their utility debt.
18 The Winter Payment Plan allows customers who
19 have declared eligibility for the moratorium an additional
20 two months of protection (November and March) if they agree
21 to accept and follow-through on monthly payments during the
22 winter protection period that are equal to half of the
23 monthly average of the previous 12 months' billings.
24 A brochure entitled "Helpful Information About
25 Your Avista Utilities Account," with information on both
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the Idaho . Moratorium Program and Winter Payment Plan, is
sent to all residential customers annually. All customers
that receive a Final Disconnection Notice during the months
of November through February are made aware of the Idaho
Moratorium Program and the Winter Payment Plan through a
bill insert entitled "Winter Payment Plan, Moratorium
Information. " For those customers who have declared
eligibility for the moratorium, a brochure on the Winter
Payment Plan is provided with the December, January and
February payment reminder notices that are sent out. The
intent of this brochure is to encourage these protected
customers to pay a portion of their energy bills during the
winter months. Both Customer Service Representatives and
Field Personnel receive training on the options available
to customers who are struggling to pay their energy bills.
Avista adequately educates its customers on both the Idaho
Moratorium Program and Winter Payment Plan.
Q. Has the number of customers who have declared
eligibility for the moratorium increased or decreased?
A. The number of Avista customers in Idaho who
declared eligibility for the moratorium during the
2008/2009 winter heating season totaled 2,188. This
represents a 17% decrease in comparison to the previous
winter heating season. The decrease in the number of those
requesting winter protection could be attributed to more
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1 people receiving financial assistance through the LIHEAP
2 program this past winter. As discussed earlier in my
3 testimony, more households received LIHEAP benefits, and
4 larger grant amounts were paid out to each LIHEAP
5 participant on average.
6 Therefore, Staff anticipates that the number
7 of individuals who declare eligibility for the moratorium
8 will increase next winter heating season. Exhibit No. 131
9 reflects the total number of moratorium participants in the
10 past three winter heating seasons.
11 Q.Has there been an effort by Avista to increase
12 the number of participants in the Winter Payment Plan?
A.Of the 2,188 participants who declared
14 eligibility for the moratorium in the 2008/2009 winter
15 heating season, 54.1% elected to be placed on the Winter
16 Payment Plan. This is significantly higher than the
17 previous winter heating season, when only 14.3% of
18 moratorium participants had a Winter Payment Plan. The
19 increase could be attributed to Avista' s educational
20 efforts in providing information on the payment plan and
21 attempting to encourage customers protected from
22 disconnection to pay at least a minimal amount toward their
23 heating bills. Exhibit No. 131 reflects the total number
24 of plan participants in the last three winter heating
25 seasons.
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1 Q.Have customers on the Winter Payment Plan been
2 able to successfully pay down their outstanding account
3 balances before the end of the winter protection period on
4 March 31?
5 A.Of the 1,184 participants who elected to be
6 placed on the Winter Payment Plan during the 2008/2009
7 winter heating season, 63% were not able to meet their
8 monthly payment. In the previous winter heating season, of
9 the 484 participants who elected to be placed on the Winter
10 Payment Plan, 80% were unable to meet their' monthly
11 payment.
12 While the decrease in the percentage of
13 defaul ts is encouraging, the percentage of defaults is
14 still high at 63%. Such high default percentages cause
15 concern about the effectiveness and success of the Winter
16 Payment Plan.
17 Q.Have the number of residential payment
18 arrangement agreements and defaultèd payment arrangement
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19 agreements made on accounts increased or decreased?
The number of Idaho Avista residentialA.
21 customers has steadily increased over the past four
22 calendar years (2005-2008) from 128,130 to 136,890. This
23 represents a 6.8% increase. During this time period the
24 number of payment arrangement agreements increased by 17%
25 and the number of defaulted payment arrangements increased
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2 arrangement in a given month for an account and customers
by 39 .8%. A customer can have more than one payment
3 can have more than one account. Because of this, a number
4 of payment arrangement agreements and payment arrangement
5 defaults do not. correlate to the actual number of
6 customers. This table shows the number of customers,
7 payment arrangements and payment arrangement defaults.
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Year #of customers Arrangements Defauits %Defauits
2005 l28,130 63,003 28,600 45%
2006 130,396 66,700 30,600 46%
2007 133,508 67,881 31,318 46%
2008 136,890 73,768 39,994 47%
Q.What can be done to help reduce the number of
14 customers who default on their payment arrangement
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15 agreements?
A.At this time, Staff is not sure why customers
17 are not meeting the terms of payment arrangements. It may
18 be that a more diligent effort by Avista to provide monthly
19 customer reminder calls would be beneficial, allowing the
20 Company to assess each customer's situation and reinforce
21 to each customer the importance of making the agreed upon
22 payment. However, it may be that customers are simply
23 agreeing to make payments in an amount and/or at a time
24 that is not feasible given their financial circumstances.
25 Whether customers are doing so because they feel they have
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1 no choice but to agree to terms suggested by the Company,
2 are using ,payment arrangements as a means to defer
3 disconnection of service due to a lack of ability to budget
4 for expenses i or some other reason, more study is required
5 to determtne why so many arrangements result in default.
6 During the last four years the percentage of payment
7 arrangement defaults has remained relatively high, ranging
8 between 45% and 47%. Unless an effort is put forth by the
9 Company to address the reason as to why so many payment
10 arrangements end in default, the number will remain high.
11 Q.What new payment options have been implemented
12 by Avista to assist customers who have fallen behind on
13 their monthly payments and are struggling to pay down their
14 arrearages?
15 In March 2009, Avista added three new paymentA.
16 plan options (Budget Billing, Flexible Payment, and Bill
17 Plus), in addition to its existing payment plan offerings
18 outlined in Exhibit No. 132. A fourth plan (Pay Day) ,
20 added that allows a customer to change the monthly billing
19 though technically not a payment arrangement, was also
21 due date. The Company realized the need for additional
22 bill payment options that offer more flexibility in meeting
23 the needs of its customers. A brief summary of each plan
24 can be found in Exhibit No. 133.
25 At this time, Staff believes that Avista's
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offering of additional bill payment options will benefit
customers who are financially stressed, offering them a
better opportunity to payoff past due balances. Staff
also believes that these options could have a positive
impact in helping reduce the amount of payment arrangement
defaults. Staff recommends that Avista be directed to
confer with Staff to assess the effectiveness of the new
payment plans and identify ways to decrease defaults.
Q. What new effort has Avista taken to educate
its customers about the available programs intended to
assist with paying their energy bills?
A. In March 2009, Avista launched an advertising
campaign in both Washington and Idaho to inform and educate
its customers about the various assistance and bill payment
options that are available (Exhibit No. 134). Radio and
print ads direct customers to contact Avista so they can
either talk to a customer service representative or access
the Company's website. The media campaign ran from March
30, 2009 through May 22, 2009.
Q. Has Avista implemented any programs in Idaho
designed to assist senior citizens?
A. Yes, Avista now offers Senior Energy
Conservation Workshops. The program has been in place in
Washington and was recently implemented in Idaho in the
faii of 2008. Workshops are conducted at a variety of
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different locations such as senior citizen centers, senior
nutrition meal sites, and various other non-profit
organizations. The goal of the workshops is to provide
education on energy savings for seniors without reducing
at-home comfort and safety. All workshop participants
receive an "Every Little Bit" Energy Conservation Kit which
contains compact fluorescent light bulbs, home
weatherization supplies and energy saving tips. Avista
began this program when it came to the Company's attention
that seniors on fixed incomes tend to reduce their use of
heat in order to cut monthly heating expenditures so that
they are able to pay for medication and food.
Unfortunately, due to the late implementation of the
program in Idaho, a delay in materials not arriving for the
workshops and the time constraints of the facilitators no
workshops were conducted in Idaho in 2008.
Q. What is the status of the Energy Conservation
Education program that was approved by Order No. 30647 in
Avista's previous rate case (AVU-E-08-01)?
A. As part of the recent rate case settlement
Avista agreed to support an Energy Conservation Education
program in Idaho by providing $25,000 in annual funding
through its DSM tariff rider. Avista's 2009 contract with
Communi ty Action Partnership includes this funding amount,
but the program has not yet been implemented. The
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Community Action Partnership has recently hired a new
employee, an Energy Education Specialist, to oversee the
program that will begin later this year. The purpose of
the program is to provide conservation education to LIHEAP
participants.
Q. Does Avista provide personalized customer
service to those customers who have special needs?
A. Yes. The Company has a Case Management
Program called CAES (Customer Assistance Referral and
Evaluation Services). The CAES staff is comprised of four
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full-time specialized customer service representatives who
assist customers with special needs (elderly or disabled)
and/or hardships to gain access to both utility and non-
utility resources. The assistance provided includes
special payment arrangements, a personalized assessment of
energy usage, advice on energy saving practices, utilizing
energy efficiency programs, home weatherization, and
referrals to other community agencies. The four CAES
representatives handle about 4,000 customers living within
the Company's service territory (Oregon, Washington and
Idaho). CAES benefits both the customer and the Company
by assisting the special needs person, which allows them to
remain as a customer and also lowers the number of
disconnects experienced by the Company that otherwise might
have occurred.
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1 Low Income Weatherization and Energy Efficiency
2 Q.What other Avista programs are available to
3 assist low income customers?
4 A.Energy efficiency programs can make bills more
5 affordable by decreasing usage, thereby lowering energy
6 costs. The Low Income Weatherization Program offers
7 financial assistance to qualifying low income customers
8 with both natural gas and electrically-heated homes for
9 weatherization of their homes. A household whose income is
10 150% of poverty or less qualifies to receive weatherization
11 services i 160% was allowed this past winter heating season
12 due to an increase in federal funding. This program is
13 administered by the Community Action Partnership (CAP)
14 located within Avista's Idaho service territory. The total
15 number of dwellings weatherized in Idaho in 2008 was 101 at
16 a total cost of $351,000. This amount includes CAP
17 administration costs but does not include Avista' s
18 administrative costs. In Case No. AVU-E-08-01 the
19 Commission approved annual funding for low income
20 weatherization of $465,000. Funding for the low income
21 weatherization program comes from the Company's existing
22 DSM tariff riders.
23 Avista offers its Idaho customers additional
24 energy efficiency programs that are available to households
25 of all income levels. Such programs include: 1) Senior
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1 Energy Conßervation Workshopsi 2) Energy Conservation
2 Education Programs for Childreni 3) High Efficiency
3 Equipment Incentives i 4) CFL Lighting i 5) Refrigerator
4 Recycling Programi 6) Conversion from Electric Straight
5 Resistance i 7) Energy Star Appliances i 8) New Construction
6 Energy Star Homes Programi 9) Multi-Family Energy
7 Efficiency Programi 10) Rooftop Dampersi and 11) Home
8 Energy Analyzer.
9 More detailed summaries of the programs can be
10 found in Exhibit No. 135.
11 Q.Does Avista adequately address the needs of
12 its customers through its various programs?
13 A.Although there is always more that can be
14 done, Avista' s programs do help customers in a variety of
15 different ways.
16 What efforts has Avista taken to addressQ.
17 energy affordability issues?
18 Avista actively participated in the energyA.
19 affordability workshops that took place in October 2008 in
20 Case No. GNR-U-08-01. Workshop participants explored ways
21 to address energy affordability and the inability of
22 customers to pay energy bills.
23 Avista also spearheaded efforts to enact
24 legislation during the 2009 Legislative Session that would
25 have allowed utilities to propose bill payment assistance
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programs for low-income customers. Currently, Avista funds
a bill payment program called LIRAP (Low Income Rate
Assistance Program) in both Oregon and Washington. The
program assists low income customers with paying their
energy bills and is administered in the same manner as
LIHEAP (Low Income Heating Assistance Program).
Q. will an increase in Avista' s rates affect
customers' ability to pay their bills?
A. Yes. As I have pointed out earlier in my
testimony, there are many factors affecting customers'
ability to pay, and a rate increase will add to the
financial difficulties faced by customers. The Company
will need to continue to be more flexible in making payment
arrangements. It will need to work with the customers to
ensure that payments can be made based upon schedules that
fit the customers' circumstances and needs. . By
implementing three new payment arrangement plans, the
Company has shown a willingness to do so. Staff recommends
that the Company be encouraged to look for new and creative
ways to increase energy efficiency and provide assistance
to customers, particularly those customers who are
economically- disadvantaged.
Q. Does this conclude your testimony?
A. Yes, it does.
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Q. Please state your name and business address.
2 A. My name,is Larry Crowley and my business address is 5549 South Cliffsedge
3 Avenue, Boise, Idaho 83716.
4 Q. By whom are you employed and in what capacìty?
5 A. I am the fóunder and Director of The Energy Strategies Institute, Inc., a
6 consulting company consisting of a network of experienced professionals wìth
7 diverse experience and interests, specializing in energy and utility matters. The
8 Institute is dedicated to developing and implementing practical solutions for
9 energy service providers and customers. The Institute provides regulatory and
10 lìtigation support, industry restructuring support including economic and financial
11 analysis, and business and organizational development analysis and
12 implementation support. The Institute also offers assistance and facilitation with
13 energy and utility strategic planning initiatives, resource planning studies, and
14 strategic, financial aiid feasibility studies for mergers and acquisitions and new
15 business development. Regulatory services include costing/pricing studies,
16 preparation of direct testimony and testifying in support of the studies provided.
17 The Institute offers regulatory expertise with the preparation of exhibits and
18 testimony for jurisdictional separation and revenue requirement studies, class cost
19 of service studies, unbundled cost studies, and rate design studies. Major clients
20 include the Idaho Forest Group, Grangevile, Idaho; The Washington Group
21 International, Boise, Idaho; Wisconsin Electric Power Company, Milwaukee,
22 Wisconsin; Duquesne Light Company, Pittsburgh, Pennsylvania; Montana-
23 Dakota Utilities, Bismarck, North Dakota; The US Departent of Energy, Office
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of Renewable Energy and Energy Efficiency, Washington, D.C.; The
2 Intematiop.al Energy Agency, Paris, France; and The World Ban, Washington,
3 DC.
4 Q. Please describe your educational background and professional experience.
5 A. I have a Bachelor of Science degree in Economics from the University of
6 Maryland, College Park, Maryland. My professional experience consists of over
7 30 years of senior-level positions with a number of electric or dual fuel utilities.
8 During that time, I testified as an expert witness before the Idaho Public Utilities
9 Commission, the Oregon Public Utilities Commission, the Nevada Public Service
10 Commission, the Colorado Public Utilities Commission, the Wisconsin Public
11 Utilities Commission, the Michigan Public Service Commission, the North
12 Dakota Public Service Commission, the Montana Public Service Commission, the
13 Texas Public Utility Commission, the Pennsylvania Public Utility Commission,
14 and the Federal Energy Regulatory Commission. A summary of my professional
15 experience is attached to this testimony as Exhibit 201.
16 Q. On whose behalf are you testifying in this proceeding?
17 A. I am testifying on behalf of the Idaho Forest Group (IFG), a Schedule 25
18 customer of Avista Utilities.
19 Q. Please describe IFG's operations in Avista's electric service area.
20 A. IFG operates a large lumber mill in Grangeville, Idaho. Through its predecessor
21 corporation, Bennett Forest Industries, it began its operation at the Grangevile
22 location in 1995, and expanded its facilities in 2005/2006. IFG currently employs
23 160 persons, making it the largest private employer in the Grangevile area, and
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consequently, IFG is an important contributor to the economy of Idaho County
2 and the surrounding area. For example, it purchases approximately 24,000
3 truckloads of logs per year from various state, federal and private landowners and
4 it provides approximately 6,500 truckloads of chips and sawdust per year to the
5 Clearater Pulp Mill in Lewiston, Idaho. In calendar year 2008, IFG purchased
6 almost 23,220,000 kWh of electric energy from Avista at a cost of almost
7 $1,084,000.
8 Q. What is the purpose of your testimony?
9 A. The purpo'se of my testimony is to recommend that a uniform percentage increase
10 (or decrease) be applied to any increase (or decrease) ultimately approved by the
11 Commission in this proceeding.
12 Q. Please explain your reasons for recommending a uniform percentage increase (or
13 decrease) in this proceeding.
14 A. The Company's last rate case was approved by the Commission in its Order No
15 30647 dated September 30,2008. The approved rates became effective on
16 October 1,2008. In its order, the Commission noted that "neither Avista nor Staff
17 believes major changes in rate design are waranted given the imprecise and dated
18 nature of the Company's cost of service studies." With the exceptions of
19 increasing the residential monthly basic charge from $4.00 to $4.60 per month
20 and the smaller percentage increase to Schedule 25P, all other "rate components
21 are (were) increased by a uniform percentage to generate the required revenue."
22 Q. Did Order No. 30647 provide further guidance to Avista regarding cost of
23 service?
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1 A. Yes, the Order provides, "We direct the Company in its next general rate case to
2 provide updated load data as par of its COS study, or in the alternative, show
3 how the lack of such an update affect COS-based revenue allocations to customer
4 classes" (pg. 13).
5 Q. Has Avista fied more precise cost of service studies in this proceeding?
6 A. No. However, A vista has stated that it is in the process of developing or
7 acquiring updated class load data which wil allow it to prepare mOre precise class
8 cost of service studies in future rate cases. Until such time as the Company has
9 more precise or updated class load information, a uniform percentage increase (or
10 decrease) would maintain the current relative rate differentials among the
1 I Company's rate classes.
12 Q. How would the uniform percentage increase (or decrease) be applied in the
13 proceeding?
14 A. I am proposing that essentially the same approach the Commission approved in
15 the Company's last rate case be applied only without any exceptions previously
i 6 noted. That would result in all rate components in all rate schedules being
17 increased (or decreased) by a uniform percentage adequate to generate the
18 required rèvenue in this proceeding.
19 Q. Does that conclude your testimony?
20 A. Yes it does.
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PLEASE STATE YOUR NAME AND BUSINESS ADDRESS.
My name is Dennis E. Peseau. My business address is Suite 250, 1500 Liberty Street,
S.E., Salem, Oregon 97302.
BY WHOM AND'IN WHAT CAPACITY ARE YOU EMPLOYED?
I am President of Utilty Resources, Inc. (URI). URI has consulted on a number of
economic, financial, and engineering matters for various private and public entities for
more than twenty years.
ARE YOU SPONSORING EXHIBITS IN THIS CASE?
Yes, attached are Exhibits 301,302 and 303, which were prepared by me or under my
supervision.
Q.DOES EXHIBIT 301 ACCURATELY DESCRIBE YOUR BACKGROUND AND
EXPERIENCE?
Yes.
HAVE YOU TESTIFIED PREVIOUSLY BEFORE THIS COMMISSION?
Yes. I have testified before the Idaho Commission on numerous occasions since the early
1980's.
WHAT IS THE PURPOSE OF YOUR DIRECT TESTIMONY IN THESE
PROCEEDINGS?
My testimony discusses two issues in Avista Corporation's ("Avista" or "the Company")
cost of service study that are, in my opinion, incorrect and paricularly onerous to higher
load factor customers including my client, Clearater Paper Corporation. I believe the
issues I raise, and the corrections I propose, significantly improve the accuracy of
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Avista's cost of service. for Clearater without materially modifying the Company's
eventual allocation of costs to other customer classes.
Q. WHAT is THE FIRST COST OF SERVICE ISSUE YOU RAISE IN THESE
PROCEEDINGS?
A. The first issue pertains to the classification of transmission costs. I provide a brief
historical background with examples of transmission cost classification methods
currently used by neighboring utilties, as well as the Federal Energy Regulatory
Commission ("FERC") to argue transmission costs are incurred to meet Avista's winter
and summer peak loads. As this Commission and many other regulatory bodies have
recognized, transmission facilties are constructed primarily for meeting system peak
loads and such costs therefore are properly classified as demand. A vista, however,
allocates nearly two thirds of system transmission costs to energy.
Q. WHAT IS THE PRACTICAL RESULT OF A VISTA'S CLASSIFICATION OF
SIGNIFICANT TRANSMISSION COSTS TO ENERGY?
A. The Company's classification method shifts high system costs it incurs to meet peak
demands to off -peak periods. This resulUs prejudicial and unfair to high load factor
customers such as Clearwater. It is also a terrible economic policy because customer
rates under this method will be too low during peak periods, and too high during lower-
cost, off-peak periods. The skewed rates wil promote more on-peak demand, leading to
greater required generation, transmission and some distribution facilties, to the detriment
of all A vista customers.
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Q. PLEASE DESCRIBE YOUR PROPOSED CORRCTION TO A VISTA'S
CLASSIFICATION OF TRANSMISSION COSTS.
A. I recommend that i 00% of A vista's transmission costs be classified as demand related.
This is the method routinely used by FERC for both A vista and Idaho Power, and it is the
classification adopted by this Commission in the last Idaho Power rate case. Admittedly,
there are cases in which a small portion ofa company's transmission costs are classified
as energy costs for various reasons, but Avista's classification of 63.5% of such costs to
energy is completely unprecedented in my experience.
Q. DOES A VISTA ATTEMPT TO JUSTIFY THIS CLASSIFICATION IN ITS
TESTIMONY?
A. Not really. I think the classification simply is an unintended result of a misapplication of
the "peak credit" cost of service study A vista uses.
Q. BOTH YOU AND A VISTA WITNESS MS. TARA KNOX REFER TO THE
"PEAK CREDIT METHOD." WHAT IS THIS?
A. The peak credit method has a long history of use, but for generation costs only. The peak
credit method was first developed by the National Economic Research Associates, Inc.
("NERA") in 1977 as par of a national effort to foster a sound U.S. energy pricing policy
among the states. These efforts eventually formed the underpinning for costing and
reporting requirements under the Public Utilty Regulatory Policies Act ("PURP A") of
1978.
The point that I must emphasize in this regard is that the peak credit method pertains to,
and is valid only for, generation facilities. The peak credit refers to the process by which
the total capital costs of a generation plant are split, or "credited" into demand and energy
classifications. In short, the capital costs of baselo~a generating plants, because they are
712
DIRECT TESTIMONY OF DENNIS E. PESEAU ON BEHALF OF CLEARWATER PAPER CORPORATION - 3
more efficient than a peaking plant, have a fuel savings component that is "credited" to
energy, while the minimal capital costs associated with a combustion turbine ("peaker")
are "credited" to demand.
TO YOUR KNOWLEDGE, WAS THE PEAK CREDIT METHOD THAT AVISTA
APPLIES TO BOTH GENERATION AND TRANSMISSION PLANT EVER
INTENDED TO BE APPLIED TO TRANSMISSION PLANT?
No. Unlike generating facilties, transmission facilities do not have a fuel savings
component, and therefore, they have nothing logical to "credit" or classify to energy.
The peak credit method originated by NERA was applied only to the classification of
generation plant. Transmission plant was always classified to demand in the NERA
11 studies. A vista should reconsider this issue, and the Commission should use the 100%
12
-13
demand classification that it has adopted in all prior Idaho Power Company proceedings.
Q.HAVE YOU MADE THESE RECOMMENDED CHANGES IN THE COMPANY
14 COST OF SERVICE MODEL?
15 A.Yes. My Exhibit 302 contains a three page summary of the outcome of changing
16 Avista's original base case by a reclassifying of transmission to 100% demand.
17 Q.HOW WOULD YOUR PROPOSED CHANGE TO A VISTA'S COST OF
18 SERVICE MODEL BE IMPLEMENTED?
19 A.The change from Avista's assumed 36.49/63.51 demand/energy split to 100% demand
20 simply requires the user to locate the "assign worksheet" in the Company cost of service
21 model and change Avista's transmission classification percentages to 0% energy, 100%
22 demand.
e
713
DIRECT TESTIMONY OF DENNIS E. PESEAU ON BEHALF OF CLEARWATER PAPER CORPORATION - 4
e 1
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28e
Q. PLEASE SUMMARIZE THE RESULTS OF YOUR PROPOSED
RECLASSIFICATION.
A. The results are sunimarized in Table 1 below. In this table, each customer class's return
contribution is compared to respective rates for the class. A so-called "retu ratio" is
then computed for each customer class. If each customer class had rates in effect that
exactly equaled its costs to serve, the return ratio would be unity (one). If a customer
class's return index is greater than (less than) one, it is paying a rate higher than (lower
than) its cost of service.
CUSTOMER CLASS BASE CASE-RETURN INDEX* CLEARWATER RETURN INDEX **
Resid-Schedule 1
General Service 1 1 - 1 2
Large Gen Service 21-22
Extra Large Gen 25
Extra Large Potlatch 25P
Pumping Service 31-32
Lighting Service 41-49
.85
1.48
1.26
.59
.73
1.43
.92
.82
1.44
1.27
.64
.84
1.47
.94
*36.~9% demand, 63.51% energy
* * 100% demand, 0% energy
Note that the changes in the retur ratios of all customer classes, with the exception of
Clearater, are very smalL. However, this change in transmission classification has a
fairly significant impact on the calculated return ratio of Clearater-an increase from
.73 to .84. This overall result is expected, due to Clearwater's relatively level
consumption throughout the year. Again, I regard my change of transmission
classification as consistent with the way A vista plans its system. It improves cost
allocation to reflect peak and off-peak seasonal cost differences, and attributes demand
costs according to cost causation. The detailed results of this modification are provided
in my Exhibit 302.
iÍ4
DIRECT TESTIMONY OF DENNIS E. PESEA U ON BEHALF OF CLEARWATER PAPER CORPORATION - 5
_Q. PLEASE EXPLAIN YOUR SECOND ISSUE REGARDING TRANSMISSION
2 COSTS.
3 A. The second issue is very similar to the first issue I raised above. A vista's cost of service
4 study fuher misallocates peak season transmission costs to off-peak seasons by, in effect,
5 assuming that customer demands use transmission capacity equally in each and every
6 month of the year. Just as I argued that Avista's system planing of transmission facilties
7
8
9
10
11 Q.
12
-13 A.
14
15
16
is driven by its need to meet peak season (summer and winter) customer demands, this
same principle calls for allocation of transmission costs to Avista's peak seasons. Failing
to do so, as now is the case in Avista's cost of service study, again understates higher peak
season costs. Therefore, peak rates are under priced, while off-season rates are overpriced.
HOW DOES A VISTA'S COST OF SERVICE STUDY MISALLOCATE
TRANSMISSON COSTS?
Unlike most electric utilties, including Idaho Power for example, A vista implicitly
assumes that lower customer demands in the off-peak fall and spring seasons impose
"stress"-that is, capacity utilzation of its transmission facilties-equal to that in the high
demand winter and summer seasons. This canot be justified in fact.
17 Q. HOW DO MOST OTHER UTILITIES PERFORM TRANSMISSION DEMAND
18 ALLOCATIONS?
19 A. Since the need for transmission facilities is driven by seasonal peak demands, peak
20
21
22
23
-24
demand months are easily identified, and as a result, costs are allocated predominantly (not
always entirely) to these months. Consequently, summer and/or winter months logically
show the highest costs of service.
An ilustration of transmission costs being allocated to the peak season is the Commission-
approved Idaho Power method of weighting its transmission costs according to "peak
715
DIRECT TESTIMONY OF DENNIS E. PESEAU ON BEHALF OF CLEARWATER PAPER CORPORATION - 6
_1
2
3
4 Q.
5
6 A.
7
8
deficiencies" of each month. Peak deficiencies occur overwhelmingly in the months of
June, July and August on Idaho Power's system. Idaho Power, therefore, allocates all
transmission costs to this summer season.
DOES A VISTA'S SEASONAL PATTERN OF CUSTOMER PEAK DEMANDS
FOLLOW THOSE EXPERIENCED IN IDAHO POWER'S SERVICE SYSTEM?
No. To appropriately modify Avista's current twelve-month, equally-weighted method,
one must recognize that A vista typically experiences both summer and winter month
system peak demands.
9 Q. HOW DO YOU PROPOSE TO MODIFY AVISTA'S COST STUDY IN THIS
10 REGARD?
11 A. A vista experiences significant winter month peak demands in November, December,
_12
13
14
15
Januar and Februar. The Company experiences significant summer month peak
demands in June, July and August. Rather than allocate transmission costs to summer only
as Idaho Power does, it is appropriate to spread Avista's transmission demand costs to both
the four-month winter and the three-month summer seasons.
16 Q. HAVE YOU COMPLETED AN AVISTA COST OF SERVICE STUDY THAT
17 INCORPORATES BOTH OF YOUR RECOMMENDATIONS PERTAINING TO
18 THE RECLASSIFICATION AND REALLOCATION OF AVISTA'S
19 TRANSMISSION COSTS?
20 A. Yes. My Exhibit 303, consisting of three pages, sumarizes the results of such a study.
21
22
23_
As expected, the better allocation of transmission costs to the higher cost peak demand
seasons shows that customers using power on a level, more effcient basis throughout the
year receive more favorable (lower) allocations of transmission costs.
7Új"
DIRECT TESTIMONY OF DENNIS E. PESEAU ON BEHALF OF CLEARWATER PAPER CORPORATION - 7
e Q.
2 A.
3
4
5 Q.
6 A.
7
8
9
10
11 Q.
12 A.e
e
WHAT is THE SPECIFIC FINDING FOR CLEARWATER IN THIS STUDY?
Exhibit 302, which only reclassified transmission to 100% demand, produced a return ratio
of .84 for Clearwater. Exhibit 303 shows a return ratio for Clearwater of .92, or very
nearly unity (Ex. 303, Pg. 1 of 3, line 40, column (k).
PLEASE SUMMARIZE YOUR CONCLUSIONS AND RECOMMENDATIONS.
After correcting Avista's cost of service treatment of transmission costs, Clearater's
relative rate of return is roughly equivalent to the average for all customer classes. Given
the fact that there are stil problems with the reliabilty of Avista's underlying cost of
service data, I recommend that any increase in Avista's rates that may be granted in this
case be spread "across the board" to all customer classes.
DOES THIS CONCLUDE YOUR DIRECT TESTIMONY?
Yes.
7Í7 ;)
DIRECT TESTIMONY OF DENNIS E. PESEAU ON BEHALF OF CLEARWATER PAPER CORPORATION - 8
e
1 I. INTRODUCTION
2 Q:Please state your name and business address.
3 A:My name is Teri Ottens. I am the Policy Director of the Community Action Parership
4 Association ofIdaho headquaered at 5400 W. Franlin, Suite G, Boise, Idaho, 83705.
5 Q:On whose behalf are you testifying in ths proceeding?
6 A:The Community Action Parership Association of Idaho ("CAPAI") Board of Directors
7 asked me to present the views of an expert on, and advocate for, low income customers 0
8 AVISTA.
9 Q:Please describe CAP AI's organzation and the fuctions it performs, relevant to its
10 involvement in this case.
11 A:CAPAI is an association of Idaho's six Community Action Parnerships, the Communitye12Council of Idaho and the Canyon County Organzation on Aging, Weatherization and
13 Human Services, all dedicated to promoting self-suffciency though removing the causes
14 and conditions of poverty in Idaho's communities.
15 Q:What are the Communty Action Parerships?
16 A:Communty Action Parnerships ("CAPs") are private, nonprofit organizations that fight
17 poverty. Each CAP has a designated service area. Combining all CAPS, every county in
18 Idaho is served. CAPS design their varous progras to meet the unique needs of
19 communities located within their respective service areas. Not every CAP provides all of
20 the following services, but all work with people to promote and support increased self-
21 suffciency. Programs provided by CAPS include: employment preparation and dispatch,
22 education assistance child care, emergency food, senior independence and support,
23 clothing, home weatherization, energy assistance, affordable housing, health care access,e 24 and much more.
Q:H Ïì d b £ tho ... M.S d'?25 ave you testi ie e ore is Commission in 0 er procee ings.
DIRECT TESTIMONY OF TERI OTTENS 2
e
1 A:Yes, I have testified on behalf of CAP AI in numerous cases involving PacifiCorp, Idaho
2 Power Company, AVISTA, and United Water.
3 II.SUMMARY
4 Q:Please sumarze your testimony in this case?
5 A:The purose of CAP AI's involvement in this case is to seek assurce from A VISTA that
6 it will take measures to support legislative action in the 2010 legislative session that will
7 eliminate any potential prohibition against allowing public electrc utilties to voluntaly
8 propose and, if approved by the Commission, implement low-income bil payment
9 assistance programs for the Company's low-income customers.
10 Q.Are there any exhibits to your testimony in this case?
11 A.No.e 12 III.RECOMMENDATIONS
13 A.Please briefly describe the history behind CAP AI's efforts to seek the necessar
14 legislative enactments to allow low-income bil payment assistace.
15 Q:By way of background, CAPAI has pursued changes to Idaho's Public Utilties Law for
16 several years that removes prohibitions that have long been perceived to prohibit public
17 utilties from implementing programs that assist their low-income customers in paying
18 their bils.
19 Q.What actions have CAP AI and other stakeholders taken to achieve CAP AI's objective in
20 this regard?
21 A.Most recently, on September 29,2008, the Commission implemented Case No. GNR-U-
22 08-01 to provide a foru for the exploration of issues related to the afordabilty of
23 energy in Idaho. The Commission noted that a varety of factors were, and continue to,e 24 contrbute to upward pressure on electric and natual gas rates in Idaho. Consequently,
71197
25 energy affordabilty has become a central issue for many Idaho households and
DIRECT TESTIMONY OF TERI OTTENS 3
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17 A.
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23 A.e 24
25
businesses, paricularly for low-income customers. As a result of the Commission's
initiation of Case No. GNR-U-08-01, workshops were conducted in which all ofIdaho's
largest public utilities and numerous other stakeholders, including CAP AI, contrbuted
their respective perspectives on the issue of energy affordability and how best to address
the problems Idahoans face. Pursuat to Commission diective, the Commssion Sta
ultimately prepared and submitted a report to the Commission identifying the many
issues raised by workshop paricipants, the position taken by the paricipants, and Staff s
specific recommendations regarding those issues.
Was the possibility of pursuing legislative change to allow bil payment assistance
addressed during the workshops and included in Staffs report?
Yes. It is fair to say that bil payment assistance was one of the more thorougWy
discussed issues and potential means for addressing energy affordabilty. Though not
every workshop paricipant supported permitting bil payment assistance programs, Staf
ultimately supported the idea, noting that it would require legislative action to remove the
existing barer to implementing such programs.
What is the "barer" you refer to?
Curently, Idaho law prohibits utilties from setting rates or charges, or taing any action,
tht is preferential to any paricular customer or class. Because bil payment assistace
programs would provide assistace to utilities' low-income customers and, arguably,
would be preferentiaL.
Exactly what legislative changes do CAP AI propose be implemented in order to pave the
way for bil payment assistance programs?
CAP AI proposed legislation that would possess the following characteristics. First, the
Idaho Public Utilties Law would be amended to allow utilties to voluntarly propose
7'2Ó~programs that would assist their low-income customers in paying their bils. Second, the
DIRCT TESTIMONY OF TERI OITENS 4
design of any such proposed program would be within the discretion of the utilties.
There would be no universal format or design and each utility would be allowed to desi
programs that would best suit the needs of their respective companies and customers.
Finally, any program proposed by a utilty would be subject to Commission approval
following a proceeding that would permit all members of the public to comment on the
proposed program.
Would a program such as you have described provide system-wide benefits that would be
reaped by all ofa utilty's customers and not just those who are low-income?
Yes. Over the course of the past few years, CAP AI has been a pary to numerous cases
before this Commission, including rate cases for A VISTA, Idaho Power, Rocky
Mountain Power, and United Water. In the process of its involvement in these cases,
CAP AI has demonstrated that Idaho's public utilities incur substantial expense when a
customer is disconnected for inability to pay and/or is often delinquent in paying their
bil. These costs are not always recovered from the customer who is disconnected or is
delinquent and, thus, the costs are passed on to all ratepayers. These costs include,
among others, the costs of disconnection and reconnection, costs incured in attempting
to collect from customers who are delinquent, legal costs of puruing collection and,
ultimately, costs of wrting off bad debt.
What was the Commission's reaction to the idea of seeking legislative change that would
permit such programs?
The Commission supported the concept of bil payment assistace programs. In Order
No. 30724, issued in Case No. GNR-U-08-01 the Commission stated that is "supports
legislation that would allow utilties to propose for Commission consideration programs,
policies, and rates for the benefit of low-income residential customers. The legislation
121:
should allow the utilities flexibility in the programs to be proposed, recognizing that each
DIRCT TESTIMONY OF TERI OTTENS 5
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6 Q.
7
8 A.
9
10 Q.
11e12 A.
13
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16
17 Q.
18
19 A.
20
21
22
23e24 Q.
25
utility has differing circumstances and unique service areas. Details regarding the
appropriate rate mechansm to support such programs can be discussed though futue
cases as they come before the Commission. The proposal of such progrs should be
voluntar on the par of the utìlty. The Commission urges all utìlties to support such
legislation, even if some do not intend to propose programs." Order No. 30724 at pp. 2-3.
What action, if any, was ultimately taken to pursue change to the curent legislative
regime to allow bil payment assistance?
CAP AI drafted proposed legislation that contained the characteristics I have already
described and that, CAPAI believes, conforms to the Commission's Order No. 30724..
Did A VISTA take a position on bil payment assistace and, if so, what was that position
and did A VISTA take any action in support of that position?
Durng the workshops conducted in Case No. GNR-U-08-01, AVISTA expressed support
for the general concept of bil payment assistance programs noting that it already has
such a program in place in the State of Washington which permits these programs. In
fact, low-income assistance programs can be found in the States of Oregon, Uta,
Montaa and Wyoming as well as many other States thoughout the country.
Did A VISTA offer a rationale other than solely assisting its low-income customers in
support of bil payment assistace programs?
Yes. A VISTA generally expressed its belief that such programs are beneficial from a
purely business standpoint and, therefore, benefit all of the Company's customers. Ths
rationale is based, in par, on avoiding the costs I referred to earlier regarding
disconnections/reconnections of customers and having customers who are chronically
delinquent in paying their bils.
What action did AVISTA ultimately take in support of bil payment assistace?
7i2'
DIRECT TESTIMONY OF TERI OTTENS
The Company lobbied in support of a low-income bil that was introduced in the Idaho
Senate. Although the bil failed to pass on the Senate floor by a single vote, A VISTA
made a genuine and commendable effort to seek its passage.
If A VISTA supported bil payment assistace legislation in the most recent legislative
session, what does CAP AI seek in this proceeding?
CAP AI seeks a commitment from A VISTA that it will continue to tae all reasonable
steps to seek the ultimate passage of bil payment assistace legislation. CAP AI urges
A VISTA to commit not only to passively supporting legislation, but to assist in the
education and awareness of all interested paries regarding how and why bil payment
assistace programs offer more than assistance to exclusively low-income customers but
also reduce system costs resulting in lower overall rates for all customers. CAP AI also
seeks a commitment from A VISTA that if bil payment assistace legislation is
introduced in the 2010 legislative session, A VISTA will lobby in support of the
legislation as it did in the 2009 session.
Does this conclude your testimony?
Yes, it does.
723
DIRECT TESTIMONY OF TERI OTTENS 7
.1
2
I. INTRODUCTION
Q. , Please state your name, employer and business
3 address.
4 A.My name is Kelly o. Norwood and I am employed as
5 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
Administration, majoring in Accounting.I joined the
.
12
13
14
Company in June of 1981.Over the pas t 28 years, I have
spent approximately 17 years in the Rates Department with
involvement in cost of service,rate design,revenue15
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 roles,
19 wi th involvement in resource planning, system operations,
20 resource analysis, negotiation of power contracts, and risk
21 management.I was appointed Vice-President of State &
22 Federal Regulation in March 2002.
23 Q.What is the scope of your pre-filed testimony in
24 this proceeding?
.
724/Norwood, Di 1
Avista Corporation
.1
2
A. The purpose of my testimony is to describe and
support the Stipulation and Settlement ("Stipulation") ,
3 filed on June 16, 2009 between the Staff of the Idaho Public
4 Utilities Commission ("Staff"), Clearwater Paper Corporation
5 ("Clearwater"), Idaho Forest Group, LLC ("Idaho Forest"),
6 the Community Action Partnership Association of idaho
7 ("CAPAI"), the Idaho Community Action Network ("ICAN"), the
8 Idaho Conservation League ("Conservation League"), and the
9 Company, which, if approved by the Commission, would resolve
10 all of the issues in the Company's filing.These entities
11 are collectively referred to as the "Parties," and represent
12 all parties in the above-referenced cases.
.13
14
The Stipulation is the product of settlement
discussions held in the Commission offices on June 5, 2009,
15 which was attended by representatives of all Parties, with
16 the exception of the Conservation League.The Stipulation
17 between the Parties resolved all issues associated with the
18 calculation of the Company's requested cost of capital,
19 including capital structure and cost components,and
20 resolved all revenue requirement, rate spread and rate
21 design issues.
22 The Stipulation represents a compromise among differing
23 points of view.Concessions were made by all Parties to
24 reach a balancing of interests. As will be explained in the
25 following testimony, the Stipulation represents a fair, just.
725.Norwood, Di 2
Avista Corporation
.1 and reasonable compromise of the issues and is in the public
2
3
4
interest.
Q.Are you sponsoring any exhibits?
A.Yes.I am sponsoring Exhibit No.1, which
5 consists of a spreadsheet that shows the proposed electric
6 changes in rates/revenues by service schedule.
7 Q.Please explain how the Parties arrived at the
8 Stipulation in this proceeding.
9 A.The Stipulation is the end result of extensive
10 audi t work conducted through the discovery process and hard
11 bargaining by all Parties in this proceeding.i would like
12 to express my appreciation to all Parties involved in this
.13
14
proceeding for their efforts in arriving at this
Stipulation and to this Commission for your willingness to
15 hear this matter promptly, in light of the proposed Augut 1
16 effective date.
17
18
Q.Would you briefly sumrize the Stipulation?
A.Yes. Under the terms of the settlement agreement,
19 Avista will be allowed to implement revised tariff schedules
20 designed to recover $12,548,000 in additional annual
21 electric revenue, which represents a 5.70% increase in
22 electric annual base tariff revenues.Offsetting the
23 electric increase will be an overaii 4.2% decrease in the
24 current Power Cost Adjustment (PGA) surcharge. As a result
25 of the two adjustments, a residential customer using an.
"/26 Norwood, Di 3
Avista Corporation
.1 average of 982 kilowatt hours per month would see a $1.50,
2 or 1.9% I" increase per month for a revised monthly bill of
3 $79.97.
4 Included in the rates are relicensing costs for the
5 company'.s Spokane River hydropower projects.The parties
6 had agreed in the Stipulation that if Avista received
7 approval from the Federal Energy Regulatory Commission
8 (FERC) for the relicensing of its Spokane River hydropower
9 proj ects before July 22nd, the relicensing costs would be
10 included in the electric rate . 1increase.Avista received
11 FERC approval of the license on June 18,2009.
12 Avista will also be allowed to implement revised tariff
13 schedules designed to recover $1,939,000 in additional.14 annual natural gas revenue, which represents a 2.11%
15 increase in natural gas annual base tariff revenues.
16 Offsetting the natural gas rate increase for residential
17 customers will be an equivalent PGA decrease. As a result,
18 a residential customer using an average of 65 therms per
19 month would see no change in their $78.23 per month bill.
20 Other customer classes, except transportation customers,
21 will also see an offsetting PGA rate decrease.
22 In determining these revenue increases, the Parties
23 have agreed to various adjustments to the Company's filing,
1 The Stipulation includes information and data in the event that FERC did not issue the license prior to
July 22od..
727 Norwood, Di 4
Avista Corporation
.1
2
which are sumarized in the Stipulation, and described
further below in testimony.
3 The Stipulation calls for an overall rate of return of
4 8.55%, determined using a capital structure consisting of
5 50% common stock equity and 50% long-term debt,an
6 authorized return on equity of 10.50% and the cost of debt
7 of 6.60%.
8 The Stipulation also addresses accounting treatment of
9 the Spokane River Relicensing costs and I will provide
10 detail later in my testimony.
11 As part of the Stipulation, the funding level of the
12 existing low-income Demand Side Management programs and the
.13
14
15
16
.
funding to assist low-income outreach and education
concerning conservation will continue.
II. HISTORY OF FILING
Q.Please describe the Company's general rate case
17 request, as filed.
18 On January 23, 2009, Avista filed an ApplicationA.
19 wi th the Commission for authority to increase revenue from
20 electric and natural gas service in Idaho by 12.8% and 3.0%,
21 respectively.If approved, the Company's revenues for
22 electric base retail rates would have increased by $3 i. 2
23 million annuallYi Company revenues for natural gas service
24 would have increased by $2.7 million annually.Coincident
25 with the effective date of new electric retail rates from
728 Norwood, Di 5
Avista Corporation
.1 this general rate case filing, Avista proposed a reduction
2 in the current Power Cost Adjustment (PCA) surcharge of
3 5.0%.
4 The, Company proposed to spread the electric revenue
5 increase by rate schedule on a basis which: 1) moved the
6 rates for nearly all the schedules closer to the cost of
7 providing service, and 2) resul ted in a reasonable range in
8 the (net) proposed percentage increase across the schedules.
9 The PCA surcharge was applied on a uniform cents per kwh
10 basis across all schedules and resulted in a different
11 percentage increase by schedule depending on the level of
12 base tariff rates ¡revenue.By including the proposed
13 decrease in the current PCA surcharge during 2009, an.14 opportunity was presented to move base tariff rates closer
15 to the cost of providing service. The Company also proposed
16 to raise the monthly electric residential basic charge to
17 $5.00 from the current $4.60 charge.
18 The Company proposed utilizing the results of the
19 natural gas cost of service study, sponsored by Company
20 wi tness Knox, as a guide in spreading the overall revenue
21 increase to its natural gas service schedules and proposed
22 to raise the natural gas residential basic charge to $4.25
23 from the current $4.00.
24 Q.Wht are the primary factors causing the Company's
25 request for an electric rate increase in this filing?.
729 :Norwood, Di 6
Avista Corporation
.1 A. This case is about more than just year-over-year
2 changes . in utility operating costs, such as power costs,
3 fuel, materials and supplies, and labor.We are also
4 investing large amounts of capital to preserve and upgrade
5 our existing utility infrastructure to meet growing customer
6 demand. We are also continuing to experience major cost
7 impacts related to meeting new reliability standards,
8 environmental compliance, and litigation related to the
9 preservation of what have historically been our low-cost
10 resources we have used for decades to serve our customers,
11 as explained in the Company's original filing.
12 Q.What are the primary factors driving the Company's
13 request for a natural gas rate increase?.14 A.The Company's natural gas request is primarily
15 driven by changes in various operating cost components,
16 mainly distribution operation and maintenance and
17 administrative and general expenditures.This causes an
18 increase in the ownership and operating costs of providing
19 natural gas service to customers.
20 III. RE REQUIRE ELEMNTS OF THE STIPULATION
21 Q.Please explain the derivation of the Electric and
22 Natural Gas Revenue Requirements outlined in the
23 Stipulation.
24 A.The Parties agreed that Avista will reduce its
25 electric revenue increase request to reflect the adjustments
.
130 Norwood, Di 7
Avista Corporation
.1 shown on the table on Page 1 of Appendix 1 to the
2
3
Stipulation. While Avista's filing requested an electric
revenue requirement increase of $31.233 million,the
4 adjustments, including the agreed-upon rate of return,
5 reduce this amount by $18.685 million, resulting in a
6 recommended electric revenue requirement increase of $12.548
7 million.
8 Similarly, as shown on the table on Page 6 to the
9 Stipulation, while the Company requested a natural gas
10 revenue requirement increase of $2.74 million, the agreed-
11 upon adjustments serve to reduce this amount by $.801
12 million, resulting in a recommended natural gas revenue
13 requirement increase of $1.939 million..14 As can be seen by a quick review of the individual line
15 descriptions,the adjustments accepted for settlement
16 purposes cover a broad range of revenue and cost categories,
17 including the authorized rate of return.The individual
18 adjustments should not be viewed in isolationi rather, they
19 should be viewed in total as part of the entire Stipulation,
20 and are the resul t of hard bargaining and compromise.
21 Q.Please explain the parties' agreement in regards
22 to an Authorized Rate of Return, including the Return on
23 Equity.
24 A.The Parties have agreed to a revenue requirement
25 which produces an overall rate of return of 8.55%, based on
.
731 Norwood, Di 8
Avista Corporation
.1 a return on equity of 10.5% and an equity component at 50%.
2 By comparison, the Company's original filing requested an
3 overall ~ate of return of 8.80%, a return on equity of 11.0%
4 and an equity component of 50%.The cost of debt of 6.60%
5 and long-term debt component of 50% included in the original
6 filing was agreed to in the Stipulation.
7 Q.What is the proposed effective date of the
8 Stipulation?
9 A.The Parties have requested implementation of the
10 Stipulation on August 1, 2009. This proposed effective date
11 is an integral part of the Stipulation that was part of the
12 negotiated resolution of all of the issues.
.13
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15
Q.Please explain the accounting treatment related to
the Spokane River Relicensing costs.
A.Given the fact that FERC issued the license on
16 June 18, 2009, the Parties have agreed to include costs
17 associated with relicensing through December 31, 2009.The
18 parties agree that the costs included in the Company's
19 filing associated with the relicensing of the Company's
20 hydroelectric proj ects on the Spokane Ri ver are deemed
21 prudent and recoverable subj ect to an audit review of the
22 final costs. In this case these costs should be included as
23 part of the base rate increase. The capital costs that were
24 pro formed were revised for estimated costs through June 30,
25 2009.In addition, the annual Protection, Mitigation and
.
732 Norwood, Di 9
Avista Corporation
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Enhancement (PM&E) costs that were pro formed in the
Company's filing have been revised to remove all 2010 costs
3 and revised to include annual 2009 labor costs that were not
4 otherwise reflected in the original filing.The net effect
5 of these revisions is a reduction to revenue requirement for
6 PM&E coats of $263,000. All PM&E costs incurred during the
7 six months ended June 30, 2010, will be deferred with a
8 carrying charge for subsequent recovery in rates, as part of
9 the Company's next general rate case.The annual carrying
10 charge shall be the then-current customer deposit rate.
11 Q.Please provide an overview of the revenue
12 requirement adjustments agreed to by the Parties.
.13
14
A.A numer of the adjustments were standard-type
adjustments that adjusted estimates to actual amounts.A
15 description of other adjustments follows:
16 (a.) Power Supply.The power supply adjustment
17 proposed by the Company in the original filing was adjusted
18 for the following:
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20
21
22
(i. )To adopt Staff's position to remove
short-term contracts already entered into for the pro
forma period, reflecting an approximate reduction in
revenue requirement of $6.8 million. These costs will
23
24
be recovered through the PCA, subject to the 90/10
percent sharing.
.
733 Norwood, Di 10
Avista Corporation
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(ii. ) To Use a one-month average natural gas
price as proposed by Staff but for a more current
period of May 1 through May 31, 2009 of $4. 79/Dth, as
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5
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7
compared to the cost of $7.67 /Dth, for the unhedged
portion of the generation, reflecting an approximate
reduction in revenue requirement of $7.1 million.
(b.) Executive Compensation and Incentives.
8 Subsequent to the filing of this case, the executives of
9 Avista agreed to forego any increases in base salary in
10 2009. Due to this, the Parties agreed to remove all of the
11 2009 proposed salary increases for executive labor to
12 reflect this decision, and to remove the estimated increases
for 2010.Also, the base salaries of all executives as of.13
14
15
March 31, 2009, were annualized to reflect a full twelve
months of their current pay.In addition, all executive
16 incentives included in the Company's test period were
17 removed.
18 Staff witness Mr. English described Staff's approach in
19 analyzing the reasonableness of the executive compensation
20 package and its impact on residential customer rates. Staff
21 concluded that the level of executive salaries included in
22 the current case is comparable to the level approved in the
23 previous general rate case.Staff also concluded that
24 Avista's executive salaries, when compared to other utility
25 providers of comparable size, are paid below the average for.
734 Norwood, Di 11
Avista Corporation
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the management of a business with $1.5 billion annual
revenue.
(c.) Remove 2010 Costs. - In the original filing, the
4 Company 'pro formed several costs to the level of expense
5 that the Company expects during the rate year (July 1, 2009
6 through June 30, 2010), including Colstrip Mercury Emissions
7 annual Protection,Mitigation and Enhancementcosts,
8 (PM&E) costs required with the FERC Spokane River License,
9 and Generation O&M costs.The Company agreed to adopt
10 Staff's proposal to include only 2009 costs and exclude the
11 2010 expense level pro formed by the Company.
.
12
13
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Avista utilities has(d.) Efficiency Gains.
undertaken numer of improvements and efficiencya
initiatives throughout our service area that are focused on
15 either increasing customer service and satisfaction, or
16 increasing productivity and reducing operating costs.The
17 Integrated Voice Response System, the Outage Management
20
.
18 System, and the Mobile Dispatch Program are a few of these
19 programs that are detailed further in Company witness Mr.
Kopczynski's direct testimony.We believe these measures
21 have served to mitigate the impact on customers of the
22 proposed rate increase. The Company agreed to adopt Staff's
23 proposal to reflect certain reductions to costs for
24 efficiency gains from implementing new Information Systems
25 procedures and Asset Management Program procedures.
735 Norwood, Di 12
Avista Corporation
.1 ( e .) Mi scel laneous Cos ts . - The Company adopted, for
2 settlement purposes, Staff's proposal to remove various
3 administrative and general costs,including
4 dues/sponsorships ($70,000 electric / $11,000 natural gas),
5 50% of Board of Director expenses ($151,000 electric /
6 $37,000 natural gas), non-recurring costs for the design of
7 the Ross Court building ($138,000 electric), and certain
8 non-recurring legal expenses ($12,000 electric I $23,000
9 natural gas) .
10 iv. OTHER ELEMNTS OF THE STIPULATION
11 Q.Please explain the settlement terms relating to
12 the recovery of Lancaster costs.
.13
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A.The Lancaster power plant is a 275 MW gas-fired
combined cycle combustion turbine located in Rathdrum,
15 Idaho. Avista Utilities will purchase all of the output of
16 the plant through 2026.The Company reques ted the recovery
17 of the costs associated with the Lancaster Tolling Agreement
18 through the PCA.Staff has reviewed the purchase of the
19 output from Lancaster and has found it reasonable, and has
20 agreed to the recovery of these costs through the PCA, with
21 full recovery of the fixed costs2, but with the variable
22 fuel costs subject to the 90/10 sharing under the PCA.
2 As noted in Staff witness Hessing's pre-filed testimony, fied power supply costs are normally included
in base rates for full recovery in a general rate case once these costs have been found to have been
prudently incured. (Hessing Direct, at p. 11, lines 4-16).
73'6
Norwood, Di 13
Avista Corporation
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Q. Please explain the settlement terms relating to
cost of service.
A.As part of its next general rate case (GRC), the
4 Company will prepare an analysis of the impacts of
5 allocatipg 100% of transmission costs to demand, as well as
6 allocating transmission costs to reflect any peak and off-
7 peak seasonal cost differences over seven months, rather
8 than assuming an equal weighting over twelve months.The
9 Company is also in the process of compiling twelve (12)
10 months of continuous load data for use in future analysis of
11 costs-of-service,and wi 1 1 share the resul ts 0 f the
12 consul tant' s analysis of such data with interested parties
13 as soon as it becomes available..14 Q.Please explain the settlement terms relating to
15 peA Sharing Percentage.
16 A.The Company proposed to change the sharing
17 percentages between Customers and the Company from 90%/10%
18 to 95%/5%, primarily due to the increased volatility of
19 power supply costs.The Company agrees to withdraw its
20 request to amend the PCA sharing ratio.The sharing ratio
21 shall remain at its current value of 90%/10%.
22 Q.Please explain the settlement terms relating to
23 prudency of energy efficiency expenditures.
24 A.The Parties agree that Avista' s expenditures for
25 electric and natural gas energy efficiency programs from
.
737 Norwood, Di 14
Avista Corporation
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January 1, 2008 through November 30, 2008 will be subject to
further review for prudence and recovery in a subsequent
3 docket.
4 Q.Please describe the low-income portion of the
5 Stipulation.
6 A.There are five areas the Company addressed in the
7 Stipulation, as follows:
8 (a.) LIRAP Legislation Avista will support
9 legislation in the State of Idaho during the next
10 legislative session in order to establish a Low Income Bill
11 Payment Assistance Program.
12 (b.) Low-Income Weatherization Funding - The Parties
13 agree to maintain the annual level of funding of $465,000 to.14
15
Idaho service (CAP) agencies for funding of weatherization
(which includes administrative overhead).The continuation
16 and level of such funding will be revisited in the Company's
17 next general rate filing, or other appropriate proceeding.
18 (c.) Funding for Outreach for Low-Income Conservation -
19 The Parties agree that annual funding in the amount of
20 $25,000 will be provided to Idaho CAP agencies for the
21 purpose of underwriting the dedication of agency personnel
22 to assist in low-income outreach and education concerning
23 conservation. This amount will be funded through the Energy
24 Efficiency Tariff Rider (Schedules 91 and 191), and wiii be
25 in addition to the $465,000 of Low-Income Weatherization
.
113)8;
Norwood, Di 15
Avista Corporation
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Funding. The continuation and level of such funding will be
revisited in the Company's next general rate filing or other
3 appropriate proceedings.
4 (d.) Payment Plans - The Company agrees to confer with
5 Staff to assess the effectiveness of its new payment plans
6 and identify ways to decrease defaults on payment
7 arrangements.
8 (e.) Low-Income Deposit Requirements - As proposed by
9 Staff, the Company will undertake a study to evaluate the
10 effectiveness of its deposit policies and practices.
11 Q.Does the Company have other programs in place to
12 mitigate the impacts on customers of the proposed rate
13 increase?.14 A.Yes. Avista Utili ties offers a range of programs
15 to help customers who have difficulty paying their energy
16 bills.Some programs are in cooperation with local Idaho
17 communi ty action agencies, who are specialized in targeting
18 assistance where it is most needed.We are very aware of
19 the impacts energy costs have on our customers.
2021 Programs designed to assist customers include:
22 . DSM Energy Efficiency Programs. In March 2008 Avista23 proposed, and the IPUC approved, modifications to the
24 Company's energy efficiency program offerings. The25 modifications further broadened the technical and26 financial support Avista provides to its customers, and
27 provides customers with increased opportunity to manage28 their energy bills. In 2008 Avista also launched the29 award-winning "Every Little Bit" energy efficiency
.
73-9'Norwood, Di 16
Avista Corporation
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promotional campaign which integrates all of the
Company's energy efficiency programs into one location.
. Project Share. Project Share is a voluntary program
allowing customers to donate funds that are distributed
th~ough community action agencies to customers in need.
In addition to the customer and employee contributions
of '$74,333 in Idaho, Avista shareholders contributed
$50,000, Idaho's share, to the program in 2008.
. 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.
. payment Arrangements. The Company's Contact Center
Representatives work with customers to set up payment
arrangements to pay energy bills.
. CARS Program. Customer Assistance Referral andEvaluation 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.
. Customer Service Automation. Customers are able to
access Avista' s Interactive Voice Response system (IVR)
for automated transactions to enter their own payment
arrangements, listen to outage messages and conduct
other business such as obtaining account balances and
requesting a duplicaté bill.
. Power to Conserve. In partnership wi th KREM
television, a half-hour television program is annually
developed that covers low-cost and no-cost ways to saveenergy 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.
. Senior Energy Workshops. Energy efficiency workshops
that focus on safety as well as the wise use of energy
740 Norwood, Di 17
Avista Corporation
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have been specially designed for the senior population.
Kits are provided that contain energy-saving items such
as 'compact fluorescent light bulbs, draft stoppers,
rope caulking, etc. The Power to Conserve program DVD
along with energy efficiency tip sheets are alsoincl uded in the ki t . Workshops are held at senior meal
si tes, senior centers and other senior supportlocations.
. KHQ.com - Caregivers Resource. Avista sponsors the
Caregivers Resource page on KHQ's Senior Life website
in order to reach seniors and caregi vers wi th a wide
variety of resource information including energy
efficiency, energy assistance information, Avista
CARES, bill paying assistance, etc. Several video
clips offer low-cost, no-cost energy saving ideas.
. Senior Publications. Avista created a one page
advertisement that is placed in several senior
directories and publications as part of an effort toreach seniors with information about energy efficiency,
Comfort Level Billing, Avista CARES, and energyassistance information.
v. RATE SPREAD & RATE DESIGN
Q.Are you sponsoring an exhibit that shows the
27 percentage change in electric rates/revenue by rate schedule
28 resulting from the Stipulation?
29
30
A.Yes.Exhibit No. 1 shows the percentage change
31 colum (g) shows the effect of the PCA rate decrease, and
by rate schedule.Colum (f) shows the general increase,
32 colum (j) shows the net change.
33
34
How did the Stipulation address rate spread?Q.
A.The table on Page 2 of Appendix 1 of the
35 Stipulation shows the impact on the energy rates under each
36 service schedule of the agreed-upon electric increase,.
741'Norwood, Di 18
Avista Corporation
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including the effect of including the FERC Spokane River
License.The proposed electric revenue increase of
3 $12,548, boo represents an overall increase of 5.70% in base
4 rates and is spread on a uniform percentage basis to all
5 schedules (applied only to the energy charges).The table
6 also shows the impact on each service schedule of the
7 change in the PCA rate, which was determined on a uniform
8 cents per kWh basis applicable to all schedules, as
9 required by Order No. 30361, which represents a reduction
10 in revenue of 4.2%.
11 Page 14 of the Stipulation shows the impact on each
12 service schedule of the agreed-upon natural gas increases.
13 The increased natural gas revenue requirement of $1,939,000.14 represents an overall increase of 2.11% in base rates.
15 Coincident with the effective date of the increase in base
16 natural gas rates, the Parties have agreed to reduce the
17 Company's Weighted Average Cost of Gas (WACOG) by reducing
18 the present rate reflected under Schedule 150 - Purchased
19 Gas Cost Adjustment, resulting in a net overall revenue
20 change for General Service Schedule 101 of 0%. The Staff's
21 proposed rate spread was used to determine the general
22 revenue requirement increase by schedule. The reduction in
23 the WACOG is 2.662 cents per therm, which is equivalent to
24 the general increase per therm for Schedule 101.Applying
25 this same reduction in the WACOG of 2.662 cents per therm.
742 Norwood, Di 19
Avista Corporation
.1 for the remaining schedules, resul ts in the net change to
2 natural gas rates that are shown in the table on Page 14 of
3 the Stipulation.
4 Q.What is the basis of the Stipulation relating to
5 the rate design?
6 A.The Stipulation adopted Staff's position that
7 there will be no increase in the basic charges, monthly
8 minimum charges, or demand charges in Schedules 11, 21 and
9 25.Otherwise, a uniform percentage increase will be
10 applied to each energy rate within each electric service
11 schedule as proposed by Staff.
12 The parties also adopted Staff's position that the
13 current residential electric basic charge of $4.60 per.14 month and the residential natural gas basic charge of $4.00
15 per month wi 1 1 remain unchanged.
16 VI. CONCLUSION
17
18
Q.What is the effect of the Stipulation?
A.The Stipulation represents a negotiated
19 compromise on a variety of issues among the Parties. Thus,
20 the Parties have agreed that no particular party shall be
21 deemed to have approved the facts, principles, methods, or
22 theories employed by any other in arriving at these
23 stipulated provisions, and that the terms incorporated
24 should not be viewed as precedent setting in subsequent
25 proceedings except as expressly provided.
.
743 Norwood, Di 20
Avista Corporation
.1 Q. In conclusion,why is this Stipulation in the
2 public interest?
3 A.This Stipulation strikes a reasonable balance
4 between the interests of the Company and its customers,
5 including its low-income customers. As such, it represents
6 a reasonable compromise among differing interests and
7 points of view.
8 The Parties have agreed that the Company has
9 demonstrated need for a revenue requirement increase for
10 both its electric and natural gas customers.The
11 Stipulation provides for recovery of these costs. In the
12 final analysis,however,any settlement reflects a
13 compromise in the give-and-take of negotiations ó The.14 Commission, therefore, has before it a Stipulation that is
15 supported by sound analysis and supporting evidence, the
16 approval of which is in the public interest.
17 Q.Does this conclude your pre-filed direct
18 testimony?
19 A.Yes, it does.
.
7 4'4~)
Norwood, Di 21
Avista Corporation
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1 Q.Please state your name and business address for
2 the record.
3 A.M~ name is Randy Lobb and my business address is
4 472 West Washington Street, Boise, Idaho.
6
5 Q.By whom are you employed?
A.I am employed by the Idaho Public Utilities
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 Resources
13 from June of 1980 to November of 1987. I received my Idaho
14 license as a registered professional Civil Engineer in 1985
15 and began work at the Idaho Public Utilities Commission in
16 December of 1987. My duties at the Commission currently
17 include case management and oversight of all technical
18 Staff assigned to Commission filings. I have conducted
19 analysis of utility rate applications, rate design, tariff
20 analysis and customer petitions. I have testified in
21 numerous proceedings before the Commission including cases
22 dealing with rate structure, cost of service, power supply,
23 line extensions, regulatory policy and facility
24 acquisitions.
25 Q.Are you the same Randy Lobb that previously filed
1,'45'CASE NO. AVU-E-09-1/AVU-G-09-1
06/24/09 LOBB, R. (Di) 1
STAFF
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1 direct testimony in this case?
2 A.Yes I am.
3 Q.What is the purpose of your testimony today?
4 A.. The purpose of my testimony is to describe the
5 Stipulation (the Proposed Settlement) filed in this case
6 and to explain the rationale for Staff's support.
7 Q.Please summarize your testimony.
8 A.Staff believes that the comprehensive Stipulation
9 and Settlement resolving all issues in the general rate
10 case is in the public interest. The Settlement was agreed
11 to by all parties . It is just and reasonable and should be
12 approved by the Commission.
13 Q.Please provide an overview of the Stipulation and
14 Settlement.
15 A.The Stipulation filed with the Commission on June
16 16, 2009 settles a variety of issues to arrive at an
17 overall base rate revenue requirement increase of $9.43
18 million or 4.29% for electric service and $1. 939 million or
19 2.11% for natural gas service. The parties also
20 acknowledged that the revenue requirement for electric
21 service could increase to $12.548 million or 5.7% if FERC
22 issued a new Spokane River hydroelectric license by July
23 22,2009. 1 Nevertheless, the likely increase is relatively
24
lOn June 18, 2009, FERC issued a new 50-year license for
25 Avista's five hydroelectric facilities on the Spokane River.
This issue is discussed in greater detail below.
CASE NO. AVU-E-09-1/AVU-G-09-17'46
06/24/09 LOBB , R . (D i ) 2
STAFF
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1 close to the Staff recommendation provided in pre-filed
2 direct testimony of $8.62 million (3.91%) and $1.89 million
3 (2.06%) for electric and natural gas service respectively.
4 It also represents a significant decrease in the Company's
5 requested increase of $31.2 million (12.8%) and $2.7
6 million (3.0%) for electric and natural gas service,
7 respectively.
8 When proposed decreases in the Power Cost
9 Adjustment (PCA) rate for electric service and the Purchase
10 Gas Adjustment (PGA) rate for gas service are included,
11 there is no overall revenue requirement increase for gas or
12 electric service. However, overall electric revenue
13 requirement will increase by 1.5% when the Spokane River
14 relicensing costs are included.
15 Q.How does the revenue adjustments specified in the
16 Stipulation compare to revenue adjustments previously
17 proposed by Staff?
18 A.The difference in the base electric revenue
19 requirement agreed to in the Stipulation and that proposed
20 by Staff in pre-filed direct testimony is due to movement
21 by Staff on four issues. They are: 1) an increase in
22 anticipated net power supply costs using more current
23 forward natural gas prices, 2) a slight increase in
24 executive labor to reflect actual 2008 compensation, 3) an
25 increase in Information Services expense to reflect the
CASE NO. AVU-E-09-1/AVU-G-09-J.i4706/24/09
LOBB, R. (Di)
STAFF
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2 of costs associated with Montana riverbed leases. With the
actual 2009 level of employees and 4) rate base treatment
3 exception.of the Spokane River Relicensing, all other
4 revenue requirement adjustments listed in the Stipulation
5 are as proposed by Staff in direct testimony.
6 Q.How do the stipulated non-revenue issues compare
7 to the Staff position presented in pre-filed testimony?
8 All other issues described in the StipulationA.
9 such as class revenue spread, rate component adjustments,
10 evaluation of payment plans and review of low income
11 deposit requirements were resolved as proposed by Staff or
12 other intervenors in direct testimony. Finally, resolution
13
14
of the remaining issues represented a reasonable
alternative to litigation in this case. For example, the
15 Company agreed to withdraw its request to change the PCA
16 sharing percentage, and agreed to request prudency of DSM
17 program costs in a subsequent docket . Moreover, all
18 parties agreed that the Company would further study cost of
19 service issues and continue to address a variety of low
20 income concerns.
21 Q.Does Staff believe the proposed Stipulation and
22 Settlement is reasonable?
23 A.Yes. As previously stated, the overall base
24 revenue requirement increase for electric and gas service
25 of $9.43 million (4.29%) and $1.939 million (2.11%)
"1'48CASE NO. AVU-E-09-1/AVU-G-09-106/24/09 LOBB, R. (Di) 4
STAFF
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1 respectively, is quite close to the $8.62 million (3.91%)
2 and $1.89 million (2.01%) originally proposed by Staff in
3 direct testimony. Even with Spokane River relicensing
4 costs included, the increase of $12.548 (5.7%) million for
5 electric service is about 60% le~s than the Company's
6 original $31.2 million (l2:8%) request. The Company
7 originally requested an increase of $2.7 million (3.0%) for
8 gas service.
9 Other issues such as use of the PCA and PGA rate
10 reductions to offset the base rate increases, rate spread,
11 rate design, treatment of Lancaster costs, changes to PCA
12 sharing percentages, prudency review of DSM costs and
13 customer service considerations were consistent with
14.Staff's direct testimony. Staff believes that the
15 addi tional issues addressed in the Stipulation including
16 further cost of service analysis, agreement on low income
17 issues and rate implementation date were fairly straight
18 forward, reasonable accommodations to achieve comprehensive
19 settlement.
20
21
A.How did Staff approach settlement in this case?
Q.After filing direct testimony on May 29, 2009,
22 Staff met with the Company and other parties on June 5,
23 2009, in an effort to resolve any undisputed issues. Staff
24 was only willing to consider movement on its revenue
25 requirement adjustments for those issues where updated
'7d4:9~CASE NO. AVU-E-09-1/AVU-G-09-106/24/09 LOBB, R. (Di) 5
STAFF
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1 information was available or errors were identified.
2 Q.,In what areas did Staff agree to modify its
3 revenue requirement recommendations?
4 A.'Staff agreed to modify its revenue requirement
5 recommendations in the following four areas: 1) increase
6 net power supply costs recovered in base rates (line b,
7 Electric Table, p. 5) i 2) slightly increase executive
8 compensation (line f, p. 5) i 3) increase information
9 service expense (line g, p. 5) ¡and 4) allow rate base
10 treatment of costs associated with Montana riverbed leases
11 (note 3, p. 5). Staff also agreed to include Spokane River
12 relicensing costs in this case if FERC issued a new
13 hydroelectric operating license by July 22, 2009.
While the Production Property Adjustment (line c,14
15 p. 5) and the Restatement of Debt Interest (line p, p. 5)
16 changed from that proposed by Staff in its direct
17 testimony, these adjustments are the direct results of
18 changes in other Staff adjustments as specified in the
19 Stipulation and flow through automatically.
20 Net Power Supply Costs
21 Q.Please explain the difference in the Idaho
22 jurisdictional net power supply cost adjustment of
23 $14,455,000 as recommended by Staff in its pre-filed direct
24 testimony and the $13,869,000 adjustment agreed to in the
25 Stipulated Settlement on line b, page 5.
CASE NO. AVU-E-09-1/AVU-G-09-1S006/24/09 LOBB, R. (Di) 6
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1 A.The difference is primarily due to a difference
2 in gas prices used in the AURORA analysis performed to
3 develop net power supply cost. In its initial Application
4 in this case, Avista used a three-month average of natural
5 gas prices from September 1, 2008 to November 30, 2008, of
6 monthly fòrward prices for the pro forma period. Staff, in
7 its analysis, used a one-month average of forward gas
8 prices from March 27, 2009 to April 27, 2009. Staff chose
9 to use a one -month average of prices because they were the
10 most recently available at the time it performed the AURORA
11 analysis. Staff believed that the most recent gas forward
12 prices were a better indication of prices likely to occur
13 in the pro forma period.
14 In the Settlement Stipulation, Avista adopts
15 Staff's position to use a one-month average of gas prices,
16 but proposes to use a more current average of prices from
17 May 1, 2009 to May 31, 2009 for the un-hedged portion of
18 the generation. Staff agrees that a one-month average of
19 gas prices using a more current period to derive the net
20 power supply costs is appropriate.
21 Q.Were any other changes made in Staff i s analysis
22 to derive the net power supply cost included in the
23 Settlement Stipulation?
24 A. Yes, a minor error in Staff's analysis was
25 corrected. The error involves necessary after-the-fact
CASE NO. AVU-E-09-1/AVU-G-09-175106/24/09 LOBB , R . (D i)
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1 additions of start-up fuel costs to the AURORA results, and
2 adjustment of fuel costs at Coyote Springs 2 that cannot be
3 accommodated in AURORA.
4 Q.Does Staff agree with the results of the analysis
5 done to d~velop the net power supply cost recommendation
6 included in the Settlement Stipulation?
7 A.Yes, Staff has reviewed the analysis, including
8 replication of the revised AURORA results and including the
9 minor errors identified in Staff's analysis. Staff agrees
10 with the revised AURORA results and supports using the more
11 current gas prices in the Staff proposed one-month average.
12 The parties agree as part of the Settlement to support
13 Staff's recommendation to exclude short-term contracts
14 already entered into for the pro forma period and instead
15 to recover these costs through the PCA subject to the 90/10
16 percent sharing. Consequently, Staff supports the net
17 power supply cost decrease adjustment of $13.869 million
18 included in the Settlement Stipulation.
19 Execu ti ve Labor Compensation
20 Q.What was Staff's position regarding Executive
21 Labor Compensation in its pre-filed testimony?
22 A.Staff removed all proposed increases to Executive
23 Labor expenses for 2009 and 2010, and annualized the
24 executi ve salaries at their current level of expense.
25 Q.Why did Staff agree to the smaller adjustment
CASE NO. AVU-E-09-1/AVU-G-09-175206/24/09 LOBB , R . (D i )
STAFF
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2
specified in the Stipulation on line f, page 5?
A.Staff's original filing did not calculate the
3 overhead loading associated with the executive L.abor. The
4 Stipulation accepts Staff's position of excluding 2009 and
5 2010 increases for executives, and annualizes the current
6 level of Executive Labor expense. However, the Stipulation
7 recognizes the associated overhead applied to the
8 annualized Executive Labor.
9 Staff believes lt is appropriate to account for
10 indirect overhead expenses when computing labor expense.
11 The settlement on this adjustment corrects an oversight in
12 Staff's original filing.
13 Infor.ation Service Expense
14 Q. What was Staff's position regarding Information
15 Service (IS) Expense in its pre-filed testimony?
16 A.Staff excluded IS labor expense for four
17 positions that the Company intended to, but had not yet
18 filled. Staff further reduced IS expense to recognize
19 operating efficiencies gained by including the pro forma
20 level of expense in rates.
21 Q.Why did Staff agree to the smaller adjustment
22 specified in the Stipulation on line g, page 5?
23 A.The Stipulation includes Staff's recognition of
24 operating efficiencies, however, two positions that Staff
25 exci.uded were positions that were actually filled but the
753CASE NO. AVU-E-09-1/AVU-G-09-106/24/09
LOBB , R. (D i) 9
STAFF
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1 amounts were being capitalized rather than expensed. The
2 Stipulation recognizes that these positions were filled,
3 but because the Company did not include any expense
4 associated with these two positions in its original filing,
5 no Staff adjustment was necessary.
6 Montana Riverbed Leases
7 Q.In the last rate case, the Company was allowed to
8 defer unamortized payments it made to the State of Montana
9 for lease of the riverbeds for the Noxon Rapids and the
10 Cabinet Gorge hydroelectric projects. In this rate case,
11 the Company requested inclusion of the unamortized balance
12 in its rate base, thus collecting a return on that balance.
13 What was Staff's position on the inclusion of the
14 unamortized balance of deferred payments in the Company's
15 rate base with a return?
16 A.Staff initially agreed that the Company should be
17 allowed to amortize the unamortized balance over the
18 remaining eight (8) year life of the lease, but did not
19 recommend allowing the Company to earn a return on the
20 unamortized balance.
21 Q.How does the Stipulation treat the unamortized
22 balance for the Montana lease?
23 A.The Stipulation allows the Company to include the
24 unamortized balance of $1,582,501 in rate base to earn at
25 the authorized rate of return. The balance remains
. 75~CASE NO. AVU-E-09-1/AVU-G-09-1
06/24/09 LOBB, R. (Di) 10
STAFF
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1 amortized over eight (8) years.
2 Q.Why did Staff agree to include the unamortized.
3 balance of $1,582,501 in the Company's rate base at the
4 overall rate of return?
5 A..The unamortized balance is the amount paid by the
6 Company to the State of Montana for its use of the
7 riverbeds at the Company~ s hydro-electric projects in,
8 Montana. The Montana courts have determined that the
9 Company was liable for use of the riverbeds owned by the
10 State of Montana at the Company's proj ects . Thus, the
11 Company entered into a lease with the State of Montana for
12 the use of the riverbeds.
13 In the last rate case the Company sought and
14 obtained an Order (Order No. 30647) from this Commission to
15 defer any payments it made pursuant to the lease and prior
16 to this rate case. Pursuant to our settlement discussions
17 and the Commission's prior approval to defer these lease
18 payments, Staff believes the payments were reasonable and
19 prudent for the production of electricity at the Company
20 facilities. Therefore, Staff included the amortization in
21 rates for recovery. Staff now accepts including the
22 unamortized balance in rate base at the Company's
23 authorized return because it was previously included in
24 this manner to establish the stipulated revenue requirement
25 in the last rate case, Case No. AVU-E-08-L. Language
755CASE NO. AVU-E-09-1/AVU-G-09-1 .06/24/09 LOBB, R. (Di) 11
STAFF
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1 included in that prior Stipulation indicated that the
2 return on the unamortized balance was at the customer
3 deposit rate (Stipulation, p. 7, 9 (c) AVU-E-08-1).
,
4 However, this language related to the return during the
5 deferral period, not the return once it was included in
6 rates.
7 Spokane River Relicensing
8 Q.How did Staff originally propose to treat Spokane
9 River relicensing costs in this case?
10 A.Staff reviewed the costs associated with
11 relicensing and determined that they should not be included
12 for recovery in this case because a new FERC operating
13
14
15
license had not yet been obtained. The expenditures were
therefore, not deemed used and useful.
Q.Why did Staff agree to include the relicensing
16 costs in this case if a new license was issued by July 22,
17 2009?
18 A. The Company maintained that a new license was
19 imminent. In fact FERC issued the new 50-year license on
20 June 18, 2009 - two days after the Stipulation was filed.
21 Staff agreed that if a new license was obtained prior to
22 the Company's filed rebuttal or during the course of the
23 hearings, it is likely that the Commission would include
24 the cost in this case. It would also be difficult for
25 Staff to continue to argue that the relicensing costs were
'7B6CASE NO. AVU-E-09-1/AVU-G-09-1
06/24/09 LOBB, R. (Di) 12
STAFF
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1 not used and useful. Therefore, Staff agreed to the July
2 22, 2009 cutoff date for the Company to obtain a license
3 with the caveat that un-audited costs are subject to audit
4 before they are reflected in rates. Additional revenue
5 requirement subject to recovery in this case with timely
6 receipt of the new license totals $3.11 million annually.
7 See Note 1 to Table on page 5 of the Stipulation.
8 Other Issues
9 Q.What other revenue requirement adjustments are
10 itemized in the Settlement Stipulation and how do they
11 compare to Staff's original recommendation?
12 A.Other revenue requirement adjustments itemized in
13 the Stipulation include return on equity (10.5%),
14 regulatory fees , non-executive labor, asset management,
15 Colstrip mercury emissions O&M, compensation incentives,
16 generation O&M expense, insurance expense, miscellaneous
l7 expenses and the Coeur d' Alene Tribe Settlement. Other
18 than allocation of system adjustments, the capital
19 additions adjustment is the only issue specifically
20 identified on the natural gas ~ide. All of these
21 adjustments are the same as those originally recommended in
22 Staff's pre-filed direct testimony.
23 Q.What does the Stipulation provide in terms of
24 revenue spread and rate design?
25 A.The parties agreed in paragraph 15 to spread the
CASE NO. AVU-E-09-1/AVU-G-09-~51
06/24/09 LOBB, R. (Di) 13
STAFF
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1 electric ~evehue increase uniformly across all customer
2 classes and increase only the energy component of rates in
3 each class as originally proposed by Staff. Likewise, the
4 Agreement follows Staff's original proposal to spread the
5 natural gas revenue increase to customer schedules based on
6 the company's cost of service study and increase only the
7 commodity component of the gas rate.
8 The Settlement endorses Staff's proposal to
9 reduce the PCA and PGA rates to mitigate the base rate
10 increase. The required PCA rate reduction is 0.266 cents
11 per kWh for electric customers and the required PGA rate
12 reduction is 2.662 cents per therm for natural gas
13 customers. The PCA rate reduction will not fully offset
14 the base rate revenue requirement with the Spokane River
15 relicensing costs included in this case. The PGA rate
16 reduction offsets the base rate increase in Schedule 101
17 and reduces the overall rate in other schedules by various
18 amounts.
19 Q.Are the higher PCA and PGA rate reductions
20 specified by the Settlement of any concern to you?
21 A.I have no concern regarding the PGA reduction.
22 Forecasted gas prices over the period that rates will be in
23 effect are well below the weighted average cost of gas
24 (WACOG) currently embedded in rates. The PCA reduction is
25 only slightly more likely to produce higher deferral
CASE NO. AVU-E-09-1/AVU-G-09-17S(S(;06/24/09 LOBB, R. (Di) 14
STAFF
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1 balances for surcharge than that proposed by Staff in
2 direct testimony. The risk caused by the slightly lower
3 PCA rate is also partially o.ffset by stipulated higher
4 power supply costs embedded in rates.
5 Q.Are there other issues identified in the
6 Stipulation that are consistent with Staff recommendations
7 presented in direct testimony?
8 A.Yes, the Stipulation in paragraph 14 on page 11
9 specifically addresses the Company's proposal to change the
10 PCA sharing percentage from 90%/10% to 95%/5%. Staff did
11 not believe the Company. sufficiently justified its proposal
12 in direct testimony and the Company withdrew the issue as
13 part of the settlement.
14 The Stipulation in paragraph 12 on page 11 also
15 specifies that the issue of prudence review of DSM
16 expenditures for the period January 1, 2008 through
17 November 30, 2008 will be addressed in a future docket.
18 Staff did not believe the Company provided sufficient
19 evidence in its direct case to justify a finding of
20 prudency for these expenditures. Consequently, Staff
21 believes it is reasonable to delay a prudency review to a
22 later date when more information is available.
23 In addition, the Stipulation reiterates Staff's
24 position supporting the Company's proposed cost recovery of
25 the Lancaster power project tolling agreement. See ~ 10.
15~9/CASE NO. AVU-E-09-1/AVU-G-09-106/24/09 LOBB, R. (Di) 15
STAFF
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1 The Stipulation also supports Staff's original
2 recommendation provided in direct testimony for cost
3 recovery Qf the Coeur d' Alene Tribe Agreement. See ~ 9 (0)
4 on p. 10.
5 Finally, the Stipulation supports Staff's
6 original proposals that the Company evaluate its payment
7 plans and low income deposit policies for effectiveness.
8 See ~ 16 (d) and (e) on p. 15.
9 Q.What issues are included in the Stipulation that
10 were not originally addressed by Staff in direct testimony?
11 A.Issues supported by Staff in the Stipulation that
12 were not originally addressed by Staff in direct testimony
13 include additional cost of service evaluation (see ~ 13),
14 continuation of low income customer service programs (see
15 ~ 16 (b) and (c)), and new rate implementation on August 1,
16 2009 (~ 15 (f)). The cost of service recommendations to
1 7 evaluate various methods of allocating transmission
18 facili ties and to provide twelve months of current load
19 data in a timely manner are necessary to properly determine
20 cost of service and are supported by Staff.
2l The low income recommendations for Avista to
22 support low income rate assistance legislation, to continue
23 funding for low income weatherization and outreach
24 education are a continuation of existing support and
25 programs. Staff supports these recommendations based on
CASE NO. AVU-E-09-1/AVU-G-09-~6006/24/09 LOBB, R. (Di) 16
STAFF
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1 its belief that they reasonably improve low income
2 affordability.
3 Q.Why did Staff support an August 1, 2009
4 implementation date for new rates rather than the statutory
5 deadline of August 23, 2009?
6 A.This provision was agreed to by Staff as part of
7 the give anâ take of settlement negotiations. Staff
8 believed thåt the accelerated implementation date was
9 reasonable given that comprehensive settlement would reduce
10 the need for lengthy hearings, complicated deliberations
11 and time consuming development of the final Commission
12 Order. Staff also accepted the Company position that a
13 first of the month implementation of new rates would
14 simplify calculation of monthly power supply costs for
15 determination of PCA deferral balances.
16 Q.Does this conclude your testimony in this
17 proceeding?
18
19
20
21
22
23
24
25
A.Yes, it does.
7'€)-'CASE NO. AVU-E-09-1/AVU-G-09-106/24/09 LOBB , R . (D i ) 1 7
STAFF
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1 (The following proceedings were had in
2 open hearing.)
3 MR. MEYER: Thank you. And one other process
4 point: We did not separately mark and identify the Stipulation
5 itself as an exhibit, but it's part of the official record.
6 And we have extra copies if you have a preference to otherwise
7 mark that.
8 COMMISSIONER REDFORD: Why don't we go ahead and
9 mark that. I f you have an extra copy, why don i t we go ahead
10 and mark that as Applicant Exhibit No.1.
11 MR. MEYER: Could we make that No. 2 since we
12 have an Exhibit 1 attached to Mr. Norwood's testimony?
13 COMMISSIONER REDFORD: Fine.
14 MR. MEYER: Thank you.
15 COMMISSIONER REDFORD: So it will be Exhibit
16 No.2. If you will give it to the court reporter, please?
17 MR. MEYER: Thank you. And would you like one?
18 You each have your own?
19 COMMISSIONER REDFORD: I think we have our own.
20 (Avista Exhibit No. 2 in support of the
21 Stipulation was marked for identification.)
22 MR. MEYER: Thank you. And with that, I call to
23 the stand Mr. Norwood.
24 COMMISSIONER REDFORD: Thank you.
25 Mr. Norwood. Commissioner Smith will swear you,
762
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
COLLOQUY
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21
22
23
1 Mr. Norwood
2
3 KELLY NORWOOD,
4 produced as a witness at the instance of Avista, being first
5 duly sworn, was examined and testified as follows:
6
7 COMMISSIONER REDFORD: Mr. Meyer, are you --
8
9 DIRECT EXAMINATION
10
11 BY MR. MEYER:
12 Q.Are you ready, Mr. Norwood?
13 A.Yes.
14 Q.Thank you. For the record, please state your
15 name and your employer.
16 A.Yes. My name is Kelly Norwood, and I work for
17 Avista Corporation.
18 Q.And have you filed direct testimony in support of
19 the Stipulation?
A.Yes, I have.
Q.Do you have any changes to make to that?
A.No, I do not.
Q.So if I were to ask you the questions that appear
24 in that pre filed testimony, would your answers be the same?
e 25 A.Yes.
763
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Di)
Avista
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1 Q. Are you also sponsoring what has been marked for
2 identification as Exhibit NO.1?
3 A.Yes.
4 Q.And is the information true and correct?
5 A.Yes, it is.
6 MR. MEYER: With that, Mr. Chairman, I ask that
7 Mr. Norwood i s testimony be spread into the record as if read,
8 and move the admission of Exhibit No.1, as well as Exhibit
9 No.2, which is a copy of the multi-party Stipulation.
10 COMMISSIONER REDFORD: Fine. I think that by our
11 previous ruling, all the testimony has been spread, but we will
12 spread your testimony on the record as if it had been read
13 aloud.
14 (Avista Exhibit Nos. 1 and 2 in support of
15 the Stipulation were renumbered by the court reporter as Avista
16 Exhibit Nos. 14 and 15, respectively, and admitted into
17 evidence. )
18 COMMISSIONER REDFORD: Why don't we start with
19 Mr. Howell.
20 MR. HOWELL: Staff has no questions. Thank you.
21 COMMISSIONER REDFORD: Okay. Mr. Creamer.
22 MR. CREAMER: No questions, Mr. Chair.
23 MR. MILLER: Nor I.
24 COMMISSIONER REDFORD: Mr. Purdy.
25 MR. PURDY: I have none.
764
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Di)
Avista
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i MS. BRIDGE: No questions.
2 COMMISSIONER REDFORD: Thank you. Well, that was
3 quick. Do the Commissioners have any questions? Ms. Smith.
4
5 EXAMINATION
6
7 BY COMMISSIONER SMITH:
8 Q.Mr. Norwood, this is just, you know, our
9 opportuni ty I think to ask the Company how it i s doing generally
10 and what issues and problems you see coming up. Of particular
11 concern to me based on the letters from your customers, letters
12 to the editor in the newspapers that we see in the clips, and
13 even various editorials, it seems to me that your company needs
14 to pay special attention to your -- perception of your company
15 by your customersi and I just wondered if the Company felt that
16 way and what measures you saw available to you to help them
17 understand what you i re doing in their interest, and any other
18 issues you think the Commission ought to be aware of.
19 Okay. Thank you. We do recognize and I haveA.
20 read, personally, every comment that was submitted to the
21 Commission, and we appreciate, as a company, the Commission
22 providing those letters and comments to us so we can see what
23 customers are saying. Obviously, many of us are out in the
24 community and we are hearing from them also, and what we're
25 hearing, from my perspective as I speak to rotary groups or
765
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Com)
Avista
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1 others, once we provide them more information about what's
2 going on in our business, then they may not like it but at
3 least they understand and they're more receptive and they
4 appreciate the information.
5 So what we have done in recent months is to step
6 up our communication to customers, and we're doing that through
7 paid advertising in newspapers, we're doing that through
8 e-mails to our customers, through speaking to groups throughout
9 the communi ties. We're sending letters out to our customers.
10 And so we are encouraging them to have a dialogue with us to
11 ask us questions, which gives us then an opportunity to provide
12 more information to them. And so far that has been going very
13 well, but there's basically a campaign to continue at least
14 through the balance of this year so that customers have a
15 better understanding of the issues: You know, salary issues,
16 earnings issues.
17 I think there's a perception out there that the
18 profi t issue is extra money over and above what's needed to run
19 the business, and so we're making an effort to educate
20 customers that that is a necessary part of dollars that need to
21 go back to those investors that have lent us money to keep the
22 facilities in place.
23 And so we've stepped up our education effort.
24 There's a lot more to do, but I'm happy with the progress we're
25 making on that.
766
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Com)Avista
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1 Q. I guess that I understand the need for the
2 advertising. That's kind of a double-edged sword, because then
3 people complain that you're spending all your money on the
4 advertising. So I don't have a way out of that, but I just
5 wanted you to know that I think the communication with your
6 customers, is especially important.
7 A.Yes, thank you. We understand that.
8 COMMISSIONER SMITH: Thank you..
9 COMMISSIONER REDFORD: Commissioner Kempton.
10
11 EXAMINATION
12
13 BY COMMISSIONER KEMPTON:
14 Q.Just a general question, Mr. Norwood:
15 In this case and in the Stipulation both,
16 emphasis is on -- as far as the requirements for additional
17 revenue -- is on combination of growth and the capability of
18 integrating new, renewable resources, just as a part of the
19 base. Could you address what your indications are currently on
20 growth compared to the 2008 projections that were made,
21 roughly, when you made these; not the natural gas issue I'm
22 aware of, you know, I understand that, but just the growth
23 factors themselves going into 2009 to 2010.
24
e 25
A.On the electric side, our load growth has slowed
as one would expect. We are still seeing and still expect load
767
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Com)
Avista
1 growth in terms of energy from '09 to 2010 in the one percente2to 1.2 percent, so we are still seeing an increase in energy
3 usage by customers. We're also continuing to hook up new
4 customers, although at a much slower pace than we saw in '08
5 and' 07, but nonetheless, there's a continuing need to hoök up
6 new customers.
7 Q.And on the integration side as far as the
8 resources most expected to be your integrated resource for. base
9 load on your variable resource with integration, for example,
10 or any other variable resources you're picking up, solar ör
11 whatever?
12 A.In terms of -- I'LL talk about two different
e 13 areas there to try to answer your question. One is the
14 resources we're planning to add. The other would be what we
15 plan to use to integrate those resources.
16 First of all, with our current resource mix, the
17 addi tion of Lancaster which comes in in January of 2010, that
18 will put us in an even to long position through approximately
19 2017 from the energy perspective and similar time frame for
20 capacity. So we're in pretty good shape for energy and
21 capaci ty, but we are looking and continuing to look at -- let
22 me step back.
23 In terms of other resources, that assumes that we
24 continue to aggressively pursue demand-side management, which
e 25 we are going to do.
768
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Com)
Avista
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1 And then the other component would be wind. And
2 as we mention in our testimony, the Reardon proj ect is one that
3 we've been working on for a couple of years. It's a
4 50-megawatt wind proj ect in our service area. It's basically
5 licensed. The site is there, so it's just a matter of timing
6 as to when we put that in place.
7 Gi ven the economy, we had delayed that proj ect.
8 We were planning to do that right away, but we recently delayed
9 that. But with the availability o£ the investment tax credit,
10 that would give us a tax credit of -- a federal tax credit of
11 roughly 30 percent of the proj ect cost. Also, in the state of
12 Washington right now, there's a sales tax credit which is about
13 six and a quarter percent that we would also be able to take
14 advantage of. So given those changes, we are taking a new look
15 at whether we do Reardon sooner rather than later simpiy
16 because there's a pretty big benefit, and so we're comparing
17 that with delaying that. So you may see us start that project
18 up. We haven't made a final decision on that.
19 We have a number of other wind resources
20 primarily in our service area where transmission -- our
21 transmission -- is available that we're pursuing, but those may
22 come a little bit later.
23 Otherwise, we are also looking at biomass
24 projects, cogeneration projects that might be available, so
e 25 we'll continue to look at those as we go to the future.
769
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Com)Avista
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1 In terms of integration, we are currently
2 receiving about 35 megawatts of wind from the Stateline
3 proj ect. We're getting about 10 average megawatts of energy.
4 We're using our hydro system to integrate that. We do have
5 some room to integrate more wind on our system with our hydro.
6 What we also have, we have the existing Coyote
7 Springs 2 combined cycle gas unit, and there's the opportunity
8 to flex that unit to integrate wind with the addition of
9 Lancaster in 2010 that will give us additional flexibility tö
10 integrate wind. Now, that comes at a little bit of an
11 additional cost but it's much less expensive than using simple
12 cycle, as an example, to integrate wind.
13 So as we work through this in the next several
14 years we'll gain more experience with the true cost of
15 integrating wind once we get beyond the hydro and into the
16 combined cycles to integrate it.
17 COMMISSIONER KEMPTON: Okay, thank you. No
18 additional questions, Mr . Chairman .
19
20 EXAMINATION
21
22 BY COMMISSIONER REDFORD:
23 I want to thank Avista for, or congratulate youQ.
24 Is there anythingon, receiving the relicensing of the dams.
25 left to be done as far as that relicensing issue is
770
HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Com)
Avista
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1 concerned?
2 A.Thank you for that. We are very pleased to get
3 the license, and it's a 50--year license. We are still looking
4 at the FERC Order and the conditions on that. The initial
5 indications -- and I'll emphasize initial -- is that it looks
6 pretty good, pretty consistent with what we had laid out with
7 the other parties. There will be -- it looks like there will
8 be some cost changes related to implementing that license, but
9 at this point, they appear to be pretty small, small
10 differences compared to what the estimates were that we put
11 together. But, obviously, there's lots of work to be done in
12 terms of carrying out the plan, but in terms of the license
13 itself, we have 30 days to review the Order and seek å
14 Reconsideration on that, but the initial indication is it looks
15 pretty good.
16 Q.Thank you. You and the Staff worked out the
17 Stipulation, and, of course, all the other Intervenors, and I'm
18 interested in how whether there were any hiccups or
19 difficulties in determining cost of service. Did you all agree
20 on what the cost of service was, is?
21 What we -- on the electric side, in the priorA.
22 case we had talked about the need for new load data, which we
23 are in the process of gathering. Meters are in place and we're
24 gathering data, and we should have a full year of that data by
25 the end of this year.
771
HEDRICK COURT REPORTING
P.O. BOX 578, BOI SE, I D 83701
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1 In the mean time, what we agreed to do from a
2 rate-spread perspective is to use a uniform percentage rate
3 adj ustment to all schedules and adj ust just the energy
4 component of those. So all the parties did agree with that
5 rate spread in the Stipulation.
6 Q.So you didn't really get into much of a
7 discussion about cost of service?
8 A.There was some discussion about cost of service.
9 There was one issue related to the way transmission charges
10 were allocated to the different customer groups, and we have
11 agreed as part of the Stipulation to take a look at allocating
12 the transmission costs differently in the next case, so that
13 will be included in our next case.
14 We also agreed to take a look at the seasonal
15 impacts of some of those fixed costs, and so we'll take a look
16 at that also.
17 In our original filing, we had put together a
18 number of scenarios to see what the sensitivity was to changes
19 in loads, changes in demand, and by different customer classes,
20 and what we found based on the analysis that we put together is
21 that we believe that based on using a uniform percentage spread
22 across customer classes right now is probably a very reasonable
23 way to do it until we get the new load data available.
24 Q.You don't have a class for, or do you have a
25 class for, irrigators?
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HEDRICK COURT REPORTING
P. O. BOX 578, BOISE, ID 83701
NORWOOD (Com)
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1 A. We do have.It's called our pumping service.
2 It's Schedule 31, yes.
3 And is thatQ.is Pumping 31 extensive or is
4 it -- as compared to, say, Idaho Power who's got the irrigator
5 class?
6 A.It's -- I don i t know the number of irrigators
7 that we have, but compared to Idaho Power it iS a very, very
8 small number of customers, and the load is very small compared
9 to Idaho Power's.
10 Q.And their rates are probably a little higher .
11 Right?
12 A.As compared to?
13 Q.Percentage of increase for all classes. I guess
14 the reason why I i m asking you is do you take into consideration
15 in setting their rates that the irrigators use the power during
16 the peak months?
17 A.Yes. When we do our cost of service, that would
18 be taken into consideration.If you look at the overall rate
19 adjustment that would come out of this case, the total is 1.5
20 percent if the Commission approves the Stipulation. The
21 irrigators would get a 1.9 percent, so it's just slightly
22 higher than the overall.
23
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Q.But you peak in the winter?
A.We do peak in the winter. The summer peak is
getting very close to the winter peak, but we are still a
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Avista
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1 winter-peaking utility.
2 COMMISSIONER REDFORD: I have no further
3 questions.
4 As a result of the questions that the Commission
5 has asked, is there anyone of the parties or anyone of the
6 parties wish to inquire further?
7 MR. MEYER: No, your Honor.
8 COMMISSIONER REDFORD: Thank you.
9 You may step down, Mr. Norwood, and thanks for
10 your testimony.
11 THE WITNESS: Thank you.
12 (The witness left the stand.)
13 COMMISSIONER REDFORD: Mr. Howell. Excuse me.
14 Do you have anything else to present on your case
15 in chief?
16 MR. MEYER: I do not, thank you.
17 COMMISSIONER REDFORD: Thank you. So,
18 Mr. Howell.
19 MR. HOWELL: The Staff would call Randy Lobb to
20 the stand.
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COMMISSIONER REDFORD: Thank you.
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1 RANDY LOBB,
2 produced as a witness at the instance of the Staff, being first
3 duly sworn, was examined and testified as follows:
4
5 DIRECT EXAMINATION
6
7 BY MR. HOWELL:
8 Q.Could you state your name and spell your last
9 name for the record, please?
10 A.It's Randy Lobb, L-O-B-B.
11 Q.And, Mr. Lobb, whom are you employed by and in
12 what capacity?
13 A.I'm employed by the Idaho Public Utilities
14 Commission. I am the administrator of the utilities division.
15 Q. And are you the same Randy Lobb that filed
16 supporting testimony with the Stipulation dated June 24,
17 2009?
18 A.Yes.
19 Q.Do you have any changes and corrections to that
20 testimony?
21
22
A.I do not.
Q.And if I were to ask you the questions laid out
23 in that pre filed testimony, would your answers be the same?
24
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A.Yes, they would.
MR. HOWELL: With that, Mr. Chairman, I would
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LOBB (Di)Staff
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1 move to mark his -- well, we've spread the testimony on the
2 record, but I would make Mr. Lobb available for
3 cross-examination.
4 COMMISSIONER REDFORD: Why don't we start with
5 Mr. Creamer today.
6 MR. CREAMER: No questions, Mr. Chairman.
7 MR. MILLER: Nor I, Mr. Chairman.
8 COMMISSIONER REDFORD: Mr. Purdy.
9 MR. PURDY: No quest ions.
10 MS. BRIDGE: No questions.
11 COMMISSIONER REDFORD: Okay. Mr. Meyer.
12 MR. MEYER: No questions.
13 COMMISSIONER REDFORD: Does the Commission have
14 any questions?
15 COMMISSIONER SMITH: I don't.
16 COMMISSIONER KEMPTON: No questions.
17 COMMISSIONER REDFORD: No questions. Since there
18 haven't been any questions, there's no reason to ask if you
19 have anything to bring up as a result of the no questions, so
20 thank you, Mr. Lobb. You may step down.
21
22
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(The witness left the stand.)
COMMISSIONER REDFORD:I will ask again,does
that conclude your case?
MR.HOWELL:It does,Mr.Chairman.
COMMISSIONER REDFORD:As a result of the
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1 conclusion of the case of the Applicant and Staff, does -- I'll
2 ask again, do any of the Intervenors wish to bring any matter
3 to the attention of the Commission or do you wish to present
4 any testimony?
5 None? Hearing none, then we'll deem this
6 Stipulation and Motion having been fully submitted, and we
7 will, wi thin the statutory and procedural limit, render our
8 Decision accordingly.
9 If there's nothing else to come before the
10 Commission, why, we will stand adj ourned and thank you very
.
11 much, everyone.
12 MR. MEYER: Thank you.
13 (Avista Exhibit Nos. 1 through 13, Staff
14 Exhibit Nos. 101 through 135, Idaho Forest Group Exhibit
15 No. 201, and Clearwater Paper Corporation Exhibit Nos. 3Q1
16 through 303, having been premarked for identification, were
17 admi tted into the record.)
18 (The hearing adjourned at 9:56 a.m.)
19
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1 AUTHENTICATION
2
3
4 This is to certify that the foregoing is a
5 true and correct transcript to the best of my ability of the
6 proceedings held in the matter of the Application of Avista
7 Corporation for the authority to increase its rates and charges
8 for electric and natural gas service to electric and natural
9 gas customers in the state of Idaho, Case Nos. AVO-E-09-01 and
10 AVU-G-09-01, commencing on Monday, June 29, 2009, at the
11 Commission Hearing Room, 472 West Washington, Boise, Idaho, and
12 the original thereof for the file of the Commission.
13 Accuracy of all prefiled testimony as
14 originally submitted to this Reporter and incorporated herein
15 at the direction of the Commission is the sole responsibility
16 of the submitting parties.
17
18
19 ~~II""""""
..........\. MUR.t ....~~ WENDY J. MURR , No ary
i~~...-~J- "l! in and for th tate of Idaho,
i~i.i ~#lY \. \residing at Meridian, Idaho.
i~\~°tl.tI (,) ¡My Corrission expires 2-5-2014.
'! 0.""; 10 IIdaho CSR No. 475';. PUv .. t: I.~ ~ ..-c"ftf~.~ .11' ~ \,v !l~"I"", ATE O'i ..........
~6'eU¡¡a~liilílll."
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AUTHENTICATION