20110928Transcript Vol II.pdf

ORIG.INAL.BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION DBA AVISTA CASE NO. AVU-E-i1-01
UTILITIES FOR AUTHORITY TO CASE NO. AVU-G-11-'01
INCREASE ITS RATES AND CHARGES FOR
ELECTRIC AND. NATURAL GAS SERVICE
IN . IDAHO
BEFORE
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COMMISSIONER MACK REDFORD (Presiding)
COMMISSIONER MARSHA SMITH
COMMISSIONER PAUL KJELLANDER
PLACE:North. Idaho College
1000 West Garden Avenue
CoeuI; d' Alene, Idaho
DATE:September 13, 2011
VOLUME II - Pages 5 - 58
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CSB REPORTING
Constance S. Bucy, CSRNo.187
23876 Applewood Way * Wilder, Idaho 83676
[phone] * [phone]
Email csb~eritagewifi.com
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1 APPEARANCES
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3 Kristine Sasser, Esq.
Deputy Attorney General
472 West Washington
Boise, Idaho 83720-0074
For the Staff:
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6 For Avista Corporation:David J. Meyer, Esq.
Avista Corporation
1411 E. Mission Avenue
Post Office Box 3727
Spokaner Washington 99220
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CSB REPORTING
[phone]
APPEARANCES
.1 I N D E X
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3 WITNESS EXAMINATION BY PAGE
4 Kelly o.Norwood Mr.Meyer (Direct)7
(Avista)Prefiled Direct Testimony 9
5 Commissioner Smith 30
Commissioner Redford 32
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7 Randy Lobb Ms.Sasser (Direct)35
(Staff)Prefiled Direct Testimony 38
8 Commissioner Smith 54
Commissioner Kjellander 56
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CSB REPORTING INDEX
(208 )890-5198
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1 EXHIBITS
PAGE
57
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3 NUMBER DESCRIPTION
4 FOR AVISTA CORPORATION:
5 1. Stipulation and Settlement Premarked
Admitted
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FOR THE STAFF:
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101. Stipulation and Settlement Premarked
Admitted9
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CSB REPORTING
Wilder, Idaho 83676
EXHIBITS
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1 COEUR D' ALENE, IDAHO, TUESDAY, SEPTEMBER 13, 2011, 7: 20 P. M.
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4 COMMISSIONER REDFORD: Let i s go back on
5 the record. Again, my name is Mack Redford and 1'm a
6 Commissioner of the Public Utilities Commission and also
7 in attendance tonight are Marsha Smith, a Commissioner
8 and also Paul Kj ellander, a Commissioner and president
9 who make up the Idaho Public Utilities Commission. This
10 is the time and place set for the hearing in the matter
11 of the application of Avista Corporation dba Avista
12 Utilities for authority to increase its rates and charges
13 for electric and natural gas service in Idaho. Public
14 notice of this hearing has been given. Based on
15 settlement negotiations, the parties have agreed to
16 resolve and settle issues raised in this case and as
17 regards the settlement, I will, first of all, take the
18 appearances and I i II take the appearances for Avista.
19 MR. MEYER: David Meyer for Avista, thank
20 you.
21 COMMISSIONER REDFORD: And Illl take the
22 appearances for the state.
MS. SASSER: Kristine Sasser, attorney for
24 Staff..25 COMMISSIONER REDFORD: Are there any
CSB REPORTING
( 2 08 ) 8 90 - 5 1 98
5 COLLOQUY
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1 appearances for any of the intervenors? Hearing none, I
2 will turn this matter over to David because I believe it
3 was David who has done the yeomen i s work on the
4 settlement and will present it. I should also mention
5 that the case number is AVU~E-11-01 and AVU-G-11-01.
6 Dave Meyer, Mr. Meyer, excuse me.
7 MR~ MEYER: Thank you. I call to the
8 stand Mr. Norwood, please, and while Mr. Norwood is
9 getting organized, he has one exhibit, Exhibit No. 1 as
10 marked, which is a copy of the stipulation and he will be
11 sponsoring that. There was one substituted page to that
12 exhibi t, to that stipulation, that we provided a week or
13 two after the fact and that is page 4 of 4 of Attachment
14 C, so. that should hopefully be reflected in your copy of
15 that Exhibit No.1. If not, we can make arrangements.
16 It does not change the narrative at all in the settlement
17 stipulation itself.
18 COMMISSIONER SMITH: So it i s Attachment C?
19 MR. MEYER: Yes, just the very last
20 page.
21 COMMISSIONER SMITH: So all mine seemed to
22 be labeled Exhibit 6; is that incorrect?
23 MR. MEYER: That is incorrect, yeah,
24 COMMISSIONER SMITH: And that should be
25 No.1?
CSB REPORTING
[phone]
6 COLLOQUY
.1
2 you.
MR. MEYER: That should be No.1. Thank
4 KELLY O. NORWOOD,
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5 produced as a witness at the instance of Avista
6 Corporation, having been first duly sworn, was examined
7 and testified as follows:
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11 BY MR. MEYER:
12 Q
DIRECT EXAMINATION
Mr. Norwood, for the record, will you
13 state your name and your employer?
18 A
14 A Kelly o. Norwood and I work for Avista
And have you prepared and prefiled direct
17 testimony in support of the settlement stipulation?
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21
15 Corporation.
16 Q
Yes.
Do you have any changes to make to that?
I do not.
So if I were to ask the questions that
22 appear in that pre filed testimony, would your answers be
19 Q
A
Q
23 the same?
24.25
A
Q
Yes.
Are you also sponsoring what has been
CSB REPORTING
[phone]
7 NORWOOD (Di)
Avista Corporation
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1 marked for identification as Exhibit No.1?
2 A Yes.
3 Q And as I noted at the onset, there was one
4 substi tuted page, the very last page, page 4 of 4 of
5 Appendix C to that; correct?
6 A Yes.
7 Q And with that exception, is that a true
8 and correct copy of the settlement stipulation as filed
9 with the parties?
10 A Yes.
11 MR. MEYER: So can I offer that as an
12 exhibi t or wait until we're finished with any
13 examination?
14 COMMISSIONER REDFORD: Thank you.
15 (The following prefiled testimony of Mr.
16 .Kelly Norwood is spread upon the record.)
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CSB REPORTING
[phone]
8 NORWOOD (Di)
Avista Corporation
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1 I. INTRODUCTION.
2 Q.Please state your name, employer and business
3 address.
4 A.My name is Kelly O. Norwood and I am employed
5 as the Vice-President of State and Federal Regulation for
6 Avista Utilities ("Company" or "Avista"), at 1411 East
7 Mission Avenue, Spokane, Washington.
8 Q.Would you briefly describe your educational
9 background and professional experience?
10 A.Yes. I am a graduate of Eastern Washington
11 University with a Bachelor of Arts Degree in Business
12 Administration, maj oring in Accounting. I joined the
13 Company in June of 1981. Over the past 30 years, I have
14 spent approximately 19 years in the Rates Department with
15 involvement in cost of service, rate design, revenue
16 requirements and other aspects of ratemaking. I spent
17 approximately 11 years in the Energy Resources Department
18 (power supply and natural gas supply) in a variety of
19 roles, with involvement in resource planning, system
20 operations, resource analysis, negotiation of power
21 contracts, and risk management. I was appointed
22 Vice-President of State & Federal Regulation in March
23 2002.
24 Q.Are you sponsoring any Exhibits that accompany
25
9 Norwood, Di 1
Avista Corporation
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1 your testimony?
2 A. Yes.I am sponsoring Exhibit No. 1 which is a
3 copy of the Stipulation and Settlement filed on August
4 26, 2011 with the Commission.
5 Q.What is the scope of your pre-filed testimony
6 in this proceeding?
7 A.The purpose of my testimony is to describe and
8 support the Stipulation and Settlement ("Stipulation" or
9 "Settlement"), filed on August 2 6, 2011 between the Staff
10 of the Idaho Public Utilities Commission ("Staff"),
11 Clearwater Paper Corporation ("Clearwater")~ Idaho Forest
12 Group, LLC (" Idaho Forest"), the Community Action
13 Partnership Association of Idaho ("CAPAI"), the Idaho
14 Conservation League ("Conservation League"), and the
15 Company, which, if approved by the Commission, would
1t resolve all of the issues in the Company's filing. These
17 entities are collectively referred to as the "Parties,"
18 and represent all parties in these cases (AVU-E-11-01 and
19 AVU-G-11~01) that participated in settlement discussions.
20 The Stipulation is the product of settlement
21 discussions that began in the Commission offices on
22 August 17, 2011, and concluded on August 26th with
23 agreement among all parties. The Stipulation between the
24 Parties resolved
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10 Norwood, Di 2
Avista Corporation
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1 all issues associated with the calculation of the
2 Company's requested revenue requirement, all issues
3 related to rate spread and rate design, and provides
4 addi tional funding for low income energy efficiency
5 education.
6 The Parties agree that this Settlement is not
7 contingent upon any specific methodology for individual
8 components of the revenue requirement determination, but
9 all Parties support the overall increase to the Company 's
10 revenue requirement, and agree that the overall increase
11 represents a fair, just and reasonable compromise of the
12 issues in this proceeding and that this Stipulation is in
13 the public interest.
14 The Parties understand that the Stipulation is
15 subject to approval by the Idaho Public Utilities
16 Commission (IPUC).
17 Q. Please explain how the Parties arrived at the
18 Stipulation in this proceeding.
19 A.The Stipulation is the end result of audit work
20 conducted through the discovery process and hard
21 bargaining by all Parties in this proceeding. I would
22 like to express my appreciation to all Parties involved
23 in this proceeding for their efforts in arriving at this
24 Stipulation and to this Commission for its willingness to
25 hear this matter promptly, in light of the proposed
October 1 effective date..
11 Norwood, Di 3
Avista Corporation
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1 Q.Would you briefly summarize the Stipulation?
2 A.Yes. Under the terms of the Settlement, Avista
3 would be allowed to implement revised tariff schedules
4 effective October 1, 2011 designed to recover $2.8
5 million in additional annual electric revenue, which
6 represents a 1.1% increase in electric annual base tariff
7 revenues. Avista would also be allowed to implement
8 revised tariff schedules on October 1, 2011 designed to
9 recover $ 1.1 million in additional annual natural gas
10 rev:enue, which represents a 1.6% increase in natural gas
11 annual base tariff revenues. As discussed in more detail
12 later in my testimony, and in the Stipulation, several
13 other proposed rate adj ustmentswill serve to more than
14 offset the proposed base rate increases on October 1,
15 2011.
16 In addition, the Company agrees that it will not
17 seek to make effective a change in base electric or
18 natural gas rates prior to April 1, 2013, by means of a
19 general rate filing. This will not prevent the Company,
20 however, from otherwise seeking to implement other rate
21 changes affecting the rates billed to customers,
22 including, but not limited to, adjustments under the
23 power cost adjustment (PCA) mechanism, purchased gas cost
24 adjustments (PGA); DSM tariff rider adjustments; etc.
12 Norwood, Di 4
Avista Corporation
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1 Q. Would you briefly summarize the net impact on
2 customers of all rates proposed to take .effect on October
3 1,2011?
4 A.Yes. By means of separate filings, several
5 other rate adj ustments are proposed to also take effect
6 on October 1, 2011. With respect to electric service,
7 these adjustments include the following: a decrease of
8 $2.2 million in Schedule 59 for Residential Exchange
9 benefits for residential and small farm customers; a
10 decrease of ~15.6 million in Schedule 66 Power Cost
11 Adjustment (PCAl rates; and an increase of $8.7 million
12 for the previously-approved adj ustment for Deferred State
13 Income taxes (DSIT) in Schedule 99, as part of the
14 Settlement approved in Case No. (s) AVU-E-10-01 and
15 AVU-G-10-01. After taking into account the agreed-upon
16 increase of $2.8 million in electric general rate
17 increase revenues in this case, the net overall reduction
18 resulting from all of the proposed aforementioned
19 adj ustmentswould total approximately $ 6. 2 million. i
20 Attachment A to the Stipulation sets forth these proposed
21 October 1 adj ustments in more detail, and by
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23
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i As part of this Settlement, Avista has also agreed to withdraw its
filed-for decrease of $0.74 million in electric Demand-Side
Management (DSM) Tariff Schedule 91, and did so by means of a
separate filing made on August 29, 2011.25
13 Norwood, Di 5
Avista Corporation
service schedule. The following table summarizes these.1
2 proposed revenue adjustments:
3 .. Electrc -Prpos-ed Octo!!l' 1, ZOllIteveR;UeCiiøe
Scheule 99 - USIT Increase
. Sc.hecu!~. ?~-~~.s.i.~J:~l ~c~&e
Schedule 66 - PCA Decrease
ORC Rate Increase
,!(ttalR~l~D.tle"~ç~l!I!.,t ..... .... . .
$ 8,698,844.... . .,.--".. .,...._..--_..-......' ...,- ,~..-.
$"(~~~.Q?,.ossY
$ (i5,s17,~83)
$ 2,800,000
$J~,~~S,7~7)
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5
6
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8 with respect to natural gas service, the following rate
9 adj ustments, by means of separate filings, are proposed
10 to take effect on October 1, 2011: an increase of $0.8
11 million in Schedules 150/155 for Purchased Gas Costs
12 (PGA); a decrease of $2.9 million in Demand-Side.13 Management (DSM) tariff rider Schedule 191; and
an
14 increase of $0.5 million .for the previously-approved
15 adj ustment for Deferred State Income Taxes (DSIT) in
16 Schedule 199, as part of the settlement
approved in Case
17 No. (s) AVU-E-10-01 and AVU-G-10-01. After taking into
18 account the agreed-upon increase of $1.1 million in
19 natural gas general rate revenues, the net overall
20 decrease resulting from all of the proposed
21 aforementioned adjustments would be $0.525 million.
22 Attachment A to the
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20nAugust 25, 2011, Avista updated its pending PGA (Case No.
AVU-G-11-04) to reflect a decline in forward natural gas prices since
the August 15, 2011 PGA filing which, if approved by the commission,
would result in a 0.98% overall increase versuS
the prt~viousiy-filed
1.53% increase.
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14 Norwood, Di 6
AvistaCorporation
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11
12.
1 Stipulation sets forth these proposed October 1, 2011
2 adjustments ìn more detail, and by service schedule. The
3 following table summarìzes these proposed revenue
4 adj ustments:
5
6
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Natul Gas.- Prposed October 1,2011 Revenue Change...
Schedule 199 ~ DSIT Increase $"'.-',-, _.....-.., _'._"'. '."'-, .".:_~.."' ,'_',,' ," ,_._ _.c, , '.._ "....,._., ...~ ._.... ,;,.._. _. ",._. ", _ ...
Schedule 1501155 - PGA Increase,'--'"., .---,-----......_,.~. -.~.,_..,~-..-. ....-.._....-,. '..-.. _._,-.
. Schedule 191 - DSM Decrease" ......~. ._-"." ,.,,_.;...,...,~.-_.~~. ...,..-.......~_.,,_.,--....._.:.'-,"_. ,..' .",-.'..'-'--'-
. ORC Rate Inrease. .~-... ,. . "q. .._'.,' "--"~---'._..-.-.,.,. --',---'-.,_.. --",.-...._., '.,.
!~!~l:R~!!1.'!e....~~!!.e
470,423
776,190
.. $ ...(~&7!.,-~~§I
. $ 1,100,000 :
. $ . ..(?-~~,~~3);
7
8
9
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II. HISTORY OF FILING
Q.Please describe the Company's general rate case
13 request, as filed.
14 A.On July 5, 2011, Avista filed an Application
15 with the Commission for autho~ity to ìncrease revenue for
16 electric and natural gas service in Idaho by 3.7% and
17 2. 7 % , respectively. If approved, the Company i srevenues
18 for electric base retail rates would have increased by
19 $9.0 million annually; Company revenues for natural gas
20 service would have increased by $1.9 million annually.
21 The Company proposed to spread the electric revenue
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22 increase by rate schedule on a uniform percentage basis.
The Company also proposed to raise the monthly electric23
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15 Norwood, Di 7
Avista Corporation
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1 residential basic charge to $5.50 from the current $5. GO
2 charge.
3 The Company proposed utilizing the results of the
4 natural gas cost of service study as a guide in spreading
5 the overall revenue increase to its natural gas service
6 schedules and proposed to raise the natural gas
7 residential basic charge to $4.50 from the current $4.00.
8 Q.What are the primary factors causing the
9 Company i s request for an electric rate increase in this
10 filing?
11 A.Approximately 90% of the Company i s revenue
12 requirement requested in this case is due to an increase
13 in Net Plant Investment (including return on investment,
14 depreciation and taxes, and offset by the tax benefit of
15 interest). This increase is due in part to an increase
17
16 of approximately $21.0 million in net plant rate base for
the Idaho jurisdiction.The remaining 10% of our
18 request is due to increases in distribution, operation
19 and maintenance (O&M), and administrative and general
20 (A&G) expenses, offset by a reduction in net power supply
21 and transmission expenditures.
22 Q.What are the primary factors driving the
23 Company's request for a natural gas rate increase?
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16 Norwood, Di 8
Avista Corporation
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1 A. The Company i s natural gas request is driven by
2 changes in various operating cost components,
3 approximately two-thirds of which are distribution O&M
4 and A&G expenditures, such as increased costs in employee
5 benefits, i.e. wages and medical insurance expenses, and
6 one-third represent increased net plant investment, due
7 to additional Company investment in underground storage
8 facilities, distribution and general plant.
9
10 III. ELEMNTS OF THE STIPULATION
11 Q.Please describe the remaining terms of the
12 Stipulation entered into by the Parties.
13 A.The Parties to the stipulation agreed that
14 under the terms of the Settlement no party has accepted a
15 specìfic methodology for certain elements of the revenue
16 requirement determination. The Stipulation does, however,
17 specify an agreed-upon level of power supply cOsts upon
18 which to set the new base power supply costs for the
19 monthly Power Cost Adjustment (PCA) calculation purposes,
20 and it identìfies other specific items that I will
21 address in my testimony below.
22 Q.Where is the new level of power supply costs
23 for the PCA calculation found in the agreement?
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17 Norwood, Di 9
Avista Corporation
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1 A. The power supply costs for the monthly PCA
2 calculation are provided in Attachment B to the
3 Stipulation.
4 Q.What is the proposed effective date of the
5 Stipulation?
6 A.The Parties have requested implementation of
7 new rates from the Stipulation on October 1, 2011. This
8 proposed effective date is an integral part of the
9 Stipulation that was part of the negotiated resolution of
10 all of the issues. As discussed above, this October 1
11 date will synchronize with the several other rate
12 adj ustments also proposed to take effect on October 1,
13 and by doing so, will avoid multiple rate changes over a
14 short period of time that may cause customer confusion.
15 Q.Please explain the Settlement terms relating to
16 cost of service and rate spread.
17 A.As part of this rate case, the Company prepared
18 an analysis of using a peak credit method of classifying
19 production costs, allocating 100% of transmission costs
20 to demand, and allocating transmission costs to reflect
21 any peak and off-peak seasonal cost differences on a
22 weighted twelve month basis. The Parties have agreed to
23 exchange information and convene a public workshop prior
24 to the Company i s next general rate case, with respect to
25 the
18 Norwood, Oi 10AvistaCorporation
..1 possible use of a revised peak credit method for
2 classifying production costs, as well as consideration of
3 the use of a 12 Coincident Peak (CP) (whether "weighted"
4 or not) versus a 7 CP or other method for allocating
5 transmission costs. This workshop will also address the
6 meri ts of inclining or declining block rates for all
7 service schedules. The Parties agreed, however, to
8 spread the electric rate increase on a un~formpercentage
9 basis for purposes of this Settlement.
10 As for natural gas, the Company prepared a cost of
11 service study and proposed that all rate schedules be
12 moved to unity. For settlement purposes, the Parties.13 agreed to spread the natural gas rate increase on a
14 uniform percentage basis.
15 The table on Page 2 of Attachment C of the
16 Stipulation shows the impact on the energy rates under
17 each service schedule of the agreed-upon electric
18 increase. The proposed electric revenue increase of $2.8
19 million represents an overall increase of 1.1% in base
20 rates. As was discussed earlier, after the application
21 of the other rate adjustments proposed to also be
22 effecti ve on October 1, the Company would have an overall
23 revenue reduction of $6.2 million or 2.4%.
24.25
19 Norwood, Di 11
Avista Corporation
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1 Page 4 of of Attachment C shows the impact on each
2 service schedule of the agreed-upon natural gas
3 increases. The increased natural gas revenue requirement
4 of $1.1 million represents an overall increase of 1.6% in
5 base rates. After the application of the other rate
6 adj ustments proposed to be effective also on October 1,
7 the Company would have an overall revenue reduction of
8 $0.525 million or 0.8%.
9 Q.What is the basis of the Stipulation relating
10 to the rate design?
11 A.The Stipulation provides for increases in the
12 basic charges, monthly minimum charges, and demand
13 charges in Schedules 11,21, 25, and 31, as shown in
14 Attachment C, page 2 of the Stipulation. Otherwise, a
15 uniform percentage increase is applied to each energy
16 rate within eac:h.electric service schedule excluding
17 Schedule 1, residential service where block differentials
18 remain constant. In addition, the second block in
19 Schedule 11 would be reduced by $0.00773 as contemplated
20 in the Company's original filing, and the remaining
21 revenue requirement, after accounting for the changes in
22 the basic charge and demand charge, would be applied to
23 the first energy block.
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20 Norwood, Di 12
Avista Corporation
.1 The Parties also agreed that the current residential
2 electric basic charge of $5.00 would be increased to
3 $5.25 per month, and the residential natural gas basic
4 charge of $4.00 per month would be increased to $4.25.
5 Q.Please describe the customer service-related
6 portion of the Stipulation.
7 A.There are two areas that were addressed in the
8 Stipulation, as follows:
9 (a) Funding for Outreach for Low-Income
10 Conservation. The Parties agree to annual funding of
11 $50,000 to CAPAT for purposes of providing low-income
12 outreach and education concerning conservation.13
14
(representing an increase of $10,000 from previous
funding levels). This amount will be funded through the
15 Energy Efficiency Tariff Rider (Schedules 91 and 191),
16 and will be in addition to the $700,000 of Low-Income
17 Weatherization funding currently in place.
18 (b) Collaboration on Low-Income Weatherization.
19 The Company and interested parties will meet and confer
20 prior to the Company's next general rate filing in order
21 to assess the Low Income Weatherization and Low Income
22 Energy Conservation Education Programs and discuss
23 appropriate levels of low-income weatherization funding
24 in the future..25
21 Norwood~ Di 13
Avista Corporation
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1 Q. Does the Company have other programs in place
2 to mitigate the impacts on customers of the proposed rate
3 increase?
4 A.Yes. We have a history of making it a priority
5 within our Company to maintain meaningful programs to
6 assist our customers that are least able to pay their
7 energy bills. We also have programs to assist our entire
8 custorner base, i.e., not just our low-income customers.
9 Some of the key programs that we offer or support are. as
10 follows:
11 Programs designed to assist. customers include :
12 .DSM Energy Efficiency Programs and Funding. The
Company offers a broad array of energy efficiency
program measures that provides customers with
increased opportunity to manage their energy bills.
13
14 .Project Share. Proj ect Share is a voluntary program
allowing customers to donate funds that are
distributed through community action agencies to
customers in need. In addition to the customer
contributions in 2010 of $316,600 (system) ,the
Company also contributed $126,227 (Idaho's share) to
the program.
15
16
17
18 .
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.
19
20
21 .Payment A~rangements. The Company i s Contact Center
Representatives work with customers to set up
payment arrangements to pay energy bills.
22
23 .
CARS Program. Customer Assistance Referral and
Evaluation Services provides assistance to special-24
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22 Norwood, Di 14
Avista Corporation
1.needs customers through access to specially trained
(CARES) representatives wha provide referrals to
area agencies and churches for help with housing,
utilities, medical assistance, etc.
2
3
· Senior Energy Outreach: Avista has developed
4 specific strategic outreach efforts to reach our more
vulnerable customers (seniors and disabled customers)
5 with bill paying assistance and energy efficiency
information that emphasizes comfort and safety. Some
6 examples of this effort are as follows:
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8
9
10
11
12.13
14
15
16
17
.Senior Publications: Avista has created a
one-page advertisement that has been placed in
senior resource directories and targeted senior
publications to reach seniors with information
about energy efficiency, Comfort Level Billing,
Avista CARES and energy assistance. A brochure
with the same information has also been created
for distribution through senior meal delivery
programs and other senior home-care programs.
.Senior Energy Workshops: With the help of
additional workshop presenters, 22 Senior
Energy Workshops were held during the 2010/2011
heating season in Idaho and Washington. Over
1tOO seniors were reached and were given Senior
Energy Efficiency kits along with learning
about low-cost/no-cost ways to reduce energy
use.
Q.Please describe the accounting treatment agreed
18 to by the Parties for two specific issues.
19 A.The Parties agree to the following accounting
20 treatment for certain items:
21 (a) Costs Associated With Acquisition From Palouse
22 Wind, LLC ~ The Company has signed a 30-year power
23 purchase agreement with Palouse Wind, LLC, to acquire all
24 of the.25
23 Norwood, Di 15
Avista Corporation
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1 power produced by a wind proj ect that is expected to
2 produce approximately 40 aMW . Deliveries are expected to
3 begin in the second half of 2012. The annual cost of the
4 Idaho share of the purchased power under the contract is
5 expected to be approximately $ 6.5 million. Under terms
6 of this Settlement, the Company would include 100% of the
7 costs associated with power purchases from the wind
8 proj ect through the Power Cost Adj ustment (PCA) until
9 such costs, subj ect to prudence review, are reflected in
10 general rates.
11 (b)- The Parties agree beginning in 2011 the
12 Company would be allowed to defer changes in O&M costs
13 related to its Coyote Springs 2 (CS 2) natural gas-fired
14 generating plant located near Boardman, Oregon, and its
15 fifteen (15) percent ownership share of the Colstrip 3 &
16 4 coal-fired generating plants located in southeastern
17 Montana, and, as explained below, amortize the deferred
18 amount over a three-year period.
19 Q.Please explain the need for the deferred
20 accounting treatment for the Coyote Springs 2 and
21 Colstrip 3 & 4 plants.
22 A.The Company experiences large variability in
23 year-to-year O&M costs for these two plants specifically
24 (CS2 and Colstrip) because major maintenance is scheduled
25 every third
24 Norwood, Di 16
Avista Corporation
.
.
.
1 or fourth year, resulting in large cost swings for these
2 plants in any given year. This fluctuation in
3 maintenance costs is typically not experienced by the
4 Company's other hydro operating facilities or its Kettle
5 Falls generating plant. For example, each unit at
6 Colstrip has a regularly scheduled overhaul every third
7 year. Since we have two units, this means that two out
8 of every three years will have a scheduled maj or
9 maintenance outage and its associated costs. Whereas the
10 maintenance interval at Coyote Springs 2 is based un
11 hours of operation. These maj or outages are scheduled in
12 accordance with. Original Equipment Manufacturer (OEM)
13 guidelines on wear patterns and cycles for key plant
14 equipment, and we expect maj or maintenance to occur
15 approximately every four-years.
16 Therefore, depending on when the outages for each of
17 these plants fall, we can have as much as two scheduled
18 outages in one year or no scheduled outages, providing
19 the potential for large cost fluctuations on a
20 year-to-year basis. Unexpected outages also cause costs
21 to fluctuate as more costs are incurred to repair the
22 plant. The use of deferred accounting would smooth out
23 these costs.
24
25
25 Norwood, Di 17
Avista Corporation
.
.
20
21
22
23
24.25
1 Q. What is the amount of actual, non-fuel,
2 operations and maintenance costs for the Coyote Springs 2
3 and Colstrip 3 & 4 pla ts included in the 2010 test
4 period compared to tha expected in 2011 and beyond?
5 A.The system a rrount of actual, non-fuel,
6 operations and mainten nce costs for the 2010 test period
7 for the indicated plan s is shown below (millions):
8
9 Coyote Sprin s 2 $ 4.5
10 Colstrip 3 & 4 $11. 0
11 Total (S stem)$15.5
12 The following ill stration shows the system forecast
of non~fuei,operationl and maintenance, costs for the
plants separately, and L in total, for the five-year period
of 2011 through 2015, is well as the actual costs for the
2010 test period. The i system forecast shows major
maintenance occurring tor Coyote Springs 2 in 2012 and
13
14
15
16
17
18 2015, and for Colstrip 3 & 4 occurring in 2013 and 2014.
19
26 Norwood, Di 18
Avista Corporation
.1 Illustration i: CS2/Colstrip Non-fuel O&M (System)
2
3 CS2/Colstrp Non-fuel O&M Prøjecticms
2010-2015
¡j) CS2 Total Non-Fuel O&M
-Colstrp Total Non-Fuel O&M
. Total Joint Project Non-Fuel.O&M4
5 $25,000
6 $20,000
7
$15,000
8
9 $10,000
$5,00010
11
1 2015
13.14 Q.Please discuss how this deferral and
15 amortization will occur.
16 A.The Company will compare actual, non-fuel, O&M
17 expenses for the Coyote Springs 2 and Colstrip 3 & 4
18 plants with the amount of expenses authorized for
19 recovery in base rates in the applicable deferral year,
20 and defer' the difference from that currently authorized.
21 The deferral will occur annually, with no carryìng
22 charge, with deferred costs being amortized over a
23 three-year period, beginning in January of the year
24 following the period costs are deferred. The amount of.25 expense to be included for recovery in future
27 Norwood, Di 19
Avista Corporation
.
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1 general rate cases would be the actual O&M expense
2 recorded in the test period, less any amount deferred
3 during the test period, plus the amortization of
4 previously deferred costs.
5 Q.Please describe the accounts that would be used
6 to record the deferrals.
7 A.The Company would defer the operations and
8 maintenance expenses referenced above in Account 182.3 -
9 Other Regulatory Assets. The deferrals would be
10 allocated to the Idaho and Washington jurisdictions based
11 on the Production / Transmission allocation percentages
12 in place at the time the ~eferrals are mader and placed
13 in separate Idaho and Washington sub-accounts. Account
14 182.3 - Other Regulatory Assets would be debitedr and
15 Account 407.4 - Regulatory Credits will be credited as
16 the deferrals are recorded. Amortization will be
17 recorded by debiting Account 407.3 - Regulatory Debits,
18 and crediting Account 182.3 - Other Regulatory Assets.
19 iv. CONCLUSION
20 Q.What is the effect of the Stipulation?
21 A.The Stipulation represents a negotiated
22 compromise on a variety of issues among the Parties. The
23 Parties have agreed that no particular party shall be
24 deemed to have approved the facts, principles, methods,
25 or
28 Norwood, Di 20
Avista Corporation
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1 theories employed by any other in arriving at these
2 stipulated provisions, and that the terms incorporated
3 should not be viewed as precedent setting in subsequent
4 proceedings except as expressly provided.
5 Q.In conclusion, why is this Stipulation in the
6 public interest?
7 A.This Stipulation strikes a reasonable balance
8 between the interests of the Company and its customers,
9 including its low-income customers. As such, it
10 represents a reasonable compromise among differing
11 interests and points of view.
12 The Parties have agreed that the Company has
13 demonstrated need for a revenue requirement increase for
14 both its electric and natural gas service. The
15 Stipulation provides for recovery of these costs. In the
16 final analysis, however, any settlement reflects a
17 compromise in the give-and-take of negotiations. The
18 Commission, therefore, has before it a Stipulation that
19 is supported by sound analysis and supporting evidence,
20 the approval of which is in the public interest.
21 Q.Does this conclude your pre-filed direct
22 testimony?
23
24.25
A.Yes, it does.
29 Norwood, Di 21
Avista Corporation
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18
1 (The following proceedings were had in
2 open hearing.)
3 COMMISSIONER REDFORD: Are there any
4 questions?
5 MS. SASSER: No questions from Staff,
6 Chairman.
7 COMMISSIONER REDFORD: Are there any
8 there are no intervenors to ask any questions. Are there
9 any questions of the Commission?
10 COMMISSIONER KJELLANDER: No.
11 COMMISSIONER SMITH: Yes, Mr. Chairman.
12 COMMISSIONER REDFORD: Yes, Commissioner
13 Smith.
14
15 EXAMINATION
16
17 BY COMMISSIONER SMITH:
Q Mr. Norwood, on page 4 of your testimony,
19 you note that the Company agrees that it will not seek to
20 make effective a change in base electric or natural gas
21 rates prior to April 1, 2013, by means of a general rate
22 filing.
23
24
25
A Correct.
Q Because we had a similar kind of provision
in a case not too long ago where it raised issues over
CSB REPORTING
[phone]
30 NORWOOD (Com)AvistaCorporation
.
.
1 when was the first date the company could actually file,
.
2 I wanted to just explore with you what that means to you,
3 because when I read it, it meant to me that there won i t
4 be another rate filing by Avista before March 2nd of
5 2013.
6 A No.
7 Q That i s' not what it means to you?
8 A No. If you look in the stipulation, I i II
9 want to go to the stipulation. That will take just a
10 minute.
11 Q Tha t would be Exhibit 1?
12 A Exhibi t 1. On the stipulation, Exhibit 1,
13 page 5, paragraph 8, towards the middle there i s a
14 parenthetical which says, "Any filing of a general rate
15 case,however,may be made prior to April 1,2013,but
shall not request an effective date prior to April 1,16
17 2013. " Our understanding of what we had agreêdto with
18 the parties is that we could file well before April 1st,
19 before March, but we would not request an effective date
20 from the filing prior to April 1 of 2013, so our plan
21 would be if the need is there to file potentially later
22 in 2012, provide ample opportunity for all parties to
23 review the filing and the Commission to review the
24 filing, but we would not request an effective date prior.25 to April lof 2013.
CSB REPORTING
(2 0 8) . 8 90 - 5 1 98
31 NORWOOD (Com)
Avista Corporation
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.
20
1 Q Well, the Commission was invited to
2 perhaps introduce a little mischief into this by
3 acknowledging that under the law, we can suspend your
4 filing for 30 days and five months from your proposed
5 effective date, so do you see what I i m getting at, that
6 you may not have the deal you think you have?
7 A I understand what you i re saying.
8 Q So I say next time if anybody wants to do
9 this, they ought to be clear about just what they mean,
10 because, you know, we declined to have mischief before,
11 but that may not always be the decision.
12 A I appreciate the advice going forward and
13 I appreciate that.
14 COMMISSIONER SMITH: Thank you. That i s my
15 only question.
16
17 EXAMINATION
18
19 BY COMMISSIONER REDFORD:
Q Mr. Norwood, also in that paragraph 8, the
21 last word is etc. and it reads, "This will not prevent
22 the Company, however, from otherwise seeking to implement
23 other rate changes affecting the rates billed to
24 customers, including, but not limited to, adjustments.25 under the power cost adj ustment (PCA) mechanism,
CSB REPORTING
[phone]
32 NORWOOD (Com)
Avista Corporation
.
.
.
1 purchased gas cost adj ustments (PCA); DSM tariff rider
2 adjustments, etc." What does the "etc." include?
3 A The intention there was that if there are
4 other types of tracking-type adjustments that were
5 appropriate or necessary, but it would be separate from,
6 it would not be a general rate case, a base rate
7 adj ustment, but it would allow for other ones. Another
8 example would be a tariff adj ustment related to taxes for
9 cities and so on. We didn i t define what those were, but
10 it i s clear here they would not be a base rate increase
11 related to a general rate case.
12 Q Would that be something like salary
13 adj ustments?
14 A Salary adjustments would be in the context
15 of a general rate case, so it would not include that.
16 Q Okay, I was a little concerned about that
17 etc. and it just seems to be hanging out there, etc.,
18 etc. Do you think that there i s another word that you all
19 could work over and substitute for that or at least
20 discuss it?
21 A Yeah, I think the intention here was not
22 to preclude the non-general rate case filings and at the
23 time we put this language in here, I don i t know that we
24 had any other specific filìngs in mind and so, obviously,
25 in my vìew, it would be up to the Company to demonstrate
CSB REPORTING
[phone]
33 NORWOOD (Com)
Avista Corporation
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.
.
1 that whatever filing we would make outside of a general
2 rate case would need to address costs that are typically
3 addressed outside a general rate case.
4 Q Well
5 A So I'm not sure that -- you know, we felt
6 like we didn i t need to put more color around that
7 because, you know, we've had general rate cases .for many
8 years and we are pretty consistent in what 's included in
9 the general rate cases and so I think we all felt like we
10 had the particular items covered here and didn't need
11 additional language.
12 Q Maybe I'm the only one that it concerns,
13 but I would invite you to with your, with the Staff and
14 the other intervenors or at least with the Staff to make
15 sure that they i re comfortable with that. I guess my
16 problem is that I don't know all of the various
17 ingiedients of a rate case to be able to be comfortable
18 with the word etc.
19 A I guess one other example would be the
20 residential exchange, a filing that we have pendìng right
21 now before the Commission. That is related to dollars we
22 recei ved from Bonneville we passed on to customers. It
23 does not affect the base rates for customers, so that is
24 another example of the types of fìlings that we thought,
25 we Avista and the parties thought, were appropriate
CSB REPORTING
[phone]
34 NORWOOD (Com)
Avista Corporation
.
.
.
1 because it does not affect the base rates of the earnings
2 of the Company.
3 COMMISSIONER REDFORD: Thank you very
4 much. Are there any other questions from anyone?
5 COMMISSIONER KJELLANDER: No.
6 (The witness left the stand.)
7 COMMISSIONER REDFORD: I guess we i II close
8 the record.
9 MR. MEYER: We still have Mr. Lobb.
10 COMMISSIONER SMITH: The Staff witness.
11 COMMISSIONER REDFORD: Oh, Staff, I 'm
12 sorry. Ms. Sasser.
13 MS. SASSER: Staff calls Randy Lobb to the
14 stand.
15
16 RANDY LOBB,
17 produced as a witness at the instance of the Staff,
18 having been first duly sworn, was examined and testified
19 as follows:
20
21
22
DIRECT EXAMINATION
23 BY MS. SASSER:
24
25
Q Mr. Lobb, can you please state your name
and spell your last name for the record?
CSB REPORTING
[phone]
35 LOBB (Di)Staff
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.
20
1 A Yes, my name is Randy Lobb ó It i s
2 L~o-b~b.
3 Q By whom are you employed and in what
4 capacity?
5 A I'm employed by the Idaho Public Utilities
6 Commission as the utili ties division administrator.
7 Q Are you the. same Randy Lobb that filed
8 testimony, including an Exhibit 101 which is the
9 stipulation and settlement, with the Commission .on
10 September 9th supporting the stipulation and settlement
11 in this matter?
12 A Yes, I am.
13 Q And are there any changes or corrections
14 to your testimony?
15 A I have two changes I i d like to point out.
16 First of all, on page 9, line 13, the word "understating"
17 should be "understanding," and on page 11, line 19, I
18 would like to strike the word "variable" and that
19 concludes my changes.
Q If I were to ask you the questions laid
21 out in your prefiled testimony of September 9th, would
22 your answers be the same?
23
24.25
A Yes, they would.
MS. SASSER: Mr. Chairman, I would move to
enter Mr. Lobb i s testimony, that it be spread upon the
CSB REPORTING
[phone]
36 LOBB (Di)Staff
.1 record as if read and present Mr . Lobb for cross.
2 COMMISSIONER REDFORD: Thank you.
3 (The following prefiled testimony of
4 Mr. Randy Lobb is spread upon the record.)
.
.
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CSB REPORTING
(208) 890-.5198
37 LOBB(Di)Staff
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1 Q. Please state your name and business address for
2 the record.
3 A.My name is Randy Lobb and my business address
4 is 472 West Washington Street, Boise, Idaho.
5 Q.By whom are you employed?
6 A.I am employed by the Idaho Public 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
13 Resources from June of 1980 to November of 1987. I
14 recei ved my Idahô license as a registered professional
15 Civil Engineer in 1985 and began work at the Idaho Public
16 Utilities Commission in December of 1987. My duties at
17 the Commission currently include case management and
18 oversight of all technical Staff assigned to Commission
19 filings. I have conducted analysis of utility rate
20 applications, rate design, proposed tariffs and customer
21 petitions. I have testified in numerous proceedings
22 before the Commission including cases dealing with rate
23 structure, cost of service, power supply, line
24 extensions, regulatory policy and facility acquisitions.
25
38 LOBB, R. (Stip) 1
STAFF09/09/11
.1
2 case?
Q.
A.
What is the purpose of your testimony in this
The purpose of my testimony is to describe the
4 Stipulation (the Proposed Settlement) filed in this case
3
5 and to explain the rationale for Staff's support.
6
7
Q.
A.
Please summarize your testimony.
Staff believes that the comprehensive Proposed
8 Settlement resolving all issues in the general rate case
9 and agreed to by all parties to the case is in the public
10 interest, is just and reasonable and should be approved
11 by the Commission.
.12
13
Q.How is your testimony organized?
A. My testimony is subdivided under the following
14 headings:
15 Stipulation Overview Page 2
Page 4
Page 6
Page 9
Page 10
Page 11
16 The Settlement Process
17 Revenue Adj ustments
18 Cost of Service
19 Bill Impact
20 Other Issues
21 Stipulation Overview
22 Q.Please provide an overview of the Stipulation
23 and Settlement.
24.25
A.The Stipulation filed with the Commission
provides for an annual overall increase in electric base
09/09/11 39 LOBB, R. (Stip) 2
STAFF
.
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.
1 revenue of $2.8 million or 1.14% and an overall increase
2 in natural gas xevenue of $1.1 million .or i. 6%. The
3 revenue increase would be uniformly spread among the
4 customer classes and be effective on October 1, 2011.
5 The Stipulation also provides for a stay-out provision
6 that prohibits any new electric or natural gas base rate
7 increases prior to April 1, 2013.
8 The Stipulation and Settlement specifically
9 identifies annual power supply cost levels for the Power
10 Cost Adj ustment (PCA) mechanism, future treatment of
11 costs related to the Palouse Wind Power Purchase
12 agreement and deferred accounting treatment for variable
13 non fuel Operation and Maintenance (O&M) costs associated
14 wi th the Company's thermal generating plants.
15 The Stipulation also provides for a public workshop
16 to discuss cost of service and rate design issues.
17 Additionally, the Stipulation specifies a $10,000 annual
18 increase in low income education funding and an Avista
19 sponsored workshop to discuss the future of low income
20 programs.
21 Finally, the Stipulation describes the overall
22 impact of the base rate increases when combined with
23 other electric and natural gas rate adjustments either
24 pending before the Commission or proposed for filing.
25 The net effect is a 2.4% decrease in billed electric
rates and a
40 LOBB, R. (Stip) 3
STAFF09/09/11
.1 0.8% decrease in billed natural gas rates.
2 Although the Stipulation represents a comprehensive
3 settlement of all revenue requirement issues in the case,
4 it does not specifically identify revenue adjustments to
5 the Company i s case or specify an authorized return on
6 equity (ROE),
7 Q.How does the annual base revenue requirement
8 increase for electric and natural gas service proposed in
9 the Stipulation compare to the increase originally
10 proposed by Avista?
11 A.Avista originally proposed to increase annual
12 base electric revenue by $ 9 million or 3. 7% and increase.13
14
annual base natural gas revenue by $1.9 million or 2.7%.
The Stipulated Settlement provides for an increase in
15 annual base electric revenue of $2.8 million or
16 approximately 31% of the original request. The
17 Stipulated Settlement provides for an increase in annual
18 natural gas revenue of $1.1 million or 58% of the.
19 Company i s original request. These modest increases come
20 with an agreement that there can be no new base rate
21 increases prior to April 1, 2013. The Stipulation and
22 Settlement is attached as Staff Exhibit No~ 101.
23 The Settlement Process
.24
25
Q.Would you please describe the process leading
to the Stipulated Settlement?
41 LOBB,R. (Stip) 4
STAFF09/09/11
.
.
.
1 A. Yes. The Company filed its rate application
2 with the Commission on July 5, 2011 and Staff immediately
3 began its review. Based on the relatively modest revenue
4 increase requested, the relatively high requested return
5 on equity. (ROE) of 10.9% and potential adjustments in
6 other cost categories, Staff believed reasonable
7 settlement of the case was possible.
8 A settlement workshop was then scheduled for August
9 17, 2011 in the Commission hearing room with all parties
10 of record in the case invited to participate. Workshop
11 participants included Commission Staff, Avista,
12 Clearwater Paper Company, Idaho Forest Group, the
13 COmmunity Action Partnership of Idaho (CAPAI ) and the
14 Idaho Conservation League.
15 Settlement discussions focused on revenue
16 requirement issues such as appropriate ROE, company
17 salaries, O&M costs, load adjustments and acceptable test
18 period. Other issues discussed included rate design, low
19 income weatherization funding and cost of service.
20 The parties to the case stated their positions on
21 the various revenue requirement issues and presented
22 proposals on various other topics. Negotiations on
23 individual issues and a total settlement package ensued.
24 Although settlement was not reached at the workshop,
25 negotiations continued informally through the week of
42 LOBB, R. (Stip) 5
STAFF09/09/11
.1 August 22, 2011 until the Stipulated Settlement was
2 reached.
3 Q.How did Commission Staff evaluate the
4 Stipulated Settlement to determine that it was
5 reasonable?
6 A.The standard used by Staff to evaluate the
7 Settlement in this case as in prior cases is whether the
8 result is a better outcome for customers than could
9 reasonably be anticipated through litigation. In other
10 words, Stctff evaluated the merits of the Stipulated
11 Settlement by comparing it to what might be expected if
12 the case proceeded to hearing. Staff believes the base.13 rate increase and stay-out provision in addition to the
14 other settlement terms represent a reasonable resolution
15 of this case and a good deal for' customers.
16 Of course the Commissioners make the final decision
17 on Company revenue requirement based on the record at
18 hearing. The parties to the case make revenue
19 requirement adjustment recommendations on the record for
20 the Commission to consider. The outcome at hearing in
21 terms of revenue requirement must therefore be evaluated
22 based on both the adj ustments to the Company i s revenue
23 request that are presented on the record and how the
24 Commission might decide each adjustment..25 Revenue Adjustments
Q. What type of adjustments to the Company's
43 LOBB, R. (Stip) 6
STAFF09/09/11
.1 proposed revenue requirement had Staff identified and
2 what was the dollar value of those adjustments?
3 A.The two largest adjustments identified by Staff
4 affecting both electric and natural gas revenue
5 requirement were ROE and salaries. Staff maintained that
6 an ROE lower than the ROE of 10.9% as proposed by the
7 Company was appropriate. A lower ROE could lower the
8 Company's revenue requirement request by as much as $5
9 million and $825 thousand for electric and natural gas
10 service, respectively. Salary adj ustments identified by
11 Staff included elimination of all salary increases back
12 to year end 2010 ($1 million electric, $265 thousand.13 natural gas). Other possible adj ustments identified by
14 Staff included elimination of 2012 capital additions and
15 transmission revenue/expenses, elimination of proposed
16 increases in vegetative management expenses and removal
17 of the Company i s proposed Energy Efficiency Load
18 Adjustment.
19 Q.How confident was Staff that its adjustments
20 could be justified on the record and accepted by the
21 Commission upon hearing?
22 A.Staff took a very aggressive approach to
23 developing its revenue requirement adjustments in
24 preparation for settlement negotiations, but was.25 reasonably confident that at least some of the proposed
44 LOBB, R. (Stip) 7
STAFF09/09/11
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.
.
1 adjustments would be accepted by the Commission at
2 hearing. Similar
3 /
4 /
5 /
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25
45 LOBB, R. (Stip) 7a
STAFF09/09/11
.1 ROE and employee salary adj ustments were favorably
2 addressed by the Commission in the recent PacifiCorp
3 general rate case (PAC-E-10-7). However, other proposed
4 adjustments in vegetative management, transmission
5 revenue/expenses and the effects of energy efficiency on
6 load have not been addressed at hearing and were less
7 certain to be accepted by the Commission.
8 Q.Why are a new return on equity and other
9 specific revenue requirement adjustments not specified in
10 the Stipulation?
11 A.Specific adjustments and ROE were not specified
12 in the Stipulation to facilitate agreement on the overall.13 revenue requirement. While the Settlement parties
14 generally agreed on a reasonable level of revenue, there
15 was considerable disagreement on the individual
16 adj ustments proposed to reach that revenue level. This
17 was particula.rly true with respect to ROE. Rather than
18 specify an ROE that all parties could not support, the
19 Stipulation simply specified an overall revenue
20 requirement that could be fully supported.
21 Q.How do customers benefit from the stay-out
22 provision?
23 A.The stay-out provision provides benefit to
24 customers by prohibiting any new electric or natural gas.25 base rate increase prior to April 1, 2013. This
provision
46 LOBB, R. (Stip) 8
STAFF09/09/11
.1 provides an extended period of base rate stability that
2 Staff believes would otherwise not occur.
3 Cost of Service
4 Q.Please describe the Stipulated Settlement with
5 respect to electric customer class cost of service,
6 revenue spread among. classes and rate design.
7 A.While not accepting any specific class cost of
8 service allocation, the Stipulation specifies that Avista
9 will hold cost of service workshops for interested
10 parties prior to the next general rate case. Staff
11 agrees that the workshops, designed to address production
12 and transmission cost allocation methodologies, will help.13 improve the general cost of service understanding of all
14 participants.
15 The Stipulation specifies that the Company sponsored
16 workshop will also address non residential energy block
17 rate design. Given the workshop proposal and the modest
18 base rate increase proposed for both electric and natural
19 gas service, Staff believes uniform revenue spread among
20 the customer classes and continued application of the
21 existing rate structure is reasonable.
22 Rate Impact
23 Q.The Stipulation provides for an increase in the
24 monthly residential customer charge. Why does Staff.25 support the increase?
A. Staff supported the limited customer charge
47 LOBB, R. (Stip) 9
STAFF09/09/11
.
10
1 increase as part of a negotiated settlement and to
2 recognize the increased investment made by the Company to
3 install more sophisticated automated meters. The monthly
4 increase proposed is 25 cents per month for both electric
5 and natural gas.
6 Q.What is the impact on residential customer
7 bills of the proposed base rate Settlement and how will
8 cus.tomers bills change overall with the other proposed
9 rate changes effective on October 1, 2011?
A.A residential customer using 1000 kWh per month
11 will see a monthly base rate bill increase of 73 cents.
12 A natural gas customer using 75 therms per month will see.13 a monthly base rate bill increase of $1.12. When the
14 other scheduled rate changes including Schedule 59, the
15 residential and farm energy rate adjustment, Schedule 66,
16 the temporary power cost adj ustment and Schedule 99, the
17 deferred state income tax adjustment are applied~ the
18 overall bill of a residential electric customer using
19 1000 kWh will decrease by $1.89.
20 When scheduled rate changes in other natural gas
21 costs including Schedule 150 and 155 PGA rates, Schedule
22 191, the Energy Efficiency Rider Adjustment and Schedule
23 199, the deferred state income tax adjustment are
24 applied, the monthly overall bill of a residential.25 natural gas customer decreases by 38 cents. Overall rate
changes for
48 LOBB, R. (Stip) 10
STAFF09/09/11
.1 each customer class on a percentage basis are shown on
2 page 7 of the Stipulation.
3 Q.Doesn't the Commission have to individually
4 approve the rate changes described in the other
5 schedules?
6 A.Yes. While the Stipulation describes how
7 electric and natural gas rates could change overall with
8 changes in other rate schedules, Commission approval of
9 the Stipulation will only approve changes to base rates.
10 Rate changes due to the PCA, PGA, DSM tariff riders and
11 the residential and farm energy rate adjustment must be
12 specifically approved by the Commission in those cases..13 The deferred state income tax adjustment for gas and
14 electric service was previously approved by Commission
15 Order No. 32070 in Case No. AVU-E-10-1 and AVU-G-10-L.
16 Other Issues
17 Q,Would you please explain Staff i s support for
18 the Settlement terms dealing with the Palouse Wind power
19 purchase agreement and the deferred accounting treatment
20 for nonfuel variable costs associated with the Company's
21 thermal plants?
22 A.Yes. Staff believes it is reasonable for the
23 Company to track the costs of the Palouse wind power
24 purchase agreement through the PCA once the project comes.25 on line. This treatment is consistent with that of other
49 LOBB, R. (Stip) 11
STAFF09/09/11
.1 power purchase agreements that occur in between rate
2 cases.
3 /
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5 /
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24.25
50 LOBB,R.( Stip)11a09/09/11 STAFF
.1 The length of the stay-out in conj unction with the
2 proj ect online date will still allow the Commission to
3 evaluate the prudency of the agreement before any
4 associated costs are placed in customer rates.
5 Staff also believes it is reasonable to track and
6 defer for three-year amortization, the non fuel O&M cost
7 associated with the Company i s thermal plants. The
8 Company maintains that it incurs significant overhaul
9 costs for one of three thermal plants, Coyote Springs II,
10 Colstrip 3 and Colstrip 4, each year over a three-year
11 period. Deferral of these costs with a three-year
12 amortization will level out the annual O&M costs in.13 customer rates and allow reasonable cost recovery. The
14 Commission will still have the opportunity to review the
15 prudency of these costs in the Company i s next general
16 rate case.
17 Q.Would you please explain Staff's support for a
18 Company-sponsored low income weatherization workshop and
19 additional funding for low income DSM education?
20 A.Yes. Staff believes it is time to discuss all
21 issues associated with the Company i s low income
22 weatherization program to assure the program is cost
2 3 effective, that it remains cost effective and that
24 sufficient funds based on need are made available..25 Consequently, Staff supports and will participate in the
51 LOBB, R. (Stip) 12
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1 low income weatherization workshop. Staff further agrees
2 to an increase of $10,000 per year in
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52 LOBB, R. (Stip) 12a
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i additional funding for low income education programs in
2 an effort to improve energy affordability. The increase
3 in low income education funding helps fill a growing need
4 for information to assist customers in reducing their
5 monthly bills.
6 Q.Does this conclude your testimony in this
7 proceeding?
8 A.Yes, it does.
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53 LOBB,R.(Stip) 13
STAFF09/09/11
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2 open hearing.)
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(The following proceedings were had in
COMMISSIONER REDFORD: Mr. Meyer?
MR. MEYER: No cross. Thank you.
COMMISSIONER REDFORD: Are there any
6 questions from the Commission? Ms. Smith.
3
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7
8
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EXAMINATION
10 BY COMMISSIONER SMITH:
11 Q Turning to page 9 of your testimony, you
12 discuss the electric customer cost class of service and.13 state that you' re not accepting any specific class cost
14 of service allocation and 1'm wondering, how long has it
15 been for this Company since the full class cost of
16 service study has been done?
17 A I don't know off the top of my head. It
18 wasn i t the last rate case. It might have been i 08 where
19 we actually more broadly discussed cost of service, but I
20 don't recall.
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Q
A
Q
24 time?.25 A
So it i S been several years?
It has been several years.
And does class cost of service shift over
Yes , it does, generally.
CSB REPORTING
[phone]
54 LOBB (Com)
Staff
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1 Q Well, my concern is, you know, we may
2 decide it's appropriate to kind of kick this can down the
3 road this time, but I would hope that we wouldn i t kick it
4 down the road for too many more years because it does
5 shift over time and I think that it i S important to the
6 extent you can to have class customer rates reflect the
7 actual cost of prov:iding their service, so that would
8 just be. my COmment and if you want to have an opinion,
9 that i s fine.
10 A Well, I agree and that i s a Concern that we
11 have in every rate case is how do we apply cost of
12 service, what's the proper cost of service, and in
13 Avista's case, in this particular case, coincidentally,
14 their cost of service for the various classes are closer
15 than most other utilities and we believe that given the
16 small increase that wè had here, cost of service was
17 probably -- we could kick the can down the road in this
18 particular case, but certainly at some point we i re going
19 to have. to address that.
21 all I have.
COMMISSIONER SMITH: Thank you. That's
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COMMISSIONER REDFORD: Mr. Kj ellander.
CSB REPORTING
[phone]
55 LOBB (Com)Staff
.1 EXAMINATION
2
3 BY COMMISSIONER KJELLANDER:
4 Q And Mr. Lobb, I i m assuming that looking
5 ahead to future cases. that return on equity would
6 probably get a similar response from you as you start to
7 look at that based on where we sit as far as the current
8 recession, the current economic environment and having to
9 take a more thorough look at that down the road as
10 well?
11 A I agree. The level of return on equity
12 that the Staff is looking at and other intervening.13 parties are looking at is significantly different as you
14 might imagine than the Company is looking at and we get
15 into a pretty significant argument over what ROE should
16 be in settlement and at hearings and it's an issue that I
17 guess as a Staff we feel shouldn't stand in the way of a
18 lower revenue requirement as a result of settlement than
19 what we believe we could get at hearing and recognizing
20 that rating agencies are goin~ to be very critical of
21 lower ROE i S and sometimes we think it might cause more
22 problems than it resolves, but you i re right, having said
23 that, ROE is an important aspect of utility operation and
24 I think at some point you i re going to have to address.25 that issue.
CSB REPORTING
[phone]
56 LOBB (Com)
Staff
.1 Q And as a final question, on page 12, line
2 20~ would you be horribly opposed if the record reflected
3 that between the words "associated" and "the" We went
4 ahead and added the .word "with"?
5 A I think that would be appropriate in this
6 case.
7 COMMISSIONER KJELLANDER: About as far as
8 I can go tonight, then. Thanks.
9 THE WITNESS: Thanks.
10 COMMISSIONER REDFORD: Are there any
11 further questions by intervenors of which there are none
12 here today?.13 (The witness left the stand~)
14 COMMISSIONER REDFORD: In that case, I i II
15 declare this hearing at a close and the record will be
16 closed and this matter will be finally submitted to the
17 Commission for its decision. Is there anything else to
18 come before the Commission?
19 COMMISSIONER SMITH: I would just say by
20 operational rule all exhibits previously identified will
21 be admitted into the record.
22 CQMMISSIONER REDFORD: Thank you.
23 (All exhibits previously identified were
24 admitted into evidence.).25 (The Hearing adjourned at 7: 45 p.m.)
CSB REPORTING
[phone]
57 LOBB (Com)Staff
.1 A U TH E N T I CATI ON
2
3
4 This is to certify that the foregoing
5 proceedings held in the matter of the application of
6 Avista Cororation dba Avista Utilities for authority to
7 increase its rates and charges for electric and natural
8 gas service in Idaho, commencing at 7: 00 p. m., on
9 Tuesday, September 13, 2011, at the Drifwood Bay Room at
10 the Student Union Building, North Idaho College, 1000
11 West Garden Avenue, Coeur d'Alene, Idaho, is a true and
12 correct transcript of said proceedings and the original.13 thereof for the file of the Commission.
14 Accuracy of all prefiled testimony as
15 originally submitted to the Reporter and incorporated
16 herein at the direction of the Commission is the sole
17 responsibility of the submitting parties.
.
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20
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22
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CONSTANCE S. BUCY
Certified Shorthand
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CSB REPORTING
[phone]
58 AUTHENT I CAT ION