20130905AVU to Staff 1-4.pdf

Avista Corp.
1411 East Mission P.O.Box3727
Spokane. Washington 99220-0500
Telephone [phone]
TollFree 800-727-9170
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Corp.
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September 4,2013
Idaho Public Utilities Commission
472W. Washington St.
Boise, ID 83720-0074
Attn: Karl T. Klein
Deputy Attorney General
Re:Production Request of the Commission Stalf in Case No. AVU-G-13-01
Dear Mr. Klein,
Enclosed are an original and three copies of Avista's responses to IPUC Stafl's production
requests in the above referenced docket. Included in this mailing are Avista's responses to
production requests 0I - 04. The electronic versions of the responses were emailed cln 09104113
and are also being provided in electronic format on the CD included in this mailing.
Also included are Avista's CONFIDENTIAL responses to PR 0lC. This responsc contains
TRADE SECRET, PROPRIETARY or CONFIDENTTAL infbnnation and is separately filed
under IDAPA 31.01.01, Rule 067 and 233, and Section 9-340D, Idaho Code. It is being
provided under a sealed separate envelope, marked CONITIDENTIAL.
If there are any questions regarding the enclosed infbrmation, please contact Paul Kimball at
[phone] or via e-mail at [e-mail]
Sincere!--,
,/ r/-%'L ? ;1
Paul Kimball
Regulatory Analyst
Enclosures
CC (Email):IPUC (Klein)
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INT'ORMATION
ruRISDICTION: IDAHO DATE PREPARED: 0813012013
CASE NO: AVU-G-13-01 WITNESS: Patrick Ehrbar
REQUESTER: IPUC Staff RESPONDER: Annette BrandonTYPE: Production Request DEPARTMENT: State & Federal Regulation
REQUESTNO.: Staff-0l TELEPHONE: [phone]
REQUEST:
In the Company's Application, the Company states that26% of its estimated annual load requirement for
the PGA year are from prior multi-year hedges. Please provide the quantity, term and price per
dekatherm of each multi-year hedge. In your response, please also provide the average quantity, term
and price per dekatherm for volumes hedged for a term of one year or less. Please provide this in
electronic format.
RESPONSE:
Please see Avista's response 01C, which contains TRADE SECRET, PROPRIETARY or
CONFIDENTIAL information and exempt from public view and is separately filed under IDAPA
31.01.01, Rule 067 and233, and Section 9-340D,Idatro Code.
Please see Staff DR_01C Confidential Attachment A for volume and dollar detail for Prompt Year and
2-3-4Year (mulit-year) hedges. The detail contained in this attachment supports Company work papers
tab Commodity, columns E and F (volumes), H and I (dollars). This information is being provided in
electronic format only, as requested.
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
IDAHO
AVU-G-13-01
IPUC Staff
Production Request
Staff-02
DATE PREPARED: 0813012013WITNESS: Stephen Harper
RESPONDER: Stephen Harper
DEPARTMENT: Gas Supply
TELEPHONE: (s09) 49s-2076
REQUEST:
Please describe any changes Avista has made in its gas procurement practices this past year. If
changes have been made, please describe the changes, explain your justification for deviating from
prior established procurement practices, and explain how you believe customers will benefit from
changes in procurement practices. If changes have not been made, please explain why not.
RESPONSE:
By way of background, while Avista cannot accurately predict future natural gas prices, market
conditions and experience help shape our overall procurement approach. The Company's goal is
to provide reliable supply with a level of price certainty in volatile commodity markets. To that
end, the Company utilizes a Procurement Plan which includes hedging (on both a short-term and
long-term basis), storage utilization, and index purchases. This approach is diversified by time,
component, counterparty, and supply basin. The Procurement Plan is disciplined, yet flexible,
and layers in fixed-price purchases to reduce price volatility to customers.
As stated in Avista's Risk Management Policy, Gas Supply monitors the results of the
Procurement Plan, evolving market conditions, the variation of load profiles, new supply
opportunities and regulatory conditions to shape future procurement plans. The Director of Gas
Supply will update or reaffirm the Procurement Plan at least annually and may amend it as
warranted during the course of the year.
Avista's Strategic Oversight Committee (SOG), comprised of employees from Natural Gas
Supply, Power Supply, Rates, Resource Accounting, ffid Risk Management/Finance, meets
regularly to provide input and guidance to Natural Gas Supply as it relates to the Company's
current and future natural gas Procurement Plan. Arurually, Avista conducts a thorough review of
the current Procurement Plan. The information gathered during this review process is used to
guide and develop the following years Procurement Plan. The review process includes, but is not
limited to, an assessment of:o the mission statement;. performance of the current plan;. evaluation of current and forecasted market fundamentals;. availability ofcurrent and forecasted resources;o pricing component mix considerations (index/storage/fixed price); ando the structure of the long-term hedging plan.
The Procurement Plan for the natural gas year November 2013 through October 2014 included
some changes from the previous year's Procurement Plan. Those changes included:
1.Increased Natural Gas Purchases at Index - As forward prices have decreased due to the
effects of natural gas derived from shale, we have seen a flattening of forward market
prices along with a dampening of market volatility. This is evident in the NYMEX forward
price curve, the Energy Information Administration's (EIA) forward view, and in our
consultants' fundamentally based forecasts. During the annual Procurement Plan review,
these factors were considered in the decision to hedge less natural gas and increase the
Company's overall index position from36o/oto 39oh. We believed when we made this Plan
modification, and continue to believe, that customers would benefit from a lower cost of
natural gas due to the avoidance of the price premium associated with purchases made in
the forward market, assuming the market stays relatively flat as forecasted (or continues to
move down).
Decreased Short-term Hedging - As noted above, the Company increased the amount of
natural gas purchased at index, thereby decreasing the amount of short-term, fixed-priced
hedges in the Procurement Plan.
Updated Price Targets for Long-term Hedges - The Company enters into long-term
transactions in order to provide a level of price certainty, and mitigate price volatility,
between PGA years. The Company considers these hedges discretionary, or opportunistic,
in nature. As such, the Company believed when it designed the current Procurement Plan
that more aggressive price targets should be set than had been included in previous
Procurement Plans. More aggressive price targets allows the Company to hedge additional
volumes in natural gas years beyond the upcoming year at potentially favorable pricing
levels. In the event those pricing levels are not reached, the unexecuted volumes designated
as discretionary hedges become a parl of the following year's Procurement Plan's
short-term hedging program. We believe that customers benefit from this Procurement
Plan modification in that the Company would only enter into these discretionary hedges if
forward market natural gas prices dropped well below the initial set price when the plan
started.
As stated previously, Natural Gas Supply may amend the Procurement Plan as warranted during
the course of the natural gas year. All changes made to the current Procurement Plan were made in
order to provide our customers the opportunity to benefit from current and future low prices while
minimizing forward month premiums. The changes were based on information and fundamental
analysis that had evolved since the Procurement Plan's development earlier in the year. As
always, any changes that the Company makes to its Procurement Plan are communicated to Staff.
For the 2013-2014 Procurement Plan, the following adjustments were made:
l. The first modification was made to the Company's short-term hedge windows. If a
short-term hedge window reaches time expiration, the Company's policy as laid out in the
Procurement Plan, is to transact, or make the purchase, and close the window. Based on
market dynamics and fundamentals, Gas Supply in consultation with the SOG made the
decision to allow windows that expired to remain open in order to capture potentially lower
prices. To facilitate this, upon expiration, the window's ceiling is dropped to l02o/o of the
2.
J.
3.
closing price on the expiration day. Under the new methodology, the ceiling will ratchet
down daily, following prices downward as well as providing a cap that will act as a stop
loss should prices move up. On any day after the original window time expiration, if the
price settles above the new ceiling, the hedge window will be transacted and closed.
Customers benefit from this change because the window that otherwise would have been
closed, is allowed to stay open in a downward moving market. Graph #1 below illustrates
a window reaching time expiry on July 23, 2013. Starting on July 24, the ceiling
immediately dropped to l\2o/oof the price from July 23'd. Prices continued to decrease,
until final execution on July 29,2013.
Graph #l : Example of Chanse to Short-term Window at Time Expiry
As discussed earlier, as it related to the long-term discretionary hedging program, the
Company set price targets that it believes were more aggressive than targets set in previous
Procurement Plans. The Company did not hit the first target until June of 2013, and per the
Procurement Plan, executed the associated hedge. As prices continued lower towards the
second target nearing the end of the Procurement Plan year, Gas Supply, in consultation
with SOG members, made the decision to increase the volume of the second target from
2,500 Dth/d to 5,000 Dth/d. The additional volume was moved from the fifth, or bottom
target level. This bottom level was viewed as unattainable given the aggressive price target
set for that volume of natural gas and because the end of the Procurement Plan year was
coming. On August 6,2013, we executed 5000 Dth/day when the target was hit. The
customers benefit with the addition of low priced multi-winter natural gas that helps bridge
price volatility between PGA years.
As a part of recent SOG meetings related to the annual review of its existing Procurement
Plan (natural gas year 2013-2014), as well as the construction of its next natural gas
Procurement Plan (natural gas year 2014-2015), we address what worked and what didn't
work with the current plan and apply lessons learned to the new plan. As a part of the
current plan, we have certain hedge windows to purchase the "bullet" months of April and
October. These are months that are outside the normal, seasonal natural gas purchasing
LDC Hedge Controls For 2500 Dth - AECO Price
Delivory Perlod = 111'112013 - 3131120'14
Hedge Window = UlU2013 - 712912013
oooooooooooooooooooooaoo irooooooooooooooooooooooooNNNNNNNNNNNNNNNNNNNNNNNNOONOFOnNOFOATOFOOtsoFOOFo
@6@@O@@@@NNFFFNTtsFN
$4.00
$3.80
$3.60
$3.40
$3.20
$3.00
$2.80
$2.60
period (November through March). The rationale for having the bullet hedge windows is
due to load volatility that can occur in those two individual months. However, in practice
we have found less market liquidity and higher costs associated with purchasing these
individual months. Natural gas usually transacts for the period of April through October,
and from our experience, sellers want a premium for breaking out the individual months.
For that reason, the Company's 2014-2015 Procurement Plan will not have individual
"bullet" months. After transacting 2,500 Dth per day for the individual months of April
and October on July 29,2013, (for an existing 5,000 Dth/d hedge window), we opted not to
transact on the remaining 2,500 Dth/d. Further, we decided to eliminate the one remaining
April and October hedge window with a volume of 5,000 Dth/d from the current
Procurement Plan. The impact of this decision is that a total of 7,500 Dth per day in April
and in October were moved from fixed-priced hedges to daily index. This shifts our annual
portfolio index purchases from 38.5% to 40.4oh.
AVISTA CORPORATION
RESPONSE TO REQIIEST FOR INFORMATION
ruRISDICTION: IDAHO DATE PREPARED: 0813012013
CASE NO: AVU-G-13-01 WITNESS: Patrick Ehrbar
REQUESTER: IPUC Staff RESPONDER: Annette BrandonTYPE: Production Request DEPARTMENT: State & Federal Regulation
REQUESTNO.: Staff-O3 TELEPHONE: [phone]
REQUEST:
Please provide the data used to calculate the Commodity Allocation in line 19 (Columns I through V) in
the worksheet "Inpuf in the workbook 2013 Idaho PGA Exhibit C. Please provide in electronic
format.
RESPONSE:
Please see Staff DR_03 Attachment A for the calculation of the commodity allocation. This
information is being provided in electronic format only, as requested.
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INT'ORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.:
IDAHO
AVU-G-13-01
IPUC Staff
Production Request
Staff-04
DATE PREPARED:
WITNESS:
RESPONDER:
DEPARTMENT:
TELEPHONE:
08130120t3
Patrick Ehrbar
Annette Brandon
State and Federal Regulation
(s09) 49s-4324
REQUEST:
Please provide the data used to calculate the Idaho allocation of demand costs (Idaho allocation is set equal
to29.7%). Please provide in electronic format.
RESPONSE:
Please see Staff DR_04 Attachment A for the calculation for the 5 day peak utilized to split demand costs.
This calculation takes the coldest 5 days by jurisdiction for each of the prior 3 years and calculates an
average. This information is being provided in electronic format only, as requested.