20170824Attachment 52A.pdf

The purpose of this correspondence is to provide you with an update on recent modifications made to
Avista's Natural Gas Procurement Plan due to a change in how the Company will utilize its share of the
Jackson Prairie Natural Gas Storage Facility (JP).
The Company has a Natural Gas Procurement Plan (Plan) which provides a framework for the acquisition
of natural gas. This Plan includes a certain level of flexibility which allows Avista to make changes in
response to evolving market conditions, variation of load profiles, or new supply opportunities, among
other things. The “Storage Injections and Withdrawals” portion of the Plan provides flexibility in terms of timing and volume of injection and withdrawal in order to optimize the economic value of JP, provided
the reliability constraints of the project and daily peak day needs are met. The Company has implemented
changes to the current year Plan (November 2015 – October 2016) to enhance the optimization of JP.
Traditionally, Avista has used JP primarily to capture seasonal price spreads (differentials) between summer and winter in addition to meeting peak day load requirements. Customers have benefitted from
Avista’s use of JP to buy traditionally cheaper natural gas in the summer for use in the winter period,
thereby avoiding potentially higher priced index gas. In addition, a small portion (approximately 10%) of
JP’s overall capacity has been utilized for optimization opportunities to capture economic spreads between
time periods. Through this optimization strategy, Avista has been purchasing and injecting into storage natural gas in a lower-price period, and selling forward the same natural gas in a forward time period at a
higher price, locking in the differential benefit for customers.
Over the past several months, employees from the Company’s Energy Resources department developed a
natural gas storage software model that tracks the historical spreads of various time frames for JP injections and withdrawals. This historical analysis quantified the relative benefit of current forward
prices and identified optimal transactions to lock in more economic value than the traditional summer-
winter spread. The model is governed by a storage management program that sets boundaries on all
injections and withdrawals as well as tracks real time market data to guide the purchases and sales of
natural gas storage transactions. The program enforces storage boundaries and requirements such as the storage fill schedule, peak day requirements, and deliverability constraints.
With all of this information, the Company’s natural gas buyers can identify additional opportunities to
purchase lower cost natural gas in the immediate term for a sale in a future time period. For the additional
JP optimization transactions, for each storage purchase made, a corresponding forward sale is also made. Additional purchases and corresponding sales will be made continuously as market conditions move into
favorable conditions for such transactions. These transactions will lock in incremental value for
customers. The effect to storage volumes will be that they are more frequently cycled in and out to take
advantage of market conditions. It is important to note that a portion of JP will still be utilized to meet
peak day needs, as well as for daily price volatility.
With this new optimization strategy now deployed, a portion of the natural gas stored at JP that was used
to serve customer load in the winter will no longer be available as those volumes have been, or will be,
tied to the storage optimization transactions described above. Cognizant that more natural gas supplies
would be left in an open position in the winter time period, the SOG at the request of Avista’s Risk Management Committee reviewed whether to add incremental hedges for the upcoming winter months
Staff_PR_052 Attachment A Page 1 of 2
to offset some of the volume previously covered by JP. As a result of that analysis, the following changes
were made to the current Plan:

1. Incremental Hedges: Avista is replacing approximately 50% of the JP storage withdrawals that were previously made to cover winter loads with new prompt-year hedges. The amount is 35,000 Dth/day for
December 2015, January 2016 and February 2016. Because a portion of JP will continue to be available
to provide protection for peak load events and daily price volatility, the SOG chose to cover 50% of
previous synthetic storage withdrawal amounts. The incremental winter hedges to cover a portion of the
volumes previously covered by JP withdrawals are shown in the illustration below.
2. Hedge windows: Three new hedge windows will be created for 10,000 Dth/day each, plus one window
for 5,000 Dth/day, in order to secure the planned 35,000 Dth/day. The hedge windows will run
consecutively, with the first window having opened on June 22, 2015 and the final window closing on
October 15, 2015.

Additional details regarding these changes will be provided during our next semi-annual update meeting in October, unless you would like to have more information prior to that time. Please feel free to contact
me with any questions you may have with these changes to the Natural Gas Procurement Plan.

Thank you,
Jody Morehouse Director of Gas Supply
Staff_PR_052 Attachment A Page 2 of 2