staffavug02.pdf

LISA D. NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5733

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF
AVISTA UTILITIES FOR APPROVAL TO
CHANGE ITS NATURAL GAS TARIFFS TO
INCLUDE DEFERRED GAS COST
ASSESSMENTS.

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CASE NO. AVU-G-02-1

COMMENTS OF THE
COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Lisa D. Nordstrom, Deputy Attorney General, and in response to the Notice
of Application and Notice of Modified Procedure issued in Order No. 28949 on February 5,
2002, submits the following comments.
Avista Utilities (Avista) filed a Petition on January 17, 2002 for Commission approval to
change its natural gas tariffs to include deferred gas cost assessments. The Company’s proposed
tariff changes primarily address stranded costs created when qualifying customers choose to
switch to the Company’s transportation tariffs from sales tariffs. Current tariffs only address the
reverse situation: customers that switch from the transportation tariff to sales tariffs. The
proposed changes affect Avista’s eight (8) largest sales customers out of the Company’s
approximately 55,000 natural gas customers in northern Idaho. The Company proposes no
change in rates with this filing.

STAFF COMMENTS 1 FEBRUARY 26, 2002
BACKGROUND
In the winter of 2000-2001, Avista Utilities incurred over $22 million (Idaho) in deferred
gas costs due to unprecedented market prices. In August 2001, the Commission authorized
Avista to recover the deferral in Order No. 28827. The Commission increased Schedule 155
(deferral recovery) rates through 2003, which delayed the Company’s cost recovery but reduced
the immediate impact on customers.
When combined, Schedule 155 and the weighted average cost of gas (WACOG) set
customers gas costs at $.59840 /therm. Increased production, drilling, and other market factors
meanwhile reduced the current and anticipated price of gas to approximately $0.20/therm. The
price disparity between the market price and the rates charged to customers creates an incentive
for qualifying customers to switch to market suppliers. The existing tariffs allow customers with
annual usage greater than 250,000 therms to switch to Avista’s Transportation Schedule 146 and
purchase market gas directly from a third party.
The tariffs that currently allow customers to switch to the transportation tariff do not
require them to continue paying their share of the deferral. If these large customers are allowed
to leave the system without paying their share of the deferral, this unrecovered deferral amount
will be shifted to the remaining customers on the system for recovery. Avista has recognized
this fact and filed proposed tariff changes to address the situation.

ANALYSIS
The Company’s proposed tariff changes appear to resolve the stranded cost problem and
restrict customers from avoiding payment of approved deferral balances when the customer
transfers to transportation tariff Schedule 146. However, Staff believes there are two additional
tariff issues that should be addressed with this filing. First, the proposed tariffs do not address
deferral balances if a customer chooses to leave Avista’s system altogether. Second, customers
that switch to transportation from sales tariffs would have to wait up to one full year before
knowing with certainty the dollar amount they will be obligated to pay for additional deferred,
but as yet unapproved, costs.

Customers that Leave the System

STAFF COMMENTS 2 FEBRUARY 26, 2002
Avista’s proposed changes only address Commission-approved deferral balances
(Schedule 155) created when a customer switches to the transportation tariff (Schedule 146).
However, if large customers choose to leave Avista’s system altogether, no provisions currently
exist to allow billing for deferral balances.
Staff believes it is appropriate to add sales tariff language that requires large customers
(over 250,000 therms) to pay their proportional share of the deferral if and when that customer
chooses to discontinue service under a sales tariff schedule. This additional language would
provide customers notice of this financial obligation at the time they begin service. It would also
eliminate the customers’ ability to simply switch fuels to avoid deferrals they have accrued.
Therefore, Staff recommends that language be inserted in tariff Schedules 111 & 112 – Large
General Service, Schedules 121 & 122 – High Annual Load Factor Large General Service, and
Schedules 131 & 132 – Interruptible Service, that requires customers to payback their share of
deferral balances if they chose to either leave Avista’s system or switch to a transportation tariff.

Ongoing Deferral Balances
Avista regularly debits or credits the deferral balance for gas sales to customers due to the
effect of the Purchase Gas Cost Adjustment (PGA) Mechanism and the weighted average cost of
gas on rates. The deferral balance can grow or shrink significantly in any month depending on
the gas price in rates and the market purchase price for customers’ gas. Currently Avista has no
authority to charge or credit customers for deferral balances that accrue between PGA cases; thus
it could not charge or credit customers until the next year’s PGA was approved. Staff believes
this creates two problems. First, if a balance exists in the deferral account, customers that leave
the system would avoid their share of that balance (assuming the balance is approved for
recovery or refund by the Commission). Second, customers need to know the extent of the
financial costs of changing tariffs in order to make a cost-effective decision.
Staff recommends that the Company be allowed to bill or credit customers for deferral
balances created between the time the PGA deferral disposition was last approved and the time
the customer chooses to leave the Company’s system or switch to the transportation tariff. Since
deferral amounts would be subject to Commission review and approval, Staff also recommends
that customer debit or credit balances be subject to a true-up upon completion of the
Commission’s next deferral audit and decision.

STAFF COMMENTS 3 FEBRUARY 26, 2002
Staff Proposed Language
Similar to the language proposed by the Company in the transportation tariff, Staff
proposes that the following language be added to tariff Schedules 111 & 112 – Large General
Service, Schedules 121 & 122 – High Annual Load Factor Large General Service, and Schedules
131 & 132 – Interruptible Service, to address cost recovery for large customers that leave the
system and recovery of ongoing deferral balances:
For customers with annual usage greater than 250,000 therms, the prorated share
of deferred gas costs will be determined for individual customers served under
this Schedule who request to discontinue service or switch to a transportation
sales schedule. The deferred gas cost balance for each Customer will be based on
the difference between the purchased gas costs collected through rates and the
Company’s actual purchase gas cost multiplied by the Customer’s therm usage
each month. The deferred gas cost balance for Customers who switch from this
schedule will be transferred with the customer’s account. The Customer shall
have the option of 1) a lump-sum refund or surcharge to eliminate the deferred
gas cost balance, or 2) an amortization rate per therm for a term equal to the
deferral recovery period to reduce the deferred gas cost balance prospectively
provided the Customer has not discontinued service. The Customer’s share of
deferred gas costs incurred since the last Purchase Gas Cost Adjustment is subject
to a true-up for any modifications made by the Commission in the next Purchase
Gas Cost Adjustment. If the amount billed is different than the Commission-
approved amount, Avista will bill or refund the Customer the difference between
their share of the approved amount and the amount previously billed to the
Customer.

Staff believes this language will improve the Company’s ability to collect deferral
balances, reduce the likelihood of stranded costs, and provide adequate notice to customers that
create the deferral balances. Staff also believes this language should improve the Company’s
ability to collect stranded costs with no greater collection risk than the Company-proposed
changes.

STAFF COMMENTS 4 FEBRUARY 26, 2002
Although this language limits deferral recovery to the Company’s largest customers, Staff
recognizes that there are many other customers that could also avoid deferral recovery payments
through reduced consumption or disconnection. However, Staff believes that the limited ability
of smaller customers to economically bypass the gas company coupled with the administrative
burden of tracking such a large group of customers justifies the limited application. Staff further
believes that the eight (8) largest customers have the greatest potential for stranded costs that
would significantly impact the remaining customer base.

Other Company-Proposed Changes
The Company also proposes to add clarifying language to several tariffs. This language
would specify the appropriate tariff schedule for customers who switch to firm service rates from
the transportation tariff. It would also eliminate references to tariffs no longer in effect. The
additional language should assist customers and avoid further confusion. Staff recommends
approval of the additional clarifying language.

STAFF RECOMMENDATIONS
1) Staff recommends approval of the Company’s proposed tariff changes.
2) Staff also recommends that language be inserted in tariff Schedules 111 & 112 – Large
General Service, Schedules 121 & 122 – High Annual Load Factor Large General
Service, and Schedules 131 & 132 – Interruptible Service that requires large customers to
payback their deferral balances if they chose to either leave Avista’s Service or switch to
a transportation tariff.
3) Staff further recommends that the Company be allowed to bill or credit customers for
deferral balances created between the time the last PGA deferral was approved and the
time the customer chooses to leave the Company’s system or switch to the transportation
tariff. Debit or credit balances should be subject to a true-up upon completion of the next
deferral audit and decision. To this end, Staff recommends the following language be
added to Avista’s tariff Schedules 111, 112, 121, 122, 131, and 132:

STAFF COMMENTS 5 FEBRUARY 26, 2002
For customers with annual usage greater than 250,000 therms, the prorated
share of deferred gas costs will be determined for individual customers
served under this Schedule who request to discontinue service or switch to
a transportation sales schedule. The deferred gas cost balance for each
Customer will be based on the difference between the purchased gas costs
collected through rates and the Company’s actual purchase gas cost
multiplied by the Customer’s therm usage each month. The deferred gas
cost balance for Customers who switch from this schedule will be
transferred with the customer’s account. The Customer shall have the
option of 1) a lump-sum refund or surcharge to eliminate the deferred gas
cost balance, or 2) an amortization rate per therm for a term equal to the
deferral recovery period to reduce the deferred gas cost balance
prospectively provided the Customer has not discontinued service. The
Customer’s share of deferred gas costs incurred since the last Purchase
Gas Cost Adjustment is subject to a true-up for any modifications made by
the Commission in the next Purchase Gas Cost Adjustment. If the amount
billed is different than the Commission-approved amount, Avista will bill
or refund the Customer the difference between their share of the approved
amount and the amount previously billed to the Customer.

Respectively submitted this day of February 2002.

___________________________
Lisa D. Nordstrom
Deputy Attorney General

Technical Staff: Michael Fuss
Dave Schunke

LN:MFUSS:DES:i:umisc/comments/avug02.1lnmfussdes

STAFF COMMENTS 6 FEBRUARY 26, 2002