20021028_304.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
RANDY LOBB
DON HOWELL
TERRI CARLOCK
DAVE SCHUNKE
NANCY HARMAN
ALDEN HOLM
MICHAEL FUSS
TONYA CLARK
BEVERLY BARKER
GENE FADNESS
WORKING FILE
FROM:LISA NORDSTROM
DATE:OCTOBER 24, 2002
RE:IN THE MATTER OF THE APPLICATION OF A VISTA CORPORATION
FOR AUTHORITY TO DECREASE ITS RATES FOR SERVICE. CASE NO.
A VU-02-
On September 16, 2002, A vista Corporation filed a Purchased Gas Cost Adjustment
(PGA) Application with the Commission for authority to place new rate schedules into effect on
November 1 , 2002 that would decrease its annualized revenues by approximately $10 million. If
its Application is approved, A vista stated that customer rates would decrease on average by
15.5%. According to Avista, the proposed price reduction primarily reflects decreases in the cost
of gas purchased for customer use and would not affect its earnings as a result of the proposed
decrease in prices and revenues.
THE APPLICATON
Avista requested this rate reduction to true-up the differences between Avista s actual
weighted average cost of gas (W ACOG) purchased and the W ACOG embedded in rates that has
been deferred since September 1999. The Company also deferred the revenue received from
DECISION MEMORANDUM
Cascade Natural Gas for the release of storage capacity at the Jackson Prairie Storage Facility,
various pipeline refunds or charges and miscellaneous revenue received from gas-related
transactions. To incorporate these deferred costs and credits into rates, Avista proposed
modifying two rate schedules that will adjust the W ACOG and the deferral surcharge.
W ACOG: First, the Company advocated reducing the prospective natural gas cost
component (the WACOG) included in customer rates via Rate Schedule 150 by $0.14727 per
therm to $0.33098. This reduction resulted from netting the W ACOG reduction of $0.14946 per
therm against the demand-related increase of $0.00219 per thermo
The chart below depicts gas prices for A vista s Rate Schedule 101 over the past five
years. Assuming the deferral is fully recovered in November 2003 and the W ACOG remains
proposed, Staff estimated a cost to customers of $0.6323 - which is reflected below as the
estimated price of gas in 2003. By comparison Natural Gas Monthly listed the year-to-date
average price of natural gas delivered to residential customers as 89.6 cents per therm in Idaho
versus 73.2 cents per therm nationally.
$1.
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$0.40
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Avista Gas Residential and Small Business Gas Prices at
Year-End in $/Therm
1998 1999 2000 2001 2002 2003
Deferral Surcharge:Second, A vista sought to recover the previous timing differences
accumulated in the gas cost deferral account over the 12-month period of November 2002
through October 2003 with a surcharge. When the last PGA filing was approved on August 20
2001 , the gas deferral account totaled approximately $22.3 million and was to be collected over a
1 Energy Information Administration, Natural Gas Monthly August 2002.
DECISION MEMORANDUM
two-and-a-halfyear period. As depicted on the following graph, Avista estimated the remaining
balance to be $8.7 million as of June 30, 2002 and expected it to be fully recovered by November
2003. The Company proposed increasing Schedule 155's amortization rates to recover this
amount. If approved, firm sales customers on Rate Schedules 101, 111 , and 121 (General, Large
General and Commercial) would experience a $0.0079 per therm increase and interruptible sales
customers on Rate Schedule 131 would experience a $0.01098 per therm increase.
Avista Deferral Account
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$15 000 000
$10 000 000
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Avista proposed that the large transportation and interruptible customers be given the
option of receiving/paying their portion of the deferred gas costs either through a lump sum
credit/charge or through an amortization rate as set forth in the Company s tariffs. If these
customers chose the lump sum method, Avista proposed adjusting these billings' credits/charges
by the amount of interest that accumulated from the end of the test period used in this filing to
the date of actual settlement. The Company stated that this proposal would clear out the small
residual balances related to interest charges that are carried forward between PGA filings for
large customers.
If the Application is approved, Avista stated that the Company s estimated annual
natural gas revenue would decrease by approximately $10 030 000 (15.5%). Avista estimated
that the average residential customer using 75 therms per month would see their monthly bill
decrease by approximately $10.45 (14.8%). Larger commercial customers would experience an
average decrease between 16.4% and 17.3%, with the higher decrease percentages due to lower
base rates.Incorporating its proposed changes to Rate Schedules 150 and 155 , Avista
DECISION MEMORANDUM
recommended the following annualized change in rates per customer class effective November 1
2002:
Customer Class Schedule Proposed Estimated Proposed
Average Decrease Average Decrease Average Price
$/Therm % Change $/Therm
General 101 $0.13937 14.$0.75816
Large General 111 $0.13937 16.4%$0.7089
Commercial 121 $0.13937 17.$0.6654
Large General 112 $0.14727 21.2%$0.5484
Interruptible 131 $0.13848 19.$0.58661
Interruptible 132 $0.14946 25.$0.44127
Transportation 146 none none $0.10574
STAFF COMMENTS
While performing an audit of Avista s gas purchases from April 2001 through June
2002, Staff reviewed the Application and additional information supplied by the Company and
third parties. Avista requested recovery of approximately $8.7 million that has accrued through
June 2002 and modification of the W ACOG it collects from customers. Staff verified that the
$8.7 million sought and itemized the deferred account as follows:
Amount
Accrued Through
Deferred Account Item June 2002
BeQinninQ Deferred Costs Balance $23 629 349
Wholesale Gas Costs Below W ACOG 649 005
SurcharQes to Customers and Interest Collected on Surcharge 829 073
Clark Capacity Releases (108 230
Cascade Natural Capacity Releases (209 280
Benchmark Capacity Releases 216 588
Off-System Sales (16 755
Interest on Deferrals 459 101
Guaranteed Payments from Avista Energy (41 183
Northwest Pipeline Refund (335 165
Refunds to Industrial Customers (395
Total Amount Owed by Customers as of June 2002 682 775
DECISION MEMORANDUM
Staff stated that these two Avista requests would reqUIre changes to the Company s tariff
components Schedule 150 and Schedule 155.
Schedule 150 - Purchase Cost Adjustment
The purchase gas cost adjustment is a forward-looking cost adjustment that reflects
anticipated changes in the variable cost to purchase and transport gas. As a result of significant
gas price decreases during the past PGA year and a forecast of continued lower prices for next
year, the Company proposed to decrease the W ACOG by 31 % from $0.480 per therm to $0.331
per thermo Staff anticipated that variable transportation costs would remain nearly the same as
last year and should have little effect on next year s rates.
The calculation of next year s W ACOG depends on the forward price of gas weighted
for the volume of gas used throughout the year. Historically, Idaho s share of gas costs were
allocated based on Idaho s consumed portion of the total gas purchased by the Company. In this
case, Staff stated that the Company inadvertently used peak demand rather than volume
consumed to calculate Idaho s share of total Company gas purchase costs. Staff indicated that
both Staff and the Company agree the historical methodology that allocates costs based on
consumption is most appropriate because gas costs are incurred as a result of volumetric
consumption. Therefore, Staff recommended that the calculation proposed by the Company be
modified because volumetric allocation is more equitable, it more accurately reflects expected
gas costs and it maintains the gas purchased cost allocation used in all prior PGA filings.
Staff also recognized that approval of this adjustment would slightly increase next
year s W ACOG over that proposed by the Company in its original Application. Specifically, the
W ACOG would be $0.346 per therm rather than $0.331 per thermo
Schedule 155 - Deferred Expenses
Avista uses Schedule 155 to pass through any over- or under-collections of accrued
gas costs since the last tracker adjustment. Staff addressed three major items regarding the
deferred gas costs in Schedule 155: the cost of hedges purchased for price stability, gas costs
deferred during this PGA period, and gas costs deferred during previous PGA periods.
1. Hedges for Price Stability: Staff recommended that the Commission allow A vista
to recover the $11 million relating to hedges that accrued in the deferral account through June
2002. Staff encouraged the Company to continue looking for ways to provide price stability and
DECISION MEMORANDUM
reduce gas costs for customers. Staff also noted that the Company s efforts to balance these
goals should be thoroughly documented to facilitate future audits.
2. Gas Costs Deferred during this PGA Period: Even with the price-stabilizing
hedges, the authorized forward price was both lower and higher than the amount the Company
paid for gas during the last PGA period. However, from April 2001 through June 2002, Staff
stated that the Company was generally able to secure gas at a price that was lower than the
Commission-authorized W ACOG. That allowed the Company to credit customers with the
difference and pay down the deferral account faster than previously forecasted. The deferred
costs also included credits for capacity releases, off-system sales, a refund from Northwest
Pipeline, interest charges and credits and other items listed in Staff s deferred account table
above. After reducing the $11 million attributable to hedges by these credits and refunds, only
$8.7 million remained as of June 2002.
3. Collection of Previously Deferred Amounts In the last PGA case, Avista
recommended an extended deferral recovery period of approximately two-and-a-half years.
Because A vista s cost of gas was below the W ACOG, the deferral account decreased faster than
originally anticipated. Consequently, the Company recommended a slight increase in the
surcharge to allow a one-year recovery rather than recovery over 18 months. Staff favored the
one-year recovery, but was concerned that the Company-recommended surcharge was calculated
on the June 30, 2002 balance. By calculating the surcharge on that date, Staff argued that the
Company did not recognize that customers have been paying the surcharge and a higher-than-
actual W ACOG for the months of July 2002 through October 2002. Based on actual costs for
July and August and Avista s projections for September and October, Staff estimated that Avista
recovered an additional $1.2 million.
In light of this timing difference, Staff recommended that the Commission amend
Schedule 155 tariff and reduce the proposed surcharge rate by including additional deferral
recovery through October. By including the amounts already collected, the surcharge rate would
be reduced to $.11018 per thermo Although Staff did not audit the Company s July 2002 through
October 2002 amounts, Staff indicated it would do so in the next PGA filing. Any cost recovery
for those months that differ from the amounts included in this case would be adjusted in next
year s PGA tracker.
DECISION MEMORANDUM
Effect of Staff Recommendations on Customer Rates
By maintaining the historical allocation methodology used to calculate Schedule 150
and adding the additional deferred costs already recovered to Schedule 155, Staff recommended
a slightly larger rate decrease of 15.64% than the 15.5% proposed by the Company. Staffs
recommended customer prices are listed below:
Proposed Estimated Proposed
Average Decrease Average Decrease Average Price
Customer Class Schedule $/Therm % Change $/Therm
General 101 $0.1403 14.90%$0.7572
Large General 111 $0.1403 16.54%$0.7079
Large General 112 $0.1325 19.05%$0.5632
Commercial 121 $0.1403 17.43%$0.6645
Interruptible 131 $0.1531 21.11%$0.5720
Transportation 146 none none $0.1057
Large Customers
In addition to Schedule 150 and 155 adjustments for the general body of ratepayers
Staff noted that the Company is working directly with its large gas customers on the deferral
collection. Many of these customers have switched from tariffed gas commodity service to
transportation-only service. Avista provided each large customer with an accounting of its
portion of the deferral and a lump sum or deferral payment plan in the Company s 2001 PGA
filing. The majority of the large customers have now paid their share of the deferral and many
could receive an individual true-up refund as a part of this filing. Staff monitored the large
customer deferral payment activity and found that the resulting deferral collection benefited
A vista s large customers and protected the general body of ratepayers.
Customer Issues
Since the Application was received, the Commission received one written comment
asking the Commission to vote "in favor of the reduction." The Consumer Assistance Staff did
not receive any calls concerning the proposed reduction in rates.
During the year that Avista s last gas increase was in effect until its Application was
filed on September 1 , 2002, the Consumer Assistance Staff received six complaints concerning
the rate increase that resulted in higher bills with no change in consumption. Two of the
DECISION MEMORANDUM
complaints mentioned that rates remained high while the wholesale cost of natural gas was
dropping. Staff anticipated the pending rate decrease would help alleviate customers' concerns
over the cost of natural gas and how that affected their monthly bills.
COMMISSION DECISION
1. Does the Commission wish to approve A vista s Application for authority to place
new rate schedules into effect on November 1 2002 that will decrease its annualized revenues by
approximately $10 million?
2. Does the Commission wish to adopt the following Staff recommendations that
when combined would result in a slightly larger rate decrease (15.64% rather than the 15.
proposed by the Company)?
Reduce A vista s proposed surcharge rate by including additional deferral
recovery for the months of July 2002 to October 2002.
Calculate Idaho s share of projected gas costs included in the Company
W ACOG based on Idaho s percentage of the Company s actual volumetric usage rather than the
percentage of five-peak-day usage.
Lisa ordstrom
M: A VUGO202 Jn2
DECISION MEMORANDUM