20061016_1703.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEG AL
FROM:SCOTT WOODBURY
DATE:OCTOBER 12, 2006
SUBJECT:CASE NO. AVU-06-S (Avista)
REQUEST FOR CONTINUATION OF EXISTING 2.448%
PCA SURCHARGE
On August 15 , 2006, Avista Corporation dba Avista Utilities (Avista; Company)
filed an Application with the Idaho Public Utilities Commission (Commission) for an Order
approving continuation of the existing 2.448% PCA surcharge and authorizing recovery of
power costs deferred through June 30, 2006. Avista s Application serves as a PCA Status Report
for the 12 months ended June 30, 2006 and complies with the Commission s direction in Avista
PCA Order No. 29881 , Case No. A VU-05-
The Company in its filing identifies the power cost deferrals during the July 1 , 2005
through June 30, 2006 review period, and explains the primary factors causing the PCA
deferrals. The unrecovered deferral balance at June 30 , 2005 was $5 935 324. The unrecovered
balance at June 30, 2006 is $1 517 103. While the annual amount of revenue under the existing
surcharge (approximately $4.3 million) is greater than the unrecovered surcharge balance at June
, 2006, the Company contends the unrecovered surcharge balance is expected to grow.
Richard Storro, Director of Avista Power Supply, in testimony filed with the Application
explains the reasons that actual power costs are expected to exceed authorized power costs and
what the effect is forecasted to be on the deferral balance. At July 31 , 2006, the deferral balance
had grown to $3.2 million. In all likelihood, the Company estimates that the deferral balance by
the end of August 2006 will be higher than the annual surcharge revenue level of $4.3 million.
With the existing surcharge remaining in place, the deferral balance is expected to approximate
DECISION MEMORANDUM
$8.7 million at the end of the year. However, should conditions turn out to be more favorable
than expected, resulting in the deferral balance reaching zero at some point, A vista will make a
filing to either zero-out the surcharge rates, or to continue or modify the rates depending upon
actual and expected power supply conditions at the time. Should the surcharge rates not be
modified prior to filing the next PCA Status Report covering the July 2006 through June 2007
12-month period, the surcharge rates will be reviewed as a part of that filing.
On August 30, 2006, the Commission issued Notices of Application and Modified
Procedure in Case No. A VU-06-5. The deadline for filing written comments or protests was
September 29 2006. Commission Staff was the only party to file comments. Staff proposes that
the Commission accept the audited deferral balances presented in the Company s filing. Staff
recommends that the PCA surcharge, currently 2.448%, and the associated customer class rates
be continued. Staff also recommends that the Commission establish one or more workshops to
develop future PCA filing criteria and the transition to equal cents per kWh PCA rates for
presentation to the Commission prior to the next annual filing. Finally, Staff recommends that
the Company s next status report be filed on or before August 15 , 2007 to address a review
period no longer than one year beginning July 1 , 2006, to apply a new PCA methodology if
available and implement new PCA rates if necessary. Staffs comments can be summarized as
follows:
PCA Deferral Balance June 30, 2006
Staff in its comments notes that it performed a review and audit of the amounts that
went into the deferral balance in the current filing. Staff notes that the Company is requesting
Commission approval for recovery of the unrecovered deferral balance of $1 517 103 as of June
2006 and calculated as follows:
Unrecovered Balance at June 30, 2005
Net Deferral Activity (July 2005 - June 2006)
Amortizations Related to Surcharge Revenues (July 2005 - June 2006)
Interest
Unrecovered Balance at June 30, 2006
935 324
317
599,432
279 528
$1.517.103
The net deferral activity represents the Idaho jurisdictional share of the excess power costs and
associated revenue adjustments deferred under the PCA mechanism by A vista for the 12 months
ended June 30, 2006.
DECISION MEMORANDUM
Deferral Balance Projection
In its filing A vista projects the PCA deferral balance for July through December
2006. The projection shows an additional accumulation of approximately $7.6 million. Based
on this projection the Company recommends that PCA rates not be reduced to recover only the
June 30, 2006 deferral balance of approximately $1.5 million, but that rates remain at current
levels, rates that are expected to generate approximately $4.3 million in PCA revenue during the
coming year. (Although not reflected in Staff comments, the Commission is apprised that the
unaudited PCA deferral balance booked by A vista for the three months of July through
September 2006 is $7 100 927.
While the Company has not proposed to use the projection of deferral balances
through December 2006 to set the PCA surcharge amount, neither has it proposed to establish the
surcharge amount based on existing deferral balances at the time of the PCA filing. Staff notes
that the Company s proposal to continue the existing 2.448% PCA surcharge seems to be more
generally based on the expectation of higher deferral balances and the principle of rate stability.
Staff points out that the A vista PCA methodology approved by the Commission does not include
recovery of projected costs or costs deferred after the PCA filing. It is designed to recover costs
after they are deferred, requested for recovery and fully audited.
Staff does not oppose the Company s proposal in this case to continue the existing
surcharge. In assessing the reasonableness of the Company s proposal, Staff used the unaudited
July ($2 032 949) and August ($3 606 778) PCA deferrals as known and measurable, subject to
audit and correction in the Company s next PCA filing. Continuation of the existing surcharge
Staff states, will assure smaller deferral balances and interest charges for recovery later. Keeping
the PCA rate at the present level will also offer rate stability to customers. It further assures that
the deferral balance will not increase to the level it might otherwise attain if the PCA rate is
lowered to only collect the deferral balance as of June 30, 2006.
PCA Methodology
Staff notes in its comments that A vista s current PCA filing is made under temporary
criteria established by the Commission in 2001 when regional power supply costs, and PCA
deferral balances reached unprecedented levels. At that time an annual PCA cap amount of $12
million was established along with an annual PCA review and potential rate adjustment.
DECISION MEMORANDUM
The PCA filing methodology that was in place prior to the Commission s 2001 Order
called for the Company to make PCA filings when the deferral balance reached a trigger amount
of $3 million. Avista s PCA also included a rate cap of no more than two triggers being
incorporated in rates at anyone time. The $3 million trigger was established at approximately
5% of Idaho jurisdictional revenue. The Company views this as the more permanent
methodology approved by the Commission and plans to return to it once the deferral balance
reaches zero. Also, when that balance reaches zero the Company is required to implement a new
rate design. Rate design is to be changed from an equal percentage increase or decrease for each
customer class to an equal cents per kWh increase or decrease for each customer class.
In this filing the deferral balance at June 30, 2006 is approximately $1.5 million
which is relatively close to zero. Staffs concern is that even with the continuation ofthe current
PCA rates, designed to recover $4.3 million annually, the PCA deferral balance is expected to
grow through the end of the year. Staff believes that these circumstances leave several
unanswered questions.
1. When will the deferral balance reach zero?
2. Should the Commission wait until the balance reaches zero to return to
trigger and cap PCA filings and/or implement equal cents per kWh rates?
3. Should the Company return to trigger and cap PCA filings or should a
single annual filing be made that would drive a single annual rate
change? This is the methodology used in recent years.
4. If Avista s PCA returns to trigger and cap filings, what should the trigger
and cap be?
In this case Staff recommends that existing PCA rates be continued as proposed by
the Company. However, Staff believes that the Commission should set one or more workshops
to discuss these and any other PCA questions or concerns that interested participants might have.
It is Staffs hope that participants could reach an agreement to be presented to the Commission
regarding permanent future PCA methodology.
Financial Assistance for Paying Heating Bills
Although Avista s rates for residential customers may remain the same this year
many customers, Staff notes, still struggle to make ends meet. Staff encourages those customers
who qualify for energy assistance to apply for the federally-funded Low Income Home Energy
DECISION MEMORANDUM
Assistance Program (LIHEAP) and other non-profit fuel funds such as Project Share. For more
information regarding assistance programs, Staff reports that customers may call the local
Community Action Partnership agency (CAP AI), A vista Utilities, the Idaho Public Utilities
Commission, or for other community resources call the 2-1 Idaho Care Line.
COMMISSION DECISION
A vista filed an Application recommending continuation of the existing 2.448% PCA
surcharge and authorizing recovery of power costs deferred through June 30, 2006. The
unrecovered balance at June 30, 2006 was $1 517 103. The annual amount of revenue under the
existing surcharge is approximately $4.3 million. Based on reports filed with the Commission
the unaudited accrued PCA balance for July through September 2006 is $7 100 927. Does the
Commission find it reasonable to approve the continuation of the existing surcharge? Does the
Commission find it reasonable for the Company and Staff to hold workshops to discuss the
reasonableness of returning to the prior PCA methodology?
Scott Woodbury
bls!M:A VU-O6-05 sw2
DECISION MEMORANDUM