Loading...
HomeMy WebLinkAbout20070507_1915.pdfDECISION MEMORANDUM TO:COMMISSIONER KJELLANDER COMMISSIONER SMITH CO MMISSI 0 NER RED FO RD COMMISSION SECRETARY COMMISSION STAFF LEGAL FROM:SCOTT WOODBURY DATE:MAY 4, 2007 SUBJECT:CASE NO. A VU-07-01 (Avista) POWER COST ADJUSTMENT (PCA) METHODOLOGY - PROPOSED CHANGES & REQUEST FOR CONTINUATION OF EXISTING SURCHARGE On October 31 , 2006, the Idaho Public Utilities Commission (Commission) in Case No: A VU-06-05 issued Order No. 30161 announcing a review of Avista Corporation s Power Cost Adjustment (PCA) methodology and method of recovery. Avista s PCA is used to track changes in revenues and costs associated with variations in hydroelectric generation, secondary prices and changes in power contract revenues and expenses. On March 2, 2007, the Commission opened this case docket, A VU-07-, to establish a vehicle for review of Avista Corporation dba Avista Utilities' (Avista; Company) PCA methodology and method of recovery. Background The context for the present docket is set forth in the Commission s Order No. 30161 Case No. A VU-06-05. In that Order the Commission made the following findings: The Commission has reviewed and considered the filings of record in Case No. A VU-06-5. . .. We have also reviewed our 2001 Order No. 28775 in Case No. A VU-01-1 modifying the PCA methodology and subsequent PCA Orders. The temporary changes in Avista s PCA methodology authorized in 2001 were triggered by dramatic increases in prices on the wholesale market. October 2001 the Commission approved a 19.4% PCA surcharge to enable the Company to pay down a $78 million power cost debt incurred during the 2000-2001 western states energy crisis. The Commission in 2004 reduced DECISION MEMORANDUM the surcharge to 4.38%, and in April 2005 reduced it again to its current level of 2.448%. The existing PCA surcharge produces annual revenues of approximately $4 268 000, which is greater than the $1 517 103 June 30 2006 unrecovered balance. To justify continuation of the surcharge the Company proposes that the Commission recognize an intervening increase in deferral activity. Although unaudited, the Commission is apprised that the PCA deferral balance booked by A vista for the three months of July through September 2006 is $7 100 927. The Commission in its Order No. 28775 in 2001 approving modifications to the PCA methodology agreed with Potlatch that the changed methodology approved in that case merited close monitoring. Order No. 28775 p. 15. Potlatch had recommended that the Commission "restrict the adoption of the proposed changes to a limited period of time, perhaps two years, with a thorough review of the new methodology thereafter. . .." Order No. 28775 p. 14. The Commission found that a two-year review seemed appropriate and stated: After two years of operation with these changes we will expect the Company to file a report with this Commission detailing the operation of the modified PCA. The report should include total surcharge and rebate amounts recovered over the period, significant events that have impacted power supply expenses, changes in the long-term (greater than one year) supply/demand situation and mechanism modifications that may be justified. (Emphasis added. On August 8, 2003, the Company filed a Status Report together with Company testimony. In the testimony of Ron McKenzie, the Company estimated that the PCA deferral balance would reach zero in mid-2005. McKenzie Testimony p. 5 , Case No. A VU-03- The Commission has continued to monitor the Company s PCA and the Company s declining deferral balance and finds that the balance declined in 2006 to a level near zero. We find that the events that justified implementation of changes in PCA methodology, however, cannot be used to support an unending continuation of the charges. A thorough review and examination is required. In this filing the Company uses a projected increase in deferral to justify its request to continue rather than reduce the existing surcharge level. This recommended use of projections is a significant departure from the approved PCA methodology. We find it appropriate at this time to conduct the thorough review of PCA methodology envisioned when we approved changes to the methodology in 2001. We find Staff s suggestion to hold one or more workshops to be an acceptable vehicle for reviewing the Company s PCA methodology and expect the Company at the conclusion of that review to file a report with the Commission assessing the PCA methodology and providing justification for mechanism modifications. DECISION MEMORANDUM It is only with this review of PCA methodology that we authorize and continue the existing PCA surcharge of 2.448%. In Order No. 30161 , the Commission authorized Avista to continue the current PCA surcharge of 2.448% until the deferral balance reaches zero or June 30, 2007, whichever occurs first. The Commission further ordered that one or more PCA methodology workshops were to be held and a report filed with the Commission by Avista on or before August 15, 2007 recommending continuation or proposed changes to the PCA methodology and method of recovery. On March 19,2007, a workshop in Case No. A VU-07-01 was held in Boise, Idaho to review Avista s PCA methodology and method of recovery. The workshop was attended by representatives from A vista, Commission Staff, Potlatch Corporation and Idaho Power Company. On April 27, 2007, Avista filed a report in Case No. A VU-07-01 recommending proposed changes and requesting a continuation of the existing surcharge through September 30 2007. Report attached. COMMISSION DECISION A vista has filed a Report with the Commission recommending proposed changes to its PCA methodology and requesting a continuation of the existing surcharge through September , 2007. A vista arid Commission Staff recommend that this matter be processed pursuant to Modified Procedure, i., by written submission rather than by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. Does the Commission agree with the recommended procedure? Scott Woodbury bls!M:A VU-O7-01 sw DECISION MEMORANDUM Avlsta Corp. 1411 East Mission P.O. Box 3727 Spokane. Washington 99220-0500 Telephone 509-489-0500 Toll Free 800-727-9170 . ~.'.' \.: 411'vIs.,. Corp. '.'.' a. ')\) ~~;~: I ;:::i.J'-U " I' April 26, 2007 i\\~r;'\rfc!;i;:I j~: \C;. VIA OVERNIGHT MAIL State ofIdaho Idaho Public Utilities Commission 472 W. Washington St. Boise, ID 83702-5983 Attention: Ms. Jean Jewell, Secretary Case No. A VU-07- Avista Corporation s Report Related to the Review of Avista s Power Cost Adjustment (PCA) Methodology Enclosed for filing with the Commission are an original and seven copies of the Report of Avista Corporation in the above referenced case related to the review of Avista s Power Cost Adjustment (PCA) methodology. Also enclosed is a Certificate of Service. Please direct any questions regarding this filing to Ron McKenzie at (509) 495-4320. Sincerely, ,J~ w-wJ Kelly Norwood Vice President, State and Federal Regulation Enclosure David J. Meyer Vice President and Chief Counsel of Regulatory and Governmental Affairs A vista Corporation 1411 E. Mission Avenue P. O. Box 3727 Spokane, Washington 99220 Phone: (509) 489-0500, Fax: (509) 495-8851 : :, ,~ .;, . \' : l~/:!: ' ,-~~ ~;,~; l:0~" (./;~~\ ~ - ,8 :;' C'~ wlaY~~.ti'ji'(1\~~Vj: . BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION IN THE MA TIER OF THE REVIEW OF THE POWER COST ADJUSTMENT (PCA) METHODOLOGY OF A VISTA CORPORA nON CASE NO. A VU-07- AVISTA'S REPORT RECO~ENDING PROPOSED CHANGES AND REQUEST FOR CONTINUATION OF EXISTING SURCHARGE THROUGH SEPTEMBER 30, 2007 I. INTRODUCTION A vista Corporation, doing business as A vista Utilities (hereinafter A vista or Company), at 1411 East Mission Avenue, Spokane, Washington, respectfully files its report in the above referenced case, and requests the Commission issue an order approving proposed changes in the method of PC A recovery, and the continuation ofthe existing PCA surcharge through September 30 2007. Communications in reference to this Application should be addressed to: Kelly O. Norwood Vice President State and Federal Regulation A vista Corporation 1411 E. Mission Avenue Spokane, Washington 99220 Phone: (509) 495-4267 Fax: (509) 495-8851 David J. Meyer Vice President and Chief Counsel of Regulatory and Govenunenta1 Affairs A vista Corporation 1411 E. Mission Avenue Spokane, Washington 99220 Phone: (509) 489-0500 Fax: (509) 495-8851 A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGEl II. BACKGROUND On October 31 , 2006, the Idaho Public Utilities Commission (Commission) in Case No. A VU-06-05 issued Order No, 301691 announcing a review of Avista Corporation s Power Cost Adjustment (PCA) methodology and method of recovery. In that Order A vista was authorized to continue the existing surcharge of 2.448% until the deferral balance reaches zero or June 30, 2007 , whichever occurs first. The Commission further ordered that one or more PCA methodology workshops were to be held and a report filed with the Commission by A vista on or before August 15 2007 recommending continuation or proposed changes to the PCA methodology and method of recovery. The Commission opened Case No. A VU-07-01 to establish a vehicle for review of Avista s PCA methodology and method ofrecovery and issued a "Notice of Workshop." A workshop was held on March 19 2007, at the Commission s Hearing Room in Boise, Idaho. The workshop was attended by representatives from Avista, Commission Staff, Potlatch Corporation, and Idaho Power Company, III. PROPOSALS DISCUSSED AT WORKSHOP At the workshop the Company discussed a proposed modification to the PCA methodology, and proposed modifications to the method of recovery. The proposed modification to the PCA methodology was with regard to the rate used in calculating the retail revenue credit. The Company discussed using the average cost of production rather than the marginal cost of production. The Company is not proposing a change to the retail revenue credit rate in this proceeding. If the Company decides to address this issue, it will do so in its next general rate case filing. A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGE 2 The proposed modifications to the method of PC A recovery discussed at the workshop can be broken down into three main categories: 1) single annual PCA rate adjustments rather than returning to triggers and a cap, 2) annual schedule for rate adjustments and review of PC A deferrals, and 3) rate spread for the October 1 , 2007 and October 1 , 2008 rate adjustments. Each main category is discussed separately below. It is our understanding that there was agreement among the parties on the proposals presented below. A. SINGLE ANNUAL PCA RATE ADJUSTMENTS The Company is proposing single annual PCA rate adjustments rather than returning to triggers and a cap. Order No. 28775 in Case No. AVU-Ol-, dated July 12, 2001 , approved modifications to the PCA effective January 1 , 2001. The modifications included approval of a cap of $12 million, or about 10% of base revenue at the time, with a continuation of$3 million triggers. Rather than a hard and fast rule, the Company was given the latitude to request and seek a higher amount, if circumstances justified a higher amount. Such a request occurred due to the 2000-2001 western energy crisis, with a 19.4% surcharge being approved effective October 12, 2001. The surcharge was later reduced to 4,385% on September 9, 2004, to partially offset a general rate increase, and again reduced to its current level of2.448% on April 15, 2005 , to offset the increase in general rates to recover costs associated with the acquired second half of Coyote Springs 2, a natural gas-fired generating unit. The Company has not been using triggers to determine PCA rate adjustments since 2001. Rather, pursuant to Commission orders, the annual PCA status report to review deferrals has also included annual approvals for the continuation of the PCA surcharge rates. A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGE 3 The Company is proposing that the PCA procedures be modified to require annual PCA rate adjustment filings to recover or rebate the deferrals being reviewed in the annual PCA status report filing. Annual PCA rate adjustment filings will eliminate multiple PCA rate changes occurring within a year under a triggering mechanism. Having annual PCA rate adjustment filings is consistent with how the annual review ofthe PCA rates has been occurring, However, the existing practice of a rate adjustment remaining in place as long as there is a deferral balance larger than annual revenues from the PCA rate adjustment would be discontinued, Rather, the PCA rate adjustment would be set each year on October 1 st to recover the previous June 30th deferral balance, would remain in place for twelve months, and would be replaced by a new rate adjustment that is set based on the next twelve months of deferrals. The deferrals for each July -June, twelve-month period and the PCA rate adjustment associated with that period will be accounted for separately. Any over- or under- recovered surcharge or over- or under-refunded rebate balance will be transferred to the deferral balance that will be subject to the next rate adjustment. B. SCHEDULE FOR RATE ADJUSTMENTS AND REVIEW OF PCA DEFERRALS The Company has been making annual PCA review filings on or before August 15th of each year. The review filings cover power costs and the associated PCA deferrals that were recorded during the immediately preceding twelve-month period of July through June. The Company proposes that these filings continue to be made. The Company is proposing that an annual PCA rate adjustment be part of the filing with the rate adjustment being based on deferrals for the same July through June twelve-month period that the PCA review filing covers. A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGE 4 Listed below are the proposed dates for the Company filing, review and comments by Staff and other interested parties, Commission order, and effective date of the PCA rate adjustment for 2007: August 1, 2007 Company filing for July 2006 - June 2007 deferral period September 1, 2007 Review and comments by Staff and other interested parties October 1 , 2007 Commission order October 1, 2007 Effective date of PCA rate adjustment Under the Company s proposal the current PCA surcharge of2.448% would be extended and would expire on September 30, 2007. The PCA surcharge would be replaced by an October 1 , 2007 rate adjustment designed to recover deferrals for the July 2006 - June 2007 period that would expire on September 30, 2008, which, in turn, would be replaced by a October 1 , 2008 rate adjustment designed to recover deferrals for the July 2007 - June 2008 period that would expire on September 2009. The process would continue in the future, unless it is modified. C. RATE SPREAD FOR OCT. 1, 2007 AND OCT. 1,2008 RATE ADJUSTMENTS The Company proposes that the October 1 , 2007 rate adjustment be spread on a unifonn percentage basis and that the October 1 , 2008 rate adjustment and subsequent adjustments be spread on a unifonn cents per kilowatt-hour basis. Order No. 29602 issued October 8, 2004 in A vista's last general rate case, Case Nos. A VU-04-1 and A VU-04-, at page 48 states: The Commission finds that a cents per kWh recovery method for the PCA is superior to the percentage basis currently used. While we recognize the difficulties pointed out by Potlatch we find the cents per kWh rate more equitable to all customers than the percentage allocation. We recognize that the variable cost of energy fluctuates from year to year based on the amount of energy consumed and should therefore be surcharged or credited on an equal cents per kWh basis. We authorize the change to an equal cents per kWh when the present deferral balance is eliminated. We reject Potlatch's proposal to seasonalize PCA recovery amounts on a monthly or quarterly basis as being administratively burdensome and unnecessary to A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGES achieve fairness and equity. Under the annual rate adjustment method being proposed, the Company will be setting PCA rates based on deferrals recorded for specific twelve-month periods. Since this proposal is a modification to the old revenue adjustment mechanism of triggers, and since the deferral balance did not actually reach zero, the Company is proposing that the October 1 , 2007 rate adjustment be spread on a uniform percentage basis. Thereafter, the rate adjustments would be spread on a uniform cents per kilowatt-hour basis. IV. REQUEST FOR CONTINUATION OF EXISTING SURCHARGE The Company requests that the existing 2.448% PCA surcharge not expire on June 30, 2007 but be allowed to continue through September 30, 2007. Based on current estimates, it is likely that the PCA surcharge rate will increase from 2.448% to about 4% on October 1, 2007. Rather than have the PCA surcharge go to zero on July 1 2007, leaving the existing surcharge in place through September 30, 2007 will minimize the rate increase impact that occurs on October 1 2007, Also, if the existing surcharge is allowed to continue, the October 1 , 2007 rate adjustment will be lessened by the amount of revenue received from the existing surcharge during the months of July, August, and September of 2007, In other words, if the existing surcharge continues, the October 1 , 2007 rate adjustment will be based on the deferral balance at June 30, 2007, less the surcharge revenue to be received from the existing surcharge during the months of July, August, and September. V. RATE MECHANISM FLEXIBILITY If circumstances arise, the Company proposes that it be allowed the flexibility to seek a departure from the procedures. Examples that were discussed at the workshop were: 1) maintain flexibility to do rate adjustments in additipn to the annual adjustment if the situation warrants A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGE 6 2) maintain flexibility to not do a rate adjustment if the adjustment is too small, and 3) maintain flexibility to recover or rebate the deferral balance over more than one period. Of course, the Company would be required to request authorization and provide justification for any departure from the PCA rate mechanism procedures, VI. REQUEST FOR RELIEF The Company respectfully requests the Commission approve the previously discussed changes to the method of PC A recovery, and the continuation of the existing PCA surcharge rates through September 30, 2007. The Company requests that the matter be processed under the Commission s Modified Procedure rules through the use of written comments. The Company requests that the Commission set a deadline for written comments or protests and issue the required notice in this proceeding. Since the Company is requesting that the existing PCA surcharge otherwise set to expire on June 30, 2007, be continued through September 30 2007 , an order would need to be issued prior to June 30, 2007 , if continuation is approved. Dated at Spokane, Washington this 26th day of April 2007. A VISTA CORPORATION BY ~7 -1 Davi ;;Meyer Vice President and Chief Counsel of Regulatory and Governmental Affairs A VISTA'S REPORT AND REQUEST FOR CONTINUA nON OFSURCHARGE PAGE 7 VERIFICATION STATE OF WASHINGTON) County of Spokane David J, Meyer, being first duly sworn on oath, deposes and says: That he is the Vice President and Chief Counsel of Regulatory and Governmental Affairs of A vista Corporation and makes this verification for and on behalf of said corporation, being thereto duly authorized; That he has read the foregoing filing, knows the contents thereof, and believes the same to be true, ff7 --/ SIGNED AND SWORN to before me this 26th day of Apri12007, by David J. Meyer. ~\""""II',,,,/, ,\\ -0( OLSI'i. 11" '1;,:; """\ ....n..... ~Q'::~ ~ ~"" ::"Q' ~ ~ .:...~ " 0:, .:: ".~ iI\\ ~ ~ ! -t.o1ARr -- \ --- , -~ \ PU8\.\t ~ "' " A-... ..rf\f:;ji! ~ ~ .Sti. ' A." ;::~ :A ,. . . - .:J.. '~ ~ ~;:'i' .......~~~ 'frf' 1111, OF W~~ s.'""',IIUIII\\\\\ NOTARY P ILIC in and for the State of Washington, residing at Spokane, Commission Expires: ~/ a-~/I 0 A VISTA'S REPORT AND REQUEST FOR CONTINUA nON OF SURCHARGE PAGE 8 CERTIFICATE OF SERVICE I HEREBY CERTIFY that I have served Avista Corporation s Report in Case No. AVU-07-01 related to the review of Avista s Power Cost Adjustment (PCA) Methodology, by mailing a copy thereof, postage prepaid to the following: Ms Jean D Jewell , Secretary Idaho Public Utilities Commission 472 W. Washington St. Boise, ID 83702-5983 Pamela Mull Vice President & General Counsel Potlatch Corporation 601 W. Riverside Ave. Suite 1100 Spokane, WA 99201 Howard Ray Technical Services Manager Potlatch Corporation 803 Mill Road PO Box 1126 Lewiston, ID 83501-1126 Dated at Spokane, Washington this 26th day of April 2007. Rates Coordinator