20090914_2704.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KEMPTON
CO MMISSI 0 NER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
LEGAL
WORKING FILE
FROM:KATHY STOCKTON
KEITH HESSING
DATE:SEPTEMBER 11, 2009
RE:AVISTA UTILITIES PCA; CASE NO. AVU-09-
BACKGROUND
On July 30 , 2009, Avista Corporation dba Avista Utilities (Avista; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) for an order approving
recovery of power costs deferred for the period July 1 2008 through June 30, 2009. The current
PCA rate was established by the Commission in Case No. A VU-09-01 by Order No. 30856
and put in place August 1 2009. The Company is proposing that PCA rates not be adjusted
again in this proceeding.
Avista s PCA mechanism is used to track variations from normal power supply costs.
Some of these variations are: changes from normal revenues and costs associated with variations
in electric generation, market prices, thermal fuel costs, and changes in power contract revenues
and expenses. The Company s existing PCA methodology was approved in 2007 in Case No.
A VU-07-01 (Order No. 30361). In that case, the Commission approved a change in the PCA
methodology from a trigger and cap mechanism to a single annual PCA filing requirement. The
Commission also approved a change in the method of PCA deferral recovery moving from a
uniform percentage increase in rates to a uniform cents per kWh rate.
The principal factor contributing to the power supply expense above the level included in
base rates during the deferral period is increased natural gas fuel costs. Company witness
William Johnson lists factors contributing to increased power supply expense in a table on page
3 of his testimony.
DECISION MEMORANDUM - 1 -SEPTEMBER 11 , 2009
STAFF REVIEW
Audit Results
The Commission Staff (Staff) has performed a review and audit of the amounts that went
into the deferral balance in the current filing. Staff s review covered expenses incurred for the
period July 2008 through June 2009. Staff examined a representative cross section of
transactions included in the Purchased Power account (FERC 555), Thermal Fuel account
(FERC 501), Combustion Turbine Fuel account (FERC 547), Resource Optimization (557), and
Power Sales account (FERC 447). Based on our review of these transactions, Staff concludes
that the accounting transactions appear reasonable at the time they were made. Staff also
reviewed the other PCA calculations and amounts. Staff finds the amounts recorded to be
correct and recommends that they be included in the deferral balance as of June 30, 2009.
Lehman Brothers Bankruptcy
Lehman Brothers Holdings, Inc. (LBH) filed for Chapter 11 Bankruptcy on September
2008. LBH is the parent entity of Lehman Brothers Commodity Services, Inc. (LBCS), and
Avista Corporation was transacting with LBCS under the Western Systems Power Pool (WSPP)
Agreement. In September 2008, Avista recorded a $2 705 100 reserve, on a system basis, for a
write-off of the net amounts owed to A vista for power delivered to LBCS in August, and the first
part of September 2008. The write-off was charged to Account 557.160 - Other Resource Costs.
Idaho s share of the $2.7 million expense associated with the write-off is a reasonable cost for
recovery in the Avista s PCA. Avista sold its Lehman Brothers bankruptcy claim to Silver Point
Capital. Proceeds from the sale amounted to $438 828 with the proceeds being received in late
March 2009 and will help offset the write-off. A vista incurred legal fees associated with the
bankruptcy claim and sale. The estimate for total legal fees is between $30 000 and $40 000.
This bankruptcy, while impacting Idaho customers, is small relative to overall power
supply costs. During the PCA period from July 2008 through June 2009, Sales for Resale totaled
$225 254 653 on a system level. The Lehman Brothers Bankruptcy cost to customer, net ofthe
sale of the bankruptcy claim to Silver Point Capital, of $2 299 439 is 1.02% ofthe total Sales for
Resale. Of this amount, $814 231 is the cost for Idaho customers in the PCA calculation. Staff
believes the resolution of this matter to be reasonable.
DECISION MEMORANDUM - 2 -SEPTEMBER 11 , 2009
Deferral Balance
The Company is requesting that the Commission approve recovery of$10 761 381. This
Deferral Balance includes the net deferral activity for the period of July 1 , 2008 through June 30
2009. The Company has previous approval to recover interest and to true up amounts previously
approved that have been over or under recovered. These amounts are listed below.
Net Deferral Activity (July 2008 - June 2009)
True Up
Unrecovered Balance at June 30, 2009
761 381
175
383,225
$11.221.781
Interest
Net Deferral Activity
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
twelve months ended June 30, 2009. The main component of the net deferral is the Net Increase
in Power Supply Costs, FERC Accounts 555 501 547, and 447. Along with the costs of serving
load using Company owned resources, these PCA accounts also include additional power
purchase costs when market prices are lower than generation costs. Also, generation costs
associated with off-system sales are offset by the revenue from those sales. The total net Idaho
jurisdictional increase in power supply cost is $10 761 381.
The PCA Rate
As indicated by the Company in its filing a PCA rate reduction was approved in the
Company s most recent general rate case, Case No. A VU-09-, Order No. 30856. The
current PCA rate, 0.344 ~/kWh, became effective August 1 2009. Avista proposes that the
current rate stay in place. A vista expects that the rate will be in place until the next annual
review for October 1 , 2010. Staff calculates that the current PCA rate that was effective
August 1 , 2009 will generate approximately $14.0 million dollars in the 14-month period ending
October 1 , 2010. Revenue from the current rate should amortize the June 30, 2009 deferral
balance of approximately $11.2 million and leave $2.8 million to offset the amortization shortfall
that will occur in August and September of this year due to the early decrease in the PCA rate.
That under recovery is estimated to be approximately $2.6 million. If these estimates are
DECISION MEMORANDUM - 3 -SEPTEMBER 11 , 2009
accurate, the current rate over recovers the identified costs by the relatively small amount of $0.
million. Any over recovery would be returned to customers as part of a true up in a future rate
proceeding after actual amounts are known. Staff believes that the current rate is appropriate to
continue until rates are again reviewed for change on October 1 , 2010.
ST AFF RECOMMENDATION
Staff recommends that the Commission accept the audited deferral balance of
$10 761 381 for the period July 1 2008 through June 30, 2009 and approve the amount for
recovery. Staff further supports the Company in its recommendation to continue the current
PCA rate.
COMMISSION DECISION
Does the Commission approve the June 30, 2009 PCA deferral balance of$10 761 381
for recovery from Idaho customers?
Does the Commission approve the continuation of the current PCA rate?
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udmemos/avue09.07 decision memo
DECISION MEMORANDUM - 4 -SEPTEMBER 11 , 2009