20120227_3617.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: KARL KLEIN
DEPUTY ATTORNEY GENERAL

DATE: FEBRUARY 23, 2012

SUBJECT: AVISTA’S PURCHASED GAS COST ADJUSTMENT (PGA)
PROPOSED MARCH 1, 2012 RATE DECREASE
CASE NO. AVU-G-12-01

On February 15, 2012, Avista Corporation dba Avista Utilities applied to the
Commission for authority to decrease natural gas rates as a result of declining natural gas prices.
More specifically, the Company asked to decrease its weighted average cost of gas (“WACOG”)
from 41.8 cents per therm to 36.2 cents per therm. The Company states the new rates will
decrease annual revenues by about $4.1 million but will not decrease its earnings. The Company
notes that under its proposal, the average residential or small business customer bill will decrease
by about $3.46 per month, while the average, large commercial customer bill will decrease by
about 7.30%. The Company asks that the new rates take effect on less than 30 days’ notice, on
March 1, 2012.
THE APPLICATION
Avista seeks to amend its existing rates and charges for natural gas service as
reflected in a proposed, Seventeenth Revision Sheet 150 to approved Tariff IPUC No. 27.
Application at 2. If the proposed tariff sheet is approved, the Company’s annual revenue will
decrease by approximately $4.1 million (about 6.0%). The changes will not affect the
Company’s net income. Id.
The Application reflects Avista’s proposed out-of-period Purchased Gas Cost
Adjustment (PGA) to pass through to customers changes in the estimated cost of natural gas for
the eight months from March 2012 through October 2012. Id. at 2. The Company estimates the
DECISION MEMORANDUM 2
WACOG will decrease by 5.6 cents per therm (from the 41.8 cents per therm currently included
in rates to 36.2 cents per therm). Id. at 3.
In the Application, the Company notes that its 2011 PGA filing used a 30-day
historical average of forward prices ending August 22, 2011, by supply basin to develop an
estimated cost associated with index/spot purchases. The estimated monthly volumes to be
purchased by basin are multiplied by the (30-day) average price for the corresponding month and
basin. These index/spot volumes represented approximately 30% of estimated annual load
requirements for the PGA year. Id.
The Company notes that average, daily wholesale prices of natural gas have declined
substantially from the forward prices used in the 2011 PGA filing. While we are now 5 months
into the present 13-month PGA year (October 2011 through October 2012), Avista believes that
it is in its customers’ best interest to update the pricing of the remaining estimated index/spot
volumes and pass those lower index prices to customers now through a lower overall rate. The
Company also believes that this is in compliance with Order No. 32370 which, when approving
the Company’s 2011 PGA, stated that “Avista promptly file an application to amend its
WACOG should gas prices materially deviate from the presently approved $0.41797 per therm”
rate. Id. at 3.
Avista is not proposing changes to Schedule 150’s other components (demand costs,
variable transportation, etc.) or to current amortization rates (Schedule 155). The Company will
propose changes to those items in the normal annual PGA filing in September 2012. Id.
If the Application is approved, the average residential or small business customer
using 62 therms per month will see a decrease of $3.46 per month, or about 5.68%. Larger
commercial customers can expect an average decrease of about 7.30% for general service
(Schedule 111), and about 9.74% for interruptible service (Schedule 131). Id. at 2 and Exhibit B
(Notice of Public Applicant’s Proposed Tariffs).
Avista notified the public of the proposed decrease by posting notice at its Idaho
district offices and issuing a press release. If the Application is approved, the Company
maintains that it will also notify customers by placing a message on their bills. Application at 2.
STAFF RECOMMENDATION
After examining Avista’s Application, Staff believes that the accounting treatment
used by the Company is appropriate. By only proposing a change to the WACOG, only
DECISION MEMORANDUM 3
Commodity Charges contained within Schedule 150 are affected. Current demand charges and
transportation rates in Schedule 150 and current amortization rates in Schedule 155 are
unaffected. The reduction in the WACOG reflected in this filing will affect rates collected once
approved. Variation between actual and projected gas prices will be deferred and become part of
the true-up of the Company’s balancing account in the Company’s normal PGA filing expected
to be effective October 1, 2012.
Staff compared Avista’s changes of projected index and spot gas prices for non-
hedged volumes of natural gas to NYMEX/NGX futures prices for basins from which the
Company sources its gas. Based on its analysis, Staff believes that the Company’s proposed
WACOG is reasonable. Staff believes that the proposed decreases from the Company’s previous
PGA filing provide sufficient cause to allow the rates to take effect on less than 30 days’ notice.
See Rule 123 and 134 (rates and changes may take effect on less than 30 days’ notice if “the
Commission approves an earlier effective date for good cause shown”). Therefore, Staff
recommends that the Commission approve the Company’s Application to decrease rates without
further delay or comment, and that the rates take effect March 1, 2012.
Staff has also found evidence that index gas prices have continued to soften since
Avista prepared its Application. Staff recommends that the Company be required to continue to
monitor future index and spot prices and be required to file another application to amend its
WACOG should gas prices materially deviate from the proposed rate of $0.36216 per therm.
COMMISSION DECISION
Does the Commission wish to approve the Company’s Application to decrease its
rates without further comment or procedure?

M:AVU-G-12-01_kk