20170718_Daphne2.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF

FROM: DAPHNE HUANG
DEPUTY ATTORNEY GENERAL

DATE: JULY 18, 2017

SUBJECT: AVISTA’S APPLICATION TO IMPLEMENT FCA RATES FOR
ELECTRIC SERVICE FROM OCTOBER 1, 2017 THROUGH
SEPTEMBER 30, 2018, CASE NO. AVU-E-17-04

On July 3, 2017, Avista Corporation applied to the Commission for authorization to
implement Fixed Cost Adjustment (FCA) rates for electric service from October 1, 2017 through
September 30, 2018, and to approve its corresponding modifications to Schedule 75, “Fixed Cost
Adjustment Mechanism – Electric.” The Company separately applied to implement FCA rates for
natural gas service in Case No. AVU-G-17-03. The Company proposes per kilowatt-hour (kWh)
FCA surcharge rates for both residential and non-residential groups in this case. Avista asks that
its Application be processed by Modified Procedure, and requests an effective date of October 1,
2017.
BACKGROUND
The FCA is a rate adjustment mechanism designed to break the link between the
amount of energy a utility sells and the revenue it collects to recover fixed costs1 of providing
service, thus decoupling the utility’s revenues from its customers’ energy usage. Order No. 33437
at 3. This decoupling removes a utility’s incentive to increase sales as a means of increasing
revenue and profits, and encourages energy conservation. Id. at 3-4; Application at 4. The
Commission approved Avista’s FCA as a three-year pilot program, and part of the approved
settlement of Avista’s 2015 rate case, Case Nos. AVU-E-15-05, AVU-G-15-01. Application at 3;
Order No. 33437 at 10. In the Order approving the FCA program, the Commission noted that the
parties to Avista’s rate case agreed to review the program’s effectiveness at the end of its second

1 “Fixed costs” are a utility’s costs to provide service that do not vary with energy use, output, or production, and
remain relatively stable between rate cases – for example, infrastructure and customer service.
DECISION MEMORANDUM 2
full year, to ensure it is functioning as intended. Id. at 3-4. The Order also set forth how the FCA
mechanism works, including treatment of existing versus new customers, quarterly reporting,
annual filings, interest, accounting, and 3% rate increase cap. Id. at 4-6.
PROPOSED 2017-2018 FCA RATE ADJUSTMENT
In its electric FCA filing, Avista proposes to increase rates for each rate group based
on the deferred revenue recorded for January through December 2016. The Company mostly
attributes these electric FCA surcharges to abnormally warm weather and savings from energy
efficiency programs in 2016. Application at 7-8.
Avista recorded $4,028,203 in surcharge deferred revenue for its electric residential
customer group in 2016, which is affected by the 3% rate increase cap. Id. at 9 (table includes
interest and revenue-related expenses), 12-13. The Company proposes to increase residential rates
by 0.281 cents per kWh, to recover $3,290,149 from residential customers. Id. at 9. If approved
by the Commission, the Company would record this amount in a regulatory asset balancing
account and reduce the account balance each month by the revenue collected under the tariff. Id.
at 10. The remaining deferral balance of $814,802 would be carried over to be recovered or
potentially offset in a future period. Id.
For its non-residential group, Avista recorded $2,556,424 in surcharge deferred
revenue in 2016, which is not affected by the 3% rate increase cap. Id. (table includes interest and
revenue-related expenses), 13-14. The Company proposes to increase non-residential rates by
0.241 cents per kWh, to recover $2,601,585 from commercial and industrial customers. Id. at 10-
11. If approved by the Commission, the Company would record this amount in a regulatory asset
balancing account and reduce the account balance each month by the revenue collected under the
tariff. Id. at 11.
With its Application, Avista submitted its residential and non-residential rate
calculation, support for the Company’s deferrals, and its proposed FCA tariff, Schedule 75.
STAFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure with a comment
deadline of August 31, 2017, and reply deadline of September 13, 2017.
DECISION MEMORANDUM 3
COMMISSION DECISION
Does the Commission wish to process this case under Modified Procedure with a
comment deadline of August 31, 2017, and reply deadline of September 13, 2017?

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