2001019_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
DON HOWELL
DAVE SCHUNKE
KEITH HESSING
BILL EASTLAKE
RANDY LOBB
WORKING FILE
FROM:
DATE:
JANUARY 9, 2001 RE: CASE NO. AVU-E-00-06 (Avista)
POWER COST ADJUSTMENT (PCA) METHODOLOGY
PROPOSED CHANGES AND ADJUSTMENTS

The Idaho Public Utilities Commission (Commission) in Order No. 28402 in Case No. AVU-E-00-2, directed that a new docket (Case No. AVU-E-00-6) be established to examine proposed changes and adjustments to the Power Cost Adjustment Methodology of Avista Corporation dba Avista Utilities—Washington Water Power Division (Idaho). The identified scope of inquiry pertains to the following generation resources: Rathdrum, Kettle Falls and Centralia—specifically exploring the manner (actual or dispatchable and the timing of the adjustment) in which Rathdrum (which is now included in the Company’s normalized base power supply costs—reference Order No. 28097, Case No. WWPE98-11) should be included as a resource in the PCA methodology; and whether given alleged fuel supply limitations, Kettle Falls and Centralia should continue to be included as dispatchable resources in the PCA methodology.
On June 13, 2000, the Idaho Public Utilities Commission (Commission) in Order No. 28409 initiated Case No. AVU-E-00-6 to examine proposed changes and adjustments to the PCA methodology of Avista Corporation dba Avista Utilities. The public and interested parties were apprised of the opportunity to formally intervene (IDAPA 31.01.01.072-073) or submit written comments. Also provided was the opportunity for formal discovery (IDAPA 31.01.01.221-234). By Order No. 28453, Avista and Commission Staff were directed to file initial statements of position by August 4, 2000. On October 30, 2000, Avista filed an Agreement reflecting changes to its initial position. The filed statements and Agreement can be summarized as follows:
Avista
Avista in its initial statement of position proposed the following modifications to the PCA:
The Rathdrum Turbine would be included in the PCA based on “actual” generation and “actual” fuel costs on a prospective basis beginning September 1, 2000.

There would be no adjustments to the PCA balancing account related to the Rathdrum turbine, Centralia or Kettle Falls for the period prior to September 1, 2000.

Centralia would be included in the PCA based on “authorized” generation and “authorized” fuel costs.

Colstrip and Kettle Falls would be included in the PCA to track 90% of the difference between “actual” and “authorized” generation and fuel costs beginning September 1, 2000.

The trigger for the PCA balancing account would be increased from $2.2 million to $3.0 million effective September 1, 2000.

Should the Company and Staff have differences regarding proposed PCA modifications, the Company noted its intention to continue discussions with Staff to attempt to resolve any differences.
Staff
Staff in its initial statement of position states that changes need to be made to the PCA on a going-forward basis to make the PCA more representative of actual Company operations. Staff proposes the following modifications to the PCA:
Include the Rathdrum generating station at actual generation and actual fuel costs.

Centralia should no longer be dispatched in the PCA model but should be included at normalized levels.

The PCA trigger should be reset to $3 million, which is approximately 2.5% of today’s Idaho jurisdictional revenue requirement.

Staff’s initial position is that there should be no change in the PCA operation of Kettle Falls or Colstrip generating stations.
Agreement
Based on discussions following the filing of its initial statement of position, the Company on October 30, 2000, filed an Agreement reflecting changes to its initial position recommendations. As reflected in the Agreement, the Company has adopted the changes recommended by Staff. Avista now recommends the following changes to its PCA:
Prospective inclusion of Rathdrum turbine in the PCA.
The Rathdrum turbine shall be included in the PCA based on “actual” generation and “actual” fuel costs beginning November 1, 2000. The first PCA entry to reflect this change will occur in the December 2000 PCA Journal, which will be based on actual information for November 2000. There will be no adjustments to historical PCA entries related to the Rathdrum turbine.
Centralia
The Centralia steam generating plant shall be included as a PCA resource based on fixed levels of “authorized” generation and “authorized” fuel costs established in the Company’s last general rate case, as has been reflected in the PCA beginning in May 2000 when the plant was sold.
Colstrip and Kettle Falls
No modification shall be made to the PCA for Colstrip and Kettle Falls at the present time. These two plants are included in the PCA based on economic dispatch using the incremental operating cost established in the last rate case (authorized incremental operating cost) and the actual short-term market price. If the authorized incremental operating cost is less than the PCA market price, then the units are run in the PCA at the equivalent availability factor established for the plants in the last rate case. Any change in fuel costs is established using the authorized unit price per ton for fuel established in the last rate case.
Balance Account Trigger
The trigger amount for rebates and surcharges shall be increased from $2.2 million to $3.0 million effective with PCA journal entries beginning in December 2000. The trigger amount was intended to be about 2.5% of revenues. Based on current revenues of roughly $119 million, a 2.5% trigger should be $3.0 million.

The Company and Staff being in agreement, it was jointly recommended that the PCA be so modified.

On December 14, 2000, the Commission following its review of the filings of record, initial statements of position and subsequent company agreement in Case No. AVUE0006 issued a Notice of Modified Procedure and solicited public comment on the proposed changes to Avista’s PCA methodology. The deadline for filing written comments was December 27, 2000. The Commission Staff was the only party to file comments. Staff in its comments adopted its previously filed initial position with the exception of the date on which Rathdrum was to be first included. Staff in its initial comments proposed September 1, 2000, but has since agreed to November 1, 2000.
Commission Decision
Does the Commission adopt the modifications to the PCA methodology proposed by Staff and agreed to by the Company? If not, how does the Commission wish to proceed?

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DECISION MEMORANDUM 1