2001019_sw.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
JEAN JEWELL
RON LAW
LOUANN WESTERFIELD
TONYA CLARK
DON HOWELL
DAVE SCHUNKE
RANDY LOBB
BILL EASTLAKE
KEITH HESSING
KATHY STOCKTON
NANCY HARMAN
WORKING FILE
FROM:
DATE:
JANUARY 9, 2001 RE: CASE NO. AVU-E-00-09 (Avista)
POWER COST ADJUSTMENT (PCA)
$5,708,000 SURCHARGE (4.763%)

On November 8, 2000, Avista Corporation dba Avista Utilities—Washington Water Power Division (Avista; Company) in Case No. AVUE00-09 filed an Application with the Idaho Public Utilities Commission (Commission) proposing a revision to the Company’s electric tariff Schedule 66—temporary Power Cost Adjustment—Idaho. Avista requests that the Commission approve a $5,708,000, 4.763% Power Cost Adjustment (PCA) surcharge to Avista’s customers. The Company requests an effective date of January 1, 2001.
The surcharge the Company is requesting is a result of the “trigger” being reached and exceeded in Avista’s Power Cost Adjustment (PCA) balancing account. The Company’s PCA mechanism was first established in Case No. WWP-E-88-3, Order No. 22816 issued October 31, 1989, and has been extended, modified and clarified in a number of subsequent cases (WWP-E-93-3, Order No. 24874; WWPE94-4, Order No. 25637; WWPE97-10, Order No. 27202; and WWP-E-98-4, Order No. 27824). Since its inception to date of filing, there have been nine rebates totaling $23,184,000 and four surcharges totaling $12,477,000, including the surcharge proposed in this filing. An existing rebate, in the amount of $2,364,000 (1.973%) expires July 31, 2001. Reference Case No. AVU-E-00-02, Order No. 28402. The PCA-related rate changes are limited to no more than two consecutive surcharges or rebates during any 12-month period, July 1 to June 30, and the annual rate change during any 12-month period is limited to 5%.
Water Powers PCA is used to track changes in revenues and costs associated with variations in hydroelectric generation, prices in the secondary market, and changes in PURPA power expenses. The PCA rate adjustment mechanism is designed to recover/rebate variances in power supply expenses incurred by the Company. The PCA mechanism tracks changes in the Company’s power supply costs associated with abnormal weather and stream flows. The weather-related portion of the PCA tracks 100% of the variation in hydro generation from the hydro generation authorized, variation in secondary prices from those authorized, and the related variation in thermal generation. The PCA is also designed to recover contract costs incurred pursuant to the Public Utilities Regulatory Policies Act of 1978 (PURPA) and the related implementing rules and regulations of the Federal Energy Regulatory Commission (FERC) beyond the level included in the Company’s general revenue requirement. PURPA contract costs are the result of the Company’s federally mandated obligation to purchase the output of qualifying small power and cogeneration facilities and, therefore, are largely outside the control of Avista. The PCA tracks 100% of the changes in costs associated with PURPA contracts. The Company is allowed to record the difference between actual power supply costs and the level of those costs authorized by the Commission. When the total difference in costs exceed $2.2 million, the Company may request authority to implement a surcharge or rebate. As reflected in the Company’s Application, the $2.2 million trigger was reached and exceeded in both September and October 2000, based on actual data from the preceding month.
Under the Company’s proposal in this case, the monthly energy charges of the individual electric rate schedules are to be decreased by the following amounts:

Type of Service Present
Sch 66 Rebate
Effective 8/1/00; Expires 7/31/01
(1.973%)
Proposed
Sch 66 Surcharge
4.763%
Schedules 1
(Residential)

Schedules 11, 12
(General)

Schedules 21, 22
(Large General)

Schedule 25
(Extra Large General)

Schedules 31, 32
(Pumping)
(0.101¢/kWh)

(0.137¢/kWh)

(0.095¢/kWh)

(0.065¢/kWh)

(0.081¢/kWh)
0.245¢/kWh

0.305¢/kWh

0.223¢/kWh

0.170¢/kWh

0.181¢/kWh
Flat rate charges for Company-owned or customer-owned street lighting and area lighting service (Schedules 41-49) under the present rebate are reduced by 1.973% and under the proposed surcharge will be increased by 4.763%. Implementation of the proposed surcharge will result in an increase of 4.763% in the Company’s Idaho electric rates or $2.45 in the monthly bill of an average residential customer using 1,000 kWh. The combined effect of both the existing rebate and proposed surcharge is an overall increase of 2.790%, or $1.44 in the monthly bill of an average residential customer using 1,000 kWh. The existing rebate, however, will expire on July 31, 2001.
Avista has requested that its Application be processed under Modified Procedure, i.e., by written submission rather than by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. The Company, as part of its Application, has filed supporting testimony and exhibits.

On December 13, 2000, the Commission issued a Notice of Application and Modified Procedure in Case No. AVU-E-00-09. The deadline for filing written comments (protests) was January 3, 2001. Comments were filed by Commission Staff, the City of Wallace and a number of the Company’s customers. (Attached). Comments can be summarized as follows:
Staff Comments
Staff recommends that the Company’s proposed $5,708,000, 4.63% increase be approved by the Commission effective February 1, 2001. The amount requested in the Company’s filing represents two surcharge triggers in a two-month period. This, Staff states, is unprecedented in the history of Avista’s PCA. The combination of low stream flows and high market prices has caused the Company’s power supply cost to be far above normal. Staff thoroughly reviewed the Company’s Application and found no discrepancies between reports and source documents. Staff found the amount in the balancing account to be correct. The Company’s calculations conform to the currently approved PCA methodology.
Staff has reviewed the comments of customers and notes that all customers oppose the increase. Stated concerns of customers include the depressed economy and poverty within the Company’s Idaho service area, the income constraints and choices (electric heat, prescription drugs or food) faced by many elderly on Social Security, the Company’s poor management decisions, a perceived Company preference for shareholders vis-à-vis customers, the nature of the Company’s participation in the wholesale energy market, the Company’s lavish spending practices (big executive salaries, signing bonuses, stock options, etc.), a perceived abuse by the Company of its monopoly status and a characterization of the relief requested in this case as a Company bailout. Staff notes that the nature of concerns raised by customers seem to indicate that the Company has not been very successful at explaining its requested increase or distinguishing the differences in its Washington and Idaho filings to customers.
Staff notes that Avista understands that its requested increase will add to the burden that many of its customers are already experiencing with its high bills. Staff in its comments summarizes the Company’s Comfort Level-Billing Plan, a levelized payment plan that averages a customer’s annual bill into equal monthly payments, the Low Income Energy Assistance Program (LIEAP), and Project Share. All programs are available to qualifying Avista customers. Staff also notes that the Avista web site, http://www.avistautilities.com, contains information concerning home energy costs and ways to conserve energy and lower costs. Staff recommends that Avista be directed to continue its efforts providing customers information regarding energy conservation, available payment methods and resources for financial assistance. Specifically, Staff recommends that within 30 days of the Commission’s final Order in this case, that the Company provide its customers with an informational pamphlet similar to one prepared by Intermountain Gas Company for distribution to its customers.
The City of Wallace in its comments notes that the effect of Avista’s increase is on municipalities is to pass the increase onto its citizens, not by raising taxes but by reducing services. In reality, the City states, that while the services are down to the basic minimum and leave no room for reductions. The City is then forced to tighten the belt to absorb these proposed increases which could result in the necessity to lay off essential employees such as police and/or firemen. The City of Wallace contends that it would be in the best interest of the citizens of Idaho that before the Commission grant any rate increase to Avista Utilities, it should demonstrate to the Commission cost cutting measures they plan to put into effect to lower their overallexpenses.
Commission Decision
Avista proposes a $5,708,000 (4.763%) PCA surcharge. The Company proposed effective date of January 1, 2001, was suspended by Commission Order to February 1, 2001. Does the Commission find it reasonable to grant the Company’s proposed surcharge? If not, how does the Commission wish to proceed? Re: Staff recommended informational pamphlet?

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DECISION MEMORANDUM 4