2001322_jh.doc

DECISION MEMORANDUM

TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
BILL EASTLAKE
GENE FADNESS
TONYA CLARK
DON HOWELL
RANDY LOBB
DAVE SCHUNKE
MICHAEL FUSS
TERRI CARLOCK
BEV BARKER
WORKING FILE

FROM: JOHN R. HAMMOND

DATE: MARCH 22, 2001

RE: IN THE MATTER OF THE APPLICATION OF AVISTA CORPORATION DBA AVISTA UTILITIES, FOR AN ORDER APPROVING AN ELECTRIC ENERGY BUY-BACK PROGRAM FOR PUMPING SCHEDULES 31 AND 32 CUSTOMERS, CASE NO. AVU-E-01-4

On March 1, 2001, Avista Corporation dba Avista Utilities (“Avista”) filed an Application requesting Commission approval of its Tariff 70-R, Buy-Back of Customer Power—Pumping Service (“Irrigation Buy-Back Program” or “Program”). The Commission Staff was the only party to file comments.
AVISTA’S IRRIGATION BUY-BACK PROGRAM
Avista’s Program would provide its Schedules 31 and 32 irrigation customers, who have used at least 50,000 kWh during at least one previous irrigation season, the option to sell power back to the Company by reducing their historical electric consumption. Avista estimates that it has 68 customers in Idaho that meet the minimum eligibility requirements for participation in this Program.
To participate, eligible irrigation customers must notify Avista by April 15, 2001 and agree to reduce their energy consumption by a minimum of 50,000 kWh from May to September 2001.
Avista states that after October 31, 2001 it will verify each participating irrigation customer’s actual energy savings and then make payments to them. Avista proposes to record these payments as a power supply expense in Account 555, as these payments will be made in lieu of purchasing power on the wholesale market. Avista asserts that this Program will expire on October 31, 2001.
STAFF RECOMMENDATION
The Commission Staff has reviewed and analyzed Avista’s Application and Attachments. After this review Staff made the following recommendations
1. Purchase Price of Power and Program in General
Avista has stated that 10¢ per kWh is the maximum price it will pay irrigation customers for reductions in their energy consumption for the 2001 irrigation season. Based on the Company’s direct contact with irrigation customers, and because the price being offered is less than the projected spot market price, Staff believes the 10¢ per kWh is reasonable. the Company believes that this Program will save approximately $584,311 in Idaho. The Company anticipates these savings will be passed back to all customers through the purchase power account and the power cost adjustment (“PCA”) mechanism.
Staff believes that this Program will help to reduce off-system spot market purchases that the Company may have to make this summer to serve its customers. Furthermore, if enough power is conserved through the Program the Company may be able to sell any excess on the spot market. As both of these scenarios would benefit Avista’s customers Staff recommends approval of the Program.
Avista estimates that if 20% of its eligible Idaho irrigation customers participated in this it could save 2,512,974 kWh. Staff believes these estimates are reasonable representations of what the scope of the Program will be in Idaho.
The Company also states that it will make payments to participating irrigation customers after October 31, 2001 following its verification of energy savings. Staff believes that this is reasonable. However, based on the Commission’s decision in Case No. IPC-E-01-3 to require Idaho Power to pay interest of 6% on payments that will be held back until the end of the 2001 irrigation season, Staff believes that the Commission should address whether Avista should also be required to pay this same rate on the payments which will not be made until after October 31, 2001.
4. Accounting Treatment and Revenue Recovery
Staff also believes the Company should be allowed to record the costs and benefits of this Program in Account 555. Further, in order to monitor these costs and benefits Staff recommends sub-accounts be established to specifically track the results of this Program. The PCA filing should also include a separate line to identify these costs.
Since the PCA review is pending in Case No. AVU-E-01-1, and the results are not determined at this time Staff believes that Avista and interested parties should develop and present a proposal to the Commission recommending a procedure to calculate the amount of revenue impact that should be allowed to pass through the Company’s PCA mechanism.
Finally, Staff will conduct a prudency review of the costs resulting from this Program at its conclusion.
5. Contract Provision
Staff has concerns regarding a contract provision contained in the proposed contract that it will use with its Idaho irrigation customers. See, “Electric Energy Conservation Agreement” Supplement to Application. Specifically, that:
[By signing the agreement the] Customer understands that the financial incentive provided by AVISTA herein may be modified or withdrawn in the event AVISTA determines that the major portion of Customer’s Reduction Level was caused, primarily, by mandates by any local, State or Federal authority or governing body or entity having jurisdiction over Customer’s water usage.

Contract at p.2, § 7.
While Staff believes there may be extreme, specific circumstances which may justify the Company reducing payments to irrigation customers under these contracts, Staff feels the language from the proposed contract quoted above appears much too broad.
SUMMARY OF STAFF RECOMMENDATIONS
Staff recommends approval of the submitted Tariff 70-R so that Avista may implement its Irrigation Buy-Back Program for 2001 only. Staff also makes the following additional recommendations:
Staff recommends that the Company should include sub-accounts in the purchase power Account 555 to specifically track the Program.

Staff recommends that the Commission order Avista and other interested parties to develop and present a proposal to the Commission recommending a procedure to calculate the amount of revenue impact that should be allowed to pass through the Company's PCA mechanism.
Staff recommends that the Commission address whether or not Avista should pay interest on the accumulated payment amounts the Company owes to participating irrigation customers that won’t be disbursed until after October 31, 2001.

Staff recommends that the Commission order Avista to modify section 7 of its proposed contract with irrigation customers to provide the specific circumstances under which reduced or non-payment for energy reductions would occur.

Staff recommends that the Company should provide a summary program performance report following the completion of the Program.

Avista’s Response
Avista has significant concerns about Staff’s position on whether interest should be paid by the Company to participating irrigation customers. The Company states that it does not wish to pay interest as the Program is based on a customer’s cumulative energy savings amount over five months as oppowed to a program based on monthly energy savings. This the Company argues provides the customer the flexibility to try and achieve a cumulative energy savings amount over five months. Therefore, it believes that it would be unreasonable to accure interest as the Company does not “owe” the customer any payment until the Program is completed. It would also create administrative problems for the Company as well.
Proposes to modify the contract language which the Staff has concerns with.
Although Staff believes 10¢ per kWh is reasonable it is unsure how much additional participation from irrigation customers Avista would obtain by raising the price per kWh.

Through this Program the Company also estimates that it will be able to save $1,549,883 in Washington.

DECISION MEMORANDUM 4