kathystockton.pdf

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AVU-E-01-11
STOCKTON, K (Di) 1
08/28/01 STAFF
Q.Please state your name and business
address?
A.My name is Kathleen L. Stockton. My
business address is 472 West Washington Street, Boise,
Idaho.
Q.By whom are you employed and in what
capacity?
A.I am employed as an Auditor by the Idaho
Public Utilities Commission.
Q.Please describe your educational background
and professional experience.
A.I received my B.B.A. degree majoring in
Accounting from Boise State University in December
1992. Following graduation I was employed by the Idaho
State Tax Commission as a Tax Enforcement Technician.
In my capacity as a Tax Enforcement Technician, I
performed desk audits on individual state income tax
returns. I was promoted to Tax Auditor, and after
meeting the underfill requirements, was promoted to
Senior Tax Auditor. In my capacity as an auditor, I
performed audits on Special Fuel and Motor Fuel Tax
returns, International Fuels Tax Agreement Returns and
Special Fuel User tax returns. I accepted employment
with the Idaho Public Utilities Commission (IPUC;
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AVU-E-01-11
STOCKTON, K (Di) 2
08/28/01 STAFF
Staff) in July of 1995. I attended the National
Association of Regulated Utilities Commissioners Annual
Regulatory Studies program at Michigan State University
in the summer of 1996.
Q.What is the purpose of your testimony?
A.I will be presenting the Staff’s
recommendation, as well as the Staff’s calculation of
the actual deferral balance as of June 30, 2001.
Q.Have you prepared an exhibit?
A.Yes, I have prepared Staff Exhibit No. 102,
which is the Staff Calculation of the actual deferral
balance as of June 30, 2001.
Q.Would you please summarize your testimony?
A.My testimony will present the Staff
recommendations for this Application. I address the
concerns of the financial community. I also discuss
the Staff proposal for the calculation of interest on
the deferral balance, with the Staff calculation shown
on Staff Exhibit No. 102. Staff Exhibit No. 102 also
calculates the deferral balance with the Centralia
credit not being subject to the 90/10 sharing. I
address Staff’s recommendation in regard to the
Company’s Gross-Up Calculation for Equity Return and
for Miscellaneous Revenue related expenses. I also
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AVU-E-01-11
STOCKTON, K (Di) 3
08/28/01 STAFF
address the prudency of the purchased power expenses.
I address the accounting treatment of the PGE credit,
Northeast CT Emissions Expense, and the buy-back
expenses in the PCA mechanism.
Q.Please summarize Staff’s recommendation in
this case.
A.Staff recommends that the filing be
accepted by the Commission with the following
recommendations and modifications.
1. The percent to be recovered will be as
proposed by the Company, i.e. 19.4% (approximately
14.7% plus continuation of the existing 4.8%
surcharge).
2. The time period for recovery will be 27
months, with a review by the Commission Staff after 12
and 24 months of recovery. At that time, an adjustment
to the surcharge percentage may be made to match the
recovery to the actual deferral balance.
3. Remove the Company’s Gross-Up
Calculation for Equity Return and for Miscellaneous
Revenue related expenses.
4. Apply simple interest to the deferral
balance rather than compound interest, using an end of
month balance rather than the average monthly balance
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AVU-E-01-11
STOCKTON, K (Di) 4
08/28/01 STAFF
as the amount to calculate interest on.
Q.Did you perform an audit as part of your
investigation of this filing?
A.I performed a limited audit of the filing.
Specifically I audited the actual amounts in the
deferral balance, as well as the known and measurable
items in the projection. The audit revealed no
irregularities or inconsistencies.
Q.Does Staff believe its recommendation will
satisfy concerns of the financial community?
A.Yes. Moody’s comments on the Company’s
filing stated, “Moody’s believes that regulatory
support for the surcharges requested would go a long
way toward helping stabilize credit quality . . .
Moody’s also notes that regulatory support would
improve Avista’s ability to access both debt and equity
capital at a reasonable cost.” Staff believes its
recommendation provides this regulatory support.
Interest
Q.What is the Staff recommendation regarding
the interest calculation on the deferral balance?
A.Staff recommends that the Company calculate
interest on the deferral balance using simple interest,
computed on the balance at the end of the month. In
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AVU-E-01-11
STOCKTON, K (Di) 5
08/28/01 STAFF
its Application, the Company has calculated interest on
the deferral balance using compound interest
calculations – in other words they are calculating
interest on the principal amount of the deferral
balance, as well as interest that was accrued in the
previous month(s). The Company is also using the
average monthly balance for calculating interest.
Staff recommends that the Company receive or pay
(depending on whether the balancing account is in the
surcharge or rebate direction) interest on only the
deferred expenditures before interest. Staff further
recommends that the Company use the end of the month
balance to calculate the interest.
In the Commission’s recent Order No. 28775
modifying the Company’s PCA methodology, the Commission
states: “As agreed to by the Company and Staff,
monthly accumulation in the PCA deferral account
(including unamortized balances of future rebates and
surcharges) will accrue interest at the same rate as
the Commission approved interest rate on deposits.”
Staff interprets the “monthly accumulation
in the PCA deferral account” to be the power costs that
have been deferred, not including any interest
previously calculated on the power cost expenditures.
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AVU-E-01-11
STOCKTON, K (Di) 6
08/28/01 STAFF
The Company’s newly modified PCA mechanism has been
modeled largely after Idaho Power’s PCA mechanism. In
Idaho Power’s PCA mechanism, simple interest is applied
to power supply costs in the deferral account, using
the end of month balance. Staff contends that this
method is the correct approach for applying interest
charges to the deferral balance.
Q.What is the financial impact of Staff’s
recommendation to the actual amount of the PCA deferral
balance on June 30, 2001?
A.The impact of applying simple interest on
the ending monthly balance is shown in Staff Exhibit
No. 102. The difference between the Company’s method
and the Staff’s method is $69,547 as shown on line 30.
Centralia Credit
Q.Have you made an adjustment to the ending
balance due to the Centralia credit not being subject
to the 90/10 sharing?
A.Yes. Staff and the Company have agreed
that the Centralia credit will not be subject to the
90/10 sharing mechanism in the PCA. Staff Exhibit No.
102 is calculated so that the Centralia credit is not
subject to sharing. The impact of this is $140,900 and
is shown on Line 31.
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AVU-E-01-11
STOCKTON, K (Di) 7
08/28/01 STAFF
Q.What is the difference between the Total
Power Cost Deferral as calculated by Staff and the
Company?
A.The difference is $210,447 as shown on line
33 of Staff Exhibit No. 102. The Company calculates
the June 30, 2001 deferral balance to be $30,067,057;
and Staff calculates the deferral balance on June 30,
2001 to be $29,796,610 (Staff Exhibit 102, lines 32 and
26).
Gross-Up Calculation
Q.Please explain the issue of Gross-Up
Calculation for Equity Return and for Miscellaneous
Revenue related expenses.
A.The Company makes an adjustment for
“revenue sensitive expenses, such as Commission Fees
and Uncollectible Expense”. They also make an income
tax gross-up adjustment for “equity return deferrals
associated with the Company’s small generation
projects, plus the Coyote Springs II Project (Falkner
Direct, page 4, lines 23 and 24; and page 5, lines 1
and 2).
The scope of the PCA is to address power
supply expenses. The PCA is narrow in scope, and not
designed to capture items other than power supply
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AVU-E-01-11
STOCKTON, K (Di) 8
08/28/01 STAFF
costs. Including a gross-up for the equity component of
capital expenditures and miscellaneous revenue items is
outside the scope of the PCA mechanism. These items
are better handled in a separate proceeding such as a
general rate case. Therefore, I recommend they not be
considered in this PCA filing.
Prudency Review
Q.Have you performed a prudency review of the
power supply expenses included in the actual amounts in
the PCA filing?
A.Yes, I performed a limited prudency review.
My review was limited in scope to the months of January
through June 2001. Given the time constraints, I was
not able to look at all transactions included in the
Purchased Power account (FERC 555) and the Power Sales
account (FERC 447). Specifically I looked at the
price of the transaction when executed and compared
that price to other relevant purchase/sale prices (Mid-
Columbia index and COB futures) available at the time.
If the transaction price was competitive with other
alternatives based on information available at that
time, then it was deemed reasonable to include it in
the PCA. Based on my review of a sampling of
purchase/sale transactions, I conclude that purchases
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AVU-E-01-11
STOCKTON, K (Di) 9
08/28/01 STAFF
and sales transactions appear reasonable at the time
they were entered into. Staff witness Hessing
addresses the prudency in reference to the need for the
resources to meet load or expected load.
Q.Did you have any adjustments to the actual
amounts in the Application?
A.No. The actual amounts included in the
Application are correctly recorded in the PCA accounts
and appear reasonable at the time of the transactions.
PGE Credit
Q.How is the PGE Credit being handled in the
current PCA Application?
A.The PGE credit recognizes continued 18-year
amortization from the monetization of a contract Avista
had with Portland General Electric in the last rate
case. A line item in the PCA mechanism recognizes this
credit by reducing a surcharge or increasing a rebate.
The Company has proposed to accelerate the
amortization from 18 years to fifteen months in order
to offset the current impact of low water and high
market prices. Staff agrees with the Company. The
accelerated amortization of the PGE credit directly
benefits the customers as the amount of the surcharge
is lessened and the length of the surcharge is
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AVU-E-01-11
STOCKTON, K (Di) 10
08/28/01 STAFF
shortened by its inclusion in this PCA filing. Staff
recognizes that accelerating the PGE amortization will
eliminate PGE revenue in later years. However, Staff
believes that the tradeoff is reasonable given the
magnitude of the current and projected power supply
deferrals.
Northeast CT Emissions Expense
Q.What amounts are included the Company’s
application pertaining to the Northeast Combustion
turbine Emissions expense?
A.The Company has incurred, as of June 31,
2001 at a total Company level, $1,335,365 in Northeast
CT Emissions expenses. The amount allocated to the
Idaho jurisdiction and included in the PCA deferral
balance is $443,074, before the 90/10 sharing. Staff
agrees with the Company that these expenses are
properly included in the PCA. These expenses benefit
the customers by reducing the net power costs. Staff
recommends approval of these expenses in the PCA. They
are included in the Company’s Application, subject to
the 90/10 sharing provision.
The Company has included a line item in the
PCA worksheet for the expenses that make up the
Northeast CT Emissions expense. These expenses break
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AVU-E-01-11
STOCKTON, K (Di) 11
08/28/01 STAFF
down into the following categories and corresponding
amounts:
Mitigation Fee - $348,225
Offset Program - $778,350
Environmental Compliance Advice – $13,416
Turbine Lease and Maintenance - $195,374
Buy-Back Programs
Q.Please explain the accounting procedures
for buy-back programs.
A.There are three buy-back programs approved
by the Idaho Public Utilities Commission. There is one
for industrial customers, Rule 26 – Buy-Back of
Customer Power, approved in Case No. AVU-E-00-10, Order
No. 28595; one for irrigation customers, Tariff 70-R,
Buy-Back of Customer Power – Pumping Services, approved
in Case No. AVU-E-01-4; and the All Customer Buy-Back
program, Tariff Schedule 92 – All Customer Electric
Energy Buy-Back program, approved in Case No. AVU-E-01-
6, Order No. 28757. The individual Orders specify the
accounting treatment for the costs of these three
programs.
Q.What is the accounting treatment for Rule
26 – Buy-Back of Customer Power (Industrial Buy-Back
program)?
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AVU-E-01-11
STOCKTON, K (Di) 12
08/28/01 STAFF
A.The Industrial Buy-Back program is tracked
in a separate sub-account in FERC Account 555 -
Purchased Power. Account 555 is included in the PCA
calculations. The actual amounts included in the PCA
Application have been audited and were found to be
correct as presented in the Application.
Q.What is the accounting treatment for Tariff
70-R, Buy-Back of Customer Power – Pumping Services
(Irrigation Buy-Back program)?
A.Irrigation Buy-Back program costs and
benefits are to be recorded in Account 555. Order No.
28698 states that “The Commission also finds that the
Company shall record the costs and benefits of this
Program in Account 555. Further, in order to monitor
these costs and benefits the Company shall establish
sub-accounts to specifically track the results of this
Program. The PCA filing should also include a separate
line to identify these costs.”
The Order also states “Avista states that
participating irrigation customers’ reduced energy
usage will be calculated by subtracting a customer’s
total energy usage from May through September 2001 from
their annual average energy usage during these same
months from the preceding five years. If a customer
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AVU-E-01-11
STOCKTON, K (Di) 13
08/28/01 STAFF
does not have five years of prior billing history
Avista will use the billing history that is available.
The Company states that verification of energy savings
will occur after October 31, 2001.”
These costs have yet to be calculated.
Staff will revisit the accounting for this buy-back
program in its proposed annual review. At that time,
Staff proposes that the Company maintain separate sub-
accounts and show a separate line item for this
particular buy-back program. In Order No. 28698, Staff
also stated, “that it would conduct a prudency review
of the costs resulting from this program at its
conclusion.”
Since the payments to the customers in this
program have not been made, they are not included in
the actual amounts in this filing. They will be
included by the time the proposed annual review takes
place. At that time a determination of the appropriate
amounts to be included in the PCA will take place.
Q.What is the accounting treatment for Tariff
Schedule 92 – All Customer Electric Energy Buy-Back
Program (All Customer Buy-Back)?
A.Order No. 28757, in the Commission
Findings, states, “We find the reporting requirements
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AVU-E-01-11
STOCKTON, K (Di) 14
08/28/01 STAFF
recommended by Staff in its comments to be reasonable,
i.e., separate subaccount for tracking costs associated
with Tariff Schedule 92, monthly reporting and final
accounting.” With respect to lost revenue, the Order
further states, “In our interlocutory order in this
case, we made a preliminary finding that the Company’s
proposed accounting treatment (excepting lost revenue)
and method for recovery of amounts paid/credited to
customers and related program expense was reasonable.
We continue in that belief. Regarding lost revenue, we
note that the parties appear to be making progress in
establishing an acceptable lost revenue recovery
methodology. We encourage the parties to continue
working in this regard and to present an acceptable
lost revenue recovery methodology prior to any request
for Schedule 92 program cost recovery.”
The PCA methodology approved by the
Commission incorporates a retail load growth
adjustment. To the extent the buyback programs reduce
load growth or cause negative growth overall, the
adjustment is reduced. This is the only way that the
Company in this filing addresses the issue of lost
revenue. Staff finds the Company’s treatment of lost
revenue acceptable in this case. The appropriate
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AVU-E-01-11
STOCKTON, K (Di) 15
08/28/01 STAFF
amounts for the All Customer Buy-Back program have been
included in the PCA Application as a separate line item
and have been reviewed by Staff.
Q.Does this conclude your testimony?
A.Yes, it does.