avue01.13.pdf

STAFF COMMENTS 1 SEPTEMBER 20, 2001
SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION DBA AVISTA
UTILITIES -WASHINGTON WATER POWER
DIVISION (IDAHO) FOR AUTHORITY TO
IMPLEMENT A RESIDENTIAL AND SMALL
FARM ENERGY RATE ADJUSTMENT
CREDIT.
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CASE NO. AVU-E-01-13
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the
Commission Notices issued on August 24, 2001 and September 13, 2001 in Case No.
AVU-E-01-13 submits the following comments.
On September 10, 2001, Avista Corporation dba Avista Utilities—Washington Water
Power Division (Idaho) revised its August 16 Application with the Idaho Public Utilities
Commission (Commission) requesting authority to implement a Schedule 59 residential and farm
energy adjustment credit of 0.337¢ per kilowatt hour (a revision to its August 16 filing of 0.439¢
per kilowatt hour). The revision reflects a recent determination of BPA regarding the monetary
benefit of the Firm Power Supply Agreement. The purpose of the energy rate adjustment credit
is to pass through to qualifying electric residential and small farm customers the estimated
benefits to be derived under the Residential Exchange Settlement Agreement between Avista and
the Bonneville Power Administration (BPA) for the contract year October 1, 2001 through
STAFF COMMENTS 2 SEPTEMBER 20, 2001
September 30, 2002. In its Settlement Agreement with BPA, Avista received system rights to 90
aMW of benefits from the federal hydropower system beginning October 1, 2001.
BACKGROUND
The Northwest Regional Power Act establishes a Residential Exchange Program to
provide benefits to residential and small farm consumers of Pacific Northwest Utilities. The
Settlement Agreement between Avista and BPA settles the parties’ rights and obligations for the
Residential Exchange Program for the ten-year term of the Agreement, October 1, 2001 through
September 30, 2012. The proposed rate credit will be adjusted periodically over the 10-year
term to match the actual benefits from the Exchange Agreement.
Explanation of Benefits
The benefits from the Exchange Agreement consist of three components: a monetary
benefit, a firm power sale benefit, and a firm power reduction benefit. A description of the
benefits is set forth in the Company’s Application. The total benefit amount may vary based on
the Company’s election of options. The actual benefits credited to customers in the first year
will be different than the actual benefits received from BPA under the Agreement due to
differences in actual and estimated retail loads, and/or market price of power and BPA’s
Residential Load (RL) Firm Power rate. Therefore, Avista is proposing a true-up mechanism to
true-up the difference over time between the benefits credited to customers and the actual
benefits received from BPA.
Accounting, Interest, True-up
Benefits derived as a result of the Settlement Agreement will be deferred to Account
254—Other Regulatory Liabilities. A separate subaccount will be used to distinguish the
residential exchange from other items that may be included in Account 254. The payment
amounts from BPA to Avista will be directly credited to Account 254. The payment amounts
include the monetary benefit, the firm power reduction benefit and the cash payment for power
Avista chooses not to take. Charges for wheeling and losses will be debited to Account 254.
The payment for power deliveries taken from BPA will be charged to Account 555—Purchased
Power Expense. The benefit for residential and small farm customers associated with the power
deliveries taken will be the difference between the Mid-C price and the amount paid to BPA for
the power. The benefit connected with power deliveries taken will be accounted for by debiting
Account 557—Other Power Supply Expense and Crediting Account 254. The result being that
STAFF COMMENTS 3 SEPTEMBER 20, 2001
the charges to Account 555 and Account 557 will reflect a purchase power expense amount
equivalent to having purchased power at the average Mid-C price for the month. Charges to
Account 555 and Account 557 will be included in the calculation of deferred power costs under
the PCA mechanism.
Account 254 will be amortized by debiting Account 254 and crediting Account
407.4—Regulatory Credits by an amount equal to the amount of revenue credit passed through
to customers during the month. Deferred federal income taxes will be recorded. Interest will be
calculated on the balance of Account 254 in similar fashion to the calculation of interest on PCA
balances. It is expected that the rate credit will be revised on an annual basis and may be revised
more often, if necessary, depending on how close actual results compare to estimates. A balance
in Account 254 will reflect the difference between actual benefits and the amount of credit
passed on to residential and small farm customers. The balance in Account 254 will be part of
the calculation of any revision to the rate credit.
Energy Rate Adjustment Credit
The Company proposes to pass through the estimated benefit amount on a uniform
cents per kilowatt hour basis to all qualifying customers served under Schedules 1, 12, 22, 32
and 48. The percentage reductions applicable to the individual rate schedules are as follows:
Schedule 1
Schedule 12
Schedule 22
Schedule 32
Schedule 48
Residential Service
Residential and Farm General Service
Residential and Farm Large General Service
Residential and Farm Pumping Service
Residential and Farm Area Lighting
-6.17%
-4.44%
-6.74%
-6.01%
-2.34%
Actual percentage reductions may vary according to factors contained in certain rate schedules.
The overall reduction in revenue amounts to approximately $3.5 million or about 6% for the
group of qualifying residential and small farm customers as a whole. The resulting decrease for
a residential customer using 1,000 kWh per month would be 6.12% or $3.37 per month.
The Company is proposing that the Schedule 59 rate credits be effective coincident
with the date that the new rates covering the Company’s proposed Power Cost Adjustment
surcharge become effective. Reference Case No. AVU-E-01-11. Having the same effective
STAFF COMMENTS 4 SEPTEMBER 20, 2001
date, the Company states, will avoid residential and small farm customers from having a rate
increase followed by a rate reduction.
STAFF COMMENTS
The BPA credit agreement between BPA and Avista is a culmination of three years of
negotiations. BPA, Avista, PUC Staff, and other Utilities were involved in the development of
the Residential Exchange Contract. The Agreement provides Avista’s residential and small farm
customers a benefit from the BPA system they have not received for some time. Staff believes
the negotiated agreement provides a significant benefit to Avista’s residential and small farm
customers.
Contract Terms
As stated in the Company’s filing, there are several choices that Avista must make upon
executing the Residential Exchange contract. The most significant decision Avista must make is
whether to take the monetary payment for the contract period or take the BPA power at the RL
rate with the option of monetizing the BPA power purchase at a future market price. While it is
true that the decision has been made for the first year, the most cost effective decision for the
remaining contract period cannot be accurately determined. Avista must take into consideration
a number of variables forecast into the future to compare the economic benefit of the various
contract options. Because the Company did not provide an evaluation of benefits beyond the
first year and the Company’s decision on the overall contract terms is yet undecided, Staff’s
review of this Application will be limited to the mechanism proposed to distribute the credit.
Staff does not believe that the ultimate terms of the Contract will materially affect the operation
of the credit mechanism provided the mechanism includes the annual true-up provision.
Accounting and Rate Making Treatment
The Company proposes a rate reduction credit of approximately 6% for qualifying
customers. The 6% credit was based on customer usage projections and first year benefits
derived from the monetization of the right to contract power. The Company’s decision to
monetize the first year is clearly the best option based on the Company’s one-year evaluation and
it is on this basis that the Schedule 59 credit amount was determined.
More specifically, Avista has established the Schedule 59 rates by summing the estimated
first year benefits of the agreement and spreading them over the estimated annual energy
consumption of qualifying customers. As previously indicated, the benefits can consist of
STAFF COMMENTS 5 SEPTEMBER 20, 2001
money paid by BPA directly to Avista to reflect the value of power not actually delivered. It can
also reflect the value of purchasing energy from BPA at the BPA RL rate. While the five-year
monetary benefit is essentially fixed, the estimated benefits due to BPA power purchases are
somewhat more complicated. In either case the benefits are directly passed through to
customers.
Avista proposes to utilize the PCA to recover its cost of benefits paid to residential and
small farm customers when power is purchased from BPA at the RL rate. This methodology
incorporates the RL purchase price and the estimated benefit using the Mid-C index as a
purchase power expense. Both the benefit and the purchase power expense are proposed to pass
through the PCA. All customer consumption is ultimately used to recover the expenses that
essentially reflect what would have occurred but for the BPA purchase. Residential and small
farm customers then receive a credit to offset benefit expenses passed through the PCA. Staff
has reviewed the PCA portion of the methodology and is satisfied that benefits derived from
BPA purchases at the RL rate are reasonably calculated and equitably distributed to the
appropriate customers.
Because actual usage and the final credit amounts will deviate from projections, Avista’s
mechanism provides a true-up to actual results on an annual basis. The true-up, if any, from the
past year will be combined with the estimated credit for the upcoming year and passed on to
individual customers.
Staff believes the combination of the true-up, the use of the PCA, and Schedule 59 will
properly pass through the credits to customers. It will also provide Avista the accounting
flexibility to incorporate future contract provisions as may be executed. The true-up provision
and accounting as presented in the Company’s proposal is essential to the timing of the filing and
the nature of the BPA Credit Contract.
Timing
The Company originally requested Tariff Schedule 59 become effective September 15,
2001 to coincide with the effective date of the current PCA filing. It is the Company’s desire to
have the effective dates match in order to avoid customer confusion over two rate changes so
close together. Delays in both this case and the PCA filing make an effective date of September
15, 2001 impossible. Staff therefore recommends that the effective date of Schedule 59 coincide
with the effective date of any rate change ultimately approved in the PCA proceeding.
STAFF COMMENTS 6 SEPTEMBER 20, 2001
STAFF RECOMMENDATION
Staff believes that the Company’s proposed methodology provides accounting and
contracting flexibility while at the same time properly quantifies and distributes BPA credits to
qualifying customers. Staff recommends approval of the Company’s credit mechanism as
proposed. Staff further recommends that Tariff Schedule 59 be approved at the proposed rate to
become effective concurrent with any changes in rates associated with the current PCA filing
case number AVU-E-01-11. Finally, Staff recommends that the mechanism be closely
monitored, at least initially, to assure that credits provided to customers reasonably matches
benefits derived.
Respectively submitted this day of September 2001.
___________________________
Scott Woodbury
Deputy Attorney General
Technical Staff: Michael Fuss
SW:i:umisc/comments/avue01.13swmfuss