avue01.4jhmfussdes.doc

JOHN R. HAMMOND
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5470

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, ID 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, FOR AN ORDER APPROVING AN ELECTRIC ENERGY BUY-BACK PROGRAM FOR PUMPING SCHEDULES 31 AND 32 CUSTOMERS )
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CASE NO. AVU-E-01-4

COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, John R. Hammond, Deputy Attorney General, and submits the following comments in response to Order No. 28662, the Notice of Application and Notice of Modified Procedure issued on March 7, 2001.
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”). Avista has requested expedited processing of its Application and seeks a Commission Order making the Program effective from March 15, 2001. In response to this request the Commission ordered that this case would be processed in an expedited manner using Modified Procedure. IDAPA 31.01.01.201-.204. Order No. 28662 at 2-3. However, the Commission suspended the proposed effective date for this Program until March 30, 2001. Id. at 3.

AVISTA’S IRRIGATION BUY-BACK PROGRAM
Avista states that the market price of electricity is expected to remain high for the 2001 irrigation season because of low snowpack, and projected low streamflows. Under these conditions the Company believes its Irrigation Buy-Back Program has the potential to reduce its power supply expense during the months of May through September of 2001.
Avista’s Program is delineated in the Company’s proposed Tariff 70-R attached to its Application. This Tariff would provide Avista’s 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 fourteen customers in Idaho that meets the minimum eligibility requirements for participation in this Program. Avista states that in mid-March it will notify these customers by phone and mail to describe how this Program will operate.
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 a participating irrigation customer’s reduced energy usage will be calculated by subtracting the customer’s total energy usage from May through September 2001 from their average energy usage during these same months from the preceding five years. If a customer does not have five years of prior billing history Avista will use the billing history that is available. The Company states that participating customers who save 50,000 kWh or more will be paid 10¢ per kWh saved. Irrigation customers providing savings of 25,000–50,000 kWh will receive 5¢ per kWh. Finally, participants who do not save at least 25,000 kWh will receive no compensation from the Company.
Avista Company 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 states in its Tariff that this Program will expire on October 31, 2001.
STAFF ANALYSIS AND RECOMMENDATION
The Commission Staff has reviewed and analyzed Avista’s Application and Attachments. After this review Staff is prepared to make the following recommendations.

1. Purchase Price of Power and Program in General
Avista has stated that 10¢ per kWh, the maximum price it will pay, is based on two factors. First, the Company’s price has to be lower than forecasted market prices. Second, the price must be set high enough to provide an incentive for its irrigation customers to participate. The Company has poled its eligible irrigation customers to determine the prices necessary for them to seriously consider the proposal. After consideration of these factors the Company decided that the 10¢ per kWh maximum price was the appropriate level to offer to irrigation customers for their reductions in energy usage. Avista also believes that when compared to forward market prices, purchasing power from irrigation through this Program is cost-effective.
Avista appears to be offering this Program in a good faith effort to acquire resources at the lowest cost at a time when the price for power on the spot market is at unprecedented levels. 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.
This year is projected to be a low water year. The low water conditions will limit Avista’s ability to meet total demand in its service area from its hydroelectric sources. These conditions will also limit the ability of the Company to sell any additional power on the spot market from the same resources. As a result of these conditions Avista anticipates occasionally purchasing power on the spot market during the 2001 irrigation season.
The price for power on the spot electric market was unprecedented during the summer of 2000. These prices are expected to remain at these high levels during the summer of 2001. Avista has projected that the summer spot market prices for 2001will be as follows:
Date HLH $/kWh LLH $/kWh Flat $/kWh
Mar 01 $0.30 $0.26 $0.28
Apr 01 $0.29 $0.26 $0.28
May 01 $$0.27 $0.24 $0.26
Jun 01 $0.31 $0.27 $0.29
Jul 01 $0.38 $0.33 $0.36
Aug 01 $0.41 $0.36 $0.39
Sep 01 $0.38 $0.34 $0.36
Oct 01 $0.31 $0.27 $0.30
Average Market Rate $0.33

Avista has calculated the savings of this Program by subtracting the 10¢ per kWh from an average spot market avoided cost of $0.3325 per kWh. The Company estimates the 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.
Based on the forward prices in the wholesale market for 2001 and the Company’s analysis, it makes economic sense to purchase power from irrigation customers through Avista’s Program at the 10¢ per kWh level. 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.
2. Program Participation
Avista has provided an analysis of the expected participation and reductions in energy usage as a result of the Program by gathering information from interviews from a portion of eligible participants. The following is a summary of the analysis:

Minimum Level of Curtailment (in kWh) 50,000 Anticipated Level of Adoption 20% Anticipated Level of Curtailment 50% Incentive Level ($/kWh) $ 0.10 Accounts Customers kWh Usage KWh Curtailed Total Payment AMW Impact TOTAL Qualifying Accounts 408 220 91,786,313 45,893,157 $ 4,589,316 12.5 Anticipated Participants 82 44 18,357,263 9,178,631 $ 917,863 2.5 ID Qualifying Accounts 124 68 25,129,739 12,564,870 $ 1,256,487 3.4 Anticipated Participants 25 14 5,025,948 2,512,974 $ 251,297 0.7 WA Qualifying Accounts 284 152 66,656,574 33,328,287 $ 3,332,829 9.1 Anticipated Participants 57 30 13,331,315 6,665,657 $ 666,566 1.8
Based on these interviews Avista estimates that if fourteen Idaho customers participate in the Program the Company could save 2,512,974 kWh. Staff believes these estimates are reasonable representations of what the scope of the Program will be in Idaho.
3. Verification of Energy Savings and Payments
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 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. Staff believes through this process the Company can verify the energy savings an irrigation customer has pledged.
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
Avista proposes to allocate costs and benefits of the Program to its power supply expense in Account 555. The Company has submitted a modification to its current PCA mechanism in Case No. AVU-E-01-1. If the modifications are approved by the Commission, revenue recovery from lost retail sales will be addressed through that mechanism. If the modifications are not approved the Company has requested to address this issue in the future.
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 to broad.
STAFF RECOMMENDATION
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 which 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.

DATED at Boise, Idaho, this day of March 2001.

_____________________________________
John R. Hammond
Deputy Attorney General

Technical Staff: Michael Fuss
Dave Schunke

JH:DES:MFuss:gdk:i:umisc/comments/avue01.4jhmfussdes
Originally, Avista proposed that this Program would only be offered to its Idaho irrigation customers who could offer a reduction of energy consumption of at least 100,000 kWh. The Company amended this amount to 50,000 kWh for the Idaho Program so that it would be consistent with its Irrigation Buy-Back Program in Washington.
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.

STAFF COMMENTS 7 MARCH 19, 2001