20021001Decision Memo.doc

DECISION MEMORANDUM

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

FROM: LISA NORDSTROM

DATE: OCTOBER 1, 2002

RE: IN THE MATTER OF THE APPLICATION OF AVISTA CORPORATION FOR A MODIFICATION TO THE RESIDENTIAL AND SMALL FARM ENERGY RATE ADJUSTMENT CREDIT, CASE NO. AVU-E-02-7.

On August 30, 2002, Avista Corporation filed an Application seeking modification of the residential and small farm Energy Rate Adjustment Credit. Avista proposed that the credit be increased from 0.337¢ per kilowatt-hour (kWh) to 0.347¢/kWh effective October 12, 2002. The purpose of the energy rate adjustment credit is to pass through the estimated benefits of the Residential Exchange Settlement Agreement between Avista and the Bonneville Power Administration (BPA) to qualifying electric residential and small farm customers. In the Notice of Application and Modified Procedure issued September 9, 2002, the Commission solicited comments regarding Avista’s Application. Order No. 29111. No comments were received other than those submitted by Commission Staff.

THE RESIDENTIAL EXCHANGE SETTLEMNT AGREEMENT
The Northwest Regional Power Act established 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, 2011. Under the Settlement Agreement, Avista received rights to 90 average megawatts (aMW) of benefits from the federal hydropower system beginning October 1, 2001. Avista receives the 90 aMW in the form of both monetary and firm power sale benefits that are expected to total $3,310,988.
Monetary Benefit: Avista receives 42 aMW (29 aMW Washington, 13 aMW Idaho) of the 90 aMW of benefits in the form of a monthly monetary payment. The amount of the payment is determined by taking the difference between BPA’s Forward Flat-Block Price Forecast ($38/MWh) and the residential load base rate at 100 percent load factor ($19.71/MWh) multiplied by the annual amount of energy. The energy amount of the monetary benefit is fixed for the first five years of the contract, October 2001 through September 2006. BPA shall, no later than October 1, 2005, notify Avista of the amount of monetary benefit expressed in annual aMW, for which payments will be made to Avista during the period October 2006 through September 2011.
Firm Power Sale Benefit: The Settlement Agreement gives Avista 48 aMW (33 aMW Washington, 15 aMW Idaho) of firm power benefits. In September 2001, Avista elected to terminate the Firm Power Sale Agreement and convert it to monetary benefit for the first five years.
Avista noted that the benefits credited to customers are different than the actual benefits received from BPA under the Settlement Agreement due to differences in actual and estimated retail loads. Also, BPA has a Cost Recovery Adjustment Clause (CRAC) that has three components: “load-based” CRAC, “financial-based” CRAC, and “safety-net” CRAC. The initial 42 aMW of monetary benefit is subject only to the safety-net CRAC component. If the safety-net component is triggered, the amount of benefit received from BPA is reduced. Furthermore, BPA has determined that a terminated Firm Power Sale Agreement converted to monetary benefit (as Avista has done) is subject to all three CRAC components. In its filing, Avista proposed an adjustment to true-up the difference between the benefits credited to customers and the actual benefits received from PBA during the first contract year, October 1, 2002 through September 30, 2002.
ENERGY RATE ADJUSTMENT CREDIT
The proposed rate credit of 0.347¢/kWh is based on estimated benefits for the second contract year of the ten-year Agreement, which covers the period October 1, 2002 through September 30, 2003, as well as an estimated true-up for the first contract year. Avista proposed to pass this credit through on a uniform cents per kilowatt-hour basis to all qualifying customers served under Schedules 1, 12, 22, 32, and 48. When factoring this modified credit into customer rates, the bill of a residential customer using 1,000 kWh per month would decrease by 5.54%, or $3.47 per month. The percentage decrease for a customer using 600 kWh per month would be 5.62%, or $2.08 per month. The decrease for a customer using 1,400 kWh per month would be 5.50%, or $4.86 per month. The Company requested an effective date of October 12, 2002, which is 12 months from the date that the rate credit was initiated on October 12, 2001.
STAFF COMMENTS
Staff noted that the BPA credit was first put in place last year by Order No. 28869 in Case No. AVU-E-01-13. That case also established the method to calculate the credit on an annual basis, which is based on the: 1) estimated dollar and kWh amounts for the coming year, and 2) known dollar and kWh amounts from the previous year that can be verified through audit. Staff stated that the estimated amounts need to be relatively accurate to avoid large true-ups. Moreover, actual amounts from the past year must later be audited to verify the accuracy of the true-up since it will effect the rate proposed for the coming year. In this case, Staff found the proposed true-up increases the credit and represents 6% of the total.
Staff audited the Company’s workpapers that support the entries into the deferral accounts. The Company properly accounted for the BPA credit in compliance with Order No. 28869 and Staff found the actual amounts recorded in Account 254 to be correct.
Staff reviewed the true-up calculations and found them to be acceptable. According to Staff’s calculations, the actual true-up balance as of August 31, 2002 was $318,470.40. The Company estimated the true-up balance as of November 30, 2002 to be ($213,544.32) based on amounts projected for the months of August through November. The estimates for August 2002 were reasonably close to the actuals for August, supporting the Company’s use of a partial projection in establishing the new energy rate adjustment credit. Staff believes it is reasonable to include the estimates in the calculation along with the forecast to determine next year’s rate credit.
As Order No. 28869 directed, the Company is using the customer deposit rate to calculate the carrying charges. The interest rate changes annually on January 1. Although Avista did not change the customer deposit rate until April 2002, Staff verified that the Company has made the proper correcting entries back to January. The actual amount of interest recorded as of August 30, 2002 is $6,538.85.
The Staff recommended approval of the Company proposed BPA Credit of 0.347¢/kWh with an effective date of October 12, 2002. Staff believes that the previously approved methodology for determining the credit has been applied as intended by the Commission and Staff’s audit has verified the true-up amounts. Avista’s estimate of the BPA credit amounts and energy sales subject to the credit have proven to be accurate as evidenced by the true-up amounts and the small adjustment in the amount of the credit.
COMMISSION DECISION
Does the Commission wish to approve Avista’s Application to modify the Residential and Small Farm Energy Rate Adjustment Credit?

___________________________
Lisa D. Nordstrom

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