20030729Reply Comments.pdf

Kelly O. Norwood
Vice President, Rates and Regulation
1411 E. Mission Avenue
P. O. Box 3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
A VISTA CORPORATION FOR
DETERMINATION OF THE INTEREST RATE
TO APPLY TO THE POWER COST
ADJUSTMENT DEFERRAL BALANCE
REPL Y COMMENTS OF
A VISTA CORPORATION
CASE NO. A VU-03-
I. INTRODUCTION
Avista Corporation doing business as Avista Utilities (hereinafter Avista or Company), at
1411 East Mission Avenue, Spokane, Washington, respectfully files its Reply Comments in the
above-entitled matter.
STAFF RECOMMENDATIONS
Staff recommends that A vista s request to apply a 2%, 200 basis point, adder to the customer
deposit rate for purposes of calculating interest on power cost adjustment (PCA) balances be
approved, but only applied to PCA balances that are carried forward beyond one year. Staff
recommends that A vista should be required to separate the PCA balances to be carried forward
beyond the one-year recovery period from the net PCA balance and apply the higher interest rate only
to those carry forward deferrals. Staff further recommends that the 2% adder should be for the 2003
and 2004 years and that in the 2005 PCA year that the interest rate should convert back to the
customer deposit rate without the 2% adder.
REPL Y COMMENTS OF A VISTA PAGE
REPLY COMMENTS
Interest Rate
Staff recognizes that the customer deposit rate of 2% is below A vista s cost of borrowing and
believes that it is reasonable to accept a 2% adder for the limited time that PCA recovery is extended.
The resulting 4% rate (2% customer deposit rate plus 2% adder) beginning January 1 2003 is less
than Avista s April 25, 2003 short-term credit arrangement of 5% plus 40 basis points for fees and
less than Avista s weighted cost of debt at December 31 2002 of 8.88%. Staff believes "short-term
borrowing rates continue to be representative of the interest rate to use for the PCA calculations.
Interest Rate to Apply to Carryover Balances
Staff proposes that "the higher interest rate should only be applied to carry-over amounts and
not the net PCA balance." Staff further goes on to state
, "
This will require A vista to specifically
identify the carry-over amounts separate from the new deferrals in its PCA calculation and
reconciliation schedules.
The Company submits that the Staff is incorrect in their reasoning. The net PCA balance
correctly represents the carry-over amount that has not yet been recovered and that is the amount that
A vista is financing at rates between 5% and 9%. The net PCA balance is the accumulated amount
of power cost deferrals less the accumulated amount of surcharge revenues received. The process
of netting surcharge revenues against deferrals in the interest calculation means that no interest is
calculated on the amount of deferrals that have been recovered. Interest is only calculated on the
amount of deferrals that have not yet been recovered. Further, if deferrals in the current period are
offset by surcharge revenues in the current period, then no interest is calculated on the current
deferrals, as would be the case under a last-in-first-out (LIFO) assumption. Interest is only applied
REPL Y COMMENTS OF A VISTA PAGE 2
to the unrecovered net PCA deferral balance. The portion of new deferrals not fully offset by current
surcharge revenues becomes a carry-over amount. Interest is only calculated on the carry-over
amount.
If you assume current surcharge revenues offset deferrals from previous periods first before
offsetting current deferrals (a first-in-first-out (FIFO) assumption), then the current deferrals become
a carry-over amount together with the unrecovered deferrals from the previous periods. Again
interest is only calculated on the carry-over amount. No interest is calculated on the recovered
amount. There is no need to identify carry-over amounts separate from new deferrals as Staff
suggests. Whether you assume a FIFO or a LIFO recovery of deferrals from surcharge revenues, it
doesn t change the fact that the unrecovered deferral balance at any point in time represents deferrals
that haven t yet been recovered and are carried-over for future recovery.
There is not a question of applying a higher interest rate to unrecovered deferrals and
applying a lower interest rate to current deferrals as Staff suggests. As explained above, no interest
is applied to deferrals that have been recovered. The net PCA balance and the carry-over balance
are one and the same. Interest is only applied to the unrecovered or carried-over deferrals. The 2%
adder above the customer deposit rate should be the allowed interest rate to apply to the total
unrecovered deferral balances.
Revertin2 Back to Customer Deposit Rate in 2005
Staff recommends that in the 2005 PCA year that the interest rate applicable to all A vista
PCA deferral balance should revert back to the interest rate on customer deposits. The Company
does not agree with Staffs recommendation. While the Company is currently projecting the deferral
balances to be fully recovered sometime in 2005 , that mayor may not occur depending upon what
REPLY COMMENTS OF A VISTA PAGE 3
actual power supply conditions turn out to be. Even if the Company s projections turn out to be
accurate, the interest rate should remain at the higher rate including the 2% adder until the deferral
balance is fully recovered. The modified rate should stay in effect until the Company terminates the
current PCA surcharge and begins a new deferral towards a future PCA surcharge or rebate trigger
amount. Just because 2005 might be the last year of a multi-year recovery of deferred power costs
that situation would not justify a lowering of the interest rate by excluding the 2% adder. As
explained earlier, no interest is calculated on deferral amounts that have been recovered by surcharge
revenues. Interest is only applied to the unrecovered, carried-over balance and the interest on that
balance should remain at the higher rate until the balance is fully recovered.
Respectfully submitted this 29th day of July 2003.
A VISTA CORPORATION
BY
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Kelly O. Norwood
Vice President, Rates and Regulation
REPLY COMMENTS OF A VISTA PAGE 4