20030611Decision Memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:JOHN HAMMOND
DATE:JUNE 4, 2003
SUBJECT:IN THE MATTER OF THE APPLICATION OF AVISTA
CORPORATION FOR DETERMINATION OF THE INTEREST RATE
TO APPLY TO THE POWER COST ADJUSTMENT DEFERRAL
BALANCE, CASE NO. A VU-03-
On May 16, 2003 , Avista Corporation dba Avista Utilities filed an Application
requesting that the Commission issue an Order setting the interest rate that applies to the
Company s Power Cost Adjustment ("PCA") deferral balance at a higher level than the current
rate for customer deposits.
THE APPLICATION
The Commission has historically used the customer deposit rate, Utilities Customer
Relations Rule 106, as the interest rate for utility PCA deferral balances. For the calendar year
2002 the customer deposit rate was 4% and for the calendar year 2003 it is 2%. Prior to the
Commission setting the 2% customer deposit rate for 2003 , Avista states it submitted a letter to
the Commission outlining its concerns about applying the 2% customer deposit rate to the PCA
and Purchased Gas Adjustment ("PGA") balances. A vista contends that in response the
Commission directed the Company to address this issue in a separate proceeding. A vista states
that its Application requests resolution of this issue. A vista requests that the Commission issue
an Order allowing the Company to apply a higher interest than the current customer deposit rate
to its PCA deferral balance due to its size and multi-year recovery process. At this time the
Company states it has not requested an exception for the interest rate that applies to PGA
deferrals, since those deferrals are smaller and expected to be fully recovered during 2003.
DECISION MEMORANDUM
Avista alleges that the 2% customer deposit rate for 2003 is much lower than its cost
of borrowing. For example, the Company contends that its weighted cost of debt at December
2002 is 8.88%. In addition, Avista alleges that the deferral balance is being recovered over
multiple years to mitigate the rate impact on customers and as a result it has issued long-term
debt to finance the deferral balance. Thus, the Company contends that if it were able to finance
the PCA deferral balance under a short-term credit arrangement, the most recent borrowing on
April 25 was at 5% interest rate plus 40 basis points for fees.
As of December 31 , 2002, the net PCA deferral balance was approximately $30.
million. The Company states that the interest rate drop from 4% to 2% amounts to a $618 000
reduction annually in interest on this balance. The Company contends that this is significant and
requests that the allowed interest rate to be applied to the PCA deferral balance be 200 basis
points (2%) above the customer deposit rate beginning January 1 , 2003. This would make the
interest rate 4%. The Company states that this rate is still below its actual cost of borrowing but
it is a more reasonable rate. A vista requests that this rate be continued until its PCA deferral
balance is fully recovered. The Company states that at that time, the interest rate would then
revert back to being the customer deposit rate. Finally, the Company submits that this filing is
limited in scope and believes it should be processed under the Commission s Rules for Modified
Procedure.
STAFF RECOMMENDATION
The Commission Staff has reviewed A vista s Application and makes the following
recommendations regarding the processing of this filing. First, Staff recommends that the
Commission establish an intervention deadline for interested persons and parties when it issues
Notice of this Application. Staff recommends that this intervention deadline be twenty-one (21)
days from issuance of the Notice of Application. Second, Staff recommends that the
Commission process Avista s Application by Modified Procedure, i., by written submission
under the Commission s Rules of Procedure, IDAPA 31.01.01.201-.204. Staff recommends that
the Commission require written comments to be filed on or before twenty-one (21) days after the
intervention deadline has passed. Finally, Staff recommends that the Commission set a reply
comment deadline for the Company.
DECISION MEMORANDUM
COMMISSION DECISION
Does the Commission wish to set an intervention deadline for interested persons and
parties in this case?
Does the Commission wish to issue Notice of Application and process this case by
Modified Procedure under the Commission s Rules?
Does the Commission wish to adopt the Staff s recommendation for the deadlines for
filing written comments in this case?
bls/M:A VUEO304jh
DECISION MEMORANDUM