20030722Comments.pdf

JOHN R. HAMMOND
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BARNO. 5470
HECEIVED
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. 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
VISTA CORPORATION FOR DETERMINATION
OF THE INTEREST RATE TO APPLY TO THE
POWER COST ADJUSTMENT DEFERRAL BALANCE.
CASE NO. A VU-O3-
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. 29264, the Notice of Application, Notice of Intervention
Deadline, Notice of Modified Procedure, and Notice of Comment Deadlines issued on June 12
2003.
THE APPLICATION
On May 16, 2003 , Avista COI)Joration dba Avista Utilities (Avista; Company) 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. Avista also requests that the effective date be January 1 , 2003.
Typically, the interest rate for customer deposits is applied to PCA deferral balances of utilities in
Idaho. The annual customer deposit rate is established using the average of one-year Treasury bill
rates for the previous November 1 through October 31 period rounded to the nearest whole number.
Utility Customer Relations Rule 106, IDAP A 31.21.01.106. The average is calculated using the
STAFF COMMENTS JULY 22, 2003
one-year Treasury Bills as reported weekly in the "Wall Street Journal." For the calendar year
2003, the customer deposit rate was set at 2%, GNR-02-, Order No. 29158.
A vista makes this request for an exception to applying the customer deposit rate to its PCA
deferral balance for the following reasons: 1) the current interest rate applicable to its PCA deferral
balance is far below its cost of borrowing; 2) the large size of the Company s deferral balance; and
3) the use of a multi-year process to fully recover the balance. Avista requests that a 2% adder or
200 basis points above the customer deposit rate be applicable to any PCA deferral balance until
that balance is fully recovered. The 2003 interest rate with the requested adder would be 4%.
Avista currently expects the deferral balances to be fully recovered sometime in 2005. At that time
A vista contends the interest rate applicable on the PCA balance would again be the customer
deposit rate. Avista also requests that the effective date of the exception be January 1 , 2003.
STAFF ANALYSIS
Avista states that the 2% customer deposit rate is much lower than its cost of borrowing.
A vista states its weighted cost of debt at December 31 , 2002 is 8.88% and the cost of its April 25
2003 short-term credit arrangement is 5% plus 40 basis points for fees. Avista claims long-term
debt has been issued to finance the PCA deferral. Staff acknowledges that Avista s cost of
borrowing is greater than 2%. However, very few financing dollars are designated for a specific
purpose so targeting a specific interest rate attributed to the PCA deferral balance is subject to
interpretation of uses and judgment. This interpretation process justifies using the customer deposit
rate as a set interest rate methodology to limit PCA issues. The normal PCA process allows
deferrals to be accumulated and then recovered over a specified recovery period. Usually this
recovery period is based on a one-year period. Staff believes short-term borrowing rates continue to
be representative of the interest rate to use for the PCA calculations. Avista s short-term borrowing
rate is influenced by risks in the utility industry in general and by risks specific to A vista. It could
be argued that some of these risks and therefore the higher interest rates associated with those risks
are not all the responsibility of customers. Beyond this acknowledgement, Staff doesn t believe that
a detailed risk evaluation is necessary for this case since A vista is requesting a temporary adder
rather than a change in methodology.
Avista requested in Case No. A VU-01-11 that the recovery period along with changes in
the deferral balance be evaluated over a longer time fTame to reduce the rate impact on customers.
Staffs evaluation of the PCA request in that case and its recommendation, utilized the current PCA
STAFF COMMENTS JUL Y 22, 2003
deferral balance rather than projected balances to justify the PCA recovery rate. The PCA rate
approved in Order No. 28876 was for a one-year time period to better match the actual deferred
balance at that time. The rate was extended for an additional year in Case No. A VU-02-, Order
No. 29130. It continues to be Staffs position that the actual deferral balances rather than projected
amounts be used to establish PCA rates. This position is also a basis for the Staff recommendation
in this case. The actual PCA deferral balance carried ftom one year to the next is less than the net
PCA deferral balance of approximately $30.9 million at December 31 , 2002. The PCA surcharge
rate collects approximately $23.6 million dollars (A VU-02-6), resulting in approximately $7
million to be carried forward to the next PCA year. Staff acknowledges that the actual amount that
will be carried forward will vary and that the PCA schedule in each PCA case should separately
show the actual amounts carried forward from the currently accrued balance.
Staff believes it is appropriate to consider using a different interest rate for balances carried
forward for recovery beyond a one-year time frame. This reflects the additional time, beyond the
normal one-year, required for Avista to carry the PCA balance to mitigate the impact on customer
rates. This is also consistent with the treatment afforded Idaho Power Company in Case No. IPC-
02-, Order No. 29026 when PCA balances were carried beyond the normal recovery period where
the interest rate in place during the deferral period was extended to the period of carry forward.
IPC-02-3 the 6% rate on the PCA carry-over balance was extended when the current customer
deposit rate had declined to 4%. In this case, A VU-03-, Avista s request is equivalent to the 4%
rate on the PCA being extended when the current customer deposit rate declined to 2%. Interest
rates, including the one-year Treasury bill rates, have dropped substantially. However utility costs
to borrow funds did not drop as quickly and have not generally reached the same low rate. This
difference makes it reasonable to accept a 2% adder for the limited time when PCA recovery is
extended. However the higher interest rate should only be applied to carry-over amounts and not
the net PCA balance. This will require Avista to specifically identify the carry-over amounts
separate ftom the new deferrals in its PCA calculation and reconciliation schedules. Since the
actual carry-over periods for recovery are estimated at this time to be sometime in 2005 , Staff
recommends that the exception of a 2% adder to the customer deposit rate on carry-over balances be
authorized for the 2003 and 2004 years. Staff also recommends that in the 2005 PCA year the
interest rate applicable to all of A vista s PCA deferral balance revert back to the interest rate on
customer deposit rate. IDAPA 31.21.01.106.
STAFF COMMENTS JULY 22, 2003
STAFF RECOMMENDATIONS1. Allow the 2%, 200 basis point, adder to be applied to PCA accrued balances that are
carried forward to a subsequent recovery period longer than one year.
A vista should be required to separate the PCA balances to be carried forward beyond
the one-year recovery period ftom the net PCA balance and apply the higher interest
rate only to those carry forward deferrals.
The 2%, 200 basis point, adder should be for the 2003 and 2004 years. In the 2005
PCA year the interest rate applicable to of all A vista s PCA deferral balance should
revert back to the interest rate on customer deposits.
Respectively submitted this J,Yday of July 2003.
Jo . Hammond
ep y Attorney General
Technical Staff: Terri Carlock
i :umisc/comments/avueO3 .4jhtc
STAFF COMMENTS JULY 22, 2003
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 22ND DAY OF JULY 2003
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-03-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO
THE FOLLOWING:
DAVID MEYER, ESQ.
SENIOR VP AND GENERAL COUNSEL
A VISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
KELLY NORWOOD
VICE PRESIDENT
A VISTA CORPORA nON
PO BOX 3727
SPOKANE W A 99220-3727
TARY
CERTIFICATE OF SERVICE