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Home My WebLink About20030815Decision Memo.pdfDECISION MEMORANDUM TO:COMMISSIONER KJELLANDER COMMISSIONER SMITH CO MMISSI 0 NER HANSEN COMMISSION SECRETARY COMMISSION STAFF LEGAL FROM:JOHN R. HAMMOND DATE:AUGUST 14,2003 RE: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. CASE NO. A VU-03- On May 16, 2003, Avista Corporation 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 starting from January 1 2003. The current rate is 2%, the rate for customer deposits as set by Commission Order No. 29158 Case No. GNR-02-2. See also IDAPA 31.01.01.106.02. On June 12 2003 , the Commission issued Notice of Application, Notice of Intervention Deadline, Notice of Modified Procedure and Notice of Comment Deadlines. Order No. 29264. The Commission Staff and the Company submitted written comments. APPLICATION A vista requests that the Commission grant it an exception to applying the Customer Deposit Rate to its PCA deferral balance because: 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. A vista requests that the Commission authorize it to apply a 2% adder or 200 basis points above the Customer Deposit Rate to its PCA deferral balance until that balance is fully recovered. Tallying the 2% adder with the 2003 interest rate would result in a rate of 4%. Avista currently expects the deferral balances to be fully recovered sometime in 2005. The Company requests that the increased interest rate apply to its PCA DECISION MEMORANDUM balance until it is fully recovered. At that time, A vista contends the interest rate would revert to the Customer Deposit Rate without the adder. SUMMARY OF COMMENTS There are two primary issues to be decided; 1) the interest rate and 2) the time frame. Both Staff and A vista agree that a 200 basis point increase would be appropriate. The differences come when determining what balance the rate should be applied to and for how long. A vista argues it should apply to the full current balance for as long as there is a net balance. A vista notes it is like using the last in first out (LIFO) method of accounting for the surcharge. Staffs argument is like using the first in first out (FIFO) method of accounting where the balances accrued first are paid first. Staff s position is that only the balances left after a typical one-year recovery period should receive the higher interest rate. Staff recommended the higher rate be applied to any carry-over balances for two years, 2003 and 2004. If the recovery period is longer, Avista could request an additional exemption. Subsequent to filing comments, Staff and A vista discussed and agreed to a compromise solution that allows a 200 basis point increase in the interest rate applied to year end deferral balances during recovery based on the first in first out (FIFO) method of accounting. The customer deposit interest rate would continue to apply to new deferral balances accrued during the calendar year. This interest rate methodology would begin January 1 , 2003 and continue through June 2005. An example calculation ofthe methodology is shown on the attached spreadsheet. Staff and A vista believe that allowing the interest rate increase in this manner during the period proposed is reasonable given the continued large balances of deferred costs to be recovered. Both parties also agree that the period the interest rate methodology remains in place may be reassessed if actual deferrals or deferral recovery differ materially from current proj ections or from changes due to a general rate case. DECISION MEMORANDUM Avista? COMMISSION DECISION Does the Commission accept the 200 basis point increase as proposed by Staff and DECISION MEMORANDUM Avista Corporation Idaho PCA Interest Rate Staff Proposed Method (For Illustrative Purposes) 2% Above Customer Deposit Rate on Carryover Balances Annual Rollover from Current to Car over Interest Rate Carryover Current Total Carryover Balance 12/31/2002 $30 925,711 $30,925,711 Jan-03 Deferral Actual $3,454 572 3,454 572 Surcharge Actual 2,421,489 2,421,489 Interest Actual 103,086 103 086 Net PCA balance 1/31/2003 $28 607 308 $3,454 572 $32 061 880 Feb-03 Deferral Actual 245 118 245 118 Surcharge Actual 227 385 227 385 Interest Actual 95,358 758 101 116 Net PCA balance 2/28/2003 $26,475 281 705,448 $31 180 729 Mar-03 Deferral Actual 626 742 626,742 Surcharge Actual 184 726 184 726 Interest Actual 251 842 093 Net PCA balance 3/31/2003 $24 378 806 340,032 $30 718,838 Apr-03 Deferral Actual 332 541 332 541 Surcharge Actual 052 187 052 187 Interest Actual 263 10,567 830 Net PCA balance 4/30/2003 $22,407 882 683,140 $29 091 022 May-03 Deferral Actual 1,488,717 488,717 Surcharge Actual 864 170 864 170 Interest Actual 693 139 85,832 Net PCA balance 5/31/2003 $20,618,405 182 996 $28,801,401 Jun-03 Deferral Actual 101 792 101 792 Surcharge Actual 885,592 885,592 Interest Actual 728 638 366 Net PCA balance 6/30/2003 $18 801 541 $9,298,426 $28,099,967 Jul-03 Deferral Estimate 740 205 740 205 Surcharge Estimate 851 590 851 590 Interest Estimate 672 15,497 169 Net PCA balance 7/31/2003 $17 012 623 $10 054 128 $27 066 751 Aug-03 Deferral Estimate 289 329 289 329 Surcharge Estimate 882 878 882 878 Interest Estimate 56,709 757 73,466 Net PCA balance 8/31/2003 $15 186,454 $12 360,214 $27 546,668 Sep-03 Deferral Estimate 784 173 784 173 Surcharge Estimate 923 249 923 249 Interest Estimate 622 20,600 222 Net PCA balance 9/30/2003 $13,313 827 $14 164 987 $27,478 814 Oct-03 Deferral Estimate 112 634 112 634 Surcharge Estimate 847 001 847 001 Interest Estimate 379 608 987 Net PCA balance 10/31/2003 $11 511 205 $15 301 229 $26,812,434 Nov-03 Deferral Estimate 050 791 050 791 Surcharge Estimate 106 866 106,866 Interest Estimate 371 502 873 Net PCA balance 11/30/2003 $9,442 710 $16,377 522 $25 820,232 Dec-Q3 Deferral Estimate 273 813 273 813 Surcharge Estimate 2,424 350 2,424 350 Interest Estimate 31,476 296 772 Net PCA balance 12/31/2003 049,836 $17 678 631 $24 728,467 Page 1 of 3 Avista Corporation Idaho PCA Interest Rate Staff Proposed Method (For Illustrative Purposes) 2% Above Customer Deposit Rate on Carryover Balances Annual Rollover from Current to Car over Interest Rate Carryover Current Total Carryover Balance $24,728,467 $24 728,467 Jan-04 Deferral Estimate 1,450 597 1,450 597 Surcharge Estimate 678,880 678 880 Interest Estimate 82,428 82,428 Net PCA balance 1/31/2004 $22 132 015 $1,450 597 $23,582 612 Feb-04 Deferral Estimate 188,718 188 718 Surcharge Estimate 2,465,275 2,465,275 Interest Estimate 773 2,418 191 Net PCA balance 2/29/2004 $19 740 513 641 733 $22 382 246 Mar-04 Deferral Estimate 966 852 966 852 Surcharge Estimate 364,425 364,425 Interest Estimate 65,802 4,403 205 Net PCA balance 3/31/2004 $17,441 890 612 988 $21 054 878 Apr-04 Deferral Estimate 147 011 147 011 Surcharge Estimate 141 729 141 729 Interest Estimate 140 022 162 Net PCA balance 4/30/2004 $15,358 301 766 021 $19,124 322 May-04 Deferral Estimate 888,825 888,825 Surcharge Estimate 943,100 943 100 Interest Estimate 194 277 57,471 Net PCA balance 5/31/2004 $13,466 395 661 123 $18,127 518 Jun-04 Deferral Estimate 341 127 341 127 Surcharge Estimate 894 281 894 281 Interest Estimate 888 769 657 Net PCA balance 6/30/2004 $11 617 002 010 019 $16 627 021 Jul-04 Deferral Estimate 198 198 Surcharge Estimate 898 037 898,037 Interest Estimate 723 350 073 Net PCA balance 7/31/2004 757 688 $5,102 567 $14 860 255 Aug-04 Deferral Estimate 206 115 206 115 Surcharge Estimate 908 031 908 031 Interest Estimate 526 504 030 Net PCA balance 8/31/2004 882 183 $7,317 186 $15 199 369 Sep-04 Deferral Estimate 962 342 962 342 Surcharge Estimate 994 990 994 990 Interest Estimate 26,274 195 38,469 Net PCA balance 9/30/2004 913,467 291 723 $15 205,190 Oct-04 Deferral Estimate 367 542 367 542 Surcharge Estimate 893 832 893 832 Interest Estimate 19,712 15,486 35,198 Net PCA balance 10/31/2004 039 347 $10 674 751 $14 714 098 Nov-04 Deferral Estimate 950 089 950 089 Surcharge Estimate 157 100 157 100 Interest Estimate 13,464 791 255 Net PCA balance 11/30/2004 895 711 $11 642 631 $13 538 342 Dec-04 Deferral Estimate 504 239 504 239 Surcharge Estimate 902 030 581244 2,483 274 Interest Estimate 319 19,404 25,723 Net PCA balance 12/31/2004 $12 585 030 $12 585 030 Page 2 of 3 Avista Corporation Idaho PCA Interest Rate Staff Proposed Method (For Illustrative Purposes) 2% Above Customer Deposit Rate on Carryover Balances Annual Rollover from Current to Car over Interest Rate Carryover Current Total Carryover Balance $12,585,030 $12 585,030 Jan-05 Deferral Estimate 311 740 311 740 Surcharge Estimate 678 880 678 880 Interest Estimate 950 950 Net PCA balance 1/31/2005 948 100 311,740 $11 259 840 Feb-05 Deferral Estimate 937 648 937 648 Surcharge Estimate 2,465,275 2,465,275 Interest Estimate 160 186 346 Net PCA balance 02-29-2005 515 985 251,574 767 559 Mar-05 Deferral Estimate 709 178 709 178 Surcharge Estimate 364,425 364,425 Interest Estimate 053 753 806 Net PCA balance 3/31/2005 176 613 964 505 141 118 Apr-05 Deferral Estimate 148 515 148,515 Surcharge Estimate 141 729 141 729 Interest Estimate 255 941 196 Net PCA balance 4/30/2005 052 139 820 931 873 070 May-05 Deferral Estimate 391 278 391 278 Surcharge Estimate 943,100 943 100 Interest Estimate 174 702 876 Net PCA balance 5/31/2005 119 213 216,911 336 124 Jun-05 Deferral Estimate 15,129 129 Surcharge Estimate 122 944 771 337 894 281 Interest Estimate 731 362 093 Net PCA balance 6/30/2005 $2,466 065 $2,466 065 Jul-05 Deferral Estimate 151 382 151,382 Surcharge Estimate 898 037 898 037 Interest Estimate 110 110 Net PCA balance 7/31/2005 $420 756 $420 756 Page 3 of 3