20030822Decision Memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:AUGUST 21, 2003
SUBJECT:CASE NO. A VU-03-6 (Avista)
CONTINUATION OF POWER COST ADJUSTMENT (PCA) SURCHARGE
On August 11 2003, Avista Corporation dba Avista Utilities (A vista; Company) filed
a Power Cost Adjustment (PCA) Schedule 66 Status Report with the Idaho Public Utilities
Commission (Commission) and an Application requesting approved recovery of excess power
costs deferred through June 30, 2003 and further continuation of a 19.4% ($23.6 million) PCA
surcharge currently scheduled to expire on October 11 2003. The 19.4% surcharge was originally
authorized by the Commission in Order No. 28876 dated October 11 , 2001 in Case No. A VU-
01-11. A 12-month continuation of the surcharge was authorized in Order No. 29130 in Case No.
A VU-02-6. In its Order continuing the surcharge, the Commission stated:
As we did last year, we find it reasonable to continue a close monitoring of
the Company s PCA decisions and thus require the Company to file a PCA
status report 60 days prior to the expiration of the PCA surcharge. As before
if the status report and our review of the actual PCA deferral balance
supports continuation of the surcharge, we anticipate continuation of the
surcharge for an additional term.
Order No. 29130, p. 16. The current status of the unrecovered Idaho PCA deferral balance as of
June 30, 2003 is $27 843 108 for its Idaho jurisdiction.
Status Report - Application for Extension
The details of the deferred cost balance as reflected in the Company s PCA account are
as follows:
DECISION MEMORANDUM
Unrecovered Balance at June 30, 2002
Net Deferral Activity (July 2002 - June 2003)
Amortizations Related to Surcharge Revenues
(July 2002 - June 2003)
Unrecovered Balance at June 30, 2003
$45 600 228
789 503*
(24.546,623)
$27 843 108
Deferral Activity Detail
Net Increase in Power Supply Cost
Centralia Capital and O&M Credit
PGE Monitization Accelerated Amortization
Transfer Small Generation Capital Costs & Interest
Intervenor Funding Payment
Interest
Net Deferral Activity (July 2002 - June 2003)
$23 383 629
817 996)
(13 855 680)
( 921 184)
138
999.596
$ 6 789 503
During the review period, Avista reports that Idaho s share of power supply expenses
exceeded the authorized level by $25 924 662. The Company states that power supply expenses
were higher than the authorized level due to several factors:
The largest factor was the sale of fixed price gas. Based on the average
purchase and sale price, the fixed price gas purchases added approximately
$13.1 million to Idaho s share of power supply expense. Hydro-generation
was approximately 12.9 aMW below the authorized level, which would
account for approximately $2.1 million of increased expense. Colstrip and
Kettle Falls together generated approximately 8 aMW above the authorized.
Rathdrum generated approximately 21 aMW below the authorized level due
in part to the relatively low price of electricity compared to natural gas costs.
The Company s other gas-fired generating plants, North East Turbine
Boulder Park, and the Kettle Falls Combustion Turbine generated 2 aMW
during the period.
Other power supply expenses during the review period include a payment to
terminate a long-term power purchase with Enron and the final lease
payments of$3.7 million ($1.3 million Idaho share) related to the Kettle Falls
Bi-Fuel generating units. The $2.million Enron buy-out payment
($960 000 Idaho share) occurred in October 2002, and was recorded as a
power purchase expense. The Kettle Falls Bi-Fuellease payments began in
September 2001 and were included in the prior filing for the review period
ending June 2002.
Another factor driving the deferrals is the age of the authorized case. The
authorized case is based on loads, contracts and resources in place for the
period July 1999 through June 2000. During that period, the Company had
several large off-system power sales that generated significant revenue.
Almost all of the sales have ended and, as such, the revenue is reduced which
DECISION MEMORANDUM
is reflected in a reduction in Account 447, Sale for Resale, revenue of $72
million on a system basis ($24 million Idaho share). Purchased power
expense has also decreased from the authorized level due in part to several
long-term contracts ending. Purchased power expense, however, has
decreased by only $24 million on a system basis ($8 million Idaho share).
The Company plans to file a general rate case within the next year to reset the
authorized level of power supply revenues and expenses.
Avista contends that continuation of the current surcharge is not only justified by the
current level of unrecovered power cost deferrals, but is essential to the continued improvement in
the financial health of the Company. Investor concerns surrounding cash flows, deferral balances
and the ability to recover costs in a timely manner have had an impact on the Company
financings. The Company s credit ratings were lowered by credit rating agencies to below
investment grade in October 2001. Because of Avista s present credit ratings, debt is more
expensive. A vista contends that it is imperative for both the Company and its customers that
A vista continue to improve its financial condition so that investment grade credit ratings can be
restored and so that longer-term debt can be refinanced on more reasonable terms.
Current projections indicated that with continuation of the 19.4% surcharge, the PCA
deferral balance would reach zero in mid-2005. The actual point when the deferral balance
reaches zero is dependent upon factors such as hydroelectric conditions, wholesale market prices
contract changes, etc., during the relevant period.
The Company requests that the Commission continue the PCA surcharge for an
additional 12 months, beginning October 12, 2003 and continuing through October 2004. The
Company requests that its Application be processed pursuant to Modified Procedure, i., by
written submission rather than by hearing. Reference Commission Rules of Procedure, IDAP A
31.01.01.201-204.
Commission Decision
Avista has requested a one-year continuation of an existing 19.37% surcharge to
recover power costs in excess of costs presently included in base rates. Staff intends to audit the
Company s books the first week of September 2003. The Commission is apprised that public
workshops for the Company s proposed Purchased Gas Adjustment (PGA) are scheduled
September 8 and 9 in northern Idaho. Reference Case No. A VU-03-1. Does the Commission
believe that a public workshop is required in this PCA case? Staff recommends that the matter be
DECISION MEMORANDUM
processed pursuant to Modified Procedure. Staff recommends a comment deadline of September
18 for customers, September 23 for Commission Staff and a Company reply date of September 30.
How does the Commission wish to process the Company s filing?
Scott Woodbury
bls/M:A VUE0306 sw
DECISION MEMORANDUM