20040220Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:JOHN HAMMOND
DATE:FEBRUARY 20, 2004
RE:IN THE MATTER OF THE APPLICATION OF A VISTA CORPORATION DBA
VISTA UTILITIES FOR AUTHORITY TO INCREASE ITS BASE RATES AND
CHARGES FOR ELECTRIC AND NATURAL GAS SERVICE. CASE NOS.
AVU-04-1 AND AVU-04-
On February 6 2004, Avista Corporation dba Avista Utilities filed an Application with
the Commission for authority to increase the Company s general rates for electric and natural gas
service by averages of 24.1 % and 9.2%, respectively. If approved, Company revenues for electric
base retail rates would increase by $35.2 million annually. However, Avista states that in
combination with a proposed reduction in its current Power Cost Adjustment (PCA) surcharge rate
the Company is actually requesting a net electric rate increase of $18.9 million or 11.0%.
Furthermore, if the Application is approved Company revenues for natural gas service would
increase by $4.7 million annually. The Company requests Commission authority to increase its rates
and charges for electric and natural gas service in the State of Idaho on and after March 10, 2004.
THE APPLICATION
The Company s Application states that its existing base rates and charges for electric
service were approved as a result of the Commission final Order No. 28097, dated July 29, 1999 in
Case No. WWP-98-11. See also Avista Utilities Tariff No. 28. Avistacontends its existing base
rates and charges for natural gas service were approved as a result of Commission final Order No.
22974, dated February 12, 1990 in Case No. WWP-88-5. See also Avista Utilities Tariff No. 27.
The Company contends its present electric and natural gas rates will not produce sufficient revenue
to provide operating income required to allow it the opportunity to earn the 9.82% rate of return
DECISION MEMORANDUM
including a 44.3% equity ratio and an 11.5% return on equity. Accordingly, Avista alleges that
unless it is authorized to increase rates as requested, the Company s rates will not be fair, just and
reasonable and it will not have the opportunity to realize a fair rate of return on its investment.
A vista states the evidence in support of its need for increased electric and natural gas rates is based
on a 2002 test year and is presented on an average basis. In addition, because the Company provides
utility service in states other than Idaho a jurisdictional separation of all investments, revenues and
expenses allocated or assigned in whole or in part to the Idaho utility business regulated by this
Commission are described in its filing.
A vista contends its need for relief regarding its electric service operations is driven
primarily by: 1) the addition of significant new generating capabilities; 2) a reduction in wholesale
sales revenue; 3) increased fuel costs for thermal generation, primarily natural gas; 4) a decline in
electric use per customer; and 5) record low hydro-electric conditions and unprecedented high
wholesale market prices, which have resulted in credit ratings below investment grade and increased
financing costs. In justifying its proposed increase in natural gas service rates Avista contends its
need for relief is driven primarily by: 1) the decline in natural gas usage by customers; 2) the growth
in the number of natural gas customers; and 3) the general increase in expenses over the past
fourteen years.
The charts below shows the averages of all rate components as proposed by A vista for
certain customer groups taking electric or natural gas service from the Company.
Proposed Electric Rate Increase
Current Rates Proposed Average
Customer Group Average Rates Base Rates Overall Percentage
(cents/kWh) (1)
(cents/kWh) (I) Increase
Residential (Sch. 1)13.
General Service (Sch. 11)
Large General Service (Sch. 21)6.18 10.1%
Extra Large General Service (Sch. 25)15.
Pumping Service (Sch. 31)12.1 %
(I) Includes all Company proposed adjustments: Schedule 59-Residential Exchange Credit
Schedule 65-Centralia Credit, Schedule 66.PCA Surcharge & Schedule 91 - DSM Rider
Proposed Natural Gas Rate Increase
DECISION MEMORANDUM
Current Rates Proposed Average
Customer Group Average Rates Base Rates Overall Percentage
(cents/Therm)(I)(cents/Thermil)Increase
General Service (Sch. 101)78.86.10.
Large General Service (Sch. 111)69.73.
Large Gen. Svs High Load Factor (Sch. 121)64.67.
Interruptible Service (Sch. 131)55.57.3.4%
Transportation Service (Sch. 146) (2)10.12.18.
(I) Includes Purchase Adjustment Schedule 150/Excludes other rate adjustments
(2) Average increase in transporter s total gas bill assuming 50 cents per therm gas delivered to Avista System
1.93 cents/60.574 cents (present bill) = 3.2% increase.
Service and Chan!es for Electric and Natural Gas Service
The service charge is designed to recover a portion of the costs associated with providing
electrical and natural gas service such as meters, distribution facilities and billing services. A vista
has proposed to increase the monthly, basic customer service charge for electric service from $4.
to $5.00 per month and from $3.28 to $5.00 for natural gas service. The Company has also proposed
changes to service charges or monthly minimum charges for certain other schedules for electric and
natural gas service.
Avista Utilities Schedules 11.21 and 25
In its Application the Company proposes to add an energy usage rate block to each of its
electric general service schedules (Schedules 11 , 21 and 25), whereby the larger customers served
under those schedules would pay a lower incremental energy rate for usage beyond a certain level.
Potlatch
A vista is also proposing changes to its present Schedule 25 rate structure that will result
in Potlatch paying an average rate per kWh that is lower than the average rate(s) paid by other
Schedule 25 customers.
Issues Deferred from the 2003 Power Cost Adjustment (PCA) Proceedin2
A vista also addresses issues surrounding certain gas supply contracts related to Coyote
Springs II that the Commission deferred consideration of in the Company s 2003 PCA proceeding
until it filed a general rate proceeding. See Order No. 29377, Case No. A VU-03-
DECISION MEMORANDUM
Advanced Meter Readin2 (AMR) Pro2ram in Idaho
Through its Application the Company is requesting approval of certain accounting and
ratemaking treatment related to its proposal to implement an AMR program in Idaho. A vista plans
to install meter upgrades to Idaho electric and natural gas meters over a four-year period beginning in
2005 at a cost of approximately $16.3 million. The Company stated that it does not seek an increase
in rates at this time for any AMR costs.
COMMISSION DECISION
Based upon its review of the Application and Idaho law, Staff recommends that the
Commission:
Issue a Notice of Application;
Issue a Notice of Intervention Deadline. Staff recommends that the
intervention deadline be set for Friday, March 12, 2004;
Suspend the proposed, permanent rates for period of30 days plus five months
from the March 10, 2003 effective date, or until such time as the Commission
enters an Order accepting, rejecting or modifying the Company s request
pursuant to Idaho Code ~ 61-622; and
Set a Monday, March 15 2004, prehearing/scheduling conference to identify
intervenors, to discuss the procedural treatment of PC A - Coyote Springs
issues, to establish hearing dates and deadlines for the filing of testimony.
Does the Commission agree with Staff's recommended procedure?
)4!- ih~~John Hammond
I /
'-/
M:A VUEO401 A VUGO40ljh
DECISION MEMORANDUM