20041129Press Release.pdf

IDAHO PUBLIC UTILITIES COMMISSION
Case No. A VU-04-1, A VU-04-1 Order No. 29638
November 24, 2004
Contact: Gene Fadness [phone]
Website: www.puc.state.id.
Commission denies A vista reconsideration on most issues
Boise - The Idaho Public Utilities Commission today denied Avista Utilities ' request for
reconsideration of the commission s earlier decision to deny the company recovery for a major
gas transaction and for construction cost overruns of the Boulder Park generation proj ect in
Spokane. The commission did allow some computational corrections sought by A vista that will
not have an immediate impact on rates.
On October 8 , the commission approved an overall 1.9 percent increase in electric rates for
Avista customers and a 6.38 percent in gas rates. The company had sought an overall 11 percent
increase in electric rates a 9 percent increase in gas rates.
As part of that rate case, the commission denied A vista authority to recover from its customers a
total of $4.77 million, which was one-third of Idaho s share of an A vista purchase of natural gas
to fuel the utility s Coyote Springs 2 combustion turbine. The commission also denied the utility
authority to recover $2.6 million in costs attributable to construction overruns for the Boulder
Park generation project.
, October 29, Avista petitioned for reconsideration on both those issues. The order issued
today by the commission is final. Aggrieved parties may appeal to the state Supreme Court.
Because the Coyote Springs 2 combustion turbine was not operational by the time the gas was to
be delivered, A vista was forced to sell the gas back into the market at a loss and had to go to the
electric market to buy replacement power.
A vista argued the gas purchase, known as Deal A, was prudent given what the company knew at
the time and that the purchase fell within the company s risk management guidelines. The utility
also argued that the transaction should be allowed because its affiliate, A vista Energy, was not a
party to the transaction. In its original order, the commission rejected a similar $6.5 million gas
purchase, known as Deal B, partly because the transaction was with Avista Energy.
The commission, in denying reconsideration, said the Deal A "transaction both in length (36
months) and financial exposure was unprecedented for A vista and was accompanied by little
supporting analysis and paper trail."
Although A vista s affiliate was not a counter-party to the Deal A transaction, A vista Energy
brokered the deal, the commission said. "Thus, contrary to A vista s contention, Deal A hedge
losses cannot be viewed separate and apart from any Avista Energy involvement."
The commission said the nature of the Deal A transaction exposed A vista customers to risk that
while more appropriate for its unregulated subsidiary, was too much of a risk for the regulated
side of the company. "Deal A was highly irregular and apart from any other transactions made
by Avista. The fact that the company failed to purchase gas with the same kind of long-term
deals for its gas customers that it did for its electric customers, we find, also demonstrates the
company s inconsistency," the commission said.
Potlatch, a forest products company and large customer of A vista, filed a Cross Petition for
Reconsideration regarding the Deal A transaction, arguing that the commission should have
disallowed the entire purchase, not just one-third. Avista s decision to lock-in the price for 36
months was a gamble on the price direction of the natural gas futures market, an unprecedented
move for A vista, Potlatch argued.
The commission disagreed, stating that while both the Deal A and Deal B transactions were
objectionable, they were not expressly prohibited by commission order or established protocol.
It is a grey area, not black and white " the commission said. "The commission has a joint
obligation to the utility and its customers " and has the authority under Idaho Code to assess the
reasonableness of the company s actions, the commission said.
A vista called the commission s attention to some miscalculations in determining the losses
attributable to Deal A that, in total, increase the loss recovery for Avista by $163 098. That
amount will be calculated into A vista s power cost adjustment next year.
Regarding Boulder Park, the commission said customers should not be liable for most of the cost
overruns on the generation project, which, at $31.9 million, was 53 percent higher than the
projected $21 million. The commission allowed a 15 percent contingency for cost overruns.
Washington customers of A vista also are assigned some of the cost. Idaho s share of the
disallowance should be $2.6 million, the commission said. The company argued that the
disallowance should not exceed the 10 percent of final project costs recommended by
commission staff, or $1.1 million.
The commission found that A vista should be held to a higher standard than that recommended by
commission staff. "Ratepayers, we found, should not be asked to pay for what we continue to
find to be a company learning experience " the commission said.
A vista also petitioned for reconsideration of adjustments made by the commission to the
company s pension costs. The correction, allowed by the commission, results in a $46 411
increase in the company s electric revenue requirement and an $11,422 increase in the natural
gas revenue requirement. The impact on rates is negligible.
Documents related to the case are found on the commission s Web site at www.puc.state.id.
Click on "File Room " then on "Electric Cases " and scroll down to Case No. A VU-04-1 for
the electric case. For the gas case, click on "Gas Cases " and scroll down to Case No. A VU-
04-