20040812Application - Testimony.pdf

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David J. Meyer
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
A vista Corporation
1411 E. Mission Avenue
P. O. Box 3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE SUBMISSION OF THE
POWER COST ADJUSTMENT (PCA) STATUS
REPORT OF AVISTA CORPORATION AND
REQUEST FOR RECOVERY OF POWER COSTS
DEFERRED THROUGH JUNE 30. 2004
CASE NO. AVU-tJL/~(J
I. INTRODUCTION
A vista Corporation doing business as A vista Utilities (hereinafter A vista or Company), at
1411 East Mission Avenue, Spokane, Washington, respectfully files the status report as required by
the Commission 1 , and requests the Commission issue an order approving recovery of power costs
deferred through June 30, 2004. The existing PCA surcharge of 19.4% is currently scheduled to
expire on October 11 2004. Avistahas requested in its pending general rate case, Case No. A VU-
04-, that the existing PCA surcharge be reduced at the time that new base tariff rates are made
effective at the conclusion of the general rate case.
The 19.4% surcharge was originally authorized by this Commission in Order No. 28876
dated October 11 , 2001 in Case No. A VU-Ol-ll. The surcharge was extended by Order No.
As stated by the Commission at page 12 of its Order No. 29377 dated November 18 2003 in Case No. A VU-
03-6: "Avista is directed to file a PCA status report with the filing of the Company s next electric general rate case
and 60 days prior to expiration of the authorized surcharge.
A VISTA'S APPLICATION FOR RECOVERY OF DEFERRED POWER COSTS PAGE
29130 dated October 11 2002 in Case No. A VU-02-, and by Order No. 29377 dated November
, 2003 in Case No. A VU-03-
Pursuant to Order No. 29377, this filing, along with the attached testimony and associated
workpapers (incorporated herein by reference), serves as the status report, which is required to be
filed 60 days prior to the expiration of the term of the surcharge. In this filing the Company has
identified the power cost deferrals during the review period, and has explained the primary factors
causing the PCA deferrals.
The Company requests that this status report be processed under the Commission s Modified
Procedure rules.
Communications in reference to this Application should be addressed to:
Kelly O. Norwood
Vice President
State and Federal Regulation
A vista Corporation
1411 E. Mission Avenue
Spokane, Washington 99220
Phone: [phone]
Fax: [phone]
David J. Meyer
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
A vista Corporation
1411 E. Mission Avenue
Spokane, Washington 99220
Phone: [phone]
Fax: [phone]
II. DEFERRAL ACTIVITY AND REPORTING
The deferral balance of $26.1 million at June 30, 2004 is shown below, together with the
changes in the balance since June 30, 2003. Mr. McKenzie s testimony explains the changes in the
deferral balance and Mr. Storro' s testimony provides additional explanation of the factors causing
the deferral entries for the period July 2003 through June 2004.
Unrecovered balance at June 30, 2003
Net Deferral Activity (July 2003 - June 2004)
Amortizations Related to Surcharge Revenues (July 2003 - June 2004)
Unrecovered balance at June 30, 2004
$27 843 108
890 298*
28.627,479
$26. ~ 05.927
A VISTA'S APPLICATION FOR RECOVERY OF DEFERRED POWER COSTS PAGE 2
Deferral Activity Detail
Net Increase in Power Supply Cost
Centralia Capital and O&M Credit
Interest
Net Deferral Activity (July 2003 - June 2004)
$28 664 583
817 996
1.043.711
$26.890.29~
Monthly reports have been filed with the Commission regarding actual PCA deferral entries
to date. To facilitate Staffs review, additional copies of those reports for the months of July 2003
through June 2004 have been included with this filing and have also been provided to Potlatch
Corporation who intervened in A VU-Ol-11 and A VU-02-6. As already noted, the Company
requests that this filing be processed under the Commission s Modified Procedure rules. The rates
associated with the existing PCA surcharge will not change as a result of this filing. The level
PCA surcharge that will be approved on an ongoing basis is being addressed in the Company
general rate case filing.
III. FINANCIAL IMPLICATIONS
The unrecovered deferral balance has declined from the $27.8 million balance at June 30
2003 to the $26.1 million balance at June 30, 2004. Investor concerns surrounding cash flows
deferral balances and the ability to recover costs in a timely manner have had an impact on the
Company s financings that continues today.
Avista s credit ratings are below investment grade. Because of Avista s present credit
ratings, debt is more expensive. It is imperative for both the Company and our customers that A vista
continue to improve its financial condition so that investment grade credit ratings can be restored.
A VISTA'S APPLICATION FOR RECOVERY OF DEFERRED POWER COSTS PAGE 3
The Company s current credit ratings are summarized in the table below:
Standard & Poor Moody Fitch. Inc.
A vista Corporation
Corporate/Issuer rating BB+Bal BB+
Senior secured debt BBB-Baa3 BBB-
Senior unsecured debt BB+Bal BB+
Preferred stock BB-Ba3
On a positive note, the Company entered into a new committed short-term line of credit on
May 6 2004 with various banks in the total amount of$350.0 million. The line of credit expires on
May 5 , 2005 and replaced the committed line of credit of $245.0 million line that would have
expired on May 11 , 2004. It is important for the Company to regain an investment grade credit
rating as soon as possible so that longer-term debt can be refinanced on more reasonable terms
benefiting customers with lower debt-related costs. In addition, the Company needs continued
access to capital on reasonable terms to continue operations and fund new facilities to serve
customers. Credit ratings will take time to be restored and continuation of the PCA surcharge and
recovery of deferred costs is very important for the Company to continue to improve its financial
condition.
IV. NO TARIFF CHANGES
The rates set forth under the PCA Schedule 66 will not change as a result of this filing. As
previously mentioned, the level of PC A surcharge that will be approved on an ongoing basis is being
addressed in the Company s pending general rate case filing, Case No. A VU-04-1. Avista
requesting in its pending general rate case that the existing PCA surcharge be reduced at the time that
new base tariff rates are made effective at the conclusion of the general rate case.
A VISTA'S APPLICATION FOR RECOVERY OF DEFERRED POWER COSTS PAGE 4
The Company continues to offer a number of customer bill paying assistance options. These
assistance options are identified and explained in Mr. McKenzie s direct testimony.
V. REQUEST FOR RELIEF
The Company respectfully requests the Commission for an order approving recovery of
power costs deferred through June 30, 2004. The Company requests that this status report filing and
request for recovery of deferred power costs be processed under the Commission s Modified
Procedure rules.
Dated at Spokane, Washington this 10th day of August 2004.
VISTA CORPORATION
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Dav . Meyer
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
A VISTA'S APPLICATION FOR RECOVERY OF DEFERRED POWER COSTS PAGE 5
VERIFICATION
ST ATE OF WASHINGTON)
County of Spokane
David 1. Meyer, being first duly sworn on oath, deposes and says: That he is the Vice
President and Chief Counsel of Regulatory and Governmental Affairs of A vista Corporation and
makes this verification for and on behalf of said corporation, being thereto duly authorized;
That he has read the foregoing filing, knows the contents thereof, and believes the same to be
true.
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SIGNED AND SWORN to before me this 10th day of August 2004, by David J. Meyer.
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A VISTA'S APPLICATION FOR RECOVERY OF DEFERRED POWER COSTS PAGE 6
David J. Meyer
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
A vista Corporation
1411 E. Mission Avenue
P. O. Box 3727
Spokane, Washington 99220
Phone: [phone], Fax: [phone]
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Uf!LITIES COf"\i~l!S-SjON
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE SUBMISSION OF THE
POWER COST ADJUSTMENT (PCA) STATUS
REPORT OF A VISTA CORPORATION AND
REQUEST FOR RECOVERY OF POWER COSTS
DEFERRED THROUGH JUNE 30. 2004
CASE NO. A VU-fJlf'
DIRECT TESTIMONY
RONALD L. MCKENZIE
FOR A VISTA CORPORATION
Please state your name, the name of your employer and your business address.
My name is Ronald L. McKenzie. I am employed by A vista Corporation at 1411
East Mission Avenue, Spokane, Washington.
In what capacity are you employed?
I am employed by A vista as Manager of Regulatory Accounting in the Rates and
Regulation Department.
Please state your educational background and professional experience.
I graduated from Eastern Washington University in 1973 with a Bachelor of Arts
Degree in Business Administration, majoring in Accounting. I joined the Company in September
I obtained a Master of Business Administration Degree from Eastern Washington1974.
University in 1989. I have attended several utility accounting and ratemaking courses and
workshops. I have held various accounting positions within the Company. I have served in the
Rates Department for the majority of my career with the Company.
What is the scope of your testimony in this proceeding?
My testimony provides a status report of the accounting entries and account
balances related to the Idaho Power Cost Adjustment (PCA) for the twelve months ended June
, 2004. The unrecovered deferral balance at June 30, 2004 is $26 105 927. I explain that
Avista has requested in its pending general rate case, Case No. A VU-04-, that the existing
PCA surcharge be reduced at the time that new base tariff rates are made effective at the
conclusion of the general rate case. In this filing no change is being requested to the existing
PCA Schedule 66 rate.
Are you sponsoring an Exhibit?
McKenzie, Di
A vista
Page
Yes. I am sponsoring Exhibit No. - (RLM-l), consisting of the existing PCA
tariff, Schedule 66.
Would you please show the change in the unrecovered deferral balance from
June 30, 2003 to June 30, 2004?
Yes. The change in the unrecovered deferral balance from June 30, 2003 to June
, 2004 is shown below:
Unrecovered balance at June 30 2003 $27 843 108Net Deferral Activity (July 2003 - June 2004) 26 890 298
Amortizations Related to Surcharge Revenues (July 2003 - June 2004) 28.627.479
Unrecovered balance at June 30, 2004 $26.~05.927
Would you please show the major components of the deferral account activity
amount of $26,890,298 shown above?
Yes. Listed below are the major components of the deferral account activity that
were recorded for the twelve-month period July 2003 through June 2004:
Deferral Activity Detail
Net Increase in Power Supply Cost
Centralia Capital and O&M Credit
Interest
Net Deferral Activity (July 2003 - June 2004)
$28 664 583
817 996
1.043.711
$26.890.29~
Would you please explain the components listed above?
Yes. The net increase in power supply cost of $28 664 583 represents the Idaho
jurisdictional share of the excess power costs deferred under the PCA mechanism by A vista for
the twelve months ended June 30, 2004. Mr. Storro discusses the components that make up this
amount. Excess power costs amounting to $2 548 091 were absorbed by the Company for the
twelve-month period.
McKenzie, Di
A vista
Page 2
The Centralia capital and O&M credit of -817 996 reflects the removal of operation
and maintenance expense, depreciation, taxes, and return on investment as those costs no longer
exist as a result of the sale of the plant. The credit is reflected at 100% in accordance with Order
No. 28876 dated October 11 , 2001 in Case No. A VU-Ol-11. After the general rate case is
decided, the credit will not be a component of the PCA deferral calculation, as new base tariff
rates will no longer reflect Centralia costs.
The $1 043 711 interest amount represents interest for the twelve-month period July 1
2003 through June 30, 2004. Interest has been calculated using the Customer Deposit Rate (July-
December 2003 of 2%, January-June 2004 of %) on current year deferrals and the Customer
Deposit Rate plus 2% on carryover balances from one year to the next. This interest rate
methodology was approved by Order No. 29323 in Case No. A VU-03-04 dated August 21
2003.
Was a notice supplied to customers regarding the Company s PCA status
report and request for recovery of deferred power costs?
No. The level of PC A surcharge that will be approved on an ongoing basis is being
addressed in the Company s pending general rate case filing, Case No. A VU-04-
customer notice was issued as a bill insert in the general rate case filing. In the general rate case
the Company has requested that the PCA surcharge be reduced at the time that new general rates
are placed into effect to help mitigate the impact of the general rate increase. Therefore, a
customer notice related to the Company s request to extend the PCA surcharge, at a lower PCA
rate, has already been provided to customers.
Is the Company continuing with its customer bill paying assistance programs?
McKenzie, Di
A vista
Page 3
Yes. The Company has several programs available to assist customers with paying
their bills. Avista s comfort level billing program offers customers the option of averaging their
bills and paying the same monthly amount all year long in order to smooth out the seasonal highs
and lows.Under the C.S. (Customer Assistance Referral and Evaluation Service)
program, specially trained customer service representatives provide referrals to area agencies and
churches for customers with special needs for help with housing, utilities, medical assistance, etc.
LIHEAP (Low Income Heating Energy Assistance Program) is a Federal program aimed to help
low income customers pay their electric and gas bills. These funds are distributed through local
agencies. Idaho customers who have children, elderly or infirmed in the household may qualify
for the winter moratorium plan. From December 1 through February 28 customers are not
required to pay their bills in full and can defer payment or make partial payments. The Company
also works out payment arrangements with customers having difficulty paying their bills.
In addition, the Company has convenience options that help those who need flexibility,
but are generally able to pay. APS, or automatic payment service (money is deducted from
checking account automatically each month), is a good example. Other popular services include
debit and credit card service, check-by-phone or over the web, preferred due date (the customer
picks a more convenient date to pay than the one the Company states on the bill), and e-billing.
If the Company s proposal to reduce the PCA surcharge is accepted by the
Commission when the general rate case increase is approved, would a change be required
to the current PCA tariff, Schedule 661
Yes. Based on the Commission s order in the general rate case, Schedule 66 would
be revised to reflect the new surcharge level adopted by the Commission. Page 1 of Exhibit No.
- (RLM-l) is a copy of the existing Schedule 66.
McKenzie, Di
A vista
Page 4
Does that conclude your prefiled direct testimony?
Yes it does.
McKenzie, Di
A vista
Page 5
David J. Meyer
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
A vista Corporation
1411 E. Mission Avenue
P. O. Box 3727
Spokane, VV ashington 99220
Phone: [phone], Fax: [phone]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE SUBMISSION OF THE
POWER COST ADJUSTMENT (PCA) STATUS
REPORT OF A VISTA CORPORATION AND
REQUEST FOR RECOVERY OF POWER COSTS
DEFERRED THROUGH JUNE 30. 2004
CASE NO. AVU-E- oL(()3
EXHIBIT NO. _(RLM-
RONALD L. MCKENZIE
FOR A VISTA CORPORATION
I.P.C. No.
IDAHO PUBLIC UTILITIES COMMISSIONApproved Effective
Sixth Revision Sheet 66 October 12 2001 October. 12, 2001Canceling Per. O.N. 28876
Fifth Revision Sheet 66 J-ean D. Jewefi6 Secretary
VIST A CORPORA TION
d/b/a Avista Utilities
SCHEDULE 66
TEMPORARY POWER COST ADJUSTMENT - IDAHO
APPLICABLE:
To Customers in the state of Idaho where the Company has electric service
available. This Power Cost Adjustment shall be applicable to all retail customers for
charges for electric energy sold and to the flat rate charges for Company-owned or
Customer-owned Street Lighting and Area Lighting Service. This Rate Adjustment is
designed to recover or rebate a portion of the difference between actual and allowed
net power supply costs.
MONTHLY RATE:
The energy charges of the indi'vidual rate schedt.;les arG to b,~jncreased by the
following amounts:
Schedule
0 - 600 kwhs
over 600 kwhs
Schedules 11 & 12
Schedules 21 & 22
Schedules 25
Schedules 31 & 32
939~ per kwh
092~ per kwh
391 i per kwh
011 i per kwh
607i per kwh
888~ per kwh
Flat rate charges for Company-owned or Customer-owned Street Lighting and
Area Lighting Service are to be increased (decreased) by the following percentage:
, Schedules 41-49 19.37%
SPECIAL TERMS AND CONDITIONS:
. .
The rate~ set fo~h under this Schedule are subject to periodic review and
adjustment by the IPUC based on the actual balance ~f deferred power costs,
Service under this schedule is subject to the Rules and Regulations contained
in this tariff.
The above Rate is subject to increases as set forth in Tax Adjustment
Schedule 58.
Issued July 17, 2001 Effective October 12, 2001
Issued by Avista Utilities
Thomas D. Dukich, Director of Rates & Regulatory Affairs
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Exhibit No. - (RLM-
Case No. A VU-E-
Avista
Page 1 of 1
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DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL OF
REGULATORY AND GOVERNMENTAL AFFAIRS
VISTA CORPORATION
O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIl\1ILE: [phone]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE SUBMISSION OF
THE POWER COST ADJUSTMENT (PCA)
STATUS REPORT OF A VISTA CORPORATION)
AND REQUEST FOR RECOVERY OF POWER
COSTS DEFERRED THROUGH JUNE 30, 2004 )
CASE NO. A VU-04-J!~
DIRECT TESTIl\10NY
RICHARD L. STORRO
FOR A VISTA CORPORATION
I. INTRODUCTION
Please state your name, employer and business address.
My name is Richard L. Storro. My business address is 1411 East Mission
Avenue, Spokane, Washington, and I am employed by the Company as the Director of
Power Supply.
What is your educational background?
I participated in a program with the College of Idaho and the University of
Idaho, where upon completion I received a Bachelor of Science degree in physics from
the College of Idaho and a Bachelor of Science degree in electrical engineering from the
University of Idaho, both in 1973.
How long have you been employed by the Company?
I started working for A vista in 1973 as a distribution engineer. I have
worked in various engineering positions, and have held management positions in line and
gas operations, system operations, hydro production and construction, and transmission. I
joined the Energy Resources Department as a Power Marketer in 1997 and became
Director of Power Supply in 2001. My primary responsibilities involve the oversight of
both the short-term and long-term planning and acquisition of power supply resources for
the Company.
What is the scope of your testimony in this proceeding?
My testimony will provide a brief summary of the factors driving power
supply expenses during the review period, July 2003 through June 2004. I then provide
Storro, Di
A vista
Page
an update on the status of Coyote Springs 2 and outline the documentation provided with
this application.
II. SUMMARY
Would you please summarize power supply expenses during the July
2003 through June 2004 review period?
Yes. During the review period, Idaho s share of power supply expenses
exceeded the authorized level by $31 212 674. Of that total, the Company absorbed
548 091 or 10 percent of the additional power costs subject to the 90%/10% sharing.
This resulted in a net increase in power supply costs for the period of $28 664 583.
Power supply expenses were higher than the authorized level due to several
factors. The largest factor was hydro generation, which was approximately 78.5 aMW
below the authorized level, which would account for approximately $9.2 million of
increased expense. The sale of fixed-price gas added approximately $4.5 million to
Idaho s share of power supply expense. Most of the fixed price gas was sold because
often it was less expensive to sell gas and purchase electricity than it was to generate
power with gas. The costs associated with the fixed-price gas contracts included in the
PCA deferral balance are being addressed in the general rate case proceeding. These
contracts are referred to as Deals "A" and "
Total natural gas fuel expense was approximately $5.3 million higher than the
authorized amount due primarily to Coyote Springs 2 being in operation for the period
1 The Potlatch power purchase and revenue associated with the purchase is tracked at 100% in the PCA per
Idaho Public Utilities Commission Order No. 29418 dated January 15 2004. The 10% portion absorbed by
Avista is based on the portion of the PCA deferrals that are shared 90%/10% which was $25,480 885 during
the review period.
Storro, Di
A vista
Page 2
July 1 , 2003 through January 15, 2004. Thermal fuel expense for the Colstrip and Kettle
Falls plants was approximately $6 million lower than the authorized amount.
Another factor driving the deferrals is the age of the authorized case. The
authorized case is based on the contracts and resources in place for the period July 1999
through June 2000. During that period, the Company had many large off-system power
sales that generated significant revenue. Almost all of these sales have ended and, as
such, the revenue is reduced, which is reflected in a reduction in Account 447, Sale for
Resale, revenue of $72 million on a system basis ($24 million Idaho share).
The Company entered into five new long-term contracts during the review period.
In July 2003 , the Company signed a 44-month contract to purchase power from a small
co-generation plant. In November 2003 , the Company entered into a contract with other
owners of Colstrip Units 3 and 4 to provide power to the water pumps serving the plant
with a like amount of power either purchased at index or returned to A vista at Mid-
Columbia. In December 2003 , the Company entered into a contract for 2004 to purchase
exchange capacity. In April of 2004 the Company entered into a 10-year wind purchase
and in June 2004 the Company entered into a seven and one-half year agreement to
purchase the output of the City of Spokane s Upriver hydroelectric plant. In addition, the
Company began taking delivery of 100 MW of power purchased for the period 2004
through 2006 from contracts that were executed in 2002. These contracts have been
provided confidentially to IPUC Staff.
Storro, Di
A vista
Page 3
project?
III. COYOTE SPRINGS 2 ISSUES
Could you please provide a brief overview of the Coyote Springs 2
Yes. The Coyote Springs 2 project began commercial operation on July 1
2003 and operated until January 15, 2004. On January 15 , 2004, operating indicators at
the Coyote Springs 2 project noted a potential internal arcing problem in the plant
generator step-up transformer (the main transformer connecting the plant to the grid).
Numerous tests were conducted and found that internal arcing had in fact occurred
however the internal inspection found no visible cause. The manufacturer (Alstom),
which has recently changed its name to Areva, determined that the only way to find the
cause was to return the transformer to its repair facility.
The Company expects the transformer repairs to be completed and the plant back
on-line sometime in September 2004. The Company has ordered a backup transformer
for Coyote Springs 2, from a different vendor than Alstom (Areva), that is scheduled for
delivery in November 2004.
IV. SUPPORTING DOCUMENTATION
Please provide a brief overview of the documentation provided by the
Company in this filing.
The Company maintains a number of documents that record relevant
factors considered at the time of a transaction.The following is a list of current
documents that are maintained and that have been provided on a compact disk (except
Credit Report) as part of this filing:
Storro, Di
A vista
Page 4
Gas/Electric Transaction Record:These documents record the key details of the
price, term and conditions of a transaction and include a discussion of market
conditions at the time of the transaction, the reason for the transaction, and
pertinent transmission or other delivery issues. (provided for each gas and electric
transaction, not including real-time and pre-schedule transactions).
Position Reports:These daily reports provide a summary of monthly loads and
resources over an 18-month forward period.Also included are forward
hydroelectric generation estimates as well as critical water generation variability.
Fixed price natural gas quantities are also shown assigned to the most economic
available generation plant.
Long-Term Physical Electric Load & Resource Tabulation:For transactions with
deliveries extending greater than the 18-month period covered by the Position
Report, the Company includes this document to show the net system position
during the extended period. This document also shows variability associated with
an 80% confidence interval around the combined variability of hydroelectric
generation and variability of load.
Forward Market Electric and Natural Gas Price Curves:This daily data is
maintained in Nucleus, the Company s electronic energy transaction database
record system.
Electric/Gas - Heat Rate Transaction Worksheet:For each natural gas transaction
a worksheet is prepared which summarizes the economics of the transaction using
Storro, Di
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Page 5
the forward electric and natural gas prices available in the market at the time of
the transaction, the most economic available generator, and the resultant cost to
generate electric power (provided as part of GaslElectric Transaction Record).
Price Quote Worksheet:Provides a record of the natural gas purchase or sales
prices available from several parties in the market at the time of a particular gas
transaction. This record includes price information at specific points of delivery
(provided as part of Gas/Electric Transaction Record).
Credit Report:Lists those counter-parties with which the Company is allowed to
enter into either purchase or sales transactions as determined by credit criteria set
by the Company. This report may also provide information on other parties
credit limits placed upon their own transactions with the Company (not provided
but available on request).
In addition, the compact disk contains backup worksheets related to the cost of the
fixed-price gas contracts and hydro generation variation.
Does that conclude your direct pre-filed testimony?
Yes.
Storro, Di
A vista
Page 6