20060815Storro direct, exhibit.pdf

1006 AUG /5 AH 10: 28
DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL OF
REGULATORY AND GOVERNMENTAL AFFAIRS
A VISTA CORPORATION
O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
I-'' DO i!.:'t 't"'
:c, ',. I I tJ ~",_UTILI r IES COMMISSION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MA TIER 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, 2006 )
CASE NO. A VU-06-M
DIRECT TESTIMONY
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
A venue, 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 2005 through June 2006.I will discuss
the outlook for power costs during the second half of 2006 and why the surcharge should
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remain in place because of anticipated surcharge deferrals. I also describe the supporting
documentation that is provided in electronic format.
II. SUMMARY OF DEFERRALS
Would you please summarize power supply expenses during the July
2005 through June 2006 review period?
Yes. Power supply expenses were remarkably close to the authorized
level. During the review period, Idaho s share of power supply expenses exceeded the
authorized level by only $2 266 (not including Potlatch generation and revenue variance
of $100 355 in the rebate direction). This variance in expense is only .01 % above the
authorized level of $22 627 747 (Idaho allocation of system power supply expense). Of
that total, the Company absorbed $226 or 10 percent of the additional power costs subject
to the 90%/1 0% sharing.! This resulted in a net deferral of $2 038 in the surcharge
direction. Adding the Potlatch related deferral of $1 00 355 in the rebate direction results
in a net deferral for the period of $98 317 in the rebate direction.
During the twelve month period ended June 30, 2006 , on a net basis, there was
virtually no variance from the authorized level. In general terms, the pattern of expense
was higher than the authorized level in the second half of 2005, particularly December
2005 when very cold weather increased loads at a time of high prices, and lower than the
authorized level during the first half of 2006 when the Company experienced favorable
hydro conditions.
I 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 $2 266 during the
review period.
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Over the entire July 2005 through June 2006 period hydro generation was
approximately only 4 aMW above the authorized level.Another factor to note is the
retail revenue credit of approximately $9.3 million almost completely offsets the increase
of power supply expense, i.e. the revenue included in the PCA from the growth in retail
load offsets the majority of the increase in power costs.
What new long-term contracts did the Company enter into during the
July 2005 through June 2006 review period?
The Company entered into two new long-term contracts during the review
period. In November 2005, the Company entered into a two-year load-following sale to
Northwestern Energy. This contract provides dynamic capacity to Northwestern Energy
for load following and regulation. Also in November 2005, the Company made an
exchange capacity purchase for calendar year 2006. These contracts have confidential
terms and have been previously provided to IPUC Staff.
III. SURCHARGE EXTENSION AT CURRENT LEVEL
Please explain why the Company is requesting that the surcharge be
continued at its current level.
Actual power costs were below the authorized level in the first half of this
year, but it is very unlikely that this will continue. The Company anticipates that power
cost deferrals for the second half of 2006 will total approximately $9.7 million in the
surcharge direction. This is based on an actual July 2006 deferral of $2 032 949 and
projected deferrals of $7 628 423 for the months of August through December 2006. In
all likelihood, the deferral balance by the end of August (Augusts ' projected deferral is
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approximately $2.5 million) will be higher than the annual surcharge revenue of
approximately $4.3 million.
Based on these projections, the deferral balance at the end of the year (not
including interest) will be approximately $8.7 million in the surcharge direction ($1.5
million as of June plus $9.7 million deferrals July through December less $2.5 million
surcharge revenue). Because the deferral balance is expected to grow over the remainder
of the year and exceed the annual level of surcharge revenue, the Company is requesting
that the surcharge remain in place at the current level. Exhibit No. - (RSS-l) shows
the projected power cost deferrals for the months of August through December 2006.
What is causing these surcharge power cost deferrals during the
second half of 2006?
There are a variety of reasons that anticipated power costs are higher than
the authorized costs in the second half of this year. The first reason is a reduction in
hydro generation. While the Company experienced favorable hydro conditions during the
first half of 2006, the dry summer weather has reduced the hydro generation expectations
for the remainder of the year. The Company projects that hydro generation will be 38
aMW below the authorized level for the period July through December 2006. Also
natural gas prices are higher than the authorized level and the second half of the year is
when Avista relies more on its gas-fired generation to serve retail loads. The anticipated
natural gas cost to fuel Coyote Spring 2 for the second half of 2006 is $7.90 per
decatherm, compared to an authorized natural gas cost for Coyote Springs 2 of $4.51 per
decatherm.
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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. Unless noted these documents have been provided on a
compact disk as part of this filing. Other documents will be provided on request:
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.The Company has provided
worksheets summarizing electric and natural gas transactions during the period.
Additional documentation will be provided on request.
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
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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
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 (these worksheets will be provided on request for specific
electric or gas transactions).
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
(part of Gas/Electric Transaction Records that will be provided on request for
specific transactions).
Credit Report:Lists those counterparties 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
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credit limits placed upon their own transactions with the Company (not provided
but available on request).
Does that conclude your direct pre-filed testimony?
Yes.
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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]
2006 AUG /5 AM /0= 28
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UTILIIIES COiIU~ISSION
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, 2006
CASE NO. A VU-06- 00
EXHIBIT NO. _(RLS-
RICHARD L. STORRO
FOR A VISTA CORPORATION
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