20061031final_order_no_30161.pdf

Office of the Secretary
Service Date
October 31 , 2006
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
ORDER NO. 30161
CASE NO. A VU-06-
On August 15 , 2006, Avista Corporation dba Avista Utilities (A vista; Company)
filed an Application with the Idaho Public Utilities Commission (Commission) for an Order
approving continuation of the existing 2.448% PCA surcharge and authorizing recovery of
power costs deferred through June 30, 2006. Avista s Application serves as a PCA Status Report
for the 12 months ended June 30, 2006 and complies with the Commission s directive in Avista
PCA Order No. 29881 , Case No. A VU-05-6. The Commission in this Order authorizes a
continuation of the surcharge until June 30, 2007 and announces a review of Avista s PCA
methodology and method of recovery.
The Company filing identifies the power cost deferrals during the July 1 , 2005
through June 30, 2006 review period, and explains the primary factors causing the PCA
deferrals. The umecovered deferral balance at June 30, 2005 was $5 935 324. The umecovered
balance at June 30, 2006 is $1 517 103. While the annual amount of revenue under the existing
surcharge (approximately $4.3 million) is greater than the umecovered surcharge balance at June
, 2006, the Company contends the umecovered surcharge balance is expected to grow.
Richard Storro, Director of Avista Power Supply, in testimony filed with the Application
explains the reasons that actual power costs are expected to exceed authorized power costs and
provides the forecasted effect on the deferral balance. At July 31 , 2006, the deferral balance had
grown to $3.2 million. The Company estimates that the deferral balance by the end of August
2006 will be higher than the annual surcharge revenue level of $4.3 million. With the existing
surcharge remaining in place, the deferral balance is expected to approximate $8.7 million at the
end ofthe year.
On August 30, 2006, the Commission issued Notices of Application and Modified
Procedure in Case No. A VU-06-5. The deadline for filing written comments or protests was
September 29, 2006. Comments were filed by Commission Staff and one of the Company
ORDER NO. 30161
customers. The customer recommends that the Company s Application be denied. Staff
proposes that the Commission accept the audited deferral balances presented in the Company
filing. Staff recommends that the PCA surcharge, currently 2.448%, and the associated customer
class rates, be continued. Staff also recommends that the Commission establish one or more
public workshops to develop future PCA filing criteria and a transition to equal cents per kWh
PCA rates for presentation to the Commission prior to the next annual PCA filing. Finally, Staff
recommends that the Company s next status report be filed on or before August 15, 2007 to
address a review period no longer than one year beginning July 1 , 2006, to apply a new PCA
methodology if available and implement new PCA rates if necessary. Staffs comments can be
summarized as follows:
PCA Deferral Balance June 30, 2006
Staff in its comments notes that it performed a review and audit of the amounts that
went into the deferral balance in the current filing. Staff notes that the Company is requesting
Commission approval for recovery of the umecovered deferral balance of $1 517 103 as of June
, 2006 and calculated as follows:
Umecovered Balance at June 30 , 2005
Net Deferral Activity (July 2005 - June 2006)
Amortizations Related to Surcharge Revenues (July 2005 - June 2006)
Interest
Umecovered Balance at June 30, 2006
935 324
317
599,432
279 528
$1.517.103
The net deferral activity represents the Idaho jurisdictional share of the excess power costs and
associated revenue adjustments deferred under the PCA mechanism by A vista for the 12 months
ended June 30, 2006.
Deferral Balance Projection
In its filing A vista projects the PCA deferral balance for July through December
2006. The projection shows an additional accumulation of approximately $7.6 million. Based
on this projection the Company recommends that PCA rates not be reduced to recover only the
June 30, 2006 deferral balance of approximately $1.5 million, but that rates remain at current
levels, rates that are expected to generate approximately $4.3 million in PCA revenue during the
coming year. Staff notes that the Company s proposal to continue the existing 2.448% PCA
surcharge seems to be more generally based on the expectation of higher deferral balances and
ORDER NO. 30161
the principle of rate stability. Staff points out that the A vista PCA methodology approved by the
Commission does not include recovery of projected costs or costs deferred after the PCA filing.
It is designed to recover costs after they are deferred, requested for recovery and fully audited.
Staff does not oppose the Company s proposal in this case to continue the existing
surcharge. In assessing the reasonableness of the Company s proposal, Staff used the unaudited
July ($2 032 949) and August ($3 606 778) PCA deferrals as known and measurable, subject to
audit and correction in the Company s next PCA filing. Continuation of the existing surcharge
Staff states, will assure smaller deferral balances and interest charges for recovery later. Keeping
the PCA rate at the present level will also offer rate stability to customers. It will further assure
that the deferral balance will not increase to the level it might otherwise attain if the PCA rate is
lowered to only collect the deferral balance as of June 30, 2006.
PCA Methodology
Staff notes in its comments that A vista s current PCA filing is made under temporary
criteria established by the Commission in 2001 when regional power supply costs and PCA
deferral balances reached unprecedented levels. At that time an annual PCA cap amount of $12
million or about 10% of base revenues was established along with an annual PCA review and
potential rate adjustment.
The PCA filing methodology that was in place prior to the Commission s 2001 Order
called for the Company to make PCA filings when the deferral balance reached a trigger amount
of $3 million. Avista s PCA also included a rate cap of no more than two triggers being
incorporated in rates at anyone time. The $3 million trigger was established at approximately
5% of Idaho jurisdictional revenue. The Company, Staff states, views this as the more
permanent methodology approved by the Commission and plans to return to it once the deferral
balance reaches zero. Also when that balance reaches zero the Company is required to
implement a new rate design changing from an equal percentage to an equal cents per kWh
increase or decrease for each customer class.
In this filing the deferral balance at June 30, 2006 was approximately $1.5 million
that is relatively close to zero. Staffs concern is that even with the continuation of the current
PCA rates, designed to recover $4.3 million annually, the PCA deferral balance is expected to
grow through the end of the year. Staff believes that these circumstances leave several
unanswered questions.
ORDER NO. 30161
1. When will the PCA deferral balance reach zero?
2. Should the Commission wait until the balance reaches zero to return to
trigger and cap PCA filings and/or implement equal cents per kWh rates?
3. Should the Company return to trigger and cap PCA filings or should a
single annual filing be made that would drive a single annual rate
change? This is the methodology used in recent years.
4. If Avista s PCA returns to trigger and cap filings, what should the trigger
and cap be?
In this case Staff recommends that the existing PCA surcharge be continued as
proposed by the Company. However, Staff believes that the Commission should authorize one
or more public workshops to discuss the unanswered questions identified by Staff and concerns
that other interested participants might have. It is Staffs hope that participants could reach an
agreement to be presented to the Commission regarding a permanent future PCA methodology.
Financial Assistance for Paying Heating Bills
Although A vista s rates for residential customers under the Company s proposal may
remain the same this year, many customers, Staff notes, still struggle to make ends meet. Staff
encourages those customers who qualify for energy assistance to apply for the federally-funded
Low Income Home Energy Assistance Program (LIHEAP) and other non-profit fuel funds such
as Project Share. For more information regarding assistance programs, Staff reports that
customers may call the local Community Action Partnership agency (CAP AI), A vista Utilities
the Idaho Public Utilities Commission, or for other community resources call the 2-1 Idaho
Care Line.
Commission Findings
The Commission has reviewed and considered the filings of record in Case No.
A VU-06-5 including the comments and recommendations of Commission Staff. We have also
reviewed the comments filed by one of the Company s fixed income customers recommending
denial ofthe Company s Application. We have also reviewed our 2001 Order No. 28775 in Case
No. A VU-Ol-l modifying the PCA methodology and subsequent PCA Orders.
The temporary changes in A vista s PCA methodology authorized in 2001 were
triggered by dramatic increases in prices on the wholesale market. In October 2001 the
Commission approved a 19.4% PCA surcharge to enable the Company to pay down a $78
ORDER NO. 30161
million power cost debt incurred during the 2000-2001 western states energy CrISIS. The
Commission in 2004 reduced the surcharge to 4.38%, and in April 2005 reduced it again to its
current level of 2.448%. The existing PCA surcharge produces annual revenues of
approximately $4 268 000, which is greater than the $1 517 103 June 30, 2006 umecovered
balance. To justify continuation of the surcharge the Company proposes that the Commission
recognize an intervening increase in deferral activity. Although unaudited, the Commission is
apprised that the PCA deferral balance booked by A vista for the three months of July through
September 2006 is $7 100 927.
The Commission in its Order No. 28775 in 2001 approving modifications to the PCA
methodology agreed with Potlatch that the changed methodology approved in that case merited
close monitoring. Order No. 28775 p. 15. Potlatch had recommended that the Commission
restrict the adoption of the proposed changes to a limited period of time, perhaps two years
with a thorough review of the new methodology thereafter. . .." Order No. 28775 p. 14. The
Commission found that a two-year review seemed appropriate and stated:
After two years of operation with these changes we will expect the Company
to file a report with this Commission detailing the operation of the modified
PCA. The report should include total surcharge and rebate amounts
recovered over the period, significant events that have impacted power
supply expenses, changes in the long-term (greater than one year)
supply/demand situation and mechanism modifications that may be justified.
(Emphasis added.
On August 8, 2003 , the Company filed a Status Report together with Company testimony. In the
testimony of Ron McKenzie, the Company estimated that the PCA deferral balance would reach
zero in mid-2005. McKenzie Testimony p. 5, Case No. A VU-03-
The Commission has continued to monitor the Company s PCA and the Company
declining deferral balance and finds that the balance declined in 2006 to a level near zero.
find that the events that justified implementation of changes in PCA methodology, however
cannot be used to support an unending continuation of the charges. A thorough review and
examination is required. In this filing the Company uses a projected increase in deferral to
justify its request to continue rather than reduce the existing surcharge level. This recommended
use of projections is a significant departure from the approved PCA methodology. We find it
appropriate at this time to conduct the thorough review of PCA methodology envisioned when
we approved changes to the methodology in 2001. We find Staff s suggestion to hold one or
ORDER NO. 30161
more workshops to be an acceptable vehicle for reviewing the Company s PCA methodology
and expect the Company at the conclusion of that review to file a report with the Commission
assessing the PCA methodology and providing justification for mechanism modifications. It is
only with this review of PCA methodology that we authorize and continue the existing PCA
surcharge of 2.448%.
The PCA Status Report filed by A vista and the audit by Staff in this case of the
deferrals through June 30, 2006 indicate that the Company is properly accounting for PCA
revenues and appropriately applying them to excess power costs. On the record developed in
this case and as qualified above we find it reasonable to continue the current PCA surcharge of
2.448% until the deferral balance reaches zero or June 30, 2007, whichever occurs first.
leaving the PCA surcharge in place, A vista will be able to further reduce the power cost deferral
balance and customers will not experience a change in existing rates.
ORDER
In consideration of the foregoing and as more particularly described and qualified
above, IT IS HEREBY ORDERED that the Application of Avista for an Order to continue the
current PCA surcharge of 2.448% until the deferral balance reaches zero or June 30, 2007
whichever occurs first, is approved.
IT IS FURTHER ORDERED that one or more PCA methodology workshops are to
be held and a report filed with the Commission by Avista on or before August 15 , 2007
recommending continuation or proposed changes to the PCA methodology and method of
recovery.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code 961-626.
ORDER NO. 30161
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 31 s-f
day of October 2006.
PAUL
MARSHA H. SMITH, COMMISSIONER
ATTEST:
Je D. Jewe
Co mission Secretary
bls/O:A VU-O6-05 sw
ORDER NO. 30161