20060929Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895
RECEIVED
2006 SEP 29 AM 10: ~6
IDAHO PUBLIC
UTILITIES COMMISSjO;,
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
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-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on
August 30, 2006, submits the following comments.
BACKGROUND
On August 15 2006, Avista Corporation dba Avista Utilities (Avista; 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 direction in Avista
PCA Order No. 29881 , Case No. A VU-05-
STAFF COMMENTS SEPTEMBER 29, 2006
The Company in its 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 unrecovered deferral balance at June 30, 2005 was $5 935 324. The unrecovered
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 unrecovered surcharge balance at June
2006, the Company contends the unrecovered surcharge balance is expected to grow.
Richard Storro, Director of A vista Power Supply, in testimony filed with the Application
explains the reasons that actual power costs are expected to exceed authorized power costs and
what the effect is forecasted to be on the deferral balance. At July 31 , 2006, the deferral balance
had grown to $3.2 million. In all likelihood, 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 of the year. However, should conditions turn out to be more favorable
than expected, resulting in the deferral balance reaching zero at some point, A vista will make a
filing to either zero-out the surcharge rates, or to continue or modify the rates depending upon
actual and expected power supply conditions at the time. Should the surcharge rates not be
modified prior to filing the next PCA Status Report covering the July 2006 through June 2007
12-month period, the surcharge rates will be reviewed as a part of that filing.
STAFF REVIEW
Audit Results
Staff has performed a review and audit of the amounts that went into the deferral balance
in the current filing. Staffs review covered expenses incurred for the period July 2005 through
June 2006. Staff was able to look at a representative cross section of transactions included in the
Purchased Power account (FERC 555), Thermal Fuel account (FERC 501), CT Fuel account
(FERC 547) and the Power Sales account (FERC 447). Based on its review of these
transactions, Staff concludes that the transactions appear reasonable at the time they were made.
Staff also reviewed the other PCA calculations and amounts. Staff finds the amounts recorded to
be correct and recommends that they be included in the deferral balance as of June 30, 2006.
STAFF COMMENTS SEPTEMBER 29, 2006
Deferral Balance Components
The Company is requesting Commission approval for recovery of the Unrecovered
Deferral Balance of $1 ,517 103 as of June 30, 2006. The Unrecovered Deferral Balance at June
, 2006 is calculated by starting with the unrecovered balance at June 30, 2005, adding in the
net deferral activity for the current period of July 1 , 2005 through June 30 2006, subtracting the
amortizations related to surcharge revenues, and including interest on the deferral balance as
directed by Commission orders.
Amortizations Related to Surcharge Revenues (July 2005 - June 2006)
Interest
935 324
317
599,432
279 528
$1.517.103
Unrecovered Balance at June 30, 2005
Net Deferral Activity (July 2005 - June 2006)
Unrecovered Balance at June 30, 2006
Net Deferral Activity
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
twelve months ended June 30, 2006. The main component of the net deferral activity is the Net
Increase in Power Supply Costs. Because power plants are economically dispatched, these PCA
accounts also reflect additional power purchases when market prices are lower than generation
costs. The associated reduced generation costs are also captured along with off-system sales
revenues. The total net decrease in power supply cost, $98 317, is comprised of the following
items:
ST AFF COMMENTS SEPTEMBER 29, 2006
Total
$59 937 058
200 884
536
281 259
793 833
210 494
339 961
520 176
$98.317
1. FERC Account 555 - Purchased Power
2. FERC Account 501 - Thermal Fuel
3. FERC Account 547 - CT Fuel
4. FERC Account 447 - Sales for Resale
5. All Potlatch Revenues and Expenses
6. Net Fuel Expense - Loss on Natural Gas Resold
7. Idaho Retail Revenue Adjustment
8. Second Half Coyote Springs 2 Transmission Credit
1. Purchased Power costs reflect the difference in costs the Company incurred for power
purchases in the review period compared to normalized purchased power costs included in base
rates. In the review period the Company incurred more purchased power costs than are included
in base rates. The positive amount represents a cost to customers.
2. Thermal Fuel, primarily coal, is used to produce electricity. The amount is the
difference in costs the Company incurred for thermal fuel compared to the normalized amount
included in base rates. In the review period the Company incurred more coal cost than is
currently included in base rates. The positive amount represents a cost to customers.
3. CT Fuel is natural gas burned in the Company s gas fired generators. This amount
represents the difference in costs the Company incurred for gas generator fuel compared to the
amount included in normalized base rates. In the review period the Company incurred less
natural gas costs than is currently included in base rates. The negative amount is a benefit to
customers.
4. Sales for Resale are long-term and short-term off-system sales. The negative amount
represents an increase in off-system sales revenues above the amounts included in base rates.
This negative amount represents a decrease in costs during the review period and is a benefit to
customers.
5. The Potlatch component is a direct assignment to Idaho of the difference in Potlatch
costs and revenues (Lewiston facility) relative to the normalized Potlatch costs and revenues
established in the Company s last general rate case. The negative net amount indicates that
STAFF COMMENTS SEPTEMBER 29, 2006
during the review period, the cost of serving Potlatch was less than the amount included in base
rates and that produces a PCA benefit to Idaho customers.
6. Net Fuel Expense results when natural gas purchased for use in generating plants is
sold because it is less expensive to sell the gas and purchase electricity than is to generate power
with the gas. The gain or loss on the sale of the gas is included in the PCA. The gain during the
review period, shown as a negative amount, is a benefit to Idaho customers.
7. The Idaho Retail Revenue Adjustment has three components. The load change
adjustment is an adjustment to revenues to reflect the cost of serving loads that differ from
normalized base loads. If the load grows, revenue is added, if the load declines, there is an
adjustment to reflect the decreased load. The revenue credit for retail load growth is computed
using the marginal cost of power supply. This amount is established whenever base power
supply costs are reset. The marginal power supply cost for the current review period is
$36.311MWh. Marginal power supply costs are multiplied by the growth in load to produce the
credit. The other two revenue credits include a credit associated with Schedule 95 wind revenue
and a credit for the purchase of Potlatch generation. The negative amount represents a benefit to
customers.
8. The Coyote Springs 2 Transmission Credit began after the Company purchased the
second half of Coyote Springs 2 and began including it in the PCA calculation in April 2005.
The transmission credit for the second half of Coyote Springs 2 is equal to the transmission cost
for the second half of Coyote Springs 2 that is included in base rates. This credit is included
because the transmission for the second half of Coyote Springs 2 is not being provided through
the purchase of transmission, but rather through a sale and purchase arrangement. The net cost
ofthe sale and purchase arrangement is included in the actual power supply expenses in the PCA
deferral. If the credit were not included, the Company would collect twice for transmission costs
for the second half of Coyote Springs 2. This credit will continue until base rates are reset.
Amortizations Related to Surcharge Revenues
During the July 2005 through June 2006 review period, rates associated with a single
PCA surcharge were in effect. The surcharge level of2.448% was effective April 15 , 2005 and
established in Case No. A VU- E-05-l. This PCA rate level coincided with the approval for
purchase and rate base treatment of the second half of the Coyote Springs 2 generating facility.
STAFF COMMENTS SEPTEMBER 29, 2006
Those PCA rates were continued by the Commission in Order No. 29881 , Case No. A VU-05-
, the Company s annual PCA review.
The amount for amortizations related to surcharge revenues represents the amount of
surcharge revenues for the twelve months ended June 30, 2006 net of the revenue related
expenses of commission fees and uncollectibles. Staff reviewed the amount of monthly
surcharge revenues and found them to be appropriately calculated and recorded. The Company
estimates that the existing surcharge rates will produce annual revenues of approximately
268 000.
Interest
The Company calculates interest on the deferral balance per Commission Order No.
29323, Case No. A VU-03-4. Staff reviewed the calculation of the interest and found the
amounts included in the filing to be correct. The Company uses the Customer Deposit Rate on
current year deferrals and the Customer Deposit Rate plus 2% on carryover balances from one
year to the next. The Customer Deposit Rate for 2005 was 2% and the Customer Deposit Rate
for 2006 is 3%.
Deferral Balance Projection
In its filing Avista 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.
While the Company has not proposed to use the projection of deferral balances through
December 2006 to set the PCA surcharge amount, neither has it proposed to establish the
surcharge amount based on existing deferral balances at the time of the PCA filing. The
Company s proposal seems to be more generally based on the expectation of higher deferral
balances and the principal of rate stability.
STAFF COMMENTS SEPTEMBER 29, 2006
Staff does not oppose the company s proposal in this case. While unaudited, Staff views
the July and August deferrals as known and measurable and subject to audit and correction in the
next PCA filing. Furthermore, continuation of the existing surcharge will assure smaller deferral
balances and interest charges for recovery later. However, Staff must point out that the Avista
PCA methodology approved by the Commission does not include recovery ofprojected costs or
costs deferred after the PCA filing. It is designed to recover costs after they are deferred
requested for recovery and fully audited.
Given the current balance, Staff believes the Company s recommendation to continue
existing rates is reasonable for two reasons. First, keeping the PCA rate at the present level will
offer rate stability to customers. Secondly, 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
, 2006. This decrease in the deferral balance also decreases the amount of interest that
customers will eventually have to pay, helping to keep rates lower in future PCA filings.
PCA Methodology
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 dollars was
established along with an annual PCA review and potential rate adjustment. This is the filing
and review criteria that has been followed since that time.
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 dollars. A vista s PCA also included a rate cap of no more than two triggers being
incorporated in rates at anyone time. The $3 million dollar trigger was established at
approximately 2.5% of Idaho jurisdictional revenue. The Company 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. Rate design is to be changed from an equal percentage increase or
decrease for each customer class to an equal cents per kWh increase or decrease for each
customer class.
STAFF COMMENTS SEPTEMBER 29 , 2006
In this filing the deferral balance at June 30, 2006 is approximately $1.5 million, which 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.
1 )When will the deferral balance reach zero?
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.
If Avista s PCA returns to Trigger and Cap filings, what should the trigger and
cap be?
In this case Staff recommends that existing PCA rates be continued as proposed by the
Company. However, Staff believes that the Commission should set one or more workshops to
discuss these and any other PCA questions or concerns that interested participants might have. It
is Staff s hope that participants could reach an agreement to be presented to the Commission
regarding permanent future PCA methodology.
CONSUMER ISSUES
Customer Notice and Press Release
Avista filed its electric Power Cost Adjustment (PCA) on August 15 2006. Ordinarily,
the Company would include a copy of its Press Release and Customer Notice with the filing but
because A vista is not proposing to raise or lower its rates with this filing, they are not required to
notify customers as required by IDAPA 31.21.02.102. Avista chose to not include a Customer
Notice with customer s bills this year.
Customer Comments
Customers were given until September 29 2006 to file comments. By September 27
2006, no comments had been received.
STAFF COMMENTS SEPTEMBER 29, 2006
Financial Assistance for Paying Heating Bills
Although Avista s rates for residential customers may remain the same this year, many
customers 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, 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.
STAFF RECOMMENDATION
Staff proposes that the Commission accept the audited deferral balances presented in the
Company s 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 workshops to develop future PCA filing criteria and the transition to equal
cents per kWh PCA rates for presentation to the Commission prior to the next annual 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 new
PCA methodology if available and implement new PCA rates if necessary.
Dated at Boise, Idaho, this d9 ~ day of September 2006.
Scott Woodbury
Deputy Attorney General
Technical Staff: Kathy Stockton
Keith Hessing
Marilyn Parker
i :/umisc/comments/avueO6 ,5swk1skhmp
STAFF COMMENTS SEPTEMBER 29, 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 29TH DAY OF SEPTEMBER 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. A VU-06-, BY E-MAILING A COpy THEREOF AND BY MAILING A COpy
THEREOF, POSTAGE PREPAID, TO THE FOLLOWING:
DAVID J. MEYER
SR VP AND GENERAL COUNSEL
A VISTA CORPORATION
1411 EMISSION AVE, MSC-
SPOKANE W A 99220
E-mail dmeyer~avistacorp.com
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
1411 EMISSION AVE, MSC-
SPOKANE W A 99220
E-mail Kelly.norwood~avistacorp.com
JJ fJ~SECRETAR
CERTIFICATE OF SERVICE