20070504Decision memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
CO MMISSI 0 NER RED FO RD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:MAY 4, 2007
SUBJECT:CASE NO. A VU-07-01 (Avista)
POWER COST ADJUSTMENT (PCA) METHODOLOGY -
PROPOSED CHANGES &
REQUEST FOR CONTINUATION OF EXISTING SURCHARGE
On October 31 , 2006, the Idaho Public Utilities Commission (Commission) in Case
No: A VU-06-05 issued Order No. 30161 announcing a review of Avista Corporation s Power
Cost Adjustment (PCA) methodology and method of recovery. Avista s PCA is used to track
changes in revenues and costs associated with variations in hydroelectric generation, secondary
prices and changes in power contract revenues and expenses.
On March 2, 2007, the Commission opened this case docket, A VU-07-, to
establish a vehicle for review of Avista Corporation dba Avista Utilities' (Avista; Company)
PCA methodology and method of recovery.
Background
The context for the present docket is set forth in the Commission s Order No. 30161
Case No. A VU-06-05. In that Order the Commission made the following findings:
The Commission has reviewed and considered the filings of record in Case
No. A VU-06-5. . .. We have also reviewed our 2001 Order No. 28775 in
Case No. A VU-01-1 modifying the PCA methodology and subsequent
PCA Orders.
The temporary changes in Avista s PCA methodology authorized in 2001
were triggered by dramatic increases in prices on the wholesale market.
October 2001 the Commission approved a 19.4% PCA surcharge to enable
the Company to pay down a $78 million power cost debt incurred during the
2000-2001 western states energy crisis. The Commission in 2004 reduced
DECISION MEMORANDUM
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 unrecovered 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 s declining deferral balance and finds that the balance declined in
2006 to a level near zero. We 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 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.
DECISION MEMORANDUM
It is only with this review of PCA methodology that we authorize and
continue the existing PCA surcharge of 2.448%.
In Order No. 30161 , the Commission authorized Avista to continue the current PCA
surcharge of 2.448% until the deferral balance reaches zero or June 30, 2007, whichever occurs
first. The Commission further ordered that one or more PCA methodology workshops were 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.
On March 19,2007, a workshop in Case No. A VU-07-01 was held in Boise, Idaho
to review Avista s PCA methodology and method of recovery. The workshop was attended by
representatives from A vista, Commission Staff, Potlatch Corporation and Idaho Power
Company.
On April 27, 2007, Avista filed a report in Case No. A VU-07-01 recommending
proposed changes and requesting a continuation of the existing surcharge through September 30
2007. Report attached.
COMMISSION DECISION
A vista has filed a Report with the Commission recommending proposed changes to
its PCA methodology and requesting a continuation of the existing surcharge through September
, 2007. A vista arid Commission Staff recommend that this matter be processed pursuant to
Modified Procedure, i., by written submission rather than by hearing. Reference Commission
Rules of Procedure, IDAPA 31.01.01.201-204. Does the Commission agree with the
recommended procedure?
Scott Woodbury
bls!M:A VU-O7-01 sw
DECISION MEMORANDUM
Avlsta Corp.
1411 East Mission P.O. Box 3727
Spokane. Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170
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VIA OVERNIGHT MAIL
State ofIdaho
Idaho Public Utilities Commission
472 W. Washington St.
Boise, ID 83702-5983
Attention: Ms. Jean Jewell, Secretary
Case No. A VU-07-
Avista Corporation s Report Related to the Review of
Avista s Power Cost Adjustment (PCA) Methodology
Enclosed for filing with the Commission are an original and seven copies of the Report of Avista
Corporation in the above referenced case related to the review of Avista s Power Cost
Adjustment (PCA) methodology. Also enclosed is a Certificate of Service.
Please direct any questions regarding this filing to Ron McKenzie at [phone].
Sincerely,
,J~ w-wJ
Kelly Norwood
Vice President, State and Federal Regulation
Enclosure
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 MA TIER OF THE REVIEW OF THE
POWER COST ADJUSTMENT (PCA)
METHODOLOGY OF A VISTA CORPORA nON
CASE NO. A VU-07-
AVISTA'S REPORT
RECO~ENDING PROPOSED
CHANGES AND REQUEST FOR
CONTINUATION OF EXISTING
SURCHARGE THROUGH
SEPTEMBER 30, 2007
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 its report in the above
referenced case, and requests the Commission issue an order approving proposed changes in the
method of PC A recovery, and the continuation ofthe existing PCA surcharge through September 30
2007.
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 Govenunenta1 Affairs
A vista Corporation
1411 E. Mission Avenue
Spokane, Washington 99220
Phone: [phone]
Fax: [phone]
A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGEl
II. BACKGROUND
On October 31 , 2006, the Idaho Public Utilities Commission (Commission) in Case No.
A VU-06-05 issued Order No, 301691 announcing a review of Avista Corporation s Power
Cost Adjustment (PCA) methodology and method of recovery. In that Order A vista was
authorized to continue the existing surcharge of 2.448% until the deferral balance reaches zero or
June 30, 2007 , whichever occurs first. The Commission further ordered that one or more PCA
methodology workshops were to be held and a report filed with the Commission by A vista on or
before August 15 2007 recommending continuation or proposed changes to the PCA
methodology and method of recovery.
The Commission opened Case No. A VU-07-01 to establish a vehicle for review of
Avista s PCA methodology and method ofrecovery and issued a "Notice of Workshop." A
workshop was held on March 19 2007, at the Commission s Hearing Room in Boise, Idaho.
The workshop was attended by representatives from Avista, Commission Staff, Potlatch
Corporation, and Idaho Power Company,
III. PROPOSALS DISCUSSED AT WORKSHOP
At the workshop the Company discussed a proposed modification to the PCA
methodology, and proposed modifications to the method of recovery. The proposed modification
to the PCA methodology was with regard to the rate used in calculating the retail revenue credit.
The Company discussed using the average cost of production rather than the marginal cost of
production. The Company is not proposing a change to the retail revenue credit rate in this
proceeding. If the Company decides to address this issue, it will do so in its next general rate
case filing.
A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGE 2
The proposed modifications to the method of PC A recovery discussed at the workshop can be
broken down into three main categories: 1) single annual PCA rate adjustments rather than returning
to triggers and a cap, 2) annual schedule for rate adjustments and review of PC A deferrals, and 3)
rate spread for the October 1 , 2007 and October 1 , 2008 rate adjustments. Each main category is
discussed separately below. It is our understanding that there was agreement among the parties on
the proposals presented below.
A. SINGLE ANNUAL PCA RATE ADJUSTMENTS
The Company is proposing single annual PCA rate adjustments rather than returning to
triggers and a cap. Order No. 28775 in Case No. AVU-Ol-, dated July 12, 2001 , approved
modifications to the PCA effective January 1 , 2001. The modifications included approval of a cap of
$12 million, or about 10% of base revenue at the time, with a continuation of$3 million triggers.
Rather than a hard and fast rule, the Company was given the latitude to request and seek a higher
amount, if circumstances justified a higher amount. Such a request occurred due to the 2000-2001
western energy crisis, with a 19.4% surcharge being approved effective October 12, 2001. The
surcharge was later reduced to 4,385% on September 9, 2004, to partially offset a general rate
increase, and again reduced to its current level of2.448% on April 15, 2005 , to offset the increase in
general rates to recover costs associated with the acquired second half of Coyote Springs 2, a natural
gas-fired generating unit.
The Company has not been using triggers to determine PCA rate adjustments since 2001.
Rather, pursuant to Commission orders, the annual PCA status report to review deferrals has also
included annual approvals for the continuation of the PCA surcharge rates.
A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGE 3
The Company is proposing that the PCA procedures be modified to require annual PCA rate
adjustment filings to recover or rebate the deferrals being reviewed in the annual PCA status report
filing. Annual PCA rate adjustment filings will eliminate multiple PCA rate changes occurring
within a year under a triggering mechanism. Having annual PCA rate adjustment filings is consistent
with how the annual review ofthe PCA rates has been occurring, However, the existing practice of a
rate adjustment remaining in place as long as there is a deferral balance larger than annual revenues
from the PCA rate adjustment would be discontinued, Rather, the PCA rate adjustment would be set
each year on October 1 st to recover the previous June 30th deferral balance, would remain in place for
twelve months, and would be replaced by a new rate adjustment that is set based on the next twelve
months of deferrals. The deferrals for each July -June, twelve-month period and the PCA rate
adjustment associated with that period will be accounted for separately. Any over- or under-
recovered surcharge or over- or under-refunded rebate balance will be transferred to the deferral
balance that will be subject to the next rate adjustment.
B. SCHEDULE FOR RATE ADJUSTMENTS AND REVIEW OF PCA DEFERRALS
The Company has been making annual PCA review filings on or before August 15th of each
year. The review filings cover power costs and the associated PCA deferrals that were recorded
during the immediately preceding twelve-month period of July through June. The Company
proposes that these filings continue to be made. The Company is proposing that an annual PCA rate
adjustment be part of the filing with the rate adjustment being based on deferrals for the same July
through June twelve-month period that the PCA review filing covers.
A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGE 4
Listed below are the proposed dates for the Company filing, review and comments by Staff
and other interested parties, Commission order, and effective date of the PCA rate adjustment for
2007:
August 1, 2007 Company filing for July 2006 - June 2007 deferral period
September 1, 2007 Review and comments by Staff and other interested parties
October 1 , 2007 Commission order
October 1, 2007 Effective date of PCA rate adjustment
Under the Company s proposal the current PCA surcharge of2.448% would be extended and
would expire on September 30, 2007. The PCA surcharge would be replaced by an October 1 , 2007
rate adjustment designed to recover deferrals for the July 2006 - June 2007 period that would expire
on September 30, 2008, which, in turn, would be replaced by a October 1 , 2008 rate adjustment
designed to recover deferrals for the July 2007 - June 2008 period that would expire on September
2009. The process would continue in the future, unless it is modified.
C. RATE SPREAD FOR OCT. 1, 2007 AND OCT. 1,2008 RATE ADJUSTMENTS
The Company proposes that the October 1 , 2007 rate adjustment be spread on a unifonn
percentage basis and that the October 1 , 2008 rate adjustment and subsequent adjustments be spread
on a unifonn cents per kilowatt-hour basis. Order No. 29602 issued October 8, 2004 in A vista's last
general rate case, Case Nos. A VU-04-1 and A VU-04-, at page 48 states:
The Commission finds that a cents per kWh recovery method for the PCA is superior to the
percentage basis currently used. While we recognize the difficulties pointed out by Potlatch
we find the cents per kWh rate more equitable to all customers than the percentage allocation.
We recognize that the variable cost of energy fluctuates from year to year based on the
amount of energy consumed and should therefore be surcharged or credited on an equal cents
per kWh basis. We authorize the change to an equal cents per kWh when the present deferral
balance is eliminated. We reject Potlatch's proposal to seasonalize PCA recovery amounts
on a monthly or quarterly basis as being administratively burdensome and unnecessary to
A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGES
achieve fairness and equity.
Under the annual rate adjustment method being proposed, the Company will be setting PCA
rates based on deferrals recorded for specific twelve-month periods. Since this proposal is a
modification to the old revenue adjustment mechanism of triggers, and since the deferral balance did
not actually reach zero, the Company is proposing that the October 1 , 2007 rate adjustment be spread
on a uniform percentage basis. Thereafter, the rate adjustments would be spread on a uniform cents
per kilowatt-hour basis.
IV. REQUEST FOR CONTINUATION OF EXISTING SURCHARGE
The Company requests that the existing 2.448% PCA surcharge not expire on June 30, 2007
but be allowed to continue through September 30, 2007. Based on current estimates, it is likely that
the PCA surcharge rate will increase from 2.448% to about 4% on October 1, 2007. Rather than
have the PCA surcharge go to zero on July 1 2007, leaving the existing surcharge in place through
September 30, 2007 will minimize the rate increase impact that occurs on October 1 2007, Also, if
the existing surcharge is allowed to continue, the October 1 , 2007 rate adjustment will be lessened by
the amount of revenue received from the existing surcharge during the months of July, August, and
September of 2007, In other words, if the existing surcharge continues, the October 1 , 2007 rate
adjustment will be based on the deferral balance at June 30, 2007, less the surcharge revenue to be
received from the existing surcharge during the months of July, August, and September.
V. RATE MECHANISM FLEXIBILITY
If circumstances arise, the Company proposes that it be allowed the flexibility to seek a
departure from the procedures. Examples that were discussed at the workshop were: 1) maintain
flexibility to do rate adjustments in additipn to the annual adjustment if the situation warrants
A VISTA'S REPORT AND REQUEST FOR CONTINUATION OF SURCHARGE PAGE 6
2) maintain flexibility to not do a rate adjustment if the adjustment is too small, and 3) maintain
flexibility to recover or rebate the deferral balance over more than one period. Of course, the
Company would be required to request authorization and provide justification for any departure from
the PCA rate mechanism procedures,
VI. REQUEST FOR RELIEF
The Company respectfully requests the Commission approve the previously discussed
changes to the method of PC A recovery, and the continuation of the existing PCA surcharge rates
through September 30, 2007. The Company requests that the matter be processed under the
Commission s Modified Procedure rules through the use of written comments. The Company
requests that the Commission set a deadline for written comments or protests and issue the required
notice in this proceeding. Since the Company is requesting that the existing PCA surcharge
otherwise set to expire on June 30, 2007, be continued through September 30 2007 , an order would
need to be issued prior to June 30, 2007 , if continuation is approved.
Dated at Spokane, Washington this 26th day of April 2007.
A VISTA CORPORATION
BY ~7 -1
Davi ;;Meyer
Vice President and Chief Counsel of
Regulatory and Governmental Affairs
A VISTA'S REPORT AND REQUEST FOR CONTINUA nON OFSURCHARGE PAGE 7
VERIFICATION
STATE OF WASHINGTON)
County of Spokane
David J, 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 26th day of Apri12007, by David J. Meyer.
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A VISTA'S REPORT AND REQUEST FOR CONTINUA nON OF SURCHARGE PAGE 8
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have served Avista Corporation s Report in Case No.
AVU-07-01 related to the review of Avista s Power Cost Adjustment (PCA)
Methodology, by mailing a copy thereof, postage prepaid to the following:
Ms Jean D Jewell , Secretary
Idaho Public Utilities Commission
472 W. Washington St.
Boise, ID 83702-5983
Pamela Mull
Vice President & General Counsel
Potlatch Corporation
601 W. Riverside Ave.
Suite 1100
Spokane, WA 99201
Howard Ray
Technical Services Manager
Potlatch Corporation
803 Mill Road
PO Box 1126
Lewiston, ID 83501-1126
Dated at Spokane, Washington this 26th day of April 2007.
Rates Coordinator