20070907Comments.pdf

DONALD L. HOWELL, II
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 3366
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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 AVISTA
CORPORATION'S ANNUAL POWER COST
ADJUSTMENT (PCA) FOR THE PERIOD
JULY 1 , 2007 TO JUNE 30, 2008
COMMENTS OF THE
COMMISSION STAFF
CASE NO. AVU-07-
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of
Record, Donald L. Howell II, Deputy Attorney General, submits the following comments in
response to Order No. 30402 issued on August 10, 2007.
BACKGROUND
On July 31 , 2007, A vista Corporation dba A vista Utilities filed its annual Power Cost
Adjustment (PCA) Application. Since 1989 the PCA mechanism has permitted A vista to adjust
its PCA rates upward or downward to reflect differences from normal in the Company s "power
supply costs." Due to its substantial reliance on hydroelectric generation, Avista s actual cost of
providing electricity (its power supply costs) varies from year to year depending on changes in
streamflow. Available streamflow dictates hydropower generation and the amount of
hydropower generation affects the use of the Company s coal and natural gas fired resources
STAFF COMMENTS SEPTEMBER 7, 2007
along with its purchases and sales. The PCA captures differences from normal costs associated
with the amount and cost of fuel and differences in purchase costs and opportunity sales
revenues. Ninety percent of these differences from normal costs are charged to or credited to
customers through the PCA rate. The other ten percent of the cost difference is absorbed by
Company shareholders. The annual PCA surcharge or credit is combined with the Company
base rates" to produce a customer s overall energy rate.
In Order No. 30361 issued June 29, 2007 , the Commission approved two major changes
to Avista s PCA methodology. First, the Commission changed Avista s PCA from a "trigger and
cap" mechanism to a single, annual PCA rate adjustment. Order No. 30361 at 6. Second, the
Commission changed the PCA rate design from an equal "percentage" basis to an equal "cents
per kilowatt hour (kWh)" basis. Id. The Commission also authorized continuation of the
existing 2.448% PCA surcharge until September 30 2007. The Commission directed that these
changes be implemented in this docket.
COMPANY FILING
In this PCA Application, Avista proposes to collect approximately $9.6 million from its
Idaho customers during the October 2007 through September 2008 year for above normal power
supply costs deferred during the 2006/2007 PCA deferral period. Because the current PCA
surcharge recovers about $5.0 million annually, an increase of$4.6 million is required. The
Company estimates that this increase results in an overall PCA rate increase of 2.22%.
Application, Exh. RLM -1 at page 1. The Company proposes that the new PCA rate become
effective October 1 , 2007.
For the PCA year (July 1 , 2006 through June 30, 2007), the Company reports that 90% of
the unrecovered deferral balance was $10 573 518. Application at 3. The Company attributed
above normal power supply costs to slightly reduced hydro generation and above normal natural
gas fuel costs. Storro Direct at 2.
The deferral balance of$10 573 518 is reduced to $9 609 989 by adjustments that reflect
expected surcharge revenues for July, August and September (-341 810), expected interest
during the recovery period (323 110) and adjustments for Commission Fees and Uncollectibles
(55 171). . Consequently, Avista seeks a PCA surcharge ofO.267~/kWh
($9 609 989/3 594 894,412 kWh = 0.00267 $/kWh).
STAFF COMMENTS SEPTEMBER 7, 2007
Under the Company s proposal, the PCA surcharge rate for residential customers will
increase from 0.163~ per kWh to 0.267~ per kWh, an increase ofO.l04~ per kWh. If approved
the monthly bill for the average residential customer using 1 000 kWh per month would increase
by $1.04. The average monthly bill for a residential customer using 1 000 kWh would increase
from $69.38 to $70.42, or an increase of approximately 1.5%.
With the implementation of an equal cent per kWh PCA rate, the percentage rate increase
to the various customer classes will vary. The table below shows the proposed percentage
increases in the PCA rates by customer group:
CUSTOMER GROUP PERCENTAGE
(SCHEDULE)CHANGE
Residential (1)1.53%
General Services (11 & 12)98%
Large General Services (21 & 22)04%
Extra Large General Services (25)86%
PumpIng Services (31 & 32)1.83%
Street and Area Lights (41 - 49)89%
McKenzie, Exh. RLM -, Page 1 of 3
In spite of the overall increase proposed by the Company, Street and Area Lighting revenue
requirement will decrease under the Company s proposal. The PCA calculations for the
customer classes are shown on Company Exhibit RLM-
STAFF REVIEW
Audit Results
Staffhas 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 2006 through
June 2007. Staffwas 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 our review of these
transactions, Staff concludes that the accounting transactions appear reasonable at the time they
were made. Staff also reviewed the other PCA calculations and amounts. Staff finds the
STAFF COMMENTS SEPTEMBER 7, 2007
amounts recorded to be correct and recommends that they be included in the deferral balance as
of June 30, 2007.
Deferral Balance Components
The Company is requesting Commission approval for recovery of the Unrecovered
Deferral Balance of $10 573 518 as of June 30, 2007. The Unrecovered Deferral Balance at June
2007 is calculated by starting with the unrecovered balance at June 30, 2006, adding in the
net deferral activity for the current period of July 1 , 2006 through June 30, 2007, subtracting the
amortizations related to surcharge revenues, and including interest on the deferral balance as
directed by Commission Orders. In this year s balance, the Company is also requesting recovery
of the over-refunded amount attributed to the Centralia gain recorded in November 2006.
Centralia gain over-refund (recorded in November 2006)
517 103
239 763
691 623
501 895
380
$10.573.518
Unrecovered Balance at June 30, 2006
Net Deferral Activity (July 2006 - June 2007)
Amortizations Related to Surcharge Revenues (July 2006 - June 2007)
Interest
Unrecovered Balance at June 30, 2007
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, 2007. The main component of the net deferral 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 increase in power supply cost, $13 239 763 , is comprised of the following eight items;
an explanation of each item also follows:
STAFF COMMENTS SEPTEMBER 7 , 2007
5. All Potlatch Revenues and Expenses
6. Resource Optimization - Loss on Natural Gas Resold
$40,492 050
342 056
813,479
153 909
602 437
743 271
226 039
168 708
$13.239.763
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
7. Idaho Retail Revenue Adjustment
8. Second Half Coyote Springs 2 Transmission Credit
Total
1. Purchased Power costs reflect 90% of the Idaho jurisdictional share of 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 90% of
the Idaho jurisdictional share of the difference in costs the Company incurred for thermal fuel
compared to the normalized amount included in base rates. During the review period the
Company incurred more coal costs than are 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 90% of the Idaho jurisdictional share of 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 more natural gas costs than are currently included in base rates.
The positive amount represents a cost to customers.
4. "Sales for Resale" are long-term and short-term off-system sales. The negative
amount represents 90% of the Idaho jurisdictional share of the 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 or credit to customers.
5. The Potlatch component is a direct assignment to Idaho of the difference in Potlatch
costs and revenues (for its Lewiston facility) relative to the normalized Potlatch costs and
STAFF COMMENTS SEPTEMBER 7, 2007
revenues established in the Company s last general rate case. The negative net amount indicates
that, during the review period, the cost of serving Potlatch was less than the amount included in
base rates. This negative amount is a PCA benefit to Idaho customers.
6. "Resource Optimization" amounts result when natural gas purchased in advance for
use in generating plants is later sold because it is less expensive to sell the gas and purchase
electricity than it is to generate electricity with the gas. Ninety percent of the Idaho jurisdictional
share of the gain or loss on the sale of the gas is included in the PCA. Staffhas verified that at
the time the gas was initially purchased, the cost of producing electricity at A vista s natural gas
plants, primarily the Coyote Springs facility, was less expensive than purchasing electricity on
the open market to meet native load. Furthermore, Staff has verified that at the time the gas was
resold, and electricity purchased to meet native load, that the resale of the gas and corresponding
electricity purchased was the least expensive and most cost-effective alternative. The loss during
the review period, shown as a positive amount, is a cost to Idaho customers.
7. The Idaho Retail Revenue Adjustment has three components. First, the load change
adjustment is an adjustment to revenues that removes the power supply cost of serving new load
from PCA calculations. Increases in power supply costs associated with load growth are
reserved for consideration in general rate cases. The revenue adjustment 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
$36.31/MWh. Marginal power supply costs are multiplied by the growth in load to produce the
adjustment. The other two retail revenue components include a customer credit associated with
Schedule 95 wind revenue and a customer credit for the purchase of Potlatch generation. Ninety
percent of the Idaho Retail Revenue Adjustment is included in the PCA. 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
of the sale and purchase arrangement is included in the actual power supply expenses in the PCA
STAFF COMMENTS SEPTEMBER 7, 2007
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 2006 t!n"ough June 2007 review period, a uniform percentage PCA
surcharge was in effect. The surcharge level of2.448% was effective April 15, 2005 from Case
No. A VU-05-1. 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. Those PCA rates were
continued by the Commission in Order No. 29881, Case No.
A VU-05-, the Company s annual PCA review. They were continued again in Case No.
A VU-07-, Order No. 30361.
The amount for amortizations related to surcharge revenues represents the amount of
surcharge revenues for the twelve months ended June 30, 2007 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.
Interest
The Company calculates interest on the deferral balance per Order No. 29323 in 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 2006 was 3% and the Customer Deposit Rate for 2007 is 5%.
In Order No. 29323 (Case No. A VU-03-4) the Commission found that it was
appropriate to include a 200 basis point (2%) increase in the interest rate applied to Avista
year-end deferral balances during recovery. The Commission further found that the additional
200 basis point increase would apply beginning January 2003 and continue through June 30
2005 or until the deferral balance is fully recovered. In Order No. 30361 (Case No. A VU-07-
1) the Commission found that
, "
for all practical purposes the PCA deferral balance was
eliminated on March 30, 2006, when the deferral balance dropped from a high of $45.6 million
to $1.5 million. We find it reasonable that the change in recovery method occur with the
Company s year 2007 PCA adjustment (tentatively October 1 2007).
STAFF COMMENTS SEPTEMBER 7, 2007
Due to the way the balance is calculated to reflect the monthly deferrals, the deferral
balance subject to the additional interest was not shown as being fully recovered, i.e. the amount
booked did not reach a zero balance. It could not reach zero absent reduction in costs below base
rates. Because the Commission found that the PCA deferral balance was eliminated in Order
No. 30361 , Staff believes the deferral balance permitted to earn the additional 2% interest has
been eliminated and the additional interest ends.
Staff recommends that the change in interest calculation coincide with the change in
recovery method from a uniform percentage basis to equal cents per kWh basis. Staff has
discussed the proposed change in interest rate calculation with the Company, and it concurs with
Staff, as long as the Company is not required to change the interest rate calculation for prior
months. Staff proposes that the additional 200 basis point calculation be eliminated effective
October 1 , 2007. This prospective change will not require the Company to change prior interest
rate calculations retrospectively.
CONSUMER ISSUES
Customer Notice and Press Release
The Press Release and Customer Notice included in Avista s PCA Application were
reviewed and deemed to meet the requirements of IDAP A 31.21.02.102. The customer notice
was mailed with cyclical billings beginning August 2007 and ending August 30, 2007.
Customer Comments
Customers were given until September 7 2007 to file comments. As of September 5 , six
comments had been received, all of which opposed the increase to PCA rates.
Financial Assistance for Paying Heating Bills
If approved, A vista s rates for residential customers will increase only slightly. But
regardless of the rate per kilowatt-hour, there will always be some customers that find it difficult
to pay their electric bills. 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
STAFF COMMENTS SEPTEMBER 7, 2007
programs, customers should contact the local Community Action Agency, Avista Utilities, the
Idaho Public Utilities Commission, or the 2-1 Idaho Care Line.
ST AFF RECOMMENDATION
Staff recommends the Commission accept the audited deferral balances presented in the
Company s filing and approve the Company proposed PCA surcharge rate of 0.267 ~/kWh
effective October 1 , 2007. Staff further recommends that the Company discontinue the
additional 2% interest calculation effective October 2007.
Respectfully submitted this day of September 2007.
Donald L. Ho I, II
Deputy Attorney General
Technical Staff:Keith Hessing
Kathy Stockton
Marilyn Parker
i :umisc/comments/avueO7. 7 dhkhkls
STAFF COMMENTS SEPTEMBER 7 , 2007
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 7TH DAY OF SEPTEMBER 2007
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-07-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL
A VISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220
MAIL: david.meyer~avistacorp.com
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
PO BOX 3727
SPOKANE W A 99220
MAIL: kelly.norwood~avistacorp.com
Jo~
SECRETARY
CERTIFICATE OF SERVICE