20080403Morris Direct.pdf

DAVID J. MEYER
VICE PRESIDENT, GENERA COUNSEL,
GOVERNENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKAE, WASHINGTON 99220-3727TELEPHONE: ( 509) 495 - 4 316FACSIMILE: [phone]
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2U08 APR-3 PH 12: 39
REGULATORtJrtd~r::,-, :;~~t:;.
11'1- .
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF AVISTA CORPORATION FOR THE )
AUTHORITY TO INCREASE ITS RATES )
AN CHAGES FOR ELECTRIC AND )
NATURA GAS SERVICE TO ELECTRIC )
AND NATURAL GAS CUSTOMERS IN THE ). STATE OF IDAHO . )
)
CASE NO. AVU-E-08-01
CASE NO. AVU-G-08-01
DIRECT TESTIMONY
OF
SCOTT L. MORRI S
FOR AVISTA CORPORATION
(ELECTRIC AN NATURA GAS)
1
2
I. INTRODUCTION
Q.Please state your nae, employer and business
3 address.
4 A.My name is Scott L. Morris and I am employed as
5 the Chairman of the Board, President and Chief Executive
6 Officer of Avista Corporation (Company or Avista), at 1411
7 East Mission Avenue, Spokane, Washington.
8 Q.would you briefly describe your educational
9 background and professional experience?
10 A.Yes. I am a graduate of Gonzaga University with a
11 Bachelors degree and a Masters degree in organizational
12 leadership.I have also attended the Kidder Peabody School
13 of Financial Management.
14
15
I joined the Company in 1981 and have served in a
numer of roles including customer service manager.In
16 1991, I was appointed general manager for Avista Utilities'
17 Oregon and California natural gas utility business.I was
18 appointed President and General Manager of Avista utili ties,
19 an operating division of Avista Corporation, in August 2000.
20 In February 2003, I was appointed Senior Vice-President of
21 Avista Corporation, and in May 2006, I was appointed as
22 President and Chief Operating Officer . Effective January 1,
23 2008, I assumed the position of Chairman of the Board,
24 President, and Chief Executive Officer.
Morris, Di 1
Avista Corporation
1 I am a member of the Western Energy Institute board of
2 directors, a member of the Gonzaga University board of
3 trustees, and deputy director of the washington Roundtable.
4 i also serve on the board of trustees of the Greater Spokane
5 Incorporated, which was formerly two separate organizations,
6 the Spokane Area Economic Development Council and the
7 Spokane Regional Chamer of Commerce.
8 Q.What is the scope of your testimony in this
9 proceeding?
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11
A.I am testifying as the policy witness for the
Company.I provide an overview of Avista Corporation and
12 Avista Utili ties.I describe Avista Utilities' overall
13 utili ty operations, the Company's rate requests in this
14 filing, and the primary factors driving the Company's need
15 for general rate relief. I will provide an overview of some
16 of the initiatives that we have undertaken in recent years
17 to achieve operating efficiencies in an effort to mitigate a
18 portion of the significant increase in costs that Avista, as
19 well as other utili ties in the industry, are experiencing.
20 I will also briefly explain the Company i s customer support
21 programs that are in place to assist our customers.
22 Finally, I will introduce each of the other witnesses
23 providing testimony on the Company's behalf.
Morris, Di 2
Avista Corporation
A table of contents for my testimony is as follows:1
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Description
I. Introduction
II. Overview of Avista Utilities
III. Rate RequestsElectric
Natural Gas
IV. Cost Drivers for the Industry and Avista
V. Company Efficiencies and Customer
Support Programs
VI. Other Company witnesses
sponsoring any exhibitsQ.Are you
15 proceeding?
Page
1
7
11
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11
17
23
32
in this
A.Yes.I am sponsoring Exhibit No. 1 Schedule 1,16
17 pages 1 through 3 .Page 1 is a diagram of Avista' s
18 corporate structure; page 2 includes a map showing Avista' s
19 total electric and natural gas service areas; and page 3
20 shows the detailed usage and numer of customers for each
21 cus tomer class.Exhibi t No.1, Schedule 2, is a newspaper
22 article from the Lewiston Tribune dated January 13, 2008.
23 These exhibits were prepared under my direction.
24 Q.Please describe Avista' s current business focus
25 for the utility and subsidiary operations.
A.The Company continues to work diligently to
The
26
27 operate what I believe is a very efficient utility.
28 Company has historically run its operations with attention
29 to minimizing expense while providing quality service and a
30 high level of customer satisfaction.I will touch on some
31 of our more recent efficiency improvements later in my
Morris, Di 3
Avista Corporation
1 testimony,such as our web redesign proj ect,energy
2 efficiency,and regional infrastructure efficiency
3 programs.
4 Al though we are making progress in improving the
5 Company's financial condition, as shown by the recent
6 upgrades in the Company's corporate credit ratings to
7 investment grade by Moody's Investors Service in Decemer
8 2007 and Standard & Poor's in February 2008, we are still
9 not as strong financially as we need to be.The Company
10 continues to be below investment grade with FitchRatings.
11 Timely rate relief through this filing is an important
12 element in continuing our path to a healthy utility.with
13 higher levels of capital spending required over the next
14 several years, it is more important than ever that the
15 Company remain financially heal thy in order to attract
16 capital investment and financing at the lowest cost
17 possible.Company witness Mr. Malquist will discuss
18 further the actions taken by the Company to improve cash
19 flow, reduce debt! and our continuing efforts towards being
20 a strong, healthy utility.
21 Our strategy continues to focus on our energy and
22 utili ty-related businesses, with our primary emphasis on
23 the electric and natural gas utility business.There are
24 four distinct components to our business focus for the
25 utili ty, which we have referred to as the four legs of a
Morris, Di 4
Avista Corporation
1 stool, with each leg representing customers, employees, the
2 communities we serve, and our financial investors. For the
3 stool to be level, each of these legs must be in balance by
4 having the proper emphasis.This means we must maintain a
5 strong utility business by delivering efficient, reliable
6 and high quality service, at a reasonable price, to our
7 customers and the communities we serve, while providing an
8 attractive return to our investors.
9 Q.Please briefly describe Avista's subsidiary
10 businesses.
11
12
A.Avista Corp.' s primary subsidiary is the
information and technology business,Advantage IQ,
13 described below,which is headquartered in Spokane,
14 Washington. On June 30, 2007, Avista completed the sale of
15 the operations of Avista Energy to Coral Energy Holding,
16 L. P. , and certain of its subsidiaries, a subsidiary of
17 Shell.In September 2007, Avista Energy paid a cash
18 dividend of $169 million from the cash proceeds to Avista
19 Capital.The maj ori ty of those funds were di vidended to
20 Avista Corporation, redeploying those proceeds into the
21 utility.Avista currently holds a 6.8% share in Avista
22 Labs' successor company, ReliOn, which is held under Avista
23 Capital.A diagram of Avista' s corporate structure is
24 provided on page 1 of Exhibit No.1, Schedule 1.
25 Q.Please provide an overview of Advantage IQ.
Morris, Di 5
Avista Corporation
1 A.Advantage IQ, formerly known as Avista Advantage,
2 commenced operations in 1998 and is a provider of utility
3 bill processing, payment and information services to mul ti-
4 site customers.Advantage IQ analyzes and presents
5 consolidated bills on-line, and pays utility and other
6 facili ty-related expenses for multi-site customers
7 throughout North America, such as CSK Auto, Jack in the
8 Box, Staples, and Big Lots, to name a few.Information
9 gathered from invoices, providers and other customer-
10 specific data allows Advantage IQ to provide its customers
11 with in-depth analytical support, real-time reporting and
12 consulting services with regard to facility-related energy,
13 waste, repair and maintenance, and telecom expenses.In
14 2007, Advantage IQ was awarded the ENERGY STARiI Sustained
15 Excellence Award in recognition of its continued leadership
16 in protecting our environment through energy efficiency.
17 Q.Wht is the status of the formtion of a holding
18 company?
19 A.In February 2006, Avista filed for regulatory
20 approval of the proposed formation of a holding company
21 ( reorganization)with the Federal Energy Regulatory
22 Commission (FERC) and the public utility commissions in
23 Idaho, Washington, Oregon and Montana, conditioned on
24
25
approval by shareholders.On April 18, 2006, FERC issued
its "Order Authorizing Disposition of Jurisdictional
Morris, Di 6
Avista Corporation
Facilities" in Docket No.EC06-85-000,approving the1
2 Company's reorganization.Shareholder approval of the
3 reorganization was granted at Avista Corp. ' s Annual
4 Shareholder meeting May 11, 2006.On June 30 , 2006 , the
5 Idaho Public Utili ties Commission issued an order approving
6 Avista' s reorganization application, based on a settlement
7 in that state. On February 28, 2007, the Washington
8 Utilities and Transportation Commission issued an order
9 approving Avista' s reorganization application, based on a
10 settlement in that state.The Montana Commission has yet
11 to act on Avista' s Reorganization application, and the
12 procedural schedule for consideration of the Company's
13 application in Oregon has been suspended by agreement of
14 the parties to allow additional time for discussion among
15 the parties.
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II. OVERVIEW OF AVISTA UTILITIES
Q.Please briefly describe Avista utilities.
A.Avista Utilities provides electric and natural
20 gas service within a 26,000 square mile area of eastern
21 Washington and northern Idaho. The Company, headquartered
22 in Spokane, also provides natural gas distribution service
23 in southwestern and northeastern Oregon.A map showing
24 Avista' s total electric and natural gas service areas are
25 provided in page 2 of Exhibit No.1, Schedule 1.
Morris, Di 7
Avista Corporation
1 As of Decemer 31, 2007, Avista Utilities had total
2 assets (electric and natural gas) of approximately $3.2
3 billion (on a system basis), with electric retail revenues
4 of $577 million (system) and natural gas retail revenues of
5 $432 million (system).As of December 2007, the Utility
6 had 1,473 full-time employees.
7 Avista has a long history of innovation and
8 environmental stewardship. At the turn of the 20~ century,
9 the Company built its first renewable hydro generation
10 plant on the banks of the Spokane River.In the 1980' s ,
11 Avista developed an award-winning biomass plant (Kettle
12 Falls) that generates energy from wood waste.
13 To the future, Avista as well as other utilities are
14 facing new state and federal mandates for renewable energy
15 and carbon control standards. For example, Washington's
16 Senate Bill 6001 and Initiative 937 require certain public
17 and private utilities to produce 15 percent of their power
18 from new renewable resources by 2020, not including legacy
19 hydro production, and to eliminate the option of coal-fired
20 generation because of carbon emission limitations.
21 Recognizing these changes, the Company dropped all new coal
22 generation in its 2007 electric IRP, instead relying on
23 natural gas, renewables, and energy efficiency.Today,
24 Avista has one of the smallest carbon footprints in the
25 u.s.
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Avista Corporation
1 Q.Please describe Avista utilities' Idaho electric
2 and natural gas utility operations.
3 A.Of the Company's 325,645 electric and 298,411
4 natural gas customers (at year end 2007), 120,266 and
5 71,773, respectively, were Idaho customers.The Company
6 serves the Idaho counties of Benewah, Bonner, Boundary,
7 Clearwater, Idaho, Kootenai, Latah, Lewis, Nez Perce, and
8 Shoshone.Lumer and wood products manufacturing is the
9 dominant industry in our Idaho service area. Approximately
10 33% of 2007 Idaho electric retail usage was from
11 residential customers, with 29% from commercial, 35% from
12 industrial customers, and 2% from pumping customers.
13 Approximately 46% of natural gas retail revenues were from
14 residential customers, and 15% from commercial and 39%
15 from industrial and transportation customers. The Company
16 has seven transportation customers in Idaho.Additional
17 details of usage by customer class are shown on page 3 of
18 Exhibi t No.1, Schedule 1.
19 As detailed in the Company's 2007 electric Integrated
20 Resource Plan, Avista expects retail electric sales growth
21 to average 2.3% annually for the next ten years and 2.0%
22 over the next twenty years in Avista's service territory,
23 primarily due to increased population and business growth.
24 As stated earlier, while the overall economy is slowing on
25 a national basis, Kootenai County is still growing.In
Morris, Di 9
Avista Corporation
1 2007, employment growth in Kootenai County ranked in the
2 top 5% of all metropolitan areas. Two big drivers of job
3 growth in the past has been in the financial sector and in
4 the leisure sector, where Kootenai County had the 8th and
5 38th respectively, fastest employment growth of the 450
6 metropolitan areas in the U. S. for 2007. This growth will
7 continue to drive demand for new plant investment, which
8 underscores the need for timely recovery of our capital
9 investments.
10 Based on our 2007 NaturaL. Gas Integrated Resource
11 Plan, in Idaho the numer of customers is projected to
12 increase at an average annual rate of 3.0%, with demand
13 also growing at 3.0% per year.The demand growth rate for
14 natural gas is tied to increases in population and the
15 numer of businesses in Avista's service territory, coupled
16 with expected conversions to natural gas from electric and
17 oil space heat and electric water heating.
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Morris, Di 10
Avista Corporation
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III.RATE REQUESTS
Q.Please provide an overview of Avista's electric
3 rate request in this filing.
4 A.Through this filing the Company is requesting that
5 the Commission grant an electric revenue increase of $32.3
6 million or 15.8%1.The Company's request is based on a
7 proposed rate of return of 8.74% with a common equity ratio
8 of 47.94% and a 10.8% return on equity. Mr. Hirschkorn has
9 proposed to spread the revenue increase based on an equal
10 percentage to each service (rate) schedule. The Company is
11 proposing to raise the monthly residential basic charge to
12 $4.60 from the current $4.00 charge.
13 The monthly bill for a residential customer using an
14 average of 977 kWhs per month would increase from $67.38 to
15 $78.08 per month, an increase of $10.70 or 15.9%.Mr.
16 Hirschkorn will provide additional details related to rate
17 spread and rate design.
18 Q.What is Avista's natural gas rate request in this
19 filing?
20
21
A.with regard to natural gas,the Company is
requesting an increase of $4,725,000 or 5.8%.As with the
22 electric increase, the Company's request is based on a
23 proposed rate of return of 8.74% with a common equity ratio
24 of 47.94% and a 10.8% return on equity.The Company is
1 The proposed increase to base reta rates is 16.7%, but the overall bil imact to customers is 15.8%.
Morris, Di 11
Avista Corporation
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1 proposing class of returntomovecustomerrates
2 approximately one-half way to unity. The monthly bill for a
3 residential customer using an average of 65 therms per month
4 would increase from $75.14 to $80.05 per month, an increase
5 of $4.91 or 6.5%. The proposed rate spread for each natural
6 gas customer class is shown in the illustration below.
Illustration 1
Proposed
Service Schedule
General Service Schedule 101
Large General Service Schedule 111/112
Interruptible Sales Service Schedule 131/132
Transportation Service Schedule 146
(excluding natural gas costs)
Overall Increase
Increase
6.5%
3.3%
4.8%
0.9%
5.8%
The Company is proposing to raise the residential basic
20 charge to $4.00 from the current $3.28. The Company is also
21 proposing to discontinue Schedules 121 and 122, High Anual
22 Load Factor Large General Service.Mr. Hirschkorn will
23 address these rate spread and rate design issues.
24 Before you continue with your testimony, would
25 you please briefly explain some of the major factors
Q.
26 causing an increase in Avista' s costs to provide service to
28
27 customers?
This case is about more than just year-A.Yes.
29 over-year changes in costs, such as power costs, fuel,
Morris, Di 12
Avista Corporation
1 materials and supplies,and labor.We are also
2 experiencing major cost impacts related to environmental
3 compliance and litigation related to the preservation of,
4 what have historically been, our low-cost resources that we
5 have used for decades to serve our customers. For example,
6 as we will explain in our testimony to follow, we are
7 requesting recovery of major costs related to relicensing
8 the Spokane River Hydroelectric projects,new lease
9 obligations related to the bed and banks of the Clark Fork
10 River in the State of Montana upstream of our Cabinet Gorge
11 and Noxon Rapids hydroelectric proj ects, costs associated
12 with efforts to resolve the level of dissolved gas
13 downstream of Cabinet Gorge during periods when we spill
14 water, and significant costs to comply with new mercury
15 emission limitations in the State of Montana.
16 In addition, the Company is currently being required
17 to add significant new transmission and distribution
18 facilities, including strengthening the "backbone" of our
19 system, due in part to customer growth in our service area,
20 as well as to meet regional and national reliability
21 standards. While the overall economy is slowing on a
22 national basis, Kootenai County is still growing.Because
23 the cost of concrete, steel, copper, aluminum and other
24 materials have sky-rocketed in recent years, the costs of
25 these new facilities are significant, and are another major
Morris, Di 13
Avista Corporation
1 contributing factor in our request for rate relief in this
2 filing.
3 However, you will also see in our testimony that we are
4 not just sitting on the sidelines as these costs go up. We
5 will identify and explain a numer of efficiency measures
6 that we have undertaken recently in an effort to mitigate
7 the overall cost impacts to our customers.In addition, we
8 have a history of working cooperatively with our local
9 community action agencies, as well as making it a priority
10 within our Company to maintain meaningful programs to assist
11 our customers that are least able to pay their energy bills.
12 i will sumarize some of those programs later in my
13 testimony.
14 Q.What are the primary factors causing the Company's
15 request for an electric rate increase in this filing?
16
17
A.The Company's electric general rate case is based
on a 2007 test year and 2009 pro forma period data.As
18 shown in Illustration 2, the Company's electric request is
19 driven by changes in various operating cost components, but
20 primarily power supply costs (48%), plant investment or rate
21 base growth associated with generation, transmission and
22 distribution plant (32%) and by various hydro relicensing
23 efforts impacting the Utility (12%).
Morris, Di 14
Avista Corporation
1 Illustration 2
2 Primary Electric Revenue Requirement Factors
3
10 Distribution & Other
Expense
8%
*Distrbution Operation &
Maintenance Costs Hydro Relicensing &
* Administrative & General Expenses Compliance Issues
12%
Production &
Transmission
Expense
48%
4
5
8
Increased Net Plant
Investmentl
32%
*Generation Upgrades
.Hydro & Thermal
*Transmission Upgrades
*Distribution
-5 Years of New Cuslomer Growth
-Advanced Meier Reading Project
*Increased Loads
*Thermal Fuel Expenses
-Colstrip, Kettle Falls & CS2
*Mid Columbia Purchases
6
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9
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Iincludes return on investment, depreciation and
taxes, offset by the tax benefit of inteest.
Such as:
*Spokane River Relicensing
*Montana Riverbed Lease
Settlement
13
15
16 As explained by Company witness Mr. Johnson, the level
17 of Idaho's share of power supply expense has increased by
18 approximately $33.4 million ($94.3 million on a system
19 basis) from the level currently in base rates.
20 This significant increase in power supply expense over
21 the expense currently in base rates is based on numerous
22 factors,including higher retail loads,reduced hydro
23 generation, increased fuel costs, increased Mid Columbia
24 purchases, and increased transmission expense.
Morris, Di 15
Avista Corporation
1 Gross plant additions of approximately $236.5 million
2 (Idaho allocation) are driven primarily by increases in
3 investments in distribution plant which was $107.2 million
4 from 2002 to 2007, mainly due to customer growth and the
5 inclusion of the AM proj ect investment.Intangible and
6 production plant increased by $27.6 million in that same
7 time period, related to the hydro relicensing and compliance
8 efforts by the Company.In addi tion to the hydro
9 relicensing and compliance efforts, increases of $82.6
10 million for additional production and transmission
11 investment and $19.1 million for general plant have
12 increased overall gross plant. Other Company witnesses will
13 discuss these issues further in their testimony.
14 Q.What are the primary factors driving the Comany's
15 request for a natural gas rate increase?
16 A.The Company's natural gas request is driven by
17 changes in various operating cost components, but primarily
18 the addition of the Jackson Prairie expansion and the
19 completion of the Advanced Meter Reading proj ects, both
20 planned for completion in the fourth quarter of 2008. This
21 causes an increase in the fixed costs of providing natural
22 gas service to customers.
23 Q.The proposed rate increase is related to changes
24 in the fixed costs of providing natural gas service to
Morris, Di 16
Avista Corporation
1 customers. Is the Company proposing any changes related to
2 the cost of natural gas in this case?
3 A.No. Avista is not proposing changes in this filing
4 related to the cost of natural gas included in customers'
5 current rates.Changes in natural gas costs are addressed
6 in the annual purchased gas adjustment (PGA) filings.
7
8
9
10
iv. COST DRIVERS FOR THE INDUSTRY AN AVISTA
Q. The utility industry, as a whole, is facing
significant increases in certain costs.IS Avista facing
11 similar cost increases, and if so, what is driving these
12 cost increases?
13
14
A.Yes. Avista, along with the utility industry as
a whole, is facing significant cost increases.Costs of
15 steel, copper, cement, all of which are primary raw
16 material components in our business, have been increasing
17 in price in national and international commodity markets.
18 Given that these commodities are key inputs into conductor,
19 transformers, vaults, etc., our costs have risen sharply.
20 In a Septemer 2007 report prepared by the Brattle Group
21 for The Edison Foundation, they sumarize the state of
22 materials in our industry. They found:
23
24
25
26
1."Dramatically increased raw materials prices
(e. g., steel, cement) have increased construction
cost directly and indirectly through the higher
cost of manufactured components common in utility
Morris, Di 17
Avista Corporation
1
2
3
4
infrastructure projects. These cost increases have
primarily been due to high global demand for
commodi ties and manufactured goods,higher
production and transportation costs (in part owing
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6
7
8
9
10
11
12
13
14
to high fuel prices), and a weakening U. S. dollar."
(page 1) Increased global demand for commodi ties,
as noted in this report, is driven primarily by the
robust growth in China, India, Russia, and to a
lesser extent, the United States.
2."The price increases experienced over the past
several years have affected all electric sector
investment costs.In the generation sector, all
technologies have experienced substantial cost
increases in the past three years, from coal plants
15
16
17
18
19
20
to windpower projects. Large proposed transmission
projects have undergone cost revisions,and
distribution system equipment costs have been
rising rapidly." (page 2)
Illustration 3 on the next page is representative of
21 what is happening to infrastructure costs nationally. As
22 shown in the chart below, it is apparent that starting in
23 2003, costs of distribution, transmission and generation
24 infrastructure increased at a far more significant rate
25 than the overall economy, as measured by the GDP deflator.
Morris, Di 18
Avista Corporation
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Illustration 3
Natnal AYerageUtlltt Infasucure COlt lad..
16
f iso..
l140
;130
a
12
12 110
13 100
14
15
16
17
-ToiP1.AI St GeiOl
190
-Tnll --1J-GuM..-oDe
i. - - --------- ---------- ----------------- ------------
1M - ------- - -- - - ---- ---- - --- ------------ ---------
!l
IJ1 19 193 19 ll lJ 191 19 19 20 201 200 20 20 2Ø 20 201
Y..
S-u: The H..dy.WlIi..O Bullel No. 16S ..d lbe U.S. :8_ of 1iomi Ai,iis.SiIe aft of II reaou cotn ..deqpaei cOl in.. for the Ipcied eoeits. .Ri UlilJ c..ircti.. Co: So ..d Imts. Prd by Th Bnie Gr f..The Eci.. Fouadati.. SepRr 20
18 Company witness DeFelice will provide further detail on the
20
19 rising cost of materials.
21 Avista?
Q.What are some of the other cost drivers for
22 A.In addition to the significant increase in
23 materials related to capital projects, Avista is now
24
25
RiverexperiencingmajorSpokanerelatedtocosts
the Montana hydroelectric litigation andrelicensing,
Morris, Di 19
Avista Corporation
1 resulting riverbed lease payments, and the mitigation of
2 dissolved gas at the Cabinet Gorge Project. Further, The
3 North American Electric Reliability Corporation (NERC) has
4 developed national reliability standards for utilities to
5 follow to ensure interconnected system reliability which
6 was mandated as part of The Energy Policy Act of 2005.
These issues,driven primarily by new legislative7
8 initiatives,li tigation,and compliance with new and
9 existing regulatory requirements, such as new reliability
10 requirements, have resulted in significant increases in
11 costs associated with owning and operating the generation,
12 transmission, and distribution systems.
13 Q.Please describe the status of the Company's
14 effort to relicense the Spokane River HYdroelectric
15 Projects.
16 A.Avista's license for the Spokane River
17 Hydroelectric Project (105 aMW) expired in August 2007. At
18 the expiration of the existing license, FERC automatically
19 issued Avista an Annual License for the Project, and will
20 continue to do so each year until the outstanding issues
21 are resolved.In July 2005, the Company submitted two
22 license applications to the FERC, requesting one license
23 for the Post Falls Proj ect and a separate license for the
24 remainder of the Spokane River Proj ect .We expect a new
25 license to be issued by FERC by the end of 2008. Company
Morris, Di 20
Avista Corporation
1 witness Mr. Howard provides additional discussion related
2 to these efforts in his testimony.Company wi tness Ms.
3 Andrews discusses the nature of the Company's request in
4 this case.
5 Q.Please sumrize the Montana hydroelectric
6 litigation and lease payments for state-owned riverbeds?
7 A.On October 19, 2007, the Company reached a
8 settlement with the State of Montana with regard to the
9 amount of damages the Company owed for hydroelectric
10 facilities located on state-owned riverbeds.In October
11 2003, a lawsuit was originally filed against private owners
12 of hydroelectric dams in Montana, including Avista. In this
13
14
lawsuit,the state of Montana alleged that the
hydroelectric facilities are located on state-owned
15 riverbeds and the owners of the dams have never paid lease
16 payments to the state pursuant to the provisions of
17 Montana's Hydroelectric Resources Act.The lawsuit
18 requested lease payments prospectively and also requested
19 damages for trespassing and unjust enrichment for periods
20 of time dating back to the construction of the respective
21 dams in the 1950s.
22 Pursuant to the settlement, reached with Montana,
23 Avista has agreed to make lease payments in the initial
24 amount of $4 million per year beginning February 1, 2008,
25 for the calendar year 2007, and continuing through calendar
Morris, Di 21
Avista Corporation
1 year 2016, adjusted each year by the Consumer Price Index
2 (CPI). On or before June 30, 2016, Avista and the state of
3 Montana will determine whether the annual lease payments
4 remain consistent with the principles of law as applied to
5 the facts and negotiate an adjusted lease payment for the
6 remaining term of Avista' s Federal Energy Regulatory
7 Commission license for its hydroelectric facilities on the
8 Clark Fork River, which expires in 2046. The settlement
9 contains provisions that could reduce the amount of
10 Avista' s lease payments as a result of future judicial
11 determinations in related cases or governmental actions.
12 Avista will not make any lease payments for periods prior
13 to 2007.
14 Company witness Mr. Vermillion will discuss this
15 settlement further in his testimony. Ms. Andrews discusses
16 the impact on the Company's request in this case.
17 Q.Please provide an overview of the capi tal
18 additions and requirements impacting the Company, and the
19 amounts included in this case.
20 A.As a combination electric and natural gas
21 utili ty, over the next few years, capital will be required
22 for customer growth, investment in generation, transmission
23 and distribution facilities for the electric utility
24 business, as well as necessary maintenance and replacements
25 of our natural gas systems.
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Avista Corporation
1 The amount of capital expenditures planned for 2008-
2 2009 is approximately $390 million.For 2008 alone, these
3 costs equate to a total of $190 million.Total net rate
4 base at Decemer 31, 2007 was $1. 7 billion for the total
5 Company;therefore,these planned capital additions
6 represent substantial new investments. A few of the major
7 capital expenditure items for 2008 include $46 million for
8 electric transmission and distribution upgrades,$43
9 million for electric and natural gas customer growth, $21
10 million for natural gas system upgrades, $9 million for
11 environmen tal (associated with the Spokane River
12 relicensing and the 2001 Clark Fork River license
13 implementation issues) ,$26 million for generation
14 upgrades, and $15 million for Jackson Prairie capacity and
15 deliverability expansions.
16 Ms. Andrews provides additional details related to
17 these capital requirements.
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v.OPERATING EFFICIENCIES AN CUSTOMER SUPPORT PROGRAS
Q.Has the Company considered the economic impacts
21 of the Company's rate proposals to its customers?
22 A.Yes. Through my involvement with area chamers
23 and other community agencies, I am particularly mindful of
24 the impact rate increases have on our customers,
25 especially those on limited incomes. Avista will continue
Morris, Di 23
Avista Corporation
1 to aggressively manage costs to achieve the appropriate
2 balance in providing safe and reliable service at cost-
3 effective rates, while rebuilding a financially healthy
4 utility.In the long term, a financially healthy utility
5 will foster customer satisfaction and enable the utility
6 to finance, under reasonable terms, the new infrastructure
7 required over time to serve our customers.
8 Q.Is Avista communicating with its customers to
9 explain what is driving increased costs?
10 A.Yes.The Company strives to proacti vely
11 communicate with its customers in a numer of ways:
12 electronic customer communications, one-on-one customer
13 interactions through field personnel and account
14 representatives, proactive and reactive media contacts,
15 and through our employees'involvement in community,
16 business and civic organizations, to name a few.We
17 believe our communications are helping our customers, and
18 the communities that we serve, better understand the
19 issues faced by the Company,such as increased
20 environmental mitigation, infrastructure investment, and
21 generation constraints, all of which have lead to higher
22 costs for our customers.
23 As an example, an article in the Lewiston Tribune on
24 January 13, 2008 attached as Exhibit No.1, Schedule 2,
25 describes very accurately some of the issues faced by the
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Avista Corporation
1 Company - i.e., growth in customer base, hydroelectric
2 generation upgrades,environmen tal compliance,and
3 increased natural gas prices. The following is an excerpt
4 from the article:
5 nAvista is expanding its capacity to
6 deliver natural gas and electricity to meet
7 the needs of its customer base, which has
8 grown by 40,000 since 2002.
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10 Improvements are being made to existing11 Avista operations, such as boosting hydro
12 generation from 554 to 582 megawatts at13 Noxon Rapids along the Clark Fork River in
14 Montana. One megawatt is enough to power15 650 homes.
1617 Some options are off the table as Avista18 tries to keep pace with growth. State and19 federal environmental regulations along20 wi th public opinion make it unlikely that21 new dams will be constructed for22 hydropower. Emission standards in23 Washington essentially ban coal for24 electrical generation.
2526 That leaves natural gas as one of the few27 viable choices for new electrical28 generation because it is relatively29 affordable and environmentally friendly.30 The biggest single share of Avista' s new31 generation will come from the natural gas-32 fired plant near Rathdrum. Avista will33 have first rights to all of the electricity34 from the plant starting in 2010.
3536 But natural gas prices have been rising too37 as more utilities turn to it for electrical38 generation. The natural gas pipelines from39 Canada that Avista uses once ended in the40 Northwest. Now some lines have been41 extended to the Midwest, putting additional42 pressure on prices."
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44 We have made extensive efforts to communicate with
45 our customers concerning the cost challenges that we are
Morris, Di 25
Avista Corporation
1 facing, and we believe these communications are helping
2 customers better understand the factors that are causing
3 increased costs for Avista, and the utility industry in
4 general.
5 Q.What initiatives has the Company undertaken in
6 recent years to achieve operating efficiencies in an
7 effort to mitigate a portion of the cost increases being
8 experienced by the utility industry?
9 A.Avista is constantly looking for improvements in
10 the way it provides services to its customers, as well as
11 ways to reduce the costs of those services.Ideas are
12 generated through periodic evaluation of its operating
13 practices, and communications with other utili ties, and
14 other industry participants, across the 'country on best
15 practices.The Company has recently implemented a numer
16 of programs that increase efficiency and enhance customer
17 service.Some of these noteworthy programs are sumarized
18 below:
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. Enerqy Efficiencv. - The Company offers energy
efficiency services to electric and natural gasresidential, commercial, and industrialcustomers. In March 2008, modifications to the
program offerings were approved in the State of
Idaho. The modifications will further broaden
the technical and financial support Avista will
provide to our cus tomers to help fund energy
efficiency improvements. In addition to helpingour customers with energy efficiency services,Avista too has been evaluating opportunities to
implement energy efficiency measures throughout
the Company. For example, the Company is now in
the process of upgrading the 50 year old
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heating, ventilation and air conditioning system
at the Spokane main campus facilities.
. Mobile Dispatch. - The Mobile Dispatch Project isdesigned to achieve a numer of financial and
customer service benefits, including increased
productivity, enhanced customer service, reduced
cos ts , and improved field safety. This proj ect
uses wireless communications between the home
office and laptop computer in service trucks to
dispatch field crews. As Company witness Mr.
KopczYnski will explain, these capabilities allow
for increased field productivity, efficient order
dispatch, enhanced customer service with
efficient order booking, improved safety, and
reduced costs required to perform an equal amount
of work.
. Outage Management System. - As Mr. KopczYnski
will explain, this tool is linked to the
Company's Geographic Information System (GIS
mapping system). It allows the Company'sdistribution facilities to be linked to
individual customer service points in a threephase computer based model. The connectivity
provides analysis tools to determine outage areas
and affected protective devices. Switching points
within the computer based model enable semi-realtime reconfiguration of Avista' s distribution
system. Accurate outage data can be collected for
all incidents providing feedback to improve
reliability and outage statistics which can be
monitored in real time to indicate the severity
of major events and assist in resource planning.
These capabilities allow for quicker restoration
of electrical service for our customers, thereby
reducing labor expense and enhancing customerservice.
. Web Redesign Project. In January 2008, theCompany completed the redesign of
ww.avistautilities.com. The primary objective
of this proj ect was to enhance customer
satisfaction through the deployment of several
self service options, such as open/close/move,
reporting and making payment arrangements,
enrolling in Comfort Level Billing, and/or
Automatic Payment Service (APS) . Further,
customers have access to tools to help analyze
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their bills and are provided with meaningful and
timely information to make informed energymanagement choices. The primary obj ecti ve is to
achieve a 10% reduction in the Company's Contact
Center's total call volume by referring customers
to the new and enhanced self-service options.
. Outsourced Bill Printing and Mailing Services. -
As described further by Mr. Kopczynski, Avista
recently outsourced all of the Companies billprinting and mailing services. The proj ect
obj ecti ves were to move bill printing, inserting
and mailing offsite and leverage core
competencies of the provider, to obtain disaster
recovery for sustainable operations and avoiding
the cost of duplicate data storage, ensure dailyprint volume flexibility and scalability, to
reduce costs for bill print, inserting and
mailing, and to maximize technology.
. Regional Infrastructure Efficiencv. - Spokane's
Joint Utili ties Coordination Council was formedto bring together regional municipali ties,
utili ty companies, telecommunications providers,
sewer, water and even the railroad to coordinate
construction activities on an annual basis.
Avista, in partnership with the City of Spokane,
hosts this meeting every February, just prior to
the beginning of the construction project season.
Municipalities and utilities share their projectplans and schedules so as to increase the
coordination and mitigate the risk of unknownprojects. The efforts of the Joint Utilities
Coordination Council have resulted in greater
coordination and efficiencies across the Spokaneregion.
Q. Does the Company have programs in place to
39 mitigate the impacts on customers of the proposed rate
40 increase?
41 A.Yes. Avista Utilities offers a range of programs
42 to help customers who have difficulty paying their energy
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bills.Some programs are in cooperation with local Idaho
community action agencies,who are specialized in
Morris, Di 28
Avista Corporation
1 targeting assistance where it is most needed. We are very
2 aware of the impacts energy costs have on our customers.
3 As a result, we offer programs that focus on the following
4 criteria:
5 - Direct financial assistance
6 - Wise use of energy through education and efficiency
7 - Bill payment assistance plans
8 - Community initiatives to reduce basic living costs
910 Mr. KopczYnski provides additional detail in his
11 testimony concerning other programs designed to assist
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. Energy efficiency programs. Avista Utilitiesoffers energy efficiency services to electric
and natural gas residential, commercial, and
industrial customers. The funding for these
programs was increased substantially as a result
of our last general rate case.
. Proj ect Share. Proj ect Share is a voluntary
program allowing customers to donate funds that
are distributed through community action
agencies to customers in need. In addition tothe customer and employee contributions of
$88,910 in Idaho, Avista shareholders
contributed $50,000 to the program in 2007.
. Comfort Level Billing. The Company offers the
option for customers to pay the same bill amount
each month of the year by averaging their annualusage.
. Payment arrangements. The Company's Contact
Center Representatives work with customers to
set up payment arrangements to pay energy bills.
. CARES Drooram. Customer Assistance Referral andEvaluation Services provides assistance tospecial-needs. customers through access to
specially trained (CARES) representatives who
provide referrals to area agencies and churches
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Avista Corporation
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for help with housing,assistance, etc.
utilities,medical
.Customer service automation. Customers are able
to access Avista' s Interactive Voice Response
system (IVR) for automated transactions to enter
their own payment arrangements, listen to outage
messages and conduct other business such asobtaining account balances and requesting a
duplicate bill.
Q.Has the Company included any other rate mitigation
13 proposals in this case?
14 A.Yes.The Company is very aware of the impact
15 increases in electric and natural gas rates have on our
16 customers.In addition to the other rate mitigation and
17 customer service programs described above, the Company has
18 also included a "rate mitigation adjustment" in power supply
19 expense.As explained by Company witness Mr. Kalich, this
20 adjustment will reduce power supply expense by increasing
21 the amount of hydroelectric energy otherwise available to
22 the Company in the Dispatch Model during the pro forma
23 period.This mitigation adjustment serves to reduce our
24 revenue requirement request by nearly $4.5 million below
25 what it otherwise would have been in this case.
26 Any excess power supply expenses not included in base
27 rates would later be captured in the PCA mechanism, subject
28 to the 90/10 sharing, until those costs are trued-up in the
29 Company's next general rate case.By keeping some of this
30 expense out of base rates, as well as sharing in the excess
Morris, Di 30
Avista Corporation
1 power supply costs in a subsequent PCA filing, the overall
2 rate impact on our customers will be reduced.
3 Q.Are there other noteworthy accomplishments that
4 you would like to address?
5 A.Yes.There are several items of which I am
6 particularly proud which recognizes both the accomplishments
7 and excellence of Avista, and its employees:
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. In April 2007, the Company received the
Outstanding Stewardship of America's Waters
award in recognition of its cooperative
recreational stewardship/fishery enhancement
project on Lake Pend Oreille. Avista received
the Outstanding Stewardship of America's Rivers
award, in 2006, from the National Hydropower
Association (NH) , recognizing its habitat
preservation and restoration work in the ClarkFork River basin.
. In November 2007, the Company joined the Chicago
Climate Exchange (CCX), the world's first and
North America's only voluntary, legally bindingintegrated greenhouse gas emission reduction,
registry and trading system. Members who exceed
emissions reduction targets can sell or bank
surplus allowances, the benefits of which will
accrue to the Company and our cus tomers .
. In January 2008, in addition to the rollout ofthe Company's newly updated website
(ww.avistautilities.com) , as described earlier,
the Company launched "Every Little Bit", an
online promotional campaign which integrates all
of the Company's energy efficiency programs into
one location. New tools were also added to the
site to help customers better understand and
manage their utility bills and participate in
our energy efficiency programs. The various
upgrades to the website will make it easier for
our cus tomers to do bus ines s wi th the Company.
Morris, Di 31
Avista Corporation
1 Finally, I am most pleased with the dedication of
2 Avista Utili ties' employees and their commitment to provide
3 quality service to our customers.While we continue to
4 maintain tight controls on capi tal and O&M budgets, our
customer service surveys indicate that customer5
6 satisfaction remains high.In our recent fourth quarter
7 2007 customer survey, overall satisfaction results show a
8 satisfied customer rating of 96% in our Idaho, Washington
9 and Oregon operating divisions.This rating reflects a
10 positive experience for the majority of customers in
11 contact with Avista related to the customer service they
12 received both by phone and in-person with service
13 representatives. These results can be achieved only with
14 very committed and competent employees.
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VI. OTHER COMPAN WITNESSES
Q.Would you please provide a brief sumry of the
18 testimony of the other witnesses representing Avista in this
19 proceeding?
20 A.Yes.The following additional witnesses are
21 presenting direct testimony on behalf of Avista:
22 Mr. Malyn Malquist , Executive Vice President and Chief
23 Financial Officer will describe, among other things, the
24 overall financial condition of the Company, its current
25 credit ratings,the Company's plan for improving its
Morris, Di 32
Avista Corporation
1 financial health, its near term capital requirements, the
2 proposed capital structure, and the overall rate of return
3 proposed by the Company. Mr. Malquist explains that:
4 . Avista's plans call for significant capital
5 expendi ture requirements for the utility
6 over the next three to five years to assure
7 reliabili ty in our energy systems, and to
8 keep pace with regional growth and customer
9 demand. Capi tal expendi tures are planned10 for 2008-2009 of approximately $390 million11 for customer growth, investment in12 generation, transmission and distribution13 facilities for the electric utility business14 as well as necessary maintenance and15 replacements of our natural gas utility
16 systems. Avista needs adequate cash flow17 from operations to fund these requirements.
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19 . Avista' s corporate rating from Standard &20 Poor's is currently BBB-. Avista Utili ties21 should operate at a level that will support22 a strong investment grade credit rating,23 meaning at least a strong "BBB" or weak "A".
24 The Company's financial performance has
25 improved; however, we have not improved26 financial ratios to a level that would27 result in a strong investment grade credit28 rating.
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30 . We have made solid progress in improving our31 financial health by improving our cash flow,
32 managing our costs and paying down debt and33 refinancing debt at lower rates. The34 Company plans to issue up to $350 million of35 secured, fixed rate bonds during 2008 to36 fund existing debt maturities as well as to37 repay funds borrowed under our credit38 facili ty. Further, the Company plans to39 obtain a portion of our capital requirements40 through equity issuance.
4142 The Company has proposed an overall rate of return of
43 8.74% including a 47.94% equity ratio and an 10.8% return on
44 equity.
Morris, Di 33
Avista Corporation
1 Dr. William E. Avera, as a President of Financial
2 Concepts and Applications (FINCAP), Inc., has been retained
3 to present testimony with respect to the Company's cost of
4 common equity. He concludes that:
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. Applications of quantitative methods to
alternative groups of proxy companies imply a cost
of equity range of 10.7 percent to 12.2 percent.
. Because Avista' s requested ROE of 10.8% percent
falls at the lower end of the recommended range,
it represents a conservative estimate of
investors' required rate of return.
. Considering investors' expectations for capitalmarkets and the need to support financial
integrity and fund crucial capital investment even
under adverse circumstances, 10.8% percent is a
reasonable ROE for Avista.
. Because of Avista' s reliance on hydroelectric
generation, the Company is exposed to relatively
greater risks of power cost volatility.
. Investors view the Power Cost Adjustment ( "PCA")
as supportive of the Company's financial
integrity, but they understand that the PCA does
not insulate Avista from the need to finance
accrued power production and supply costs or
shield the Company from potential regulatorydisallowances.
. Avista' s requested capitalization is consistent
with the Company's need to strengthen its credit
standing and financial flexibility as it seeks toraise additional capital to fund significantsystem investments and meet the requirements ofits service terri tory.
. The reasonableness of a minimum 10.8% percent ROE
for Avista is also supported by the greater risks
associated with the Company's relatively smallsize and the need to consider flotation costs.
Mr.Dennis Vermillion,vice President of Energy
40 Resources, will provide an overview of Avista' s resource
41 planning and power operations. He will discuss the Company's
42 resources, current and future load and resource position,
Morris, Di 34
Avista Corporation
and future resource plans.He will also discuss Company1
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hydroelectric upgrades,the Montana riverbed lease
agreement,current hydro relicensing issues,mercury
abatement at Colstrip, and Jackson Prairie storage.Mr.
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. Avista' s electric generation portfolio, includingpower supply operations.
. The Company is in an annually balanced-to-surplus
energy position through 2017 with the addition of
Lancaster, with the Company's net resource
position becoming deficient in 2018.
. The Company's decision to join the Chicago Climate
Exchange.
. Avista' s risk management policy for energy
resources, including the electric hedging plan.
17 Mr. Clint Kalich, Manager of Resource Planning & Power
18 Supply Analyses, will describe the Company's AURO~ model
19 (Dispatch Model) inputs, assumptions, and results related to
20 the economic dispatch of Avista' s resources to serve load
21 requirements, and market forecast of electricity prices. He
22 explains:
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. The key assumptions driving the Dispatch Model's
market forecast of electricity prices. This
discussion includes the variables of natural gas,
Western Interconnect loads and resources, andhydroelectric condi tions .. The model dispatches Avista' s resources and
contracts in a manner that maximizes benefits tocustomers.. The use of quantitative rate-period loads for
2009, for modeling pro forma net power supply
expenses.
. The output results from the model, includingthermal generation and short-term wholesale sales
and purchases, were provided to Mr. Johnson to
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incorporate into the power supply pro formaadjustments.
. The inclusion of a "rate mitigation adjustment" inthe Company' s AURO~ model, reducing power
supply expenses and therefore reducing the overall
rate impact to customers.
8 Mr. william Johnson, Wholesale Marketing Manager, will
9 identify and explain the proposed normalizing and pro forma
10 adjustments to the 2007 test period power supply revenues
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and expenses.He will also explain the new base level of
power supply costs for Power Cost Adjustment (PCA)
13 calculation purposes using the pro forma costs proposed by
14 the Company in this filing. Mr. Johnson describes:
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. The adjustment of revenues and expenses based on
normal stream flow and weather conditions, and
expected wholesale market power prices.
. Adjustments made to reflect known and measurable
changes in power contracts, thermal generation
fuel expense, and transmission expense, between
the 2007 test period, and the pro forma period of
2009.
. The net effect of the adjustments to the 2007-test
period power supply expense is an increase of
$971,000 on a system basis.
. The significant increase in power supply expense
over the expense currently in base rates is basedon numerous factors, including higher retail
loads, reduced hydro generation, increased fuel
costs, increased Mid-Columia purchases costs, and
increased transmission expense.
Mr. Bruce Howard, Director of Environmental Affairs,
34 will provide an overview of the Spokane River relicensing,
35 incl uding an overview of the Spokane River proj ects , and the
36 main areas of contention in the process.Finally, Mr.
Morris, Di 36
Avista Corporation
1 Howard will discuss the costs that have been included in
2 this case.
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4 Ms. Toni Pessemier, Advisor to the Office of the
5 President, will provide testimony regarding other hydro
6 relicensing and compliance issues.
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8 Mr. Don Kopczynski, Vice President of Transmission and
9 Distribution Operations, will describe Avista' s electric and
10 natural gas energy delivery facilities and operations, and
11 recent efforts to increase efficiency and improve customer
12 service. Mr. Kopczynski describes:
13 . Avista' s customer service programs such as energy14 efficiency, Proj ect Share, CARES program, Senior
15 Outreach Program, and payment plans. Some of16 these programs will serve to mitigate the impact17 on customers of the proposed rate increase.
18 . The Company's multi-faceted effort to increase19 customer service automation, including replacement20 and upgrade of the new Interactive voice Response
21 (IVR) system, Mobile Dispatch, Outage Management
22 System and Web Redesign.
23 . The decision by the Company to outsource our bill24 printing and mailing services. This decision was
25 based on Company needs for disaster recover, added26 scalability and flexibility, and cost savings.
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28 Mr. Scott Kinney, Chief Engineer, System Operations,
will discuss Avista's nearly completed five-year29
30 transmission upgrade proj ect,the additional electric
31 transmission and distribution investments included in this
32 case,and presents the Company's pro forma period
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Avista Corporation
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transmission revenues and expenses.In addition,he
describes the Company's Asset Management Program.Mr.
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. Avista is expecting to invest over $12.1 million
(system) in electric transmission projects with
completion dates in 2008.
. Several revisions have been made to transmission
expenses for the 2009 pro forma period.
. Changes in replacement and maintenance costs
associated with the Company's asset management.
. The near completion of the five-year transmission
upgrade projects at a total cost of $136.4million.
Mr. Dave DeFelice,Senior Business Analyst, will
16 describe the pro forma adjustment for non-revenue capital
17 expendi tures. Mr. DeFelice explains:
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. The rising cost of essential materials specific to
the utility industry is causing significant
increases in capital proj ect funding requirements.. These costs must be pro formed into historical
test- year computations in order to allow
necessary recovery of our costs to servecustomers.
Mr.Greg Paulson,Manager of Customer Service,
27 Analytics and Technology, will discuss the implementation of
28 Advanced Meter Reading for Avista' s customers in the State
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of Idaho,and our request for recovery of capital
expenditures related to its deployment.Mr. Paulson
31 explains:
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. The history of the AM proj ect in Idaho, including
an overview of the system, the technologies
deployed in the Company's electric and natural gas
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meters, and the types of technologies used in
areas with high and low meter densities.
. A discussion around AMR and AMI, Advanced Metering
Infrastructure, which is a newer technology that
could provide further functionality for utilities,
but which is still in the very early stages of
development.
. An overview of the benefits the Company has
realized from the deployment of AMR, including
safety of our customers and employees,
elimination of the need for estimated reads,
reduction in the volume of phone calls associated
with estimated reads, and more accurate customerbilling.
. The Company will have invested approximately $28.8
million from 2005 through 2008 on this project inIdaho.
Ms. Elizabeth Andrews, Manager of Revenue Requirements,
20 will discuss the Company's overall revenue requirement
21 In addition, her testimony generally providesproposals.
22 accounting and financial data in support of the Company 's
23 need for the proposed increase in rates. She sponsors:
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. Electric and natural gas revenue requirementcalculations.
. Electric and natural gas results of operations.
. Pro forma operating results including expense and
rate base adjustments.
. System and jurisdictional allocations.
Ms. Tara Knox, Senior Regulatory Analyst, sponsors the
32 cost of service studies for electric and natural gas
33 service, the revenue normalization adjustments to results of
34 operations, and the proposed production property adjustment.
35 Ms. Knox studies indicate:
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. Electric residential service, extra large general
service and street and area lighting service
schedules are earning less than the overall rate
of return under present rates, while general
service, large general service and pumping
service schedules are earning more than the
overall rate of return under present rates.However, all customer groups are currently
providing a rate of return lower than the rate of
return requested in this case.
. Natural Gas high load factor large firm service
and interruptible schedules are earning
considerably less than the overall rate of return
at present rates, the transportation service
schedule is earning substantially more than the
overall rate of return, while small firm
schedules are also above unity but below the
requested return and residential service is
slightly below unity.
Mr. Brian Hirschkorn, Manager of Pricing, discusses the
22 spread of the proposed annual revenue changes among the
23 Company's general service schedules.He explains, among
24 other things, that:
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. The proposed electric annual revenue increase is
$32.3 million, or 15.8% overall.
. The monthly bill for a residential customer
using an average of 977 kwhs per month would
increase from $67.38 to $78.08 per month, an
increase of $10.70 or 15.9%. This includes
the proposed increase in the monthly basic orcustomer charge from $4.00 to $4.60.
. The proposed natural gas annual revenue increase
is $4.7 million, or 5.8%.
. The monthly bill for a residential customer
using 65 therms per month would increase from$75.14 to $80.05 per month, an increase of
$4.91 or 6.5%. This includes the proposed
increase in the monthly basic or customer
charge from $3.28 to $4.00.
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1 Mr. Bruce Folsom,Senior Manager of Demand Side
2 Management, provides an overview of the Company's DSM
3 programs and documents Avista' s expenditures for electric
4 and natural gas energy efficiency programs.Mr. Folsom
5 describes:
6
7
8
9
10
11
12
13
14
.The Company exceeded its 2007 electric efficiency
targets by 13% and 2007 natural gas efficiency
target by 41%.
Avis ta ' s expendi tures for electric and natural gas
energy efficiency programs from November 1, 2003through Decemer 31, 2007 have been prudentlyincurred.
.
Q.Does this conclude your pre-filed direct
15 testimony?
16 A.Yes.
Morris, Di 41
Avista Corporation
DAVID J. MEYER
VICE PRESIDENT, GENERAL COUNSEL,
GOVERNENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: ( 509 ) 495 - 4 316
FACSIMILE: [phone]
RECEiVED
Z09S APR - 3 l;;1 f2aO
REGULATORY &
ION
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-08-01
OF AVISTA CORPORATION FOR THE ) CASE NO. AVU-G-08-01
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC AND )
NATURAL GAS SERVICE TO ELECTRIC ) EXHIBIT NO. 1
AND NATURAL GAS CUSTOMERS IN THE )STATE OF IDAHO ) SCOTT L. MORRIS
)
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
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Customer Usage
State of Idaho - Electric & Gas
As of December 31, 2007
Electric kwh
Schedule No. of Customers (OOOs)% of Total kwh
Residential Sch. 1 98,532 1,146,827 33.3%
General Sch. 11&12 18,882 324,367 9.4%
Lge. General Sch. 21&22 1,437 684,110 19.9%
Ex. Lge. General Sch. 25 14 1,213,412 35.3%
Pumping Sch. 31 &32 1,276 59,048 1.%
Street & Area Lights 125 13,583 0.4%
120,266 3,441,347 100%
Natural Gas Therms
Schedule No. of Customers (OOOs)% of Total Therms
General Service 101 70,952 54,015 46%
Lg. General Service 111/112 802 15,415 13%
Ex. Lg. Gen. Servce 121/122 10 1,977 2%
Interrptible Service 131/132 421 0%
Transportation Servce & Other 8 45,749 39%
71,773 117,577 100,00%
Exhibit No.1
Case No. A VU-E-08-01 A VU-G-08-01
S. Morris, Avista
Schedule 1, p. 3 of3
There is a reason your Avista bill shocks you
By Elaine Wiliams
The Lewiston Tribune
Jan. 13,2008
My Avista bil for December was so high i wondered if I had accidentally forgotten
to pay the utility company in November.
It cost $200 for electricity and gas in an 1,800-square-foot house. I reacted this
way even though I wrote three stories that ran two days before Christmas
explaining why electricity and gas rates in north central Idaho and southeastern
Washington had increased and were unlikely to fall significantly anytime soon.
In case you missed them, the summary of those articles goes like this: The
average monthly electricity bil for an Idaho Avista residential customer has
climbed from $47.07 in 2000 to $70.41 in 2007. The monthly gas bil for that
customer has increased from $43.60 to $75.14 in the same time period.
Avista's customers in Washington have seen similar changes with the average
household paying $64.37 per month in 2007 for electricity compared to $44.82 in
2000 and $83.67 per month for gas compared to $46.64.
Here's why. Avista is expanding its capacity to deliver gas and electricity to meet
the needs of its customer base, which has grown by 40,000 since 2002.
Improvements are being made to existing Avista operations,ßuch as boosting
hydro generation from 554 to 582 megawatts at Noxon Rapids along the Clark
Fork River in Montana. One megawatt is enough to power 650 homes.
Some options are off the table as Avista tries to keep pace with growth. State
and federal environmental regulations along with public opinion make it unlikely
that new dams wil be constructed for hydropower. Emission standards in
Washington essentially ban coal for electrical generation.
That leaves natural gas as one of the few viable choices for new electrical
generation because it is relatively affordable and environmentally friendly. The
biggest single share of Avista's new generation wil come from the natural gas-
fired plant near Rathdrum. Avista wil have first rights to all of the electricity from
the plant starting in 2010.
But natural gas prices have been rising too as more utilities turn to it for electrical
generation. The natural gas pipelines from Canada that Avista uses once ended
in the Northwest. Now some lines have been extended to the Midwest, putting
additional pressure on prices.
Exhibit No.1
A VU-E-08-01 & A VE-G-08-01
S. Morrs, Avista
Schedule 2, Page 1 of 2
At no time do consumers feel these conditions more keenly than in December
and January. It's in those months that the weather is typically the coldest and
building heat is normally the largest share of an Avista customer's bilL.
Plus other factors are frequently at work in December. Familes use more gas
and electricity as they celebrate the holidays, decorating with lights, cooking
more as they host guests and likely having the thermostat tumed higher more
hours in the day if they take vacation time.
The higher rates haven't turned Avista into a wealthy utilty, said James Bellessa
Jr., vice president of research with D.A. Davidson, an investment firm based in
Great Falls, Mont.
The Washington State Utilties and Transportation Commission allows Avista to
have a higher profi margin than it did in 2007, Bellessa said.
But that's diffcult for utilties to achieve when they're investing in infrastructure
like Avista is because of Washington's rules, Bellessa said. "Avista has some of
the lowest utility rates in the nation so you don't have too much to squawk about."
Avista's customers might benefi from the utilty charging more, Bellessa said.
Healthy, financially strong utilities pay less to borrow money for investments in
infrastructure - one of their biggest costs - and can pass those savings onto their
customers.
Wiliams may be contacted at ewilliam~lmtribune.com or [phone], ext.
261
Exhibit No.1
A VU-E-08-01 & A VE-G-08-01
S. Morrs, A vista
Schedule 2, Page 2 of 2