20080917Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
BAR NO. 1895
RECElVEO
2l SEP 17 AM 9: 47
IDAHO PUBLIC
UTILITIES COMMISSION
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 A VISTA )
CORPORATION'S ANNUAL POWER COST )
ADJUSTMENT (PCA) FOR RECOVERY OF )
POWER COSTS DEFERRD THROUGH JUE )30,2008. )
)
)
CASE NO. A VU-E-08-5
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Scott Woodbur, Deputy Attorney General, and in response to the Notice of
Application, Notice of Modified Procedure and Notice of Comment/Protest Deadline issued on
August 7, 2008 in Case No. AVE-E-08-5, submits the following comments.
BACKGROUND
On July 28, 2008, A vista Corporation dba A vista Utilties (A vista; Company) fied an
Application with the Idaho Public Utilties Commission (Commission) for an order approving a
Power Cost Adjustment (PCA) surcharge ofO.61O~/kWh to be effective October 1,2008. (Tariff
Schedule 66 - Temporar Power Cost Adjustment). The PCA surcharge currently in place and set
to expire September 30,2008 is 0.267~/kWh for all customer classes.
Avista's PCA mechanism is used to track variations from normal power supply costs.
Some of these variations are: a) changes from normal revenues and costs associated with
STAFF COMMENTS 1 SEPTEMBER 17, 2008
variations in electric generation, market prices, thermal fuel costs, and b) changes in power
contract revenues and expenses. The Company's existing PCA methodology was approved in
2007 in Case No. AVU-E-07-01 (Order No. 30361). In that case, the Commission approved a
change in the PCA methodology from a trigger and cap mechanism to a single anual PCA filing
requirement. The Commission also approved a change in the method of PCA deferral recovery
moving from a uniform percentage increase in rates to a uniform cents per kWh rate.
A vista is requesting that the Commission issue an order approving recovery of power
costs deferred by the Company for the period July 1, 2007 through June 30, 2008. The proposed
0.61O~/kWh PCA surcharge wil replace an existing 0.267~/kWh surcharge that expires on
September 30, 2008. Order No. 30429. The proposed rate is designed to recover an estimated
$21.7 milion in above normal power supply costs. This is an average 5.94% increase over
existing rates. However, the size of the increase differs by customer class. For example the
Company has requested a 5.35% increase for residential customers (Company Exhibit RLM-1,
Page 1). The principal factors contributing to the higher than normal power supply expense
during the deferral period are below normal hydro-generation and above normal natural gas fuel
costs.
STAFF REVIEW
Audit Results
The Commission Staff (Staff) has performed a review and audit of the amounts that went
into the deferral balance in the current filing. Staffs review covered revenues and expenses
incured for the period July 2007 through June 2008. Staff was able to look at a representative
cross section of transactions included in the Purchased Power account (FERC 555), Thermal Fuel
account (FERC 501), Combustion Turbine Fuel account (FERC 547) and the Power Sales account
(FERC 447). In addition, Staff audited the transactions included in Resource Optimization
(FERC 557) such as the sale of natural gas and the expenses for the purchase of renewable energy
credits from Potlatch. The Company booked the expenses from the sale of renewable energy
credits in this account, and booked the revenues from the sale of the renewable energy credits,
along with the corresponding energy, in Power Sales. Staff verified the amount reported by the
Company from the sale of the renewable energy credits. Idaho's share of the revenues are
approximately $2.9 millon and are included in the deferral balance.
STAFF COMMENTS 2 SEPTEMBER 17, 2008
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 amounts recorded to be correct and recommends that they be
included in the deferral balance as of June 30, 2008.
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, 2008. The main component of the net deferral is the Net Increase in
Power Supply Costs, FERC Accounts 555, 501, 547, and 447. Along with the costs of serving
load using Company owned resources, these PCA accounts include additional power purchase
costs when market prices are lower than generation costs. Generation costs associated with off-
system sales are offset by the revenue from those sales. The total net increase in power supply
cost, $20,966,915, is comprised of the following nine items; an explanation of each item also
follows:
1.FERC Account 555 - Purchased Power $51,041,605
2.FERC Account 501 - Thermal Fuel 2,315,207
3.FERC Account 547 - CT Fuel 12,292,311
4.FERC Account 447 - Sales for Resale -24,050,238
5.All Potlatch Revenues and Expenses -6,403,024
6.FERC Account 557 - Resource Optimization 468,320
7.Idaho Retail Revenue Adjustment -15,301,748
8.Second Half Coyote Springs 2 Transmission Credit -14,059
Subtotal $20,348,374
9.Interest on Deferral 618,541
Total Deferrals plus Interest $20.966.915
1. "Purchased Power" costs reflect 90% of the Idaho jurisdictional share of the difference
in costs the Company incured 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
STAFF COMMENTS 3 SEPTEMBER 17, 2008
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 included
in the deferral is 90% of the Idaho jurisdictional share of the difference in costs the Company
incured for thermal fuel compared to the normalized amount included in base rates. During the
review period the Company incured more coal costs than are currently included in base rates.
The positive amount represents a cost to customers.
3. "CT Fuel" is natural gas bured 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. The revenues from the sale of renewable
energy credits are reflected in this account. This negative amount represents a decrease in costs
during the review period and is a benefit to customers.
5. The Potlatch component is a direct assignment to Idaho of the difference in Potlatch
costs and revenues (for its Lewiston facility) relative to the normalized Potlatch costs and
revenues established in the Company's last general rate case. The negative net amount indicates
that, 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" costs 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. At the time the natural gas was initially purchased,
the optimal use of the Company's resources was to buy gas to utilize for generating electricity, as
it was less costly to generate using natural gas than to purchase electricity on the market. When
the gas is sold, the optimal use of the Company's resources is to sell the natural gas and purchase
electricity from the market. Staff has verified that at the time the gas was initially purchased, the
cost of producing electricity at Avista's natural gas plants, primarily the Coyote Springs facilty,
was less expensive than purchasing electricity on the open market to meet native load.
STAFF COMMENTS 4 SEPTEMBER 17,2008
Furtermore, 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, hence the optimal use of the Company's resources.
This account also includes the cost to purchase renewable energy credits for resale. Ninety
percent of the Idaho jurisdictional share of the gain or loss on the sale of the gas is included in the
PCA. 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 curent 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 arangement. The net cost of the
sale and purchase arangement is included in the actual power supply expenses in the PCA
deferraL. If the credit were not included, the Company would collect twice for transmission costs
for the second half of Coyote Springs 2. This credit was eliminated effective August 2007, due to
an additional purchase of transmission for Coyote Springs 2, and is only included in this PCA
calculation for the month of July 2007. The negative amount is a benefit to customers.
9. The Company calculates interest on the deferral balance per Order No. 29323 in Case
No. AVU-E-03-4. Staff reviewed the calculation of the interest and found the amounts included
STAFF COMMENTS 5 SEPTEMBER 17, 2008
in the filing to be correct. The Company uses the Customer Deposit Rate on curent year
deferrals and on carryover balances from one year to the next. The Customer Deposit Rate for
2007 and 2008 is 5%. Interest on the deferral balance accumulates during the deferral period at
the customer deposit rate, and in this case, is a cost to customers.
SURCHARGE RATE CALCULATION
Avista calculates the proposed rate on page 2 of Exhibit No. RLM-1. The rate calculation
stas with the unecovered deferral balance of$20,966,915 (deferrals of $20,348,374 and interest
of $618,541). The Company then adjusts the amount to include the expected interest during the
recovery period, and further adjusts this balance to account for uncollectible expense and
regulatory fees, as these amounts are calculated based on revenues. This resulting revenue
requirement (the amount of revenue needed to recover the deferral balance and interest) is then
divided by expected kWh sales to arive at the proposed rate of 0.610 ~/kWh. The proposed rate
is an estimate of the rate required to recover the balance. To the extent that the rate does not
recover the approved deferral balance, the difference is caried into a subsequent PCA filing and
thus trued-up.
In previous PCA periods, this calculation included the amount from the previous year's
deferral balance that was not collected. However, with the change in the PCA methodology in
Case No. AVU-E-07-01, this step is not necessary in this fiing. While there is stil a deferral
balance from the previous PCA period, there is also stil in place a surcharge rate that is intended
to recover this prior period PCA deferral balance. The PCA reporting period runs from July to
June; however, the recovery period rus from October to September. The curent surcharge of
$0.267~/kWh began October 1,2007 and will expire September 30,2008. At that time, any over
or under collection of the prior surcharge will be recorded in the October 2008 PCA report and be
subject to review and recovery in the 2009 PCA case.
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 Rule 102, Utility Customer Information Rules
STAFF COMMENTS 6 SEPTEMBER 17, 2008
(UCIR), IDAPA 31.21.02.102. The customer notice was mailed with cyclical bilings beginning
August 5, 2008 and ending September 4,2008.
Customer Comments
Customers were given until September 17, 2008 to file comments. As of September 10,
2008, three comments had been received, all opposing the increase to rates.
Financial Assistance for Paying Heating Bils
Staff encourages customers who qualify for energy assistance to apply for the federally
funded Low Income Home Energy Assistance Program (LIHEAP). Bil payment assistance is
also available from organizations such as Project Share. For more information regarding
assistance programs, customers should contact the local Community Action Agency, Avista
Utilties, the Idaho Public Utilities Commission, or the 2-1-1 Idaho Care Line.
STAFF RECOMMENDATION
Staff recommends the Commission accept the audited deferral balance of $20,966,915
presented in the Company's fiing and approve the Company proposed PCA surcharge rate of
0.610 ~/kWh effective for the period of October 1,2008 through September 30, 2009.
Respectfully submitted this 7h
1'/ day of September 2008.
Scott Woodbury
Deputy Attorney General
Technical Staff: Kathy Stockton
Keith Hessing
Marilyn Parker
i :umisc:commentsavee08.5swklskhmp
STAFF COMMENTS 7 SEPTEMBER 17, 2008
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 17TH DAY OF SEPTEMBER 2008,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-E-08-05, 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
E-MAIL: david.meyertßavistacorp.com
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
PO BOX 3727
SPOKANE WA 99220
E-MAIL: kelly.norwoodtßavistacorp.com
,b~
SECRETARY
CERTIFICATE OF SERVICE