20090730Johnson Direct.pdf

RECEIVED
David J. Meyer
Vice President and Chief Counsel of
Regulatory and Goverental Afais
A vista Corporation
1411 E. Mission Avenue
P.O. Box 3727
Spokane, VV ashington 99220
Phone: [phone], Fax: [phone]
2009 JUt 30 AM 10: 08
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN TH MATTER OF TH POVVR COST)
ADmSTMNT (PCA) ANAL RATE )
ADmSTMNT FILING OF AVISTA )CORPORATION )
CASE NO. A VU-E-09..~
DIRCT TESTIONY OF
VVIA G. JOHNSON
FOR A VISTA CORPORATION
1 I. INTRODUCTION
2 Q.Please state your name, business address, and present position with
3 A vista Corporation.
4 A.My name is VViliam G. Johnson. My business address is 1411 East
5 Mission Avenue, Spokane, VV ashigton, and I am employed by the Company as a
6 VVolesale Marketing Manager in the Energy Resources Deparent.
7 Q.VVat is your educational background?
8 A.I graduated from the University of Montana in 1981 with a Bachelor of
9 Ars Degree in Political Science!Economics. I obtained a Master of Ars Degree in
10 Economics from the University of Montana in 1985.
11 Q.How long have you been employed by the Company and what are
12 your duties as a VVolesale Marketig Manager?
13 A.I stared working for A vista in April 1990 as a Demand Side Resource
14 Analyst. I joined the Energy Resources Deparent as a Power Contracts Analyst in June
15 1996. My primar responsibilities involve power contract origination and management
16 and power supply regulatory issues.
17 Q. What is the scope of your testimony in this proceeding?
18 A. My testimony wil provide a brief sumar of the factors drving power
19 supply expenses durng the review perod, July 2008 though June 2009. I also descrbe
20 new long-ter contracts the Company entered into durng the deferal perod and the
21 supportng documentation that is provided in electronic format.
22
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Avista
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1
2 II. SUMY OF DEFERRS
3 Q.Would you please summarize power supply expenses during the July
4 2008 through June 2009 review period?
5 A.Yes. During the review period, Idaho's share of power supply expenses
6 exceeded the authorized level by $12,191,234 (not including Clearater Paper generation
7 and revenue varance of $210,731 i in the rebate direction). Of that total, the Company
8 absorbed $1,219,123 or 10 percent of the additional power costs subject to the 90%/10%
9 sharng.2 Ths resulted in a net deferal of $10,972,112 in the surcharge direction.
10 Adding the Clearater Paper related deferal of $210,731 in the rebate direction results in
11 a net deferral for the perod of$1O,761,381 in the surcharge direction.
12 Q.What factors contributed to the higher power supply expense during
13 the review period?
14 A.Overall, high natural gas fuel costs drove the majority of the deferals in
15 the review period. Increased natural gas fuel expense at Coyote Springs 2 caused
16 approximately $12.7 millon ofthe deferrals durng the review period.
1 The PCA tracks 100% of the varation in Clearater Paper (formerly Potlatch) generation power purchase
expense and Clearater Paper retail revenue related to their generation leveL. Clearater Paper's
generation durg the review period was less than the authorized level, which results in a PCA deferral in
the rebate direction because the reduction in the power purchase expense exceeded the reduction in the
retail revenue related to the generation leveL.
2 The Clearater Paper power purchase and revenue associated with the purchase is tracked at 100% in the
peA per Idaho Public Utilities Commssion Order No. 29418 dated Janua 15,2004. The 10% portion
absorbed by Avista is based on the portion of the PCA deferrals that are shaed 90%/10% which was
$1,219,123 durg the review period.
Johnson, Di
Avista
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1 Also contrbuting to higher costs was decreased generation and higher fuel costs
2 at Colstrp and Kettle Falls and changes in retail loads. Offsetting some of the higher
3 expense was greater than authorized hydro generation and increased wholesale sales. The
4 table below shows a sumar of the major factors drvig the deferrals during the review
5 period.
Factors Contributing to Increased Power Supply Expense
.. Jul 08-Jun09 -Idaho Allocation
Change in Hydro Generation
Change in CS2 Generation and Fuel Expense
Change in Colstrip Generation and Fuel Expense
Change in Kettle Falls Generation and Fuel Expense
Change in Retail Loads
Change in Market Prices, Contract Costs and Other Mics. Factors
Total Expenses Above the Authorized Level
10% Absorbed by the Company
Clearwater Paper Generation and Revenue Variance
Total Power Cost Deferrals
-$3,000,945
$12,677,268
$811,808
$2,039,602
$4,127,328
-$4,463,828
$12,191,234
-$1,219,123
-$210,730
$10,761,3816
7 Over the entire review period hydro generation was 10.2 aM above the
8 authorized leveL. All of the Company's major theral unts generated below the
9 authorized leveL. Coyote Springs 2 generated 56.6 aM below the authorized level due
10 to economics. In addition to lower generation, the fuel expense at Coyote Springs 2 was
11 well above the authorized leveL. The actual gas cost durng the review period was
12 $7.90/dth (using a 7,100 BtuVV average heat rate) versus an authorized fuel expense of
13 $4.49/dth. Colstrp generation was 15.4 aM below the authorized level due primarly
14 to reduced generation in the second quarer of 2009 due to an extended outage of Unit 3.
15 Kettle Falls generation was 18 aM below the authorized level due to a combination of
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Avista
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1 economics (relatively higher wood fuel costs compared to market electrcity prices) and a
2 lack of fuel supply. The Kettle Falls fuel supply is being affected by the reduced
3 constrction activity, which has lowered the output at sawmils that produce the majority
4 of the hog fuel supply for Kettle Falls. Ths has forced the Company to ru Kettle Falls
5 only durng times of higher market prices. Retail loads were 5.9 aM above the
6 authorized level primarly because the authorized loads durng the first thee months of
7 the deferral period, July 2008 though September 2008, were based on 2002 test year
8 loads. The table below shows the change in generation and retail loads from the
9 authorized levels.
Jul 08-Jun 0.9 Genèration and Load Differences from the. Authorized Level
10
Change Change
aMW %
Change in Hydro Generation 10.2 1.9%
Change in CS2 Generation -56.6 -25.5%
Change in Colstrip Generation -15.4 -7.9%
Change in Kettle Falls Generation -18.0 -47.7%
Chan ge in Reta il Load s 5.9 0.6%
11 III. NEW LONG-TERM CONTRACTS ENTERED INTO DURIG DEFERR12 PERIOD
13 Q.Please provide a brief description of new long-term contracts that the
14 Company entered into in review period.
15 A.The Company entered into two long-ter contracts durng the review
16 period. In November 2008, the Company renewed an exchange capacity agreement for
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Avista
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1 calendar year 2009. In Augut 2008, the Company entered into a two-year purchase of
2 the Colville Indian Tribe's allocation of the VVells dam output.
3 Q.Can you please explain the purchase of the Colvie Indian Tribe's
4 Wells allocation?
5 A.Yes. Avista entered into a two-year agreement beginning October 2008
6 and ending September 2010 to purchase the Colville Indian Tribe's 4.5% share of the
7 output of VVell's hydroelectrc generation. Prior to this agreement, Avista purchased
8 3.34% of the VVells output at actual production cost. The additional 4.5% ofVVells output
9 assigned to the Colville Indian Tribe was purchased though a competitive auction at the
i 0 market prices at the time.
11 Q.Why is this purchase important to the Company?
12 A.This purchase was important because of the capacity and ancilar
13 products that come with a Mid Columbia generation product. In addition to the energy,
14 Mid Columbia generation has dynamc capacity that the Company uses for frequency
15 regulation and load following. The generation also comes with "paper pond" that allows
16 the Company to shift generation from low load to high load hours.
17 The amount of generation the Company has at the Mid Columbia is being reduced
18 as the existing contracts with Grant PUD expire and the amount of generation at the
19 Priest Rapids dam (November 2005) and VVanapum (November 2009) are reduced by
20 roughy half. The VV ells purchase makes up for a good portion of the loss of capacity at
21 Priest Rapids and VV anapum, and allows the Company to maintain reguation fuctions at
22 the Mid Columbia.
Johnson, Di
Avista
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1 iv. SUPPORTING DOCUMNTATION
2 Q.Please provide a brief overview of the documentation provided by the
3 Company in this îilg.
4 A.The Company maitains a number of documents that record relevant
5 factors considered at the time of a transaction. The following is a list of curent
6 documents that are maintained. Unless noted, these documents have been provided on a
7 compact disk as par of ths filing. Other documents will be provided on request:
8 Electrc/Gas Transaction Record: These documents record the key detals of the
9 price, ter and conditions of a transaction and include a discussion of market
10 conditions at the time of the transaction, the reason for the transaction, and
11 pernent transmission or other delivery issues. The Company has provided
12 worksheets showing the important details of each electrc and natual gas ter
13 transaction durng the review perod. Additional documentation wil be provided
14 on request.
15 Position Report: These daily reports show the daily and term purchases each
16 business day and provide a summar of market power and natural gas prices over
17 an 18-month forward perod.
18 Long-Term Physical Electrc Load & Resource Tabulation: For transactions with
19 deliveres extending greater than the 18-month perod covered by the Position
20 Report, the Company includes ths document to show the net system position
21 durng the extended period. Ths document also shows varability associated with
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Avista
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1 an 80% confidence interval around the combined varability of hydroelectrc
2 generation and variabilty of load.
3 Forward Market Electrc and Natual Gas Price Cues: This daily data shows
4 forward market prices for electrcity and natual gas and is maintained in Nucleus,
5 the Company's electronic energy transaction database record system. Forward
6 market prices are included in the daily Position Reports.
7 New Long-Term Contracts: Electronic copies of the long-ter contracts entered
8 into durng the review perod are provided.
9 Q.Does that conclude your direct pre-f"ed testimony?
10 A.Yes.
Johnson, Di
Avista
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