20100921Reply Comments.pdf

Avista Corp.
1411 East Mission P.O. Box 3727
Spokane. Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170
J.~JV'STJI.
Corp.
September 20,2010
State of Idaho
Idaho Public Utilities Commission
472 W. Washington St.
Boise, il 83702-5983
,.e:~l:::(/f'-0NAttention: Ms. Jean Jewell, Secretary
r~'l
Case No. AVU-E-10-03
Reply Comments of A vista Coæoration
Attached are the Reply Comments of A vista Corporation and a certificate of
referenced case.
N
the"ãove
Please direct any questions regarding this filing to Ron McKenzie at [phone].
Sincerely,
74 AL i.
Kelly Norwood
Vice President, State and Federal Regulation
Enclosures
RM
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have served Avista Corporation's Reply Comments in
Case No. AVU-E-10-03, Avista's Annual Power Cost Adjustment (PCA) Filng For
Recovery of Power Costs Deferred July 1, 2009 through June 30, 2010, via
electronic mail, to the following:
Ms Jean D Jewell, Secretary
Idaho Public Utilties Commission
472 W. Washington St.
Boise,ID 83702-5983
jean. jewell(ãpuc. idaho.gov
Peter J. Richardson
Gregory M. Adams
Richardson & O'Leary, PLLC
515 N. 2ih Street
PO Box 7218
Boise,ID 83702
peter(ãrichardsonandoleary. com
greg(ãrichardsonandoleary.com
Howard Ray
Technical Services Manager
Clearwater Paper
803 Mill Road
PO Box 1126
Lewiston, ID 83501-1126
Howard. ray(ãclearwaterpaper.com
Dr. Don Reading
6070 Hill Road
Boise, ID 83703
dreading(ãmindspring .com
Dated at Spokane, Washington this 20th day of September 2010.
p~~~"-'
Rates Coordinator
1 David J. Meyer
2 Vice President and Chief Counsel of
3 Regulatory and Governental Affairs
4 A vista Corporation
5 1411 E. Mission Avenue
6 P. O. Box 3727
7 Spokane, Washington 99220
8 Phone: [phone], Fax: [phone]
iOW SEP 2/ AM to: 22
PTIL if ¥1l'l 0v 1/1:$
9 BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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IN THE MATTER OF AVISTA
CORPORATION'S ANAL POWER COST
ADJUSTMENT (PCA) FOR RECOVERY OF
POWER COSTS DEFERRD JULY 1, 2009
THROUGH JU 30, 2010.
)
) CASE NO. AVU-E-I0-03
)
) REPLY COMMENTS OF
) AVISTA CORPORATION
A vista Corporation, doing business as A vista Utilties (hereinafter A vista or Company),
17 at 1411 East Mission Avenue, Spokane, Washington, respectfully files its Reply Comments in
18 the above referenced case.
19 REPLY TO CLEARWATER PAPER CORPORATION'S COMMENTS
20 Clearwater Paper Corporation (Clearater) filed its comments and protest in the above
21 referenced case on September 16, 2010. Clearwater revisits issues that have already been
22 decided by the Commission, makes proposals that violate principles against retroactive
23 ratemaking, and makes arguents that are without merit as explained below.
24 Uniform Cents per Kilowatt-hour Increase
25 Avista's existing PCA methodology and method of recover were approved in Case No.
26 A VU-E-07-01 by Order No. 30361 dated June 29, 2007. The Commission also approved a
27 change in the method of PCA deferral recovery from a uniform percentage basis to a uniform
28 cents per kilowatt-hour basis effective with the October 1, 2007 PCA rate change. Clearater
29 (formerly Potlatch Corporation) argued against the uniform cents per kilowatt-hour rate in Case
REPLY COMMENTS OF AVISTA PAGE 1
1 No. A VU-E-04-1, but the Commission found "the cents per kWh rate more equitable to all
2 customers than the percentage allocation." And that finding continues to be true today. In Order
3 No. 29602 issued October 8, 2004, the Commission stated:
4 "The Commission finds that a cent per kWh recovery method for the PCA is superior to
5 the percentage basis currently used. While we recognize the difficulties pointed out by Potlatch,
6 we find the cents per kWh rate more equitable to all customers than the percentage allocation.
7 We recognize that the variable cost of energy fluctuates from year to year based on the amount
8 of energy consumed and should therefore be surcharged or credited on an equal cents per kWh
9 basis. We authorize the change to an equal cents per kWh when the present deferral balance is
10 eliminated. We reject Potlatch's proposal to seasonalize PCA recovery amounts on a monthly or
11 quarerly basis as being administratively burdensome and unecessary to achieve fairness and
12 equity."
13 In Order No. 30161 in AVU-E-06-05, dated October 31, 2006, the Commission
14 authorized A vista to continue the then effective PCA surcharge of 2.448% until the deferral
15 balance reached zero, or June 30, 2007, whichever were to occur first. The PCA rate then
16 changed from a uniform percentage rate to an uniform cents per kilowatt-hour rate on October 1,
17 2007. All PCA rate changes since October 1, 2007, have been uniform cents per kilowatt-hour
18 changes and have been approved by the Commission on that basis.
19 In this proceeding Clearater, contrary to its claim in its petition to intervene to not
20 expand the issues, is expanding the issues by revisiting the uniform cents per kilowatt-hour rate
21 issue. Clearwater wants the entire PCA increase to be spread on uniform percentage basis,
22 which would give Clearater a smaller increase. As an alternative, Clearater proposes that a
23 portion of the PCA increase be spread on a uniform percentage basis. Clearater argues that
24 deferred Lancaster related costs contain some fixed costs, and that the retail revenue credit
25 contains some fixed-cost components. Clearater alleges that because of those purported fixed
26 costs, that $4.4 milion of Lancaster costs, and a retail revenue credit amount of $9.3 milion
27 should be spread to rate schedules on a uniform percent of revenue basis, if the entire amount of
REPLY COMMENTS OF A VISTA PAGE 2
1 the PCA isn't spread on a uniform percentage basis. Clearater's alterative to spreading the
2 entire PCA increase on a uniform percentage basis, is to spread $13.7 milion ($4.4 milion of
3 Lancaster costs plus $9.3 milion of retail revenue credit) of the $16.5 milion of total costs
4 deferred for the July 1, 2009 through June 30, 2010, on a uniform percentage basis.
5 Some Lancaster related costs are fixed by contract, but are not fixed costs in terms of
6 fixed plant related costs, like depreciation and return on investment. The Lancaster costs relate
7 to a power purchase agreement, not the ownership of a plant. While it is tre that the retail
8 revenue credit is calculated in a maner that includes some fixed plant related costs, the retail
9 revenue credit is a rate that approximates the price of power on the wholesale market. The retail
10 revenue credit is discussed more fully below.
11 Clearater's proposal to spread the entire, or the majority of, the PCA increase on a
12 uniform percentage basis should be rejected. The Commission has already ruled on this issue,
13 and has found that the appropriate method of spreading PCA rate changes is the uniform cents
14 per kilowatt-hour method. The fixed costs that Clearater alleges are not fixed costs in a normal
15 sense of the term, and are not a reason to depar from the uniform cents per kilowatt-hour
16 method. Furthermore, the PCA is designed to track changes in power supply costs from those
17 included in base retail rates. The vast majority of those changes in costs over time are "energy-
18 related" changes in costs, not "demand-related" changes in costs. Those changes in energy-
19 related costs are related primarily to changes in the level of hydroelectrc generation, changes in
20 thermal generation and thermal fuel costs, and changes in the wholesale market prices. As noted
21 earlier, fixed (demand-related) costs such as changes in investment in generating plant,
22 depreciation, fixed O&M, etc. are not tracked in the PCA. Therefore, it is appropriate that the
23 PCA dollars be spread on an equal cents per kilowatt-hour basis.
REPLY COMMENTS OF AVISTA PAGE 3
1
2 Retail Revenue Credit
3 Clearater has proposed to the Commission that the Company should not recover the
4 Retail Revenue Credit of $9.3 milion ($10.3 before sharng). Clearater inaccurately
5 characterizes the Retail Revenue Credit as additional costs imposed on customers due to
6 declining loads from expenses that were either imprudently incurred, or altogether non-existent.
7 Notwithstanding that Clearater's proposal would violate the parameters of the approved PCA
8 methodology; their proposal demonstrates a fudamental misunderstanding of the PCA
9 methodology. Specifically, Clearater's contention that the Retail Revenue Credit alone
10 represents the full impact of load change in the PCA is inaccurate and misleading and fails to
11 maintain logical consistency as demonstrated by simple examples provided below.
12 Clearater Paper is incorrect when they claim the impact of lower loads is the full $10.3
13 milion Retail Revenue Credit for the deferral period. It is an incomplete analysis that ignores
14 the other factors included in the PCA. Specifically, it ignores that when loads are lower, the
15 power supply expense is also lower, and those lower power supply expenses are included in the
16 PCA, and are credited to customers in the PCA. The change in power supply expenses must be
17 netted against the retail revenue credit in order to determine the tre impact of load change on
18 the PCA deferral amounts.
19 An example to ilustrate the importance of including all sides of the equation in
20 evaluating the impacts on the PCA is to look at the natual gas purchase expense for the
21 Company's Coyote Springs 2 natural gas fired generating plant. During the deferral period the
22 natural gas fuel expense for the plant was approximately $12 milion higher than the authorized
23 leveL. A simplistic, incomplete analysis of this might suggest that higher Coyote Springs 2 fuel
REPLY COMMENTS OF AVISTA PAGE 4
1 expense caused a $12 milion PCA surcharge. However, if you factor in the value of the
2 additional generation from the higher volume of fuel purchases, you find that the $12 milion of
3 additional fuel generated a value of $16.7 milion of additional generation. Thus, the true impact
4 of Coyote Springs 2 in the PCA was a reduction in expense of approximately $4.7 milion, or
5 $1.7 milion Idaho share.
6 Isolating the Retail Revenue Credit as the impact of load change in the PCA is equivalent
7 to isolating the fuel expense as the impact of Coyote Spring 2 on the PCA. Both are incomplete
8 and inaccurate.
9 Some simple examples ilustrate the impact of load change on the PCA. For simplicity,
10 these examples assume that all other power supply costs don't vary from the authorized level and
11 any change in load results in a change in wholesale transactions. Also for simplicity the 90/10
12 sharng is ignored.
13 The first two examples show what happens when load is either higher or lower than the
14 authorized level and the wholesale market price is equal to the retail revenue credit rate:
15
REPLY COMMENTS OF AVISTA PAGES
Load Change
Wholesale Rewnues
Retail Rewnue Credit '," ~$(ÕÖO'
'$01
2 As ilustrated by the example above, there are no deferrals resulting from changes in load
3 when the retail revenue credit rate is equal to the market price of electrcity. This is because the
4 increased power supply cost when loads are higher, or the lower power supply cost when loads
5 are lower, is exactly offset by the change in retail revenues through the retail revenue credit.
6 However, using Clearater's logic, the impact of the lower loads is a $4,000 PCA
7 surcharge in this simple example, even though there should be no PCA deferraL. This is because
8 Clearwater ignores the offsetting lower power supply expense, which all goes to customers in the
9 PCA.
10 The next two examples show what happens in the PCA when the market price of power is
11 higher than the Retail Revenue Credit rate:
REPLY COMMENTS OF AVISTA PAGE 6
_ ,~-~ """ "'-'''".,,'
Load Chan e
Wholesale Rewnues '$50 ' -100 -$5,000
,-""""oTO"'-.-.W"-' ,...".,.,...."'po,.-.-.-"--,.,....._..,.._.....,.,,.,."'
Retail Rewnue Credit """'$¡õc~"c~m' """~"""":100"~mm"m"lL "$4:000 '"
1
,.,....'.--..M-.-W--O-.-...---=,-O'"'C.-.-..-."'
Total Impact on PCA
m:$l,OOÖm,
'Ret8iiRwñue~Cre 100 -$4,000
2 Total Impact on PCA $1,000
3 These two examples ilustrate that when the market price is higher than the retail revenue
4 credit rate, the PCA deferrals are in the rebate direction when loads are lower and in the
5 surcharge direction when loads are higher. This is because the change in power supply expense
6 is greater than the retail revenue credit. This makes perfect sense when loads are lower, since the
7 power is sold in the wholesale market at a higher rate than if the power had been sold to the retail
8 customers. Customers receive all the benefit of those higher priced market sales. When loads
9 are higher, the PCA impact is in the surcharge direction, since the Company paid more for the
10 additional power than they received from customers in their retail rate.
REPLY COMMENTS OF A VISTA PAGE?
1 This example clearly demonstrates the incorrect conclusion of Clearater that the retail
2 revenue credit alone represents the entire impact of load change in the PCA. In the example of
3 lower loads above, Clearwater's contention is that the impact of lower loads would be a $4,000
4 surcharge, even though the PCA deferral would be a rebate to customers.
5 The third set of examples show the impact on the PCA when the market price of power is
6 lower than the Retail Revenue Credit rate:
i:~~d ~ttan~e
7
Total Impact on PCA ~$(OOÖ'8
9
10
These two examples ilustrate that when the market price is lower than the retail revenue
credit rate, the PCA deferrals are in the rebate direction when loads are higher, and in the
REPLY COMMENTS OF AVISTA PAGE 8
1 surcharge direction when loads are lower. This is because the change in power supply expense is
2 less than the retail revenue credit. This makes perfect sense when loads are higher since the
3 price that customers pay for power in their retail rate is higher than the wholesale market price.
4 When loads are lower, the PCA impact is in the surcharge direction since power was sold in the
5 wholesale market at a lower rate than if it had been sold to retail customers.
6 This last example, when loads are lower than the authorized level, is what happened in
7 the latest PCA deferral period. Retail loads were lower than the authorized level, and the market
8 price of power was below the retail revenue credit rate. Had the market price been higher, or the
9 retail revenue rate lower, or some combination of the two such that they were equal to each
10 other, there would have been no impact from lower loads in the latest deferral period. It is the
11 relationship between the wholesale market price of power and the retail revenue credit rate that
12 creates an impact of load change in the PCA, not just the retail revenue credit, which represents
13 only one-half of the correct and complete analysis.
14 History shows that higher loads can also impact the PCA in the surcharge direction even
15 though the retail revenue credit, by itself, is a credit to customers. The table below shows the
16 impact on the PCA of system load varation from the authorized level calculated in a maner
17 consistent with the calculation for the impact in the July 2009 through June 2010 period. The
18 table shows that in the three PCA years priors to the period in this case the system loads were
19 higher than the authorized level, and the impact on the PCA was in the surcharge direction. This
20 is because market prices exceeded the retail revenue credit rate and the increase in power supply
21 expense was greater than the retail revenue credit. So, even though the Retail Revenue Credit is
22 a reduction in expense, as a stand-alone line item, in the PCA when loads are above the
23 authorized level, the actual impact of load change in the PCA was in the surcharge direction.
REPLY COMMENTS OF AVISTA PAGE 9
1 System Load Impact of
2 Varation from System Load
3 PCAPeriod Authorized Varation
4
5 Jul 06 - Jun 07 +92.0aM $4,125,023 surcharge
6 Jul 07 - Jun 08 +122 aMW $5,785,986 surcharge
7 Jul 08 - Jun 09 +5.9aM $4,127,328 surcharge
8 Jul 09 - Jun 10 -66.4 aM $2,910,762 surcharge
9 Conclusion
10 Clearwater requests that the Commission deny recovery of the retail revenue credit, or at
11 a minimum, allow the Company only to recover the revenue subject to rebate until the
12 completion of Case No. GNR-E-I0-03. Clearater's proposal to deny recovery of the retail
13 revenue credit would violate the parameters of the approved PCA methodology. As such,
14 Clearwater's proposal to only recover the revenue subject to refund would also violate the
15 principles against retroactive ratemaking. Staff, in its comments, states that any changes to the
16 retail revenue credit would have to be applied prospectively, and Staff is not proposing to adjust
17 the deferred amount in this case. Clearater's proposals should be rejected.
18 The Commission has opened Case No. GNR-E-1O-03 to address some of the issues raised
19 by Clearwater, and scheduled a workshop for September 28, 2010 in Boise. That is the
20 appropriate foru for these issues, and any recommendations coming out of that Case should
21 only be applied prospectively.
Dated at Spokane, Washington this 20th day of September 2010.22
23 AVISTA CORPORATIONB(¡¿~
Kelly ~ o¿d
Vice President
State and Federal Regulation
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REPLY COMMENTS OF A VISTA PAGE 10
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VERIFICATION
STATE OF WASHINGTON)
)County of Spokane )
Kelly Norwood, being first duly sworn on oath, deposes and says: That he is the
Vice President of State and Federal Regulation of Avista Utilties and makes this verification for
and on behalf of A vista Corporation, being thereto duly authorized;
That he has read the foregoing filing, knows the contents thereof, and believes the same
to be true.
'7f1 ~ l-~
SIGNED AN SWORN to before me this 20th day of September 2010, by Kelly
Norwood.
~~~NoAROBLIC in and for the State of
Washington, residing at Spokane.
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REPLY COMMENTS OF AVISTA PAGE 11