20100930final_order_no_32080.pdf

Office of the Secretary
Service Date
September 30, 2010
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA
CORPORATION'S ANNUAL POWER COST
ADJUSTMENT (PCA) FOR RECOVERY OF
POWER COSTS DEFERRED JULY 1, 2009
THROUGH JUNE 30, 2010.
CASE NO. AVU-I0-
ORDER NO. 32080
On July 27 2010, Avista Corporation dba Avista Utilities filed its annual Power Cost
Adjustment (PCA) Application. A vista requests an order approving a PCA surcharge of
532~kWh for recovery of power costs deferred for the period of July 1 2009 through June 30
2010. Application at 1. The Company requested that its Application be processed by Modified
Procedure and that its rates become effective on October 1 2010.
On August 4, 2010, the Commission issued a Notice of Application and Notice of
Modified Procedure and set a September 16, 2010 comment deadline. The Commission
received written comments from Clearwater Paper Corporation, Commission Staff, and five
residential customers. Avista filed reply comments on September 21, 2010. After reviewing the
Application and the comments, we approve a PCA surcharge of 0.532~/kWh and recovery of
deferred power costs totaling $16 546 091 deferred for the period of July 1 , 2009 through June
2010. We authorize the new rates to become effective October 1 2010.
THE APPLICATION
A vistas PCA mechanism is used to track changes in revenues and costs associated
with variations in hydroelectric generation, secondary prices, thermal fuel costs, and changes in
power contract revenues and expenses. The Company's existing PCA methodology and method
of recovery were approved in 2007 in Case No. A VU-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 annual PCA rate adjustment filing requirement. The Commission also approved a
change in the method of PCA deferral recovery from a uniform percentage basis to a uniform
cents-per-kWh basis.
The proposed 0.532~/kWh PCA surcharge will replace an existing 0.344~/kWh
surcharge, for an increase of 0.188~/kWh (or 2.61%). The proposed surcharge is designed to
recover power costs deferred by the Company for the period of July 1 , 2009 through June 30
ORDER NO. 32080
2010 , as well as the unrecovered balance related to the July 1 , 2008 through June 30, 2009
deferral period, and interest during the recovery period of October 1 , 2010 through September
, 2011. The primary factors contributing to the higher power supply expenses during the
deferral period are low hydro generation and costs associated with the Lancaster plant.
Under the Company s proposal, an average residential customer using 1 000 kWh per
month will experience an increase in their monthly bill of $1.88. The actual percentage increase
will vary by rate schedule as ShOWfi below.
Customer Group
(Schedule)Percenta~e Increase
Residential (Schedule 1)30%
General Service (Schedules 11 , 12)1.91 %
Large General Service (Schedules 21 , 22)2.46%
Extra Large General Service (Schedule 25)53%
Clearwater (Schedule 25P)83%
Pumping Service (Schedules 31 , 32)34%
Street and Area Lights (Schedules 41-49)81%
THE COMMENTS
Staff Comments
Staff performed a review and audit of the amounts that went into the deferral balance
in the current filing. Staffs review covered expenses incurred for the period July 2009 through
June 2010. The Company s PCA net deferral activity represents the Idaho jurisdictional share of
the excess power costs and associated revenue adjustments deferred under the PCA mechanism
by Avista for the 12 months ended June 30, 2010. The primary 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-oWfied resources, the 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, $16 546 091 , is comprised of the following 12
items:
1 Lancaster costs are currently being recovered through the PCA because the power purchase agreement became
effective after base rates were established in A VU-09-01. Stipulation and Settlement at 10, approved by Order
No. 30856. Effective October 1 , 2010, the fixed and variable operating costs of the Lancaster power plant will be
recovered through Avista s base electric rates. Order No. 32070.
ORDER NO. 32080
1. FERC Account 555 - Purchased Power
2. FERC Account 501 - Thermal Fuel
3. FERC Account 547 - CT Fuel
4. FERC Account 447 - Sales for Resale
5. All Clearwater Revenues and Expenses
6. Resource Optimization - Profit on Natural Gas Resold
7. Idaho Retail Revenue Adjustment
8. Net Transmission Revenue and Expense
9. Federal Production Tax Credit
10. Lancaster Costs
11. Centralia Refund Adjustment
12. Interest during deferral period
Total
$55 298 168
- 1 767 669
871 945
- 51 923 140
- 6 057,308
- 1 350 064
297 028
173 930
471 981
599 033
- 189 607
121.794
$16 546 091
A detailed explanation of each item is set forth in Staffs comments. The estimated unrecovered
balance related to the July 1 2008 through June 30, 2009, deferral period (which continues to be
recovered with the existing PCA rate through the end of September) and the estimated interest
for the recovery period of October 1 2010 through September 30, 2011 , amount to $2 184 794.
The proposed 0.532~/kWh PCA surcharge is designed to recover $18.7 million - the total ofthe
deferral balance and the estimates.
Staff noted that this year the power cost adjustment filings of all three Idaho electric
utilities have reported load declines. As a result, all three utilities added costs into their cost
adjustment mechanisms based on fixed production costs, and, in Avista s case, fixed production
and fixed transmission costs.In the instant case the fixed-cost recovery component is
297 028. Staff expressed concern that adding fixed costs into the PCA for recovery from
customers may not be appropriate and Staff has met with the utilities to discuss the situation. A
workshop open to all interested parties was held at the Commission office on September 28
2010. Despite the concerns about fixed-cost recovery, Staff believes that any change in
methodology would have to be applied prospectively. Therefore, Staff is not proposing to adjust
the deferred amount in this case.
Based upon its review, Staff concluded that the accounting transactions appeared
reasonable at the time they were made. Staff also determined that the PCA calculations and
ORDER NO. 32080
amounts were correct and recommended that they be included in the deferral balance as of June
, 2010. Staff recommended the Commission accept the audited deferral balance of
$16 546 091 for the period July 1 , 2009 through June 30, 2010, and approve that amount for
recovery. Staff further recommended that a PCA rate of 0.532~/kWh be approved and become
effective October 1 2010.
Public Comments
Five residential customers filed written comments with the Commission.
customer comments opposed an increase in rates at this time.
All
Clearwater Paper Comments
On September 16, 2010, Clearwater Paper Corporation filed comments and a protest
to A vistas PCA Application. Clearwater argued that A vistas load growth adjustment mechanism
(Retail Revenue Credit Rate) operates as a decoupling mechanism, allowing the Company to
recover lost production expenses in times of declining load. Clearwater maintained that A vista
has not been authorized to implement a decoupling mechanism and, therefore, approximately
$10.3 million included in Avistas PCA associated with load growth adjustment recovery should
be disallowed.
Clearwater also protested Avistas rate spread methodology. Clearwater argued that
PCA costs should be allocated on a uniform percentage of revenue basis per customer class
rather than on an equal cents-per-kWh basis because A vistas PCA filing includes approximately
$4.4 million in fixed-cost recovery (Lancaster plant costs). Clearwater maintained that it is
tmeasonable to allocate such costs on an equal cents-per-kWh basis because they are not
variable energy costs tied to a customer class's level of energy use; they are fixed costs that
should be spread similar to fixed costs in a general rate case:' Clearwater Comments and Protest
at 10. If the Commission declines to spread the 2010 PCA costs as a uniform percentage of
revenue basis per customer class, Clearwater asks that, at a minimum, the Commission require
A vista to split the PCA revenue requirement in such way that the $4.4 million in fixed Lancaster
costs are allocated"on a more reasonable basis for a fixed cost expense. . . :' Id. at 12.
A vista Reply Comments
A vista filed reply comments on September 21 , 2010, in direct response to Clearwaters
comments and protest. A vista asserted that Clearwater revisits issues already decided by the
ORDER NO. 32080
Commission, makes proposals that violate principles against retroactive ratemaking, and puts
forth arguments that are without merit.
A vista states that the PCA is designed to track changes in power supply costs from
the costs included in base retail rates. The vast majority of changes in costs over time are
hlergy-related' changes in costs and not "demand-related' changes in costs. A vista asserted that
because "changes in energy-related costs are related primarily to changes in the level of
hydroelectric generation, changes in thermal generation and thermal fuel costs, and changes in
the wholesale market prices~' it is appropriate that PCA costs be spread on an equal cents-per-
kWh basis. Reply Comments at 3. Avista further pointed out that, prior to October 1 , 2007
PCA deferrals were recovered utilizing a uniform percentage basis. The Commission
determined that, for purposes of the PCA, a cents-per-kWh recovery method was superior to
uniform percentage recovery. Order No. 29602.
A vista maintained that Clearwaters representation that the Retail Revenue Credit
imposes additional, unreasonable costs on customers due to declining loads is inaccurate and
misleading. A vista stated that it is the relationship between the wholesale market price of power
and the retail revenue credit rate, not the retail revenue credit alone, that creates an impact of
load change in the PCA. Reply at 9. Avista further stated that not only would denial of the retail
revenue credit violate the parameters of Avistas approved PCA methodology, but Clearwaters
proposal to recover the revenue subject to refund would also violate principles against retroactive
ratemaking. A vista also noted Staffs position that any changes to the retail revenue credit would
have to be applied prospectively.
Avista pointed out that the Commission opened a case (GNR-10-03) and scheduled
a workshop (held September 28, 2010) to address some of the issues raised by Clearwater.
Avista asserted that Clearwaters issues would be more appropriate to address within the GNR-
10-03 case and that any recommendations resulting from that case should be applied
prospectively.
FINDINGS AND CONCLUSIONS
Power cost adjustment mechanisms are now being utilized by Idaho's three major
electric utilities. Each of these adjustment mechanisms contains an adjustment to power costs
for variations between normal and actual loads. When loads grow, a portion of the power costs
of serving the load is removed from the power cost adjustment mechanism. When loads decline
ORDER NO. 32080
costs have been added to the mechanism and are passed on to customers. This Commission has
observed and expressed concern that in periods of declining load the mechanism operates much
the same as a decoupling mechanism, reimbursing the Company for lost revenue for reductions
in customer usage. Order No. 31033. In response to our concern over this phenomenon, we
initiated Case No. GNR-10-03 to further explore the issues related to load growth adjustments.
Commission Staff and utility representatives have met and discussed the issues. A collaborative
workshop, open to all interested parties, was also held on September 28, 2010. Because any
change in methodology would necessarily be applied prospectively, Clearwaters concerns about
Avistas load growth adjustment mechanism are more appropriately addressed within the GNR-
10-03 case.
We decline Clearwaters request to allocate costs in this PCA on a uniform percentage
of revenue basis per customer class. This Commission previously allocated PCA costs on a
uniform percentage basis, but determined that a cents-per-kWh recovery method was more
equitable to all customers than a percentage allocation. Moreover, in Case No. A VU-09-
Ol/A VU-09-, Clearwater signed as a party to a Stipulation and Settlement (subsequently
adopted by the Commission in Order No. 30856) that allowed A vista to recover costs associated
with Lancaster through this years PCA. Clearwateis argument to allocate costs already approved
to be recovered within this years PCA as if they were general rate case costs is unpersuasive.
However, as a result of Avistas 2010 general rate case, effective October 1 , 2010, the fixed and
variable operating costs of the Lancaster power plant will be recovered through A vistas base
electric rates, and not subsequent PCAs. Order No. 32070.
After reviewing the PCA Application and the comments filed in this case, the
Commission accepts the audited deferral balance of $16 546 091 and finds it fair, just and
reasonable to approve a PCA surcharge ofO.532~/kWh to be effective October 1 2010.
ORDER
IT IS HEREBY ORDERED that the Application of Avista Corporation dba Avista
Utilities for authority to implement a PCA surcharge of 0.532~ per kWh and recovery of deferred
power costs totaling $16 546 091 deferred for the period of July 1 2009 through June 30, 2010 is
approved. The tariff sheets filed with the Company's Application are hereby approved, to be
effective October 1 2010.
ORDER NO. 32080
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code g 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of September 2010.
. KEMP SIDENT
MARSHA H. SMITH, COMMISSIONER
MACK A. REDFORD, COMMISSIONER
ATTEST:
~p.
je D. Jewell
Commission Secretary
O:A VU-l 0-03 ks2
ORDER NO. 32080