20100916Comments.pdf

KRISTINE A. SASSER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720~0074
[phone]
BARNO. 6618
RECE
zrHn SEPI6 PM 2: 22
Street Address for Express mail
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
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 JULY 1, 2009
THROUGH JUNE 30, 2010.
)
) CASE NO. A VU~E~10~03
)
)
) COMMENTS OF THE
) COMMISSION STAFF
The Staff of the Idaho Public Utilties Commission, by and through its Attorney of
record, Kristine A. Sasser, Deputy Attorney General, in response to the Notice of Application
and Notice of Modified Procedure (Order No. 32044) submits the following comments.
BACKGROUND
On July 27, 2010, Avista Corporation dba Avista Utilties fied its anual Power Cost
Adjustment (PCA) Application. A vista requests an order approving 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 30, 2010. The Company requests that its Application be processed by
Modified Procedure and that its rates become effective on October 1,2010.
Avista's PCA mechanism is used to track changes from normal revenues and costs
included in base rates that are associated with variations in power supply costs. These revenue
and cost variations are primarily caused by differences between normal and actual hydroelectric
generation, secondar market prices, thermal fuel costs, Idaho load and changes in power
contract revenues and expenses. The primary factors contributing to higher power supply
STAFF COMMENTS 1 SEPTEMBER 16,2010
expenses during the deferral period are low hydro generation, costs associated with the Lancaster
plant) and reduced Idaho load. The proposed 0.532~/kWh wil replace an existing 0.344~/kWh
surcharge, for a PCA increase ofO.i88~/kWh or an overall rate increase of2.61% on average.
The proposed surcharge is designed to recover power costs deferred by the Company for
the period of July 1,2009 through June 30, 2010 of$16,546,091, and the estimated unecovered
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 estimated interest for
the recovery period of October 1,2010 through September 30, 2011. These estimated amounts
total $2,184,794. The estimates are made to increase the accuracy of the PCA rate which
minimizes future true ups. Estimated amounts are trued up to actual in the following year's
PCA. The proposed 0.532~/kWh PCA surcharge is designed to recover $18.7 milion, the total
of the deferral balance and the estimates.
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. Stafrsreview covered expenses incurred for the
period July 2009 through June 2010. 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). 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, 2010.
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
i Lancaster costs are currently being recovered through the PCA because the power purchase agreement became
effective after base rates were established in A VU-E-09-0 1. Stipulation and Settlement at 10, approved by Order
No. 30856. The Stipulation in AVU-E-l 0-0 1 (if approved) includes the Lancaster costs in base rates. After October
1,2010, only the differential wil flow through the PCA.
STAFF COMMENTS 2 SEPTEMBER 16,2010
twelve 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 owned resources, these PCA accounts also include additional
power purchase costs when market prices are lower than generation costs. Also, 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 twelve items (an
explanation of each item also follows):
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
13. Total
$55,298,168
~1,767,669
11,871,945
~51,923,140
-6,057,308
-1,350,064
9,297,028
173,930
471,981
599,033
~189,607
121,794
$16.546.091
1. FERC Account 555 - Purchased Power. Purchased Power costs reflect 90% of the
Idaho jurisdictional share of the difference in costs the Company incurred 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 purchased power costs than are included in base
rates. The positive amount represents a costto customers.
2. FERC Account 501 - Thermal FueL. Thermal Fuel, primarily coal, is used to produce
electricity. The amount is 90% of the Idaho jurisdictional share of the difference in costs the
Company incurred for thermal fuel compared to the normalized amount included in base rates.
During the review period the Company incurred lower coal costs than are curently included in
base rates. The negative amount represents a benefit to customers.
STAFF COMMENTS 3 SEPTEMBER 16,2010
3. FERC Account 547 - CT FueL. Combustion Turbine or CT Fuel is natural gas burned
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
natual gas costs than are currently included in base rates. The positive amount represents a cost
to customers.
4. FERC Account 447 - Sales for Resale. 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. This negative
amount represents a decrease in costs during the review period and is a benefit or credit to
customers.
5. All Clearater Revenues and Expenses. The Clearwater (fka Potlatch) revenues and
expenses component is a direct assignment to Idaho of the difference in Clearater costs and
revenues (for its Lewiston facilty) relative to the normalized Clearater 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 ~ Profit on Natural Gas Resold. Resource Optimization
amounts result when natural gas purchased in advance for use in generating plants is later sold
because it is more cost effective to sell the gas and purchase electricity than it is to generate
electricity with the gas. Ninety percent of the Idaho jurisdictional share of the gain or loss on the
sale of the gas is included in the PCA. 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. Furthermore, 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. The gain during the review period, shown as
a negative amount, is a benefit to Idaho customers.
7. Idaho Retail Revenue Adjustment. The Idaho Retail Revenue Adjustment has three
components. First, the load change adjustment removes the average fixed cost of Production and
Transmission from PCA calculations when load grows. When load declines, as it has in this
STAFF COMMENTS 4 SEPTEMBER 16,2010
case, the adjustment adds back the embedded fixed costs of Production and Transmission at the
curently approved rate of $43.23/MWh. This rate is reestablished whenever base power supply
costs are reset. The rate is multiplied by the change 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 total Idaho Retail Revenue Adjustment is included in the PCA. The amount is
$9,297,028 which is 56% of the total deferred amount requested for recovery in this case. The
positive amount represents a cost to customers.
This year the power cost adjustment filings of all three Idaho electric utilties have
reported load declines. Therefore, all three utilties have 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 current case this fixed cost recovery component is $9,297,028. The
Staff is concerned that adding fixed costs into the PCA for recovery from customers may not be
appropriate and Staffhas met with all three electric utiities to discuss the situation. The Staff
has scheduled a workshop fo~ September 28, 2010, at the Commission offce to meet with any
additional interested paries. The. Staff believes that any change in the methodology would have
to be applied prospectively. Therefore, Staff is not proposing to adjust the deferred amount in
this case.
8. Net Transmission Revenue and Expense. The Company proposed, and the
Commission Staff agreed, to include transmission revenues and expenses in the PCA in the 2009
general rate case, AVU-E-09-01. Avista incurs third pary transmission costs when it purchases
power and has it wheeled or delivered to its service area by a third pary. A vista also incurs third
party transmission costs when it sells power and pays a third pary to deliver it. Third pary
transmission revenues occur when A vista is the third pary and is delivering power for otherš.
Including transmission revenues and expenses in the PCA tracks the varabilty of these items.
In the review period, the transmission expenses were greater than the transmission revenues and
the net of the transmission revenues and expenses is a cost to customers.
9. Federal Production Tax Credit. The Company proposed, and the Commission Staff
agreed, to include in the PCA the difference between actual Production Tax Credit and the
amount of Production Tax Credits included in base rates. The Company received a production
tax credit for energy generated at Kettle Falls and for the Cabinet Gorge upgrade. The normal
STAFF COMMENTS 5 SEPTEMBER 16,2010
Production Tax Credit reduces the revenue requirement in base rates. The credit is directly
related to Company power supply costs and varies with energy production. Allowing the credits
to be included in the PCA wil ensure that all the benefits received related to Kettle Falls are
passed on to customers without harming the Company when the Kettle Falls credits expire. In
the review period, the amount of production tax credit included in base rates was more than the
actual production tax credits received for the energy produced, and this difference is a cost to
customers.
10. Lancaster Costs. Lancaster fixed costs including the power purchase agreement
charges, gas transportation and BP A transmission charges are recovered at 100% of the actual
expense in this PCA per Order No. 30856 dated July 17,2009. Variable fuel and generation
values are tracked at the normal 90/1 0 sharing percentage.
11. Centralia Refud Adjustment. The Company sold its ownership share of the
Centralia power plant in May 2009. Funds were withheld from the proceeds of the sale of the
Centralia plant to pay for potential environmental remediation. The held back funds reduced the
gain on the original sale of the Centralia plant. This is a one~time refund of the unexpended
Centralia environmental remediation funds, and is a benefit to customers.
12. Interest During Deferral Period. The Company calculates interest on the deferral
balance using the methodology per Order No. 29323 in Case No. AVU~E-03-04. Staff reviewed
the calculation of the interest and found the amounts included in the filing to be correct. The
Company uses the Customer Deposit Rate on current year deferrals and on carover balances
from one year to the next. The Customer Deposit Rate for 2009 was 2% and for 2010 is 1 %.
Interest on the deferral balance accumulates during the deferral period at the customer deposit
rate and is a cost to customers.
STAFF COMMENTS 6 SEPTEMBER 16,2010
Estimated Amounts
The Company has included the following estimated amounts in its rate calculation:
Revenue Conversion Amount
$1,942,389
148,095
94,310
$2.184.794
Net unrecovered 2008 - 2009 deferral
Various Interest Amounts
Total
The Staff has reviewed the estimated amounts and believes that they are reasonable.
The PCA Rate
The PCA rate is calculated by dividing the sum of the deferred amount and the estimated
amount by the amount of forecasted retail sales for the period that the rate wil be in effect.
($16,546,091 +$2, 184,794)/3,522,531,000 kWh = $0.00532/kWh = 0.532 ~/kWh
CONSUMER ISSUES
Customer Notice and Press Release
The Press Release and Customer Notice included in Avista's Application were reviewed
and deemed to meet the requirements ofIPUC Rules of Procedure 125.04 and 125.05. IDAPA
31.01.01.125. The customer notice was mailed with cyclical bilings beginning July 29,2010
and ending August 27, 2010.
Customer Comments
Customers were given until September 16,2010 to fie comments. As of September 15,
2010, five comments had been received, all opposing a rate increase.
Financial Assistance for Paying Heating Bils
If approved, Avista's residential customers wil see an increase in their rates. No matter
what the rate per kilowatt-hour, there wil always be some customers that find it diffcult to pay
their utilty bils. Staff encourages all those customers who qualify for energy assistance to apply
for the federally-funded Low Income Home Energy: Assistance Program (LIHEAP) and other
non-profit fuel fuds such as Project Share. For more information regarding financial assistance
STAFF COMMENTS 7 SEPTEMBER 16,2010
programs, customers should contact their local community action agency, A vista Utilties, the
Idaho Public Utilties Commission, or the 2~ 1-1 Idaho Care Line.
STAFF RECOMMENDATION
Staff recommends the Commission accept the audited deferral balance of $16,546,091 for
the period July 1,2009 through June 30, 2010 and approve the amount for recovery. The Staff
furher recommends that a PCA rate of 0.532 ~/kWh be approved effective October 1, 2010.
Respectfully submitted this I c,"! day of September 2010.
~t:2J a. &.viKn~.Sasser
Deputy Attorney General
Technical Staff: Kathy Stockton
Keith Hessing
Marlyn Parker
umisc/commentsavue IO.3ksklskhmp comments
STAFF COMMENTS 8 SEPTEMBER 16,2010
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 16TH DAY OF SEPTEMBER 2010,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-I0-03, BY E~MAILING AND MAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220-3727
E~MAIL: david.meyer(favistacorp.com
PETER J RICHARDSON
GREGMADAMS
RICHARDSON & O'LEARY
515 N 27TH ST
BOISE ID 83702
E-MAIL: peter(frichardsonandolear.com
greg(frichardsonandoleary.com
DR DON READING
E-MAIL: dreading(fmindspring.com
(ELECTRONIC SERVICE ONLY)
KELL YO NORWOOD
VP STATE & FED REG
A VISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220-3727
E~MAIL: kelly.norwood(favistacorp.com
HOWARD RAY
CLEARWATER PAPER CORP
803 MILL ROAD
PO BOX 1126
LEWISTON ID 83501-1126
E-MAIL: howard.ray(fclearaterpaper.com
J,~
SECRETARY