20110706Christie Di.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL
REGULATORY & GOVERNMENTAL
AVISTA CORPORATION
P . 0 . BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
DAVID. MEYER~AVISTACORP. COM
;il JUL - 5M'l !l: r~ (;
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION FOR THE
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC AND
NATURAL GAS SERVICE TO ELECTRIC
AND NATURAL GAS CUSTOMERS IN THE
STATE OF IDAHO
CASE NO. AVU-G-11-01
DIRECT TESTIMONY
OF
KEVIN J. CHRISTIE
FOR AVISTA CORPORATION
(NATURAL GAS ONLY)
1 Q.Please state your name, business address, and present
2 position with Avista Corp.
3 A.My name is Kevin Christie and I am employed as
4 Director of Gas Supply for Avista Utili ties (Avista or
5 Company). My business address is at 1411 East Mission Avenue,
6 Spokane, Washington.
7 Q.Would you please describe your education and business
8 experience?
9 A.Yes.I graduated from Washington State Uni versi ty
10 with a Bachelors Degree in Business Administration with an
11 accounting emphasis. I have also attended the Uni versi ty of
12 Idaho Utility Executive Course.
13 I joined the Company in 2005 as the Manager of Natural Gas
14 Planning. In 2007, I was appointed the Director of Gas Supply.
15 Prior to joining Avista, I was employed by Gas Transmission
16 Northwest (GTN). I was employed by GTN from 2001 to 2005 and
17 was the Director of Pipeline Marketing and Development from
18 2003 to 2005 and the Director of Pricing and Business Analysis
19 from 2001 to 2003. From 2000 to 2001, I was employed by PG&E
20 Corporation (PG&E) as the Manager of Finance and Assistant to
21 the SVP, Treasurer and CFO. Before joining PG&E, I was employed
22 by Pacific Gas Transmission Company (PGT) from 1994 to 2000.
23 While at PGT, I held several positions including Manager,
24 Pricing and Business Analysis, Senior Business Analyst, Senior
Christie, Di 1
Avista Corporation
1 Pricing Planner, Director of Regúlatory Affairs,Project
2 Manager Rates and Regulatory Affairs, Senior Regulatory
3 Analyst, Regulatory Analyst, and Revenue Accountant. From 1990
4 to 1994, I was employed by Chevron USA as a Lease Revenue
5 Accountant.
6 Q.Mr. Christie, what is the purpose of your testimony
7 in this proceeding?
8 A.The purpose of my testimony is to describe Avista's
9 natural gas procurement planning process, and provide an
10 overview of the Jackson Prairie natural gas storage facility.
11 Q.Are you sponsoring exhibits in this proceeding?
12 A.Yes.I am sponsoring Exhibit 7, which is a copy of
13 the Company's 2009 Natural Gas Integrated Resource Plan
14 (Schedule 1).
15
16 Procuremen t Planning
17 Q.Please describe Avista's natural gas portfolio as it
18 relates to the procurement of natural gas for LDC customers?
19 A.Avista purchases natural gas for LDC customers in
20 wholesale markets at multiple supply basins in the western
21 United States and western Canada. Purchased natural gas can be
22 transported through six connected pipelines on which Avista
23 holds contractual transportation rights.Access to this
24 diverse portfolio of natural gas resources allows the Company
Christie, Di 2
Avista Corporation
1 to make natural gas procurement decisions that benefit our LDC
2 customers.Further, the Company has interstate pipeline
3 transportation capacity to serve approximately 25 percent of
4 natural gas supplies from domestic sources (Rocky Mountains),
5 wi th the remaining 75 percent from Canadian sources (British
6 Columbia and Alberta) .As natural gas prices in the Pacific
7 Northwest can be affected by global energy markets, as well as
8 supply and demand factors in other regions of the United States
9 and Canada, future prices and delivery constraints may cause
10 the source mix to vary.Below is a map showing our service
11 terri tory, natural gas trading hubs, intrastate pipelines, and
12 natural gas storage facility.
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15
16
17
18
19
20
21
22
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Christie, Di 3
Avista Corporation
1 While Avista cannot accurately predict future natural gas
2 prices, market conditions and experience help shape our overall
3 procurement approach.The Company's goal is to provide
4 reliable supply at competitive prices in volatile commodity
5 markets. To that end, the Company utilizes a Procurement Plan
6 which includes hedging (on both a short term and long term
7 basis) ,storage utilization, and index purchases.This
8 approach is diversified by time, component, counterparty, and
9 supply basin.The Procurement Plan is disciplined, yet
10 flexible, which layers in fixed price purchases to reduce price
11 volatili ty to customers.A copy of the Company's Natural Gas
12 Procurement Plan is included as an exhibit in Avista' s Energy
13 Resources Risk Policy (see Exhibit 4, Confidential Schedule
14 3C) .
15 The Procurement Plan provides a process that fixes prices
16 for a designated portion of the portfolio through the use of
17 hedge windows.The hedge windows are "open"for a
18 predetermined time period and have upper and lower pricing
19 levels which are set by the market at the time the window
20 becomes effective. In a rising market, this reduces exposure to
21 extreme price spikes. In a declining market, it can facilitate
22 locking in lower prices.These windows can be closed if
23 certain pricing levels are met, or upon time expiration.The
Christie, Di 4
Avista Corporation
1 Company always maintains some level of discretion and may
2 choose not to execute a window given market conditions.
3 In addition, a portion of the portfolio that is separate
4 from the hedge windows is designated as discretionary.This
5 opportunistic portion of the portfolio allows the Company to
6 hedge additional volumes at potentially favorable pricing
7 levels. In the event those pricing levels are not reached, the
8 unexecuted volumes designated as discretionary hedges will
9 become a part of the index purchases portfolio.
10 Gas Supply continuously monitors the results of the
11 Procurement Plan, evolving market conditions, variation in
12 demand profiles, new supply opportunities, and regulatory
13 condi tions.Al though various windows and targets are
14 established in the initial design phase of the portfolio, the
15 plan provides flexibility to exercise judgment to revise and/or
16 adjust the plan in response to changing conditions.
17 Q.What delivery period does the natural gas Procurement
18 Plan include?
19 A.The natural gas Procurement Plan includes four
20 complete natural gas operating years (November through October)
21 and whole months remaining from now until the next October 31
22 (the Current natural gas operating year).The four complete
23 upcoming natural gas operating years are designated "Prompt",
24 "Second", "Third", and "Fourth" years.
Christie, Di 5
Avista Corporation
1 Q.Please describe the components of the prompt year
2 natural gas Procurement Plan.
3 A.Each year a comprehensive review of the previous
4 year's plan is performed.The review includes analysis of
5 historical and forecasted market trends, fundamental market
6 analysis, demand forecasting, and transportation and other
7 resource considerations.From this review, decisions are made
8 about how much forecasted demand should be served by various
9 components of the portfolio, including:
10 1. Previous Year (s) Hedges longer-term fixed-price
11 purchases executed as a part of a previous year's
12 Procurement Plan.
13 2. Prompt Year Hedges - the portion of the portfolio
14 addressed through the utilization of hedge windows.
15 In each window fixed price purchases are made for
16 various prompt year delivery periods.Prior to the
17 execution of each window,market condi tions,
18 fundamental market knowledge, and other information
19 is considered to determine if execution will occur.
20 3. Storage Withdrawals utilizing the capacity and
21 deli verabili ty from the Jackson Prairie storage
22 facility, Avista is able to inject natural gas during
23 the summer months and withdraw it to serve customers
24 during the higher demand winter months.
Christie, Di 6
Avista Corporation
1 4. Discretionary Prompt Year Hedges opportunistic
2 purchases based on a set of price targets that
3 trigger possible execution. At the time the triggers
4 are reached,evaluation of market condi tions,
5 fundamental market knowledge, and other information
6 are considered.These hedges will generally be
7 executed when they can be done at or below the
8 established targets.
9 5. Index Purchases - physical index-based natural gas
10 purchases are procured prior to or throughout the
11 delivery month.These purchases are usually
12 associated with daily pricing.The amount of index
13 purchases planned is the difference between the
14 forecasted demand less the sum of the previous year
15 hedges, prompt year hedges, and storage withdrawals.
16 Q.Please describe the long term components of the
17 natural gas Procurement Plan.
18 A.As part of the development of the prompt year
19 Procurement Plan, future years are also considered (referred to
20 as "Second", "Third", and "Fourth" years).For a portion of
21 the forecasted demand of the three years following the prompt
22 year, a discretionary long term hedging program is developed.
23 This program has a series of pricing targets that, when
24 reached, trigger possible execution. At the time the triggers
Christie, Di 7
Avista Corporation
1 are reached, evaluation of market conditions, fundamental
2 market knowledge, and other information are considered in order
3 to determine if execution will occur.
4 Q.Please describe how the Procurement Plan manages
5 volatili ty.
6 A.The Procurement Plan focuses on managing demand and
7 price volatility. Natural gas demand is volatile and will vary
8 day to day.For example, average daily demand for LDC
9 customers in the summer months is approximately 30,000
10 Dekatherms (Dth) per day, and in a winter month average daily
11 demand can be as high as 185,000 Dth per day. Further, within
12 the month of November, the Company has an average daily demand
13 as high as 150,000 Dth per day and a low of 50,000 Dth per day.
14 Finally, from Avista's 2009 IRP, peak day demand for 2011-2012
15 heating season is forecasted to be approximately 344,000 Dth
16 per day. For the winter 2010-2011 heating season the observed
17 peak demand was 272,000 Dth per day. In order to manage these
18 seasonal,monthly and daily swings,Avista shapes the
19 components of the Procurement Plan by month (i. e. more natural
20 gas is hedged for the winter months than for the summer).
21 Below is a chart that shows the demand volatility:
22
Christie, Di 8
Avista Corporation
1 Total System Average Daily Load
(Average, Min, Max)January 2005 through March 20102
50,000
400,000
3 350,000
4 300,000
5 250,000
6 i;
e 200,000
8
7
150,000
8
100,000
9
10
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12 -Average Load --Minimum Load --Maximum Load x Peak Day
13
14 Price volatility can also vary widely by season, month and
15 day.For example, on July 9, 2008 daily natural gas prices at
16 AECO reached $11.82/Dth and on August 29, 2009 hit a low of
17 $1.96/ Dth.By layering in purchases over time (both hedges
18 and index), setting upper and lower pricing levels on the hedge
19 windows, and opportunistically hedging at favorable pricing
20 levels through the discretionary hedge program, Avista is able
21 to meet our goal of providing stable yet competitive prices to
22 our customers.Below is a chart from the Company's 2009
23 Integrated Resource Plan demonstrating natural gas price
24 volatility:
Christie, Di 9
Avista Corporation
1
2
Histrical Daily Prices
AECO
3 $14.00
6 $8.00
4 $12.00
5 $10.00
7 ã
$6.00
8 $4.00
9 $2.00
10
$0.00
11 ~,,n.iS''~,,n.# ~.l ~'..n,,#, ~~# ~~# ~.l.n,~,:#' ~,,~ ~#' ~.l.n#' ~~# ~# ~.#:.n# ~#' ~#' ~.lrtl'~" ~"~,,
12
13 Jackson Prairie Storage Facility
14 Q.Could you please describe Avista's involvement with
15 the Jackson Prairie natural gas storage facility?
16 A.Yes. Avista is one of the three original developers
17 and owners of the underground aquifer storage facility at
18 Jackson Prairie, which is located near Chehalis, Washington.
19 Al though there have been corporate changes due to mergers,
20 acquisitions and name changes, Avista, Puget Sound Energy (PSE)
21 and Northwest Pipeline each hold a one-third share (equal,
22 undivided interest) of this underground natural gas storage
23 facili ty through a j oint ownership agreement.Development of
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Avista Corporation
1 the facility began in the 1960' s and the project first went
2 into service in the early 1970's.
3 Q.Please describe the present level of storage that
4 Avista owns at Jackson Prairie.
5
6
A.Prior to May 1, 2011, the Company held a total of
5,497,112 Dth of seasonal capacity.This seasonal capacity
7 comes with a withdrawal capability of 294,667 Dth per day
8 (deli verabili ty) .As was described in the Company's previous
9 general rate case AVU-G-10-01, on May 1, 2011, the utility
10 received an additional 3,030,887 Dth of seasonal capacity and
11 an additional 104,000 Dth of daily deliverability.This
12 capacity was originally held by Avista Energy, and as part of
13 the asset sales agreement this capacity was assigned to Shell
14 Energy through April 30, 2011.As of May 1, 2011, the
15 Company's total capacity at Jackson Prairie is 8,527,999 Dth
16 and total deliverability is 398,667 Dth per day.
17 Q.Please briefly describe what the Commission approved
18 in Case Nos. AW-G-10-01 as it relates to Jackson Prairie
19 assets that were received by the Company on May 1, 2011.
20 A.As noted in the Settlement Agreement approved by the
21 Commissionl, the Parties agreed that the "JP assets that will
22 transfer from Avista Energy on May 1, 2011 will include plant
23
1 Settlement Stipulation, Dockets AVU-G-IO-Ol, Page 3, Para. 6.
Christie, Di 11
Avista Corporation
1 assets, operations and maintenance expenses, as well as cushion
2 gas" .2 Company witness Ms. Andrews has included in this case
3 the additional plant, inventory and O&M costs associated with
4 the additional Jackson Prairie storage.
5 Q.Does this conclude your pre-filed, direct testimony?
6 A.Yes it does.
2 Settlement Stipulation, Dockets AVU-G-10-01, Page 11, Para. 17 (c) .
Christie, Di 12
Avista Corporation
Natural Gas Integrated Resource Plan (IRP)
Compact Disc Exhibit
Also Available At
http://ww.avistautilities.comlinside/resources/irp/Pages/default.aspx
Exhibit No.7
Case Nos. A VU-E-ll-Ol and A VU-G-ll-Ol
K. Christie, A vista
Schedule 1, P. 1 of 1