20110921Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
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Wi I SEP 21 AM 10: 11
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE POWER COST
ADJUSTMENT (PCA) ANNUAL RATE
ADJUSTMENT FILING OF A VISTA
CORPORATION
)
) CASE NO. A VU-E-ll-03
)
) COMMENTS OF THE
) COMMISSION STAFF
)
The Staff of the Idaho Public Utilties Commission comments as follows on A vista
Corporation's July 28, 2011 Application to approve an overall rate reduction of 5.99% due to a
reduction in its PCA surcharge. The new rates are proposed to be effective October 1, 2011.
BACKGROUND
On July 28, 2011, A vista Corporation dba A vista Utilties fied its anual Power Cost
Adjustment (PCA) Application. A vista requests an Order approving an overall reduction in its
revenues of 5.99% with a proposed effective date of October 1,2011. Application at 4. The
Company requests that its Application be processed by Modified Procedure.
Avista's PCA mechanism is used to track changes in revenues and costs associated with
variations in hydroelectric generation, secondar prices, thermal fuel costs, changes in power
contract revenues and expenses, and a few other miscellaneous items.
The proposed 0.072~/kWh PCA surcharge wil replace an existing 0.532~/kWh
surcharge, a decrease of0.460~/kWh, resulting in an average 5.99% decrease in Avista's
STAFF COMMENTS 1 SEPTEMBER 21, 2011
revenues. The proposed surcharge is designed to recover power costs and corresponding accrued
interest deferred by the Company for the period of July 1,2010 through June 30, 2011, as well as
the unecovered balance related to the July 1,2009 through June 30, 2010 deferral period, and
interest during the recovery period of October 1, 2011 through September 30, 2012.
When calculating power supply expenses, the Company noted that above normal hydro
generation decreased power supply expenses during the deferral period. However, the hydro-
related cost decrease was offset by increases associated with the Lancaster plant's fixed-costs,
thermal fuel costs at Colstrip and Kettle Falls, and the effect of declining power prices.
Lancaster fixed-costs were only included in the PCA deferral balance during July, August and
September of 2010. Beginning October 1, 2010 they were included in base rates and are no
longer included in PCA deferrals. Order No. 32070.
The proposed actual percentage decrease wil var by rate schedule as shown below.
Customer Group
(Schedule)Percentage Decrease
Residential (Schedule 1)-5.19%
General Service (Schedules 11, 12)-4.49%
Large General Service (Schedules 21, 22 )-5.73%
Extra Large General Service (Schedule 25)-8.03%
Clearater (Schedule 25P)-8.80%
Pumping Service (Schedules 31, 32)-5.26%
Street and Area Lights (Schedules 41-49)-1.88%
STAFF REVIEW
Audit Results
Staff reviewed and audited the amounts included in the deferral balance in the curent
fiing. Staff s review covered expenses incurred for the period July 2010 through June 2011.
Staff looked 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 its review of these
transactions, Staff concludes that the various power cost transactions appear reasonable at the
time they were made. Staff also reviewed the other PCA calculations and amounts. Staff finds
STAFF COMMENTS 2 SEPTEMBER 21, 2011
the amounts recorded to be correct and recommends that they be included in the deferral balance
as of June 30, 2011.
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
twelve months ending June 30, 2011. The net deferral's primar component 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. Generation costs associated
with off-system sales are offset by the revenue from those sales. The proposed deferral amount,
$2,084,533, consists of the following eleven items (an explanation of each item also follows):
1. FERC Account 555 - Purchased Power $47,730,276
2. FERC Account 501 - Thermal Fuel -909,404
3. FERC Account 547 - CT Fuel -1,951,352
4. FERC Account 447 - Sales for Resale -42,719,798
5. All Clearater Revenues and Expenses -5,886,403
6. Resource Optimization - Loss on Natural Gas Resold 1,694,158
7. Idaho Retail Revenue Adjustment 3,626,015
8. Net Transmission Revenue and Expense -114,560
9. Federal Production Tax Credit 280,18910. Lancaster Costs 315,247
11. Interest during deferral period 20,16512. Total $2,084,533
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 cost to customers.
STAFF COMMENTS 3 SEPTEMBER 21,2011
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 incured for thermal fuel compared to the normalized amount included in base rates.
During the review period the Company incurred lower coal costs than are currently included in
base rates. The negative amount represents a benefit to customers.
Staff notes that the Company made an inventory adjustment to fuel records for the Kettle
Falls plant in June 2011 as a result of a physical inventory survey performed in May. The
Company periodically adjusts the inventory records based on physical inventory sureys. Staff
fuher notes that the latest surey also resulted in the re-calibration of the scale reading the fuel
delivered to the plant. Staff agrees with the fuel record adjustment for the Kettle Falls plant and
the inclusion in the PCA deferral balance.
3. FERC Account 547 - CT FueL. Combustion Turbine (or CT) Fuel is natural gas
bured 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 less natural gas cost than is currently included in base rates. The negative amount
represents a benefit 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 an increase in sales for resale revenues, a decrease in costs during the review
period, and is a benefit to customers.
5. All Clearater Revenues and Expenses. The Clearwater revenue and expense
components are a direct assignment to Idaho. They are based on 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, durng the review period, the cost of serving Clearater was less than the amount included
in base rates. This negative amount is a benefit to Idaho customers.
6. Resource Optimization - Loss 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
STAFF COMMENTS 4 SEPTEMBER 21,2011
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 notes that this line item only shows one side of the
transaction when the Company utilzes its power plants for economic dispatch, and should not be
looked at independently from the entirety of the optimization of Company resources. When
looked at in its entirety, Resource Optimization is a benefit to customers.
Staff has verified that when the Company initially purchased the gas, 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. Furhermore,
Staff has verified that when the Company resold the gas and purchased electricity to meet native
load, the resale of the gas and corresponding electricity purchased was the least expensive and
most cost-effective alternative. The loss during the review period, shown as a positive amount,
is a cost to Idaho customers.
7. Idaho Retail Revenue Adjustment. The Idaho Retail Revenue Adjustment has three
components. First, the load change adjustment removes the average energy-related cost of
Production from PCA calculations when load grows. When load declines, as it, has in this case,
the adjustment adds back the average energy-related cost of Production at the curently approved
rate. The rate changed from $48.00/MWh to $30. 16/MWh on April 1,2011. 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 Clearwater generation.
Ninety percent of the total Idaho Retail Revenue Adjustment is included in the PCA. The
amount is $3,626,015. The positive amount represents a cost to customers.
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, A VU-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. Avista also incurs third
pary 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 others.
Including transmission revenues and expenses in the PCA tracks the variability of these items.
In the review period, the difference in transmission expenses was less than the difference in
STAFF COMMENTS 5 SEPTEMBER 21,2011
transmission revenue and the net of the transmission revenue and expense differences is a benefit
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
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. Including the credits
in the PCA wil ensure that all the benefits received related to Kettle Falls are passed on to
customers without haring 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 90/10 sharing percentage. The PCA tracking of Lancaster fixed
costs ended October 1, 2010 when these costs were placed in base rates.
11. Interest During Deferral Period. The Company calculates interest on the deferral
balance using the methodology stated in Order No. 29323, Case No. A VU-E-03-04. Staff
reviewed the Company's interest calculation and found the amounts included in the filing to be
correct. The Company uses the Customer Deposit Rate on curent year deferrals and on
carover balances from one year to the next. The Customer Deposit Rate for 2010 and for 2011
is 1 %. Interest on the deferral balance accumulates during the deferral period at the customer
deposit rate and is a cost to customers.
Additional Amounts
The proposed surcharge is designed to recover the net deferral and corresponding accrued
interest for the period July 1,2010 through June 30, 2011 of$2,084,533 plus the unrecovered
balance related to the July 1, 2009 through June 30, 2010 deferral period, and interest during the
recovery period of October 1, 2011 through September 30, 2012. Therefore, in addition to the
STAFF COMMENTS 6 SEPTEMBER 21, 2011
net deferral balance, the Company has included the following additional amounts in its rate
calculation:
Expected unecovered 2009 - 2010 deferral $170,492
Various Expected Interest Amounts 163,210
Revenue Conversion Amount 8,990~~ $3~,m
The Staff has reviewed these additional estimated amounts, which are included only in
the rate calculation to minimize next year's true-up. The Staff believes that they are reasonable.
The amounts are trued-up in the following year's PCA.
The PCA Rate
The PCA rate is calculated by dividing the sum of the deferred amount and the additional
estimated amounts by the amount of forecasted retail sales for the period that the rate wil be in
effect. ($2,084,533+$342,692)/3,358,927,000 kWh = $0.00072/kWh = 0.072 ~/kWh
CUSTOMER RELATIONS
Customer Notice and Press Release
The Press Release and Customer Notice included in Avista's Application 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 August 6, 2011 and ending
September 7, 2011.
Customer Comments
Customers were given until September 21,2011 to fie comments. As of September 15,
2011, no comments had been received.
Financial Assistance for Paying Heating Bils
If approved, Avista's residential customers wil see a decrease in their electric rates. No
matter what the rate per kilowatt-hour, however, there wil always be some customers that find it
diffcult to pay their utility bils. Staff encourages all those customers who qualify for energy
assistance to apply for the federally-funded Low Income Home Energy Assistance Program
STAFF COMMENTS 7 SEPTEMBER 21,2011
(LIHEAP) and other non-profit fuel funds such as Project Share. For more information
regarding financial assistance programs, customers should contact their local community action
agency, Avista Utilties, the Idaho Public Utilities Commission, or the 2-1-1 Idaho Care Line.
STAFF RECOMMENDATION
Staff recommends that the Commission accept the audited deferral balance of $2,084,533
for the period July 1,2010 through June 30, 2011 and approve the amount for recovery. Staff
also recommends the additional $342,692 be reflected in the recovery rate. Staff further
recommends that a PCA rate of 0.072 ~/kWh be approved effective October 1,2011.
Respectfully submitted this 'Z 1 sf day of September 2011.
~~L
Deputy Attorney General
Technical Staff: Keith Hessing
Kathy Stockton
Marilyn Parker
i:umisc/commentsavueI l.3kkkklsmp comments
STAFF COMMENTS 8 SEPTEMBER 21,2011
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 21sT DAY OF SEPTEMBER 2011,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-II-03, BY E-MAILING AND MAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
DAVID J MEYER
VP & CHIEF COUNSEL
A VISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220-3727
E-MAIL: david.meyer(favistacorp.com
PETER J RICHARDSON
GREGORY MADAMS
RICHARDSON & O'LEARY
PO BOX 7218
BOISE ID 83702
E-MAIL: peterCirichardsonandolear.com
greg(frichardsonandolear.com
KELL YO NORWOOD
VP STATE & FED REG
A VISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220-3727
E-MAIL: kelly.norwood(iavistacorp.com
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-MAIL: dreading(fmindspring.com
-.~
SECRETAR
CERTIFICATE OF SERVICE