20121026Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KJELLANDER
COMMISSIONER REDFORD
COMMISSIONER SMITH
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: KARL KLEIN
DEPUTY ATTORNEY GENERAL

DATE: OCTOBER 25, 2012

SUBJECT: CASE NOS. AVU-E-12-08 / AVU-G-12-07
GENERAL RATE CASE – ELECTRIC/GAS

On October 11, 2012, Avista applied to the Commission for authority to increase its
electric base rates by $11.4 million (4.6%) and its natural gas base rates by $4.6 million (7.2%).
Application at 1. The Company says its average residential customer would experience an
electric bill increase of $4.20 (5.3%) and a natural gas bill increase of $4.12 (7.8%). Id. at 11.
The Company asks for the new rates to take effect on April 1, 2013. See Amendment to
Application.1
THE APPLICATION
Avista generates, transmits, and distributes electric power, and distributes natural gas
in parts of eastern and central Washington, northern Idaho. It also distributes natural gas in
northeast and southwest Oregon. The Commission approved the Company’s existing, Idaho
rates and charges on September 30, 2011, and they took effect in October 2011. Application at
2-3, citing Order No. 32371.
1 In its Application, the Company requested a November 10, 2012 effective date and asked the Commission to
suspend that date for 30 days and 5 months. The Company requested the suspension in recognition of Commission
Order No. 32371, which was issued in the Company’s last rate case and approved a stipulation that states: “8.
Limitation on Effective Date of Any New Rates Established By Subsequent General Rate Filing. The Company
agrees that it will not seek to make effective a change in base electric or natural gas rates prior to April 1, 2013, by
means of a general rate filing. (Any filing of a general rate case, however, may be made prior to April 1, 2013, but
shall not request an effective date prior to April 1, 2013.).” [Italics added]. On October 25, 2012, the Company
filed an Amendment to Application and new proposed tariff sheets that changed the requested effective date to April
1, 2013. See Amendment to Application. This memorandum collectively refers to the Application and the
Amendment to Application as the “Application.”
DECISION MEMORANDUM 2
The Company claims its existing rates are not fair, just, and reasonable, and that it
must increase rates and revenues to enable it to earn a fair return on its investment. The
Company seeks an 8.46% rate of return, which includes a 50% equity ratio, a 6.02% pro forma
cost of debt, and a 10.9% return on equity. Application at 3-4. The Company says its proposed
percentage increases by rate schedule for electric and natural gas service are reflected in the
tables below:

Proposed Electric Increase by Percentage
Residential Service Schedule 1 5.3%
General Service Schedules 11 & 12 4.1%
Large General Service Schedules 21 & 22 4.8%
Extra Large General Service Schedule 25 3.9%
Extra Large General Service Schedule 25P 3.3%
Pumping Service Schedules 31 & 32 5.7%
Street & Area Lighting Schedules 41-48 4.5%

Proposed Gas Increase by Percentage

Service Schedule
Proposed Increase
in Billed Revenues
General Service Schedule 101 7.8%
Large General Service Schedule 111 5.7%
Interruptible Sales Service Schedule 131 5.9%
Transportation Service Schedule 146
(excluding natural gas costs)

12.8%
Overall Increase 7.3%

See Direct Testimony of Scott L. Morris at 19-20.
The Company says its evidence supporting the requested rate increase is based on a
12-month test year ending June 30, 2012, and that the following investment-and-expense
increases drive its need for rate relief: (1) increases in net plant investment (including return on
investment, depreciation and taxes, and offset by the tax benefit of interest); and (2) increases in
distribution, operation and maintenance, and administrative and general expenses, which are
partially offset by reduced net power supply and transmission expenditures. Application at 3-4.
DECISION MEMORANDUM 3
The Company explains that much of its need for rate relief is driven by increased
costs associated with the need to expand and replace its aging utility infrastructure, and its
obligation to reliably serve customers. Id. at 5. Notably, the Company plans to make $500
million in capital expenditures from 2012-2013 to account for customer growth, investment in
generation upgrades and transmission and distribution facilities, and maintenance and
replacements of the Company’s natural gas systems. The Company plans to make $1.2 billion in
capital expenditures through December 31, 2016. Id. at 6.
The Company says it will notify each customer of the proposed rate increases through
a bill stuffer during a billing cycle, a news release, and an individual bill insert. Id. at 12.
STAFF RECOMMENDATION
Staff recommends that the Commission issue a Notice of Application establishing a
14-day deadline for intervention. Staff will recommend further procedure as the case develops.
COMMISSION DECISION
Should the Commission issue a Notice of Application and establish a 14-day deadline
for intervention?

M:AVU-E-12-08_AVU-G-12-07_kk