20140922Reply Comments.pdf

Avista Gorp.
1411 East Mission P.O. Box3727
Spokane. Washington 99220-0500
Telephone [phone]
TollFree 800-727-9170
FILED VIA OVERNIGHT MAIL
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September 19,2014
Ms. Jean D. Jewell, Commission Secretary
Idaho Public Utilities Commission
472W. Washington St.
Boise,ID 83702-5983
RE: Case No. AVU-E-14-06
Power Cost Adjustment (PCA) Annual Filing of Avista Corporation
Dear Ms. Jewell:
Enclosed for filing with the Commission are an
Comments in Case AVU-E-14-06. Please direct
Ehrbar at 509.495.8620.
Sincerely,
original and seven copies of Avista's Reply
any questions regarding this filing to Patrick
David J. Meyer
Vice President and Chief Counsel for Regulatory and Governmental Affairs
Enclosures
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have served Avista Corporation's Reply Comments in Case AVU-E-14-06
(Power Cost Adjustment Annual Rate Adjustment Filing) by mailing a copy thereof, postage prepaid, to
the following:
Jean D Jewell, Secretary
ldaho Public Utilities Commission
Statehouse
Boise, lD 83720-5983
Jean. iewell@puc. idaho.qov
Donald Howell
Deputy Attorneys General
ldaho Public Utilities Commission
472W. Washington
Boise, !D 83702-0659
donald. howell@ouc. idaho.qov
Marv Lewallen
Cleanrater Paper
601 W. Riverside Avenue
Suite 1100
Spokane, WA 99201
marv. lewal len@clearwaterpaoer. com
Benjamin J. Otto
ldaho Conservation League
710 N.6th Street
Boise, lD 83702
[e-mail]
Zack Waterman
Sierra Club
424 E. Main, Ste 2028
Bozeman, MT 59771
Zack.waterman@sierraclu b.org
Ken Miller
Snake River Alliance
223 N. 6th Street
Boise, lD 83702
km iller@snakerivera I liance. orq
Peter J. Richardson
Greg M. Adams
Richardson & O'Learv PLLC
515 N. 27th Street
PO Box 7218
Boise, lD 83702
peter@richardsonandoleary. com
q req@richardsondolearv. com
Dean J. Miller
McDevitt & Miller, LLP
420W. Bannock St.
PO Box 2564-83701
Boise, lD 83701-2564
ioe@mcdevitt-m i I ler. com
Anne Hedges
Montana Environmental lnformation C
107 W. Lawrence St. #N6
Helena, MT 59601
[e-mail]
Dr. Don Reading
6070 HillRoad
Boise, lD 83703
dread [e-mail]
Patrick Ehrbar
Manager, Rates & Tariffs
is 19th day of September 2014.
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DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY AND GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P.O.BOX3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-37 27
TELEPHONE: [phone]
[e-mail]
BEFORE THE IDAHO PUBLIC
IN THE MATTER OF THE POWER COST )
ADJUSTMENT (PCA) ANNUAL RATE )
ADJUSTMENT FILING OF AVISTA )
CORPORATION
UTILITIES COMMISSION
CASE NO. AVU-E-14.06
REPLY COMMENTS OF
AVISTA CORPORATION)
)
18 Avista Corporation ("Avista" or o'Company") hereby submits reply comments in response
19 to the comments filed by Clearwater Paper Corporation ("Clearwater"), Idatro Forest Group
20 ("IFG"), the Snake River Alliance, and the joint comments of the Sierra Club, Idaho
2l Conservation League, and Montana Environmental Information Center.l
22 I. Colstrip Unit 4
23 Avista owns a 15% share of Colstrip Units 3 and 4, which are two of four units of the
24 Colstrip Generating Station, a coal-fired power plant complex located in Montana. From July l,
25 2013 through January 22, 2014, Unit 4 was unavailable due to a forced outage. Colstrip's
26 incremental generation expense is lower than the wholesale power prices, therefore, replacing
27 Colstrip energy led to an increase in power supply expense. Approximately $4 million of the
28 PCA rate request is due to the Colstrip Unit 4 outage.
' While the Notice of Modified Procedure issued on August 15, 2Ol4 (Order No. 33095) does not call for reply
comments, Avista seeks leave to file these comments to briefly respond to certain issues raised by interested parties,
believing it will assist in the Commission's deliberation.
AVISTA REPLY COMMENTS PAGE 1
I The outage occurred after returning the unit to service following a routine scheduled
2 generator overhaul. All of the overhaul work performed on the generator prior to the failure was
3 performed by Siemens, the Original Equipment Manufacturer (OEM). The Root Cause Analysis
4 Report on the PPL Montana Colstrip Unit 4 Core Failure Event, prepared by Generator
5 Consulting Services, Inc., an independent third party, stated at page 46: "In our opinion, PPL
6 [the Colstrip managing operator] did everything according to standard industry practice such as
7 hiring the OEM (Siemens) to perform the maintenance, performing El Cid testing on the core,
8 operating their unit according to industry practice, (since there was no indication of mis-
9 operation), and protecting the unit with adequate relay protection. Nothing they did or could
10 have done. could have prevented this failure." (emphasis added) (The Root Cause Analysis
1l Report was provided to all parties in response to IFG Data Request No. 2.)
12 During Staff s review of Avista's PCA Application, Staff paid particular attention to the
13 impact of the Colstrip Unit 4 outage. Staffs comments, at page 8 described its review, as
14 follows:
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"...In light of the Colstrip outage, Staff considered whether Avista should receive
recovery for increases in net power supply expenses due to the outage and whether the
Company's net power supply expense was reasonable.
Staff examined the Company's data request responses and found no definitive evidence of
Company. PPL Montana (facility operator). or third-party neelect or malfeasance causing
the Colstrip outage. In addition, although there was insurance that covered property
damage, the Company has no insurance that covers the cost of increased power supply
expenses. Staff agrees with the Company that the Company's portfolio of resources and
access to electricity markets should hold sufficient reserves to cover both forced and
unforced outage. By design, Staff believes this is an appropriate form of insurance to
cover these types ofoutage occurrences. Based on the evidence presented, Staffbelieves
reasonably incurred increases in net power cost due to the Colstrip Unit 4 outage should
be included for recovery in the Company's Application." (emphasis added)
Both Clearwater and IFG take issue with including the cost of the Colstrip Unit 4 outage
in the PCA. Both parties recommend removing approximately $4 million in costs related to the
AVISTA REPLY COMMENTS PAGE 2
I Colstrip Unit 4 outage from the proposed PCA rates and requested that the Commission
2 prescribe further proceedings to investigate whether some or all of these costs are recoverable
3 from Idaho customers. They further argue that the Colstrip Unit 4 outage was an extraordinary,
4 one-time, non-recurring event and that the PCA is meant to address fluctuations of normal power
5 supply expense occurring in the ordinary course of business.
6 Both Clearwater and IFG point to an Idaho Power Company PCA case (Case No. IPC-E-
04-09) when Idaho Power experienced a forced outage of its Valmy generating facility. The
Valmy outage was discussed in Order No. 29506, Case No. IPC-E-04-9, at page 5, as follows:
As outlined in the Staffs Comments and the Company's confidential audit report, the
incident was caused by an apparent failure to follow established safety procedures, a lackof proper supervision and training, and poor communication between project
personnel....The Staff recommended that the Commission initiate an investigation to
determine whether the costs for the Valmy replacement power should be calculated and
credited as an adjustment to next year's PCA.
In the Valmy case, after its initial review, Staff recommended further investigation, due to the
cause of the outage and apparent failure on the part of the operator of the generating station.
The Colstrip outage is very different from the Valmy outage. After conducting its audit,
Staff did not recommend the same further investigation of the Colstrip Unit 4 outage in this case,
because there was no threshold indication, whatsoever, that the cause of the outage might have
been due to neglect or malfeasance on the part of Avista or the generating facility operator.2
Indeed, Clearwater and IFG also engaged in discovery in this PCA filing and yet can point to no
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2 It is also the case that the Colstrip Unit 4 outage was included in Avista's 2014 Energy Recovery Mechanism
(*ERM") filing in the State of Washington (see Docket UE-140540). The Staff of the Washington Utilities and
Transportation Commission, and other parties, all received the same information related to the outage in the ERM
filing, as the panies in this matter. In Washington Staffs Open Meeting Memorandum dated July 10, 2014, which
recommended approval of Avista's ERM filing, without the need for further proceedings, Staff stated at page 2:
"After careful review of the report prepared by an independent consulting firm, staff agrees that the Colstrip outage
was not the result of imprudent actions on the part of the company." (emphasis added) (See Avista's response to
IFG Data Request No. 3.) The Washington Commission approved the ERM filing as filed by the Company, without
a need for further proceedings.
AVISTA REPLY COMMENTS PAGE 3
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evidence suggesting a lack of prudency on Avista's part or the need for further review.
With regard to the performance of the Colstrip generation facilities, over the last 15 years
the equivalent availability factor (EAF) for Colstrip Units 3 and 4 has been 84.2Yo. This EAF
reflects solid performance over time for thermal plants of this size, and this 15-year time frame
also includes the two extended outages in 2009 and 2014 for one of the units. ln essence, the
favorable performance in some years offsets the unfavorable performance in other years. The
benefits from the years of favorable performance have been flowed through to customers in the
PCA.
In addition, Avista does not agree with the assertion made by Clearwater and IFG that
costs related to plant outages generally should be excluded from the PCA. In 2001, in Case No.
AVU-E-0l-1, Avista proposed modifications to the PCA methodology which had been capturing
the difference between authorized power supply costs from the last general rate case and a
"modeled actual" power supply cost. Avista's proposal, which was agreed to by Staff and
ultimately approved by the Commission, used actual power supply costs (which would serve to
capture the effect of any unplanned outages), instead of the computer-modeled costs. This was
recognized in Order No. 28775, atpage 4:
Power supply expenses associated with the thermal plant forced outages, the Company
states, are not included in the current PCA mechanism because the mechanism is based
on modeled rather than actual generation.
Since the PCA methodology was changed to use actual power supply costs, the power
supply expenses associated with the thermal plant forced outages were, therefore, designed to be
included in the PCA calculation. In fact, Colstrip Unit 4 experienced an extended outage from
May 2009 until November 2009. The costs associated with this outage were, in fact, included in
the PCA for both 2009 and20l0.
AVISTA REPLY COMMENTS PAGE 4
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II. PCA Rate Spread
As noted in the Company's filing, as well as in Clearwater's comments, the impact in the
PCA of the new Electric Service Agreement ("ESA") between Avista and Clearwater Paper is
approximately $2.3 million. Clearwater argues that the PCA revenue increase should be spread
as if the new ESA was included in base rates, arguing that this is consistent with Staff s "Key
Cost of Service Indications" exhibit which Staff included in its comments in support of the new
Clearwater/Avista ESA in Case AVU-E-l3-02, and which Clearwater Paper included in their
comments in this case3. (See Clearwater Comments, at page 4)
First, it is important to note that any cost of service study is only a guide in determining
the spread of revenue requirement in a general rate case, and the assumptions and methodologies
used in such a study can be very different, leading to very different results. As such, while the
Staff estimate, based solely on Avista's filed cost of service results, shows Clearwater Paper
being above cost of service, other cost of service studies could have very different results.
Second, and perhaps more to the point, in the Joint Petition filed by Clearwater and Avista on
April 10,2013 in support of the new Electric Service Agreement, and as later approved by the
Commission, Avista and Clearwater stated at page 6:
The Parties propose that the change in revenues and expenses associated with the new
service agreement with Clearwater, as compared with the revenues and expenses included
in the last rate case for Clearwater, be tracked through the PCA at l00Yo, similar to the
accounting treatment for the current Purchase and Sale Agreement.
Finally, the Commission on several occasions has affirmed using an energy basis, or uniform
cents-per-kWh, as the basis for the rate spread used in the PCA. The Commission stated the
' The purpose of Staff s exhibit in its ESA comments was to estimate the impact of the new ESA on cost of service
results. The Stipulation and Settlement, however, filed by all parties including Clearwater in that case, and which
was later approved by the Commission, states in paragraph 18, "the Parties agreed to use a pro-rata allocation based
on the Company's proposed l5%o move towards unity for purposes of spreading the revised electric revenue
requirement, while not agreeing on any particular cost of service methodology." (emphasis added)
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AVISTA REPLY COMMENTS PAGE 5
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following as it relates to PCA rate spread in the Company's 2004 general rate casea:
The Commission finds that a cents per kWh recovery method for the PCA is superior to
the percentage basis currently used....[W]e find the cents per kWh rate more equitable to
all customers than the percentage allocation. We recognize that the variable cost of
energy fluctuates from year to year based on the amount of energy consumed and should
therefore be surcharged or credited on an equal cents per kWh basis.
The Commission later reaffirmed this view in Avista's 2010 PCA when Clearwater Paper
protested Avista's uniform cents per kWh rate spreads:
The 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.
In short, the costs tracked through the PCA are related to energy, and therefore any
surcharge or rebate stemming from the PCA should be calculated on an energy basis, i.e., a
uniform cents-per-kWh basis. This issue has been squarely addressed and resolved by the
Commission.
18 Clearwater through its Joint Petition with Avista requested, and the Commission
19 approved, that the changes from the new ESA be incorporated in the PCA. The Commission has
20 stated that PCA rate changes should occur on a uniform cents-per-kWh basis. As such, Avista's
2l PCA meets the conditions of the Commission's prior orders.
22 III. Other Matters
23 Finally, comments were also submitted in this matter by the Snake River Alliance and by
24 The Sierra Club, the Idaho Conservation League and the Montana Environmental Information
25 Center. These groups addressed concems about coal-fired generation generally, and suggested
26 that the Colstrip Generating Facility had become unreliable and unreasonably costly to operate.
27 The future of Colstrip should not be debated in a PCA proceeding, which is designed to adjust
'Order 29602, Case AVU-E-04-01, p. 48.t Order 32080, Case AVU-E-10-03, p. 6.
AVISTA REPLY COMMENTS PAGE 6
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rates for changes in prior power supply costs.
Finally, Avista agrees with Staff s comments related to the two deficiencies found in the
press release and customer notice. The Company has reviewed the updated Rules of Procedure
and will include the required information in all future releases and notices.
The Company appreciates the opportunity to respond to the comments filed in this case.
DATED at Spokane, Washington, this 19th day of September,2}l4.
AVISTA CORPORATION
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David J. Meyer,
Vice President and Chief Counsel of
Regulatory & Governmental Affairs
AVISTA REPLY COMMENTS PAGE 7
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VERIFICATION
STATE OF WASHINGTON )
)
County ofSpokane )
David J. Meyer, being first duly sworn, on oath deposes and says: that he is the
Vice President and Chief Counsel of Regulatory & Governmental Affairs for Avista Utilities;
that he has read the above and foregoing Application, knows the contents thereof, and believes
the same to be true.
E- /4-
SIGNED AND SWORN to before me this lfth day of September2014, by David Meyer.
Washington, residing at Spokane.
Commission Expires: lO.0 "t .,9
AVISTA REPLY COMMENTS PAGE 8