20140930final_order_no_33140.pdf

Office of the Secretary
Service Date
September 30,2014
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA )
CORPORATION’S APPLICATION TO )CASE NO.AVU-E-14-06
ADJUST ITS ANNUAL POWER COST )
ADJUSTMENT (PCA)RATES )ORDER NO.33140
________________________________________________________________________________________________
)
On July 30,2014,Avista Corporation dba Avista Utilities (the Company)filed its
annual Power Cost Adjustment (PCA)Application.The Company asks the Commission to let it
recover $7.7 million in deferred net power costs through a 0.2520 per kilowatt-hour (kWh)PCA
surcharge to take effect on October 1,2014.
On August 15,2014,the Commission issued a Notice of Application and Notice of
Modified Procedure that set a September 15,2014 comment deadline.See Order No.33095.
Staff and intervenors Clearwater Paper Company and Idaho Forest Group filed comments.
Eleven public comments were also filed,including comments by the Snake River Alliance and
joint comments by Idaho Conservation League,Sierra Club,and Montana Environmental Forum.
The Company then submitted a reply.
THE APPLICATION
The Company’s PCA mechanism tracks changes in the Company’s revenues and
costs due to changes in hydropower generation,power market purchases and sales,fuel costs,
and other miscellaneous revenues and costs.In this case,the Company attributes its increased
net power supply expenses to:
•a forced outage at Coistrip Unit 4 that required the Company to buy
replacement power at a higher wholesale price;
•90%of the net expense of Palouse Wind flowing through the PCA as a
surcharge deferral instead of being included in base rates;and
•a change in the Company’s contract with Clearwater Paper that enables
Clearwater to generate into its own load instead of selling its generation to
the Company.
The Company says the proposed 0.2520 per kWh PCA surcharge would collect:(1)
deferrals from July 1,2013 through June 30,2014 (plus interest);(2)unrecovered balances for
the July 1,2012 through June 30,2012 deferral period;(3)estimated interest during the period
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the new PCA rate will be in effect (October 1,2014 through September 30,2015);(4)a
correction to the misallocation of natural gas transport costs;and (5)a credit for the 2013
earnings test proposed in Case No.AVU-E-14-05.If approved,the Company’s proposed,
0.252 per kWh PCA surcharge would be a 0.404 per kWh increase over the 0.1520 per kWh
rebate set in last year’s PCA case.
The Company proposes to increase overall customer rates by 4.99%,as reflected in
the schedule below:
Type of Service Schedule Billed Revenue %Increase
Residential 1 4.44%
General Service 1 1,12 3.90%
Large General Service 21,22 5.02%
Extra Large General Service 25 7.4 1%
Clearwater 25P 7.98%
Pumping Service 31,32 4.37%
Street and Area Lights 41-49 1.66%
Total 4.99%
About 38%of the overall rate increase is due to the elimination of last year’s PCA rebate.The
remaining 62%increase occurs because the Company’s power supply costs during the July 1,
2012 through June 30,2014 deferral period were higher than the Company’s power supply costs
embedded in base rates.
THE COMMENTS
Comments were filed by Commission Staff,intervenors Clearwater and Idaho Forest
Group,and 11 members of the public including the Snake River Alliance,Idaho Conservation
League,Sierra Club,and Montana Environmental Forum.The Company also filed reply
comments.The comments are summarized below.
I.Staff Comments
Staff supports the Company’s Application.Staff thoroughly reviewed the Company’s
Application and audited and analyzed the Company’s:(1)actual and authorized expenses;(2)net
deferral activity;(3)deferral calculation method;and (4)other PCA surcharge adjustments
(reflecting credit for the 2013 earning test as proposed in Case No.AVU-E-14-05,and correcting
a gas allocation error);and (5)proposed PGA rates.Staff opines that the Company correctly
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booked amounts to the PCA deferral account;calculated the base-to-actual deferral;adjusted
base rates so the Company only recovers its actual power supply costs,minus sharing;and
calculated its proposed PCA rate in a manner that complies with the Commission’s Orders.Staff
thus recommended the Commission:(1)authorize the Company to recover from customers the
total deferral amount of $7,705,909 (including interest);and (2)approve Schedule 66 rates as
filed in Exhibit A of the Application,effective October 1,2014.
II.Intervenor and Public Comments
The intervenors and members of the public raise two main concerns about the
Company’s Application.First,they argue that the proposed PCA rates should not let the
Company recover its cost to buy power to replace the generation it lost due to the Colstrip Unit 4
forced outage.Second,they argue that the Company relies too much on Colstrip and coal-fired
generation with little risk to shareholders.In addition,intervenor Clearwater argues that it is
paying more than its cost-of-service and that part of its PCA rates should be re-allocated to other
classes.These issues and the Commission’s corresponding findings are discussed below.
A.Coistrip Unit 4 Forced Outage
The Company’s PCA proposal includes a $4 million increase in net power supply
costs that the Company incurred to buy power to replace the generation it lost when Coistrip Unit
4 went offline from July 1,2013 to January 23,2014.The Company says the outage occurred
after the unit’s manufacturer performed a routine overhaul on the generator.The Company’s
third-party consultant conducted a Root Cause Analysis that concluded that Colstrip’s operator
“did everything according to standard industry practice ...[but n]othing they did or could have
done,could have prevented this failure.”
Staff found no evidence that the outage was anyone’s fault.Staff believes the
Company reasonably incurred increased net power costs due to the outage and that the Company
should recover those increased costs through the PCA.
Clearwater,IFG,SRA,JCL,Sierra Club,and MIEC disagree for three main reasons.
First,they argue that the PCA adjusts for ordinary power supply expenses,and that extraordinary
expenses from a non-recurring casualty event like the outage should not automatically flow to
customers through the PCA.See e.g.,Clearwater Comments at 5-6,noting Staff’s view in IPC
E-04-09 that extraordinary Valmy outage costs should not flow through the PCA,and the
Commission’s belief in that case that “the issue of replacement power resulting from the Valmy
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plant outage...warrants further examination....If necessary,any adjustment in power cost
recovery resulting from the Valmy outage will be carried over to next year’s PCA.”).Second,
they note that if the Coistrip outage costs are allowed in the PCA,ratepayers would not only pay
those costs but also the fixed costs of a facility that was not used and useful,which unfairly
allocates risk to ratepayers,Third,while the Company provided what appears to be an
independent Root Cause Analysis,there has not been an opportunity in the compressed PCA
docket to subject that Analysis to rigorous scrutiny and independent review.
For these reasons,the commenters propose that the Commission:(1)remove the
Colstrip outage costs from the PCA,which leaves an adjusted 2014 PCA surcharge rate of
.0011 9/kWh;and (2)prescribe further proceedings as needed to investigate whether some or all
of the Coistrip outage costs should be recoverable;the Commission should only require
ratepayers to pay for Coistrip outage costs if the Commission finds,after rigorous examination,
that the Company’s costs were reasonable and prudently incurred.As a less desirable
alternative,the commenters say that if the Commission decides to consider the Colstrip outage
costs in the PCA,then it should require a complete accounting of the expenses and adequate
justification of their reasonableness.
In reply,the Company notes that the Colstrip outage is very different from the Valmy
outage.Significantly,while Staff recommended further investigation of the Valmy outage
because that outage appeared to be caused by operator negligence,Staff does not recommend
further investigation of the Colstrip outage because nothing suggests that the outage may have
been caused by Company or operator neglect.Indeed,Clearwater and IFG conducted discovery
but point to no evidence suggesting a lack of prudency by the Company or a need for further
review.
The Company also notes that over the last 15 years,Colstrip has had a solid
performance over time for a plant of its size.The favorable performance in some years offsets
the unfavorable performance in other years,with the benefits from favorable performance years
flowing through to customers in the PCA.
The Company also disagrees that costs related to plant outages have generally been
excluded from the PCA.The Company explains that when the Commission approved a PCA
method change in 2001 that replaced computer-modeled costs with actual power supply costs,
the Commission specifically noted:“Power supply expenses associated with thermal plant forced
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outages,the Company states,are not included in the current PCA mechanism because the
mechanism is based on modeled rather than actual generation.”Order No.28775 at 4.By
changing the PCA method to include actual power supply costs instead of modeled costs,the
Commission thus designed the PCA to include forced outage costs.The Company notes,for
example,the 2009 and 2010 PCAs both included costs from the 2009 Coistrip outage.
commission Findings:The PCA ensures that the Company recovers its prudently
incurred actual power costs.We decline to exclude the Colstrip outage costs from the PCA for
two reasons.First,actual power costs include the actual replacement power costs that a utility
incurs to offset lost generation from a forced outage.See Order No.30828,Case No.IPC-E-09-
11 (revising the PCA mechanism to replace use of “actual modeled”data with “actual”data
including actual forced outage costs).Second,there is no evidence of imprudence in this case.
The Coistrip outage thus differs from the Valmy outage upon which the commenters rely.In the
PCA case involving Valmy (Case No.IPC-E-04-09),we directed the parties to examine whether
Valmy replacement power costs should be included as an adjustment in the next year’s PCA.
We only did this,however,because the undisputed evidence showed that the Valmy outage “was
caused by an apparent failure to follow established safety procedures,a lack of proper
supervision,and poor communication....“Order No.29506 at 5-7.In contrast,the evidence in
this case is that Colstrip’s operator “did everything according to standard industry practice”and
“[njothing they did or could have done could have prevented this failure.”See Avista Reply
Comments at 2 quoting third-party Root Cause Analysis.The evidence also shows that the
replacement power costs were reasonable.See e.g.,Staff Comments at 8-9.Because the PCA
captures the prudently incurred replacement power costs that a company incurs to offset lost
generation from a forced outage,and because there is no evidence that the Company imprudently
incurred the Colstrip replacement power costs,we decline to order further examination of those
costs or exclude them from this year’s PCA.
We appreciate the commenters’concerns about the Colstrip outage.We encourage
them to scrutinize any future outages and to bring any evidence of imprudence to our attention.
B.Continued Reliance on Coal
Certain commenters express concerns about the extent to which the Company
continues to rely on coal generation.For example,they express concerns about the continuing
operation of Colstrip Unit 4 given its history of prolonged outages (the 2009 and 2013-2014
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unplanned outages collectively took Coistrip oftline for a year).the costs of existing and future
regulatory compliance,and environmental lawsuits.They argue that customers should not bear
the brunt of repeated operational problems at coal plants,and that such risk should shift to utility
owners.
In reply,the Company argues that the future of Colstrip should not be debated in a
PCA proceeding,which is designed to adjust changes in prior power supply costs.
Commission Findings:We find that the future of Colstrip and the extent to which
the Company continues to rely on coal are beyond the scope of this proceeding,and we decline
to address those issues here.The PCA is a cost tracker,and a PCA case narrowly focuses on
whether a utility should increase or decrease its rates to reflect its tracked,actual power supply
costs.
C.Clearwater Cost of Service
Clearwater notes that its new Electric Service Agreement (ESA)with the Company
adds $2.3 million to the Company’s proposed 20 13/2014 PCA.Clearwater recommends that the
Commission re-allocate part of Clearwater’s share of the PCA costs to achieve a fairer rate
spread among ratepayers.Clearwater notes that when Staff analyzed the new ESA it opined that
Clearwater’s rates would remain above cost-of-service (in that case,Staff estimated that the new
ESA added $1.9 million to the Idaho jurisdiction,with Clearwater being assigned $1.4 million of
that total).Further,Staff expected that rates would be re-allocated among customer classes in
the next general rate case.Clearwater argues,however,that the Company’s base rate settlement
in AVU-E-14-05 precludes the Company from filing a general rate case until January 2016,and
that it is unfair for Clearwater to subsidize other rate classes until the Company files a future rate
case.Based on the cost-of-service results that the Commission relied upon to approve
Clearwater’s new ESA with the Company,Clearwater recommends that the Commission allocate
$500,000 of Clearwater’s PCA costs (i.e.,$1.9 million assigned to Idaho jurisdiction from the
new ESA minus the $1.4 million assigned to Clearwater)to the other rate classes either on a
kWh basis or a per bill basis.
In reply,the Company notes that a cost-of-service study is only a guide to
determining revenue requirement spread in a general rate case,and that while Staff’s estimate
showing Clearwater to be above cost-of-service was based on the Company’s cost-of-service
results from its last general rate case (AVU-E-12-08),other cost-of-service studies could have
ORDERNO.33140 6
very different results.More important,the Company notes that when it and Clearwater asked the
Commission to approve the new ESA,their joint petition stated:“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 100%....“Avista Reply at 5.Additionally,in the stipulation and
settlement in the ESA case,the parties,including Clearwater,recommended the Commission
approve the new ESA “while not agreeing on any particular cost of service methodology.”Id.
Finally,the Company observes that the Commission has already decided that costs tracked
through the PCA are related to energy,that PCA rate spread should be calculated on an energy
basis,and that any surcharge or rebate stemming from the PCA should be calculated on an
energy,or uniform cents-per-kWh,basis.See id.citing Order No.29602 at 48,Order No.32080
at 6.The Company thus says its PCA meets the terms of the Commission’s prior Orders.
Commission Findings:We are unpersuaded by Clearwater’s argument that we
should allocate $500,000 of its PCA costs to other classes to ensure that Clearwater does not pay
more than its cost-of-service as adjusted to reflect the new ESA.Cost-of-service studies are a
balance of art and economic principles,and are to be used as a guide to set rates.As the
Company notes,an updated cost-of-service study could show very different results from those
reflected in the cost-of-service study used in AVU-E-12-08.Further,in asking the Commission
to approve the new ESA,Clearwater expressly agreed:(1)that the changes in revenues and
expenses associated with the new ESA would be tracked 100%through the PCA;and (2)that the
parties were not agreeing to any particular cost-of-service method (including that used in the old
cost-of-service study from AVU-E-12-08).
DISCUSSION AND FINDINGS
The Commission has jurisdiction over the Company and the issues presented in this
case pursuant to Idaho Code,Title 61,and specifically Idaho Code §6 1-307,6 1-503 and 61-
622.After reviewing the Application and the comments filed in this case,we find that the
Company’s Application is reasonable and adheres to our prior Orders regarding the method to be
used for the recovery or reimbursement of deferred net power supply costs incurred by the
Company.We find that the Company’s current rates are insufficient to enable it to reasonably
recover its increased costs,and we accept the audited deferral balance of $7,705,909 (including
ORDER NO.33140 7
ORDER
IT IS HEREBY ORDERED that the Company’s Application is approved.The
Company is authorized to recover the total deferral amount of $7,705,909 (including interest)
from customers.The Company’s proposed schedules are approved as filed,with new rates to
take effect on October 1,2014.
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within twenty-one (21)days of the service date of this Order.Within seven (7)
days after any person has petitioned for reconsideration,any other person may cross-petition for
reconsideration.See Idaho Code §61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this
day of September 2014.
PAUL KJELUAflER,PRESIDENT
7tL44L /14iL
MARSHA H.SMITH,COMMISSIONER
ATTEST:
Jean D.Jewel!
Ccmmission Secretary
0:AVU-E-4-06kk2
ORDERNO.33140 8