20150601Johnson Direct.pdf

DAVID J. MEYER VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS AVISTA CORPORATION P.O. BOX 3727 1411 EAST MISSION AVENUE SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone] FACSIMILE: [phone] [e-mail]

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-15-05 OF AVISTA CORPORATION FOR THE )
AUTHORITY TO INCREASE ITS RATES ) AND CHARGES FOR ELECTRIC AND )
NATURAL GAS SERVICE TO ELECTRIC ) DIRECT TESTIMONY AND NATURAL GAS CUSTOMERS IN THE ) OF STATE OF IDAHO ) WILLIAM G. JOHNSON
)
FOR AVISTA CORPORATION
(ELECTRIC ONLY)

I. INTRODUCTION 1
Q. Please state your name, business address, and 2
present position with Avista Corporation. 3
A. My name is William G. Johnson. My business 4
address is 1411 East Mission Avenue, Spokane, Washington, 5
and I am employed by the Company as a Wholesale Marketing 6
Manager in the Energy Resources Department. 7
Q. What is your educational background? 8
A. I graduated from the University of Montana in 9
1981 with a Bachelor of Arts Degree in Political 10
Science/Economics. I obtained a Master of Arts Degree in 11
Economics from the University of Montana in 1985. 12
Q. How long have you been employed by the Company 13
and what are your duties as a Wholesale Marketing Manager? 14
A. I started working for Avista in April 1990 as a 15
Demand Side Resource Analyst. I joined the Energy 16
Resources Department as a Power Contracts Analyst in June 17
1996. My primary responsibilities involve power contract 18
origination and management, and power supply regulatory 19
issues. 20
Q. What is the scope of your testimony in this 21
proceeding? 22
A. My testimony will 1) identify and explain the 23
proposed normalizing and pro forma adjustments (2016 and 24
Johnson, Di 1 Avista Corporation
2017) to the January 2014 through December 2014 test 1
period power supply revenues and expenses, and 2) describe 2
the proposed level of expense and load change adjustment 3
rate (LCAR) for Power Cost Adjustment (PCA) purposes, 4
using the pro forma costs proposed by the Company in this 5
filing. 6
Q. Are you sponsoring any Exhibits to be introduced 7
in this proceeding? 8
A. Yes. I am sponsoring Exhibit 6, Schedules 1 9
through 4, which were prepared under my supervision and 10
direction. Schedule 1, pages 1-4, identifies the power 11
supply expense and revenue items that fall within the 12
scope of my testimony for both 2016 and 2017. A brief 13
description of each adjustment is provided in Schedule 2, 14
and Schedule 3 shows the pro forma fuel costs for each 15
thermal plant and short-term purchases and sales by month 16
for both 2016 and 2017. The proposed authorized PCA power 17
supply expense and revenue, transmission expense and 18
revenue, and retail sales are shown in Schedule 4 for both 19
2016 and 2017. 20
Q. Are there other Company witnesses providing 21
testimony regarding issues you are addressing? 22
A. Yes. Company witness Mr. Kalich provides 23
detailed testimony on the AURORA model used by the Company 24
Johnson, Di 2 Avista Corporation
to develop short-term power purchase expense, fuel expense 1
and short-term power sales revenue included in my 2
exhibits. 3
4
II. OVERVIEW OF PRO FORMA POWER SUPPLY ADJUSTMENT 5
Q. Please provide an overview of the pro forma 6
power supply adjustment. 7
A. The pro forma power supply adjustment involves 8
the determination of revenues and expenses based on the 9
generation and dispatch of Company resources and expected 10
wholesale market power prices, as determined by the AURORA 11
model simulation for the pro forma rate periods (calendar 12
years 2016 and 2017) under normal weather and hydro 13
generation conditions. In addition, adjustments are made 14
to reflect contract changes between the historical test 15
period and the pro forma periods. Table No. 1 below shows 16
total net power supply expense during the test period and 17
the pro forma periods. For information purposes only, the 18
power supply expense1 currently in base retail rates, which 19
is based on a calendar 2013 pro forma period, is also 20
shown. 21
1 For the remainder of my testimony, for purposes of the power supply adjustment I will refer to the net of power supply revenues and
expenses as power supply expense for ease of reference.
Johnson, Di 3 Avista Corporation

Table No. 1: 1
2
3
4
5
6
7
8
9
10
11
The net effect of my adjustments to the test year 12
power supply expense for 2016 is a decrease of $15,703,000 13
($162,648,000 - $178,351,000) on a system basis and 14
$5,466,214 Idaho allocation. The proposed 2016 pro forma 15
power supply expense is $2,620,149 (Idaho share) less than 16
the amount currently in base rates. 17
The proposed level of power supply expense in 2017 is 18
$8,656,551 (Idaho share) higher than the proposed 2016 19
level. Over half of this increase in 2017 is related to 20
the expiration of a capacity sales agreement, which I will 21
explain later in my testimony. 22
23
III. PRO FORMA POWER SUPPLY ADJUSTMENTS 24
Idaho
System Allocation
Power Supply Expense in Current Rates (2013 pro forma)$170,175,000 $59,237,918
Actual 2014 Power Supply Expense $178,351,000 $62,083,983
Proposed 2016 Pro forma Power Supply Expense $162,648,000 $56,617,769
Proposed 2017 Pro forma Power Supply Expense $187,516,000 $65,274,320
Proposed 2016 vs 2014 Test Period -$15,703,000 -$5,466,214
Proposed 2017 vs 2014 Test Period $9,165,000 $3,190,337
Proposed 2016 vs Current Rates -$7,527,000 -$2,620,149
Proposed 2017 vs Current Rates $17,341,000 $6,036,402
Proposed 2017 vs Proposed 2016 $24,868,000 $8,656,551
Power Supply Expense
Johnson, Di 4 Avista Corporation
Q. Please identify the specific power supply cost 1
items that are covered by your testimony and the total 2
adjustment being proposed. 3
A. Schedule 1 identifies the power supply expense 4
and revenue items that fall within the scope of my 5
testimony. These revenue and expense items are related to 6
power purchases and sales, fuel expenses, transmission 7
expense, and other miscellaneous power supply expenses and 8
revenues. 9
Q. Are there any changes in how the pro forma in 10
this case was developed versus the authorized power supply 11
expense currently in base rates? 12
A. No. The process to develop the pro forma net 13
power supply expense in this case is the same as the 14
process used to develop authorized power supply expense in 15
current base rates. This case is different in that two 16
pro forma periods are included in my testimony, 2016 and 17
2017. 18
Q. What is the basis for the adjustments to the 19
test period power supply revenues and expenses? 20
A. The purpose of the adjustments to the test 21
period is to normalize power supply expenses for normal 22
weather and normal hydroelectric generation and to reflect 23
Johnson, Di 5 Avista Corporation
current forward natural gas prices and other known and 1
measurable changes for the pro forma periods. 2
The AURORA Model, as explained by Mr. Kalich, 3
dispatches Company resources using the current forward 4
wholesale market prices and calculates the level of 5
generation from the Company’s thermal resources, fuel 6
costs for thermal resources, and the short-term purchases 7
and sales necessary to balance system requirements and 8
resources. 9
A brief description of each adjustment is provided in 10
Schedule 2. Detailed workpapers have been provided to the 11
Commission with this filing to support each of the pro 12
forma revenues and expenses. The detailed workpapers for 13
each adjustment show the actual revenue or expense in the 14
test period, and the 2016 and 2017 pro forma revenues and 15
expenses. 16
Long-Term Contracts 17
Q. How are long-term power contracts included in 18
the pro forma? 19
A. Long-term power contracts are included in the 20
pro forma by including the energy receipt or obligation 21
associated with the contract in the AURORA model, and 22
including the cost or revenue in the pro forma net power 23
supply expense. 24
Johnson, Di 6 Avista Corporation
Q. Are there any new long-term power purchases or 1
sales in the pro forma that are not in the current base 2
rates? 3
A. Yes. The pro formas in this case include the 4
Palouse Wind purchase. Currently, the Palouse Wind 5
purchase is recovered through the PCA. The Rocky 6
Reach/Rock Island purchase is included in the pro formas 7
as a 5 percent share. Current base rates include a 3 8
percent share of Rocky Reach/Rock Island. 9
On the revenue side, the 2016 pro forma includes the 10
full revenue from the Portland General Electric capacity 11
sale. Current bases rates only include approximately 10 12
percent of the revenue. In 1998 Avista monetized the 13
majority of the revenue from the Portland General Electric 14
capacity sale. The monetization loan was paid off in 15
January 2015 and the full revenue from the contract 16
returned to the Company beginning January 2015. The 17
revenue from the sale increased by $17,527,000 from the 18
amount in current base rates on a system basis. This is 19
the largest driver decreasing power supply expense from 20
the 2014 test-year to the 2016 pro forma. 21
The Portland General Electric capacity sale ends 22
December 31, 2016 so there is no revenue from this 23
contract in 2017. This is the largest driver increasing 24
Johnson, Di 7 Avista Corporation
power supply expense from 2016 to 2017, by approximately 1
$14.5 million system ($5.1 million ID share). 2
Q. Are there any long-term power purchases or sales 3
that are in current base rates but not in this pro forma? 4
A. Yes. The SMUD energy/REC sale ended December 5
31, 2014. The Company has a new energy/REC sale into 6
California that partially replaces the lost SMUD REC 7
revenue. 8
Short-Term Power Purchases and Sales 9
Q. How are short-term transactions included in the 10
pro forma? 11
A. After including the actual physical forward 12
long-term transactions as resources and obligations in the 13
AURORA model, the balance of the short-term electric power 14
purchases and sales are an output of the AURORA model. 15
The model calculates both the volumes and prices of short-16
term purchases and sales that balance the system’s 17
generation and long-term purchases with retail load and 18
other obligations. The price of the short-term 19
transactions represents the price of spot market power as 20
determined by the AURORA model. Actual short-term 21
transactions are not included in the pro formas. 22
Johnson, Di 8 Avista Corporation
Thermal Fuel Expense 1
Q. How are thermal fuel expenses determined in the 2
pro forma? 3
A. Thermal fuel expenses include Colstrip coal 4
costs, Kettle Falls wood-waste costs, and natural gas 5
expense for the Company’s gas-fired resources including 6
Coyote Springs 2, Lancaster, Rathdrum, Northeast, Boulder 7
Park, and the Kettle Falls combustion turbine. Unit coal 8
costs at Colstrip are based on the long-term coal supply 9
and transportation agreements. Unit wood fuel costs at 10
Kettle Falls are based on multiple shorter-term contracts 11
with fuel suppliers and inventory. Total fuel costs for 12
each plant are based on the unit fuel cost and the plant’s 13
level of generation as determined by the AURORA model. 14
Schedule 3 shows the pro forma fuel costs by month 15
for each plant. Mr. Kalich provides details and 16
supporting workpapers regarding the level of generation 17
for the Company’s thermal plants, and the fuel cost for 18
thermal and natural gas-fired plants. 19
Transmission Expense 20
Q. What changes in transmission expense are in the 21
pro formas compared to the test-year and the expense in 22
current base rates? 23
Johnson, Di 9 Avista Corporation
A. The biggest change from the test-year is the 1
reduction in transmission purchased for the Lancaster 2
plant. Through August 2014 the Company purchased 250 MW 3
of BPA point-to-point transmission to move Lancaster 4
Generation to the Company’s system. On December 13, 2013, 5
the Lancaster substation became a point of interconnection 6
to Avista’s transmission system, eliminating the need for 7
BPA transmission for Lancaster. Avista’s Lancaster 8
transmission contracts with BPA allowed for the 9
termination of 150 MW of the 250 MW of transmission with a 10
two-year notice. The termination notice was given to BPA 11
on August 31, 2012, and the contract ended August 31, 12
2014. 13
Summary 14
Q. Please summarize your proposed pro forma power 15
supply expense that is provided to Company witness Ms. 16
Andrews for the Company’s electric revenue requirement. 17
A. The proposed pro forma power supply expense for 2016 18
is a $15,703,000 decrease in expense on a system basis and 19
$5,466,214 for the Idaho allocation from the 2014 test-20
year expense. 21
The proposed level of power supply expense in 2017 is 22
$8,656,551 higher than the proposed 2016 level for the 23
Idaho allocation. 24
Johnson, Di 10 Avista Corporation
IV. PCA AUTHORIZED VALUES 1
Q. What is Avista’s proposed authorized power 2
supply expense and revenue for the PCA? 3
A. The proposed authorized level of annual system 4
power supply expense is $147,385,486 for 2016. This is 5
the sum of Accounts 555 (Purchased Power), 501 (Thermal 6
Fuel), 547 (Fuel), less Account 447 (Sale for Resale). It 7
also includes transmission expense and transmission 8
revenue. For 2017 the proposed authorized level is 9
$172,253,413 on a system basis. 10
Q. What is the level of retail sales and the 11
proposed LCAR for the PCA? 12
A. The proposed authorized level of retail sales to 13
be used in the PCA is the 2014 weather adjusted Idaho 14
retail sales. The proposed LCAR is $23.99/MWh for 2016 15
and $25.99/MWh for 2017, which is the energy classified 16
portion of the production/transmission costs. 17
The proposed authorized PCA power supply expense and 18
revenue, transmission expense and revenue, and retail 19
sales are shown in Schedule 4. 20
Q. Does that conclude your pre-filed direct 21
testimony? 22
A. Yes. 23
Johnson, Di 11 Avista Corporation