20150601Morris 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 ) CASE NO. AVU-G-15-01 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 ) SCOTT L. MORRIS )

FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)

I. INTRODUCTION 1
Q. Please state your name, employer and business 2
address. 3
A. My name is Scott L. Morris and I am employed as 4
the Chairman of the Board, President and Chief Executive 5
Officer of Avista Corporation (Company or Avista), at 1411 6
East Mission Avenue, Spokane, Washington. 7
Q. Would you please briefly describe your 8
educational background and professional experience? 9
A. Yes. I am a graduate of Gonzaga University with 10
a Bachelors degree and a Masters degree in organizational 11
leadership. I have also attended the Kidder Peabody 12
School of Financial Management. 13
I joined the Company in 1981 and have served in a 14
number of roles including customer service manager. In 15
1991, I was appointed general manager for Avista 16
Utilities’ Oregon and California natural gas utility 17
business. I was appointed President and General Manager 18
of Avista Utilities, an operating division of Avista 19
Corporation, in August 2000. In February 2003, I was 20
appointed Senior Vice-President of Avista Corporation, and 21
in May 2006, I was appointed as President and Chief 22
Operating Officer. Effective January 1, 2008, I assumed 23
Morris, Di 1 Avista Corporation
the position of Chairman of the Board, President, and 1
Chief Executive Officer. 2
I am a member of the Gonzaga University board of 3
trustees, a member of Edison Electric Institute board of 4
directors, a member of the American Gas Association, and 5
immediate past chair of the Washington Roundtable. On 6
January 1, 2011, I was appointed to the Federal Reserve 7
Bank of San Francisco, Seattle Branch board of directors 8
and currently serve as chair. I also serve on the board of 9
trustees of Greater Spokane Incorporated. 10
Q. What is the scope of your testimony in this 11
proceeding? 12
A. I will summarize the Company’s rate request in 13
this filing, and provide some context for why there is a 14
continuing need for retail rate increases, not just for 15
Avista, but for the electric and natural gas utility 16
industry in general. I will provide an overview of our cost 17
management initiatives, our communications initiatives to 18
help customers better understand the changes in costs that 19
are causing rates to increase, and briefly explain the 20
Company's customer support programs in place to assist our 21
customers. Finally, I will introduce each of the other 22
witnesses providing testimony on the Company’s behalf. 23
24
Morris, Di 2 Avista Corporation
A table of contents for my testimony is as follows: 1
Description Page 2
I. Introduction 1 3
II. Summary of Rate Requests 4 4
III. Context for Retail Rate Changes – 1889 to 2014 10 5
IV. Cost Management and Efficiencies 20 6
V. Communications with Customers 24 7
VI. Customer Satisfaction 26 8
VII. Customer Support Programs 26 9
VIII. Other Company Witnesses 28 10
11
Q. Are you sponsoring an Exhibit in this 12
proceeding? 13
A. Yes. I am sponsoring Exhibit No. 1 which is 14
comprised of three schedules. Schedule 1 includes an 15
overview of Avista and its utility and subsidiary 16
operations, as well as a diagram of Avista’s corporate 17
structure. Schedule 2 includes a map showing Avista’s 18
electric and natural gas service areas. Schedule 3 19
includes line graphs showing, among other things, the 20
changes in Avista’s electric retail rates from 1889 to 21
2014, which help provide context for the revenue increases 22
proposed in this filing. 23
Morris, Di 3 Avista Corporation
II. SUMMARY OF RATE REQUESTS 1
Q. Please provide an overview of Avista’s two-year 2
rate plan proposed in this case. 3
A. The Company is proposing a two-year rate plan 4
for calendar years 2016 and 2017, with proposed increases 5
effective January 1 of each year. The Company is 6
proposing a two-year rate plan, to once again, avoid 7
annual rate cases in its Idaho jurisdiction1, providing 8
benefits to all stakeholders. 9
A two-year rate plan, with increases in 2016 and 10
2017, would provide benefits to Avista’s customers by 11
providing rate certainty over this two-year period; to 12
Avista by providing a two-year window to manage its 13
business in order to achieve a fair rate of return within 14
known price changes; and relief to all stakeholders – 15
customers, the Commission and its Staff, intervenors, and 16
the Company, from the administrative burdens and costs of 17
litigation of annual general rate cases. 18
Q. What are the primary factors driving the 19
Company’s need for its requested electric and natural gas 20
increases in 2016 and 2017? 21
1 Avista’s last general rate case filing was in 2012 (Case Nos. AVU-E-12-08 and AVU-G-12-07) in which a two-year rate plan was approved for 2013-2014. The Commission later approved a proposal by the parties to extend the rate plan, with no base rate increase, until January 1,
2016 in Case Nos. AVU-E-14-05 and AVU-G-14-01.
Morris, Di 4 Avista Corporation

A. The primary factor driving the Company’s 1
proposed electric and natural gas revenue increases in 2
2016 and 2017 is an increase in net plant investment. 3
Specific capital investments over the period 2015-2017 4
discussed by other Company witnesses include, among other 5
things, replacement of the Company’s Customer Information 6
System (Project Compass) described by Mr. Kensok, and 7
upgrades to certain major generating facilities, such as 8
the Nine Mile Rehabilitation project discussed by Mr. 9
Kinney. In 2016, these increased costs for investments 10
for electric operations are offset in part by a reduction 11
in net power supply and transmission expenditures. 12
However, for 2017 net power supply expenses 13
contribute significantly to the proposed incremental 14
revenue increase requested for 2017. Approximately 40% of 15
the 2017 proposed revenue increase is related to the 16
expiration of a capacity sales agreement with Portland 17
General Electric on December 31, 2016, increasing overall 18
net power supply costs. 19
Q. Please provide an overview of Avista’s 2016 and 20
2017 electric rate requests in this filing. 21
A. For 2016, Avista is proposing an overall 22
increase in electric base revenues of $13.230 million or 23
5.4%. On an overall billed basis, the increase is 5.2%. 24
Morris, Di 5 Avista Corporation
For 2017, Avista is proposing an overall increase in 1
electric base revenue of $13.713 million or 5.3%. On an 2
overall billed basis, the increase is 5.1%. 3
In addition, the Company is proposing that the 4
current refund rate (electric tariff Schedule 97) of 5
approximately $2.8 million (1.1%) that customers are 6
receiving in 2015, and which would otherwise expire on 7
December 31, 2015, be extended for 2016 and 2017 in order 8
to mitigate the overall rate increases. The rebate would 9
be extended through the use of the 2014 electric earnings 10
sharing deferral balance.2 11
The Company’s request is based on a proposed rate of 12
return of 7.62% with a common equity ratio of 50% and a 13
9.9% return on equity. Details of the changes in costs 14
related to the proposed revenue increase are summarized by 15
Company witness Ms. Andrews, and Mr. Ehrbar will provide 16
details of the proposed rate spread for each electric rate 17
schedule. A summary of the proposed increase by rate 18
schedule is shown in Table No. 1 for 2016, and in Table 19
No. 2 for 2017. 20
2 Further information related to the proposed rebate extension is
provided in Company witness Mr. Ehrbar’s direct testimony.
Morris, Di 6 Avista Corporation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
Q. What is Avista’s 2016 and 2017 natural gas rate 16
requests in this filing? 17
A. With regard to natural gas, the Company is 18
requesting an overall revenue increase in 2016 of $3.205 19
million, or 4.5% of total billed revenue.3 The Company is 20
currently providing to customers a refund rate (natural 21
3 Total billed revenue includes base margin revenue (the revenue associated with the Company’s ownership and operation of its natural gas distribution operations), as well as the cost of natural gas, upstream third-party owned transportation, and the effect of other
rate tariffs. The proposed increase in base margin is 8.8%.
Morris, Di 7 Avista Corporation
Table No. 1 - Proposed % Electric Increase by Schedule - 2016
Rate Schedule
Increase in Base
Rates
Increase in
Billing Rates
Residential Schedule 1 7.0%6.9%
General Service Schedules 11/12 3.7%3.5%
Large General Service Schedules 21/22 4.7%4.5%
Extra Large General Service Schedule 25 4.8%4.5%
Clearwater Paper Schedule 25P 2.8%2.6%
Pumping Service Schedules 31/32 5.5%5.2%
Street & Area Lights Schedules 41-48 6.3%6.1%
Overall 5.4%5.2%
Table No. 2 - Proposed % Electric Increase by Schedule - 2017
Rate Schedule
Increase in Base
Rates
Increase in
Billing Rates
Residential Schedule 1 6.8%6.7%
General Service Schedules 11/12 3.7%3.5%
Large General Service Schedules 21/22 4.7%4.5%
Extra Large General Service Schedule 25 4.7%4.5%
Clearwater Paper Schedule 25P 2.8%2.7%
Pumping Service Schedules 31/32 5.4%5.1%
Street & Area Lights Schedules 41-48 6.1%5.9%
Overall 5.3%5.1%

gas tariff Schedule 197) of approximately $1.2 million 1
(1.6%) in 2015. This rebate will expire on December 31, 2
2015. The Company is proposing to use the 2014 natural 3
gas earnings sharing deferral balance of $0.2 million to 4
partially offset the expiration of the existing rebate 5
rate.4 As a result, the proposed increase over present 6
billing rates, including the net effect of the new and 7
expiring natural gas rebates under Schedule 197, is 5.8%. 8
For 2017, the Company is requesting an overall 9
increase of $1.665 million, or 2.2% of total billed 10
revenue.5 The proposed increase over billing rates, 11
including the expiration of the Schedule 197 rebate that 12
would expire December 31, 2016, is 2.5%. 13
As with the electric increase, the Company’s request 14
is based on a proposed rate of return of 7.62% with a 15
common equity ratio of 50% and a 9.9% return on equity. 16
The proposed rate spread for each natural gas customer 17
class is shown in Table No. 3 for 2016, and in Table No. 4 18
for 2017:6 19
4 Further information related to the proposed rebate extension is provided in Mr. Ehrbar’s direct testimony. 5 The proposed increase in base margin is 4.2%. 6 The proposed billed percentage increase for Transportation Schedule 146 is not comparable to the proposed increases for the other (sales)
service schedules, as Schedule 146 revenue does not include an amount for the cost of natural gas or upstream pipeline transportation. Including an estimate of 45.0 cents per therm for the cost of natural
gas and pipeline transportation, the proposed increase to Schedule 146
Morris, Di 8 Avista Corporation

1
2
3
4
5
6
7
8
9
10
11
12
Q. Is the Company proposing any changes to the cost 13
of natural gas for its retail natural gas customers in this 14
case? 15
A. No, Avista is not proposing changes in this filing 16
related to the commodity cost of natural gas or upstream 17
pipeline transportation costs. Changes in the commodity 18
cost of natural gas and transportation costs included in 19
customers’ rates are addressed in the Company’s annual 20
Purchased Gas Cost Adjustment (PGA) filing. As of May 2015, 21
the Company estimates that, barring a major change in 22
rates represents an average increase of 1.0% in 2016, and 1.2% in
2017, in those customers’ total natural gas bill.
Morris, Di 9 Avista Corporation
Table No. 3 - Proposed % Natural Gas Increase by Schedule - 2016
Rate Schedule
Increase in Billing
Rates
Billing Increase
Net of New &
Expiring Rebate
General Service Schedule 101 5.3%6.5%
Large General Service Schedules 111/112 1.9%3.5%
Interrupt. Sales Service Schedules 131/132 3.4%5.5%
Transportation Service Schedule 146 6.6%4.5%
Overall 4.5%5.8%
Table No. 4 - Proposed % Natural Gas Increase by Schedule - 2017
Rate Schedule
Increase in Billing
Rates
Billing Increase
Net of Expiring
Rebate
General Service Schedule 101 2.6%2.9%
Large General Service Schedules 111/112 0.9%1.3%
Interrupt. Sales Service Schedules 131/132 1.5%2.0%
Transportation Service Schedule 146 3.4%5.4%
Overall 2.2%2.5%

commodity prices, the proposed PGA adjustment will be an 1
approximate 10% reduction effective November 1, 2015. 2
Q. Please summarize the Company’s proposal in this 3
filing for electric and natural gas Fixed Cost Adjustment 4
mechanisms. 5
A. As discussed by Mr. Ehrbar, Avista is proposing 6
electric and natural gas Fixed Cost Adjustment (FCA) 7
mechanisms. The proposed mechanisms would break the link 8
between kilowatt-hour and therm sales and revenues. The 9
mechanisms remove the disincentive to promote energy 10
efficiency as well as the incentive for the Company to 11
increase earnings by promoting energy usage. The FCA 12
mechanisms would also allow Avista to partner with customers 13
and other stakeholders to support new distributed generation 14
(DG) resources, without the additional DG resources having a 15
negative impact on the recovery of utility fixed costs. The 16
Company is proposing that these mechanisms become effective 17
January 1, 2016. 18
19
III. CONTEXT FOR RETAIL RATE CHANGES – 1889 to 2014 20
Q. Is the 125 year history of Avista’s retail rates 21
informative in relation to Avista’s proposed revenue 22
increases in this filing? 23
Morris, Di 10 Avista Corporation
A. Yes. During 2014 Avista celebrated its 125th 1
year anniversary, following its founding in Spokane in 2
1889. A review of historical data over this 125 year 3
period is very instructive regarding the retail price 4
changes Avista is seeking right now. The illustrations 5
below will show the changes over time from 1889 to 2014 6
for the following sets of data related to Avista’s 7
electric utility operations: 8
a. Net plant investment 9
b. Number of residential customers 10 c. Residential use-per-customer 11 d. Residential retail rate per kilowatt-hour (kWh) 12
The level of retail rates is influenced heavily by 13
changes in net plant investment over time, growth in the 14
number of customers, and changes in the use-per-customer. 15
These data, as presented in the line graphs below, 16
illustrate visually why Avista, as well as other 17
utilities, are now seeking retail rate increases on a more 18
frequent basis. These line graphs are also provided, and 19
are easier to view, in Exhibit No. 3. 20
Q. How has Avista’s net plant investment for its 21
electric operations changed from 1889 to 2014? 22
A. The line graph in Illustration No. 1 below shows 23
the growth in Avista’s net plant investment for its 24
electric operations from 1889 to 2014. The data have been 25
Morris, Di 11 Avista Corporation
presented in five-year increments for ease of viewing. 1
The blue line represents the growth in net plant 2
investment in nominal dollars, i.e., the true dollars that 3
were spent in the years they were spent. The red line 4
represents growth in net plant investment with the dollars 5
adjusted for inflation, i.e., the dollars each year were 6
adjusted to reflect the cost in today’s dollars (“real” 7
dollars) for the same plant and equipment. The nominal 8
dollars were adjusted to real dollars in order to see, and 9
better illustrate, the growth over time in net plant 10
investment, using comparable dollars. 11
12 Illustration No. 1 13
14
15
16
17
18
19
20
21
22
23
24
Morris, Di 12 Avista Corporation
$0
$1,000
$2,000
$3,000
$4,000
$5,000
$6,000
$7,000
$8,000
$9,000
(m
i
l
l
i
o
n
s
)
Net Plant Investment(nominal dollars)
Net Plant Investment(adjusted for inflation)
Avista Net Electric Plant Investment in Nominal & Real Dollars1889 -2014
The red line on the graph illustrates, among other 1
things, the rapid expansion of net plant investment during 2
the 1950s and early 1960s following World War II, where 3
net plant investment nearly doubled in a relative short 4
period of time. The red line also shows that net plant 5
investment in recent years has grown at a relatively rapid 6
pace. Part of Avista’s recent new plant investment is 7
related to replacing some of the plant and equipment from 8
the 1950s and 1960s, which is now 50 to 60 years old, and 9
the cost to replace those facilities is substantially 10
higher than the original cost of installation. 11
Recently, the Company replaced one of its generators 12
at the Little Falls Hydro plant. This generator has 13
provided power to Avista’s customers for over 100 years. 14
The first photograph in Illustration No. 2 below shows 15
half of the generator stator being delivered to the hydro 16
facility in June 1910. The second photo is of one of the 17
very same pieces of equipment being removed from the plant 18
in July 2014. 19
Morris, Di 13 Avista Corporation
Illustration No. 2 1
1910 2
3
4
5
6
7
8
9
10
2014 11
12
13
14
15
16
17
18
19
20
This is but one illustration of Avista’s aging 21
infrastructure. Company witness Mr. Thies and other 22
witnesses provide details related to current and planned 23
capital expenditures. 24
Morris, Di 14 Avista Corporation
Q. How has Avista’s number of customers and use-1
per-customer changed from 1889 to 2014? 2
A. The line graph in Illustration No. 3 below shows 3
the change over time in both the number of residential 4
customers (blue line) and the residential use-per-customer 5
(red line) for the period 1889 to 2014. The data, again, 6
are presented in five-year increments for ease of viewing. 7
Illustration No. 3 8
9
10
11
12
13
14
15
16
17
18
Among the observations from the line graph, two are 19
very significant and quite relevant to retail price 20
changes during the 125 year period. First, from the 1950s 21
through roughly 1980, there was steady growth in the 22
number of customers (blue line), which was also combined 23
with rapid growth in use-per-customer (red line). Second, 24
Morris, Di 15 Avista Corporation
beginning around 1980, the use-per-customer began to 1
decline dramatically. The decline in use-per-customer was 2
due in part to Avista’s energy efficiency programs that 3
began in 1978, as well as the regional and national 4
efforts generally to encourage consumers to use energy 5
more efficiently. The change from rapid growth in use-6
per-customer to a significant reduction in use-per-7
customer, beginning around 1980, had a direct impact on 8
Avista’s retail rates. 9
Q. What were Avista’s retail rates from 1889 to 10
2014, and how were they affected by the growth in net 11
plant investment, number of customers and use-per-12
customer? 13
A. The line graph in Illustration No. 4 below shows 14
Avista’s retail rate per kWh for its residential customers 15
(blue line) for the period 1889 to 2014. The red line on 16
the graph is the same use-per-customer line on the graph 17
in Illustration No. 3 above. The graph shows that 18
Avista’s retail rates were flat to declining for 19
approximately 50-60 years, up until about 1980 when they 20
began to rise. 21
Morris, Di 16 Avista Corporation
Illustration No. 4 1
2
3
4
5
6
7
8
9
10
11
The three graphs above, taken together, illustrate 12
the significance of the relationship over time of the rate 13
of growth in net plant investment, number of customers, 14
and use-per-customer. During the 1950s, for example, 15
there was rapid growth in net plant investment, but it was 16
accompanied by rapid growth in use-per-customer, combined 17
with steady growth in the number of customers. The net 18
result was retail prices that were either flat or 19
declining, due in large part to the annual growth in 20
revenues being sufficient to cover the annual growth in 21
costs. During the 1950s, Avista added new major baseload 22
generating resources (Cabinet Gorge in 1952, and Noxon 23
Rapids in 1959), and yet retail prices continued to be 24
Morris, Di 17 Avista Corporation
flat or declining, due primarily to the strong growth in 1
kWh sales. 2
In contrast, retail prices began to increase in 1980 3
due, at least in part, to the significant decline in use 4
per customer, which resulted in lower annual sales growth. 5
Avista’s annual customer growth, and total sales 6
growth, is currently approximately 1%, and it is expected 7
to continue at or near this level for the foreseeable 8
future. Net plant investment and operating expenses, 9
however, are growing at a faster pace. Avista’s 10
obligation to serve all customers with safe, reliable 11
service, and maintain a high level of customer 12
satisfaction, demands continued investment in facilities, 13
as well as utility operating expenses necessary to 14
accomplish these objectives. 15
Because annual costs are growing at a faster pace 16
than revenues, it is necessary to increase retail rates 17
each year so that total revenues are equal to total costs. 18
These are the circumstances facing not just Avista, but 19
many investor-owned and consumer-owned utilities across 20
the country, and it is the primary reason Avista has 21
requested electric and natural gas revenue increases 22
through this filing. 23
Morris, Di 18 Avista Corporation
Q. How does Avista’s growth in net plant investment 1
and operating expenses compare with the growth in sales, 2
both for the recent historical period as well as 3
expectations for future years? 4
A. The graph in Illustration No. 5 below shows 5
actual information for the period 2005 to 2014, and 6
forecast information for 2015 to 2018. 7
Illustration No. 5 8
9
10
11
12
13
14
15
16
17
18
The red line on the graph shows the actual growth in 19
net utility plant investment (electric and natural gas 20
combined) through 2014, and the expected growth for 2015 21
through 2018. The purple and blue lines on the graph show 22
the changes in retail kilowatt-hour (kWh) sales and retail 23
therm sales, respectively, for the same time period. The 24
Morris, Di 19 Avista Corporation
-20%
0%
20%
40%
60%
80%
100%
120%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Av
g
.

%

C
h
a
n
g
e

f
r
o
m

2
0
0
5

B
a
s
e
l
i
n
e
Utility Costs are Rising Faster than Sales
Net Plant Investment Non-Fuel O&M/A&G Retail kWh Sales Retail Therm Sales
Actual
Forecast
graph clearly shows that net plant investment is growing 1
at a much faster pace than sales. The green line on the 2
graph also shows that non-fuel operations and maintenance 3
(O&M) expenses and administrative and general (A&G) 4
expenses are growing at a faster pace than sales. 5
The graph shows this mismatch is forecast to continue 6
to the future. Therefore, retail rates must be increased 7
to cover this increase in net plant investment and 8
operating expenses, since revenue growth is not sufficient 9
to cover it. 10
11
IV. COST MANAGEMENT AND EFFICIENCIES 12
Q. Is Avista continuing to take steps to manage the 13
growth in its costs? 14
A. Yes. The graph in Illustration No. 5 above 15
shows the reduction in operating expenses in 2013 (green 16
line) related primarily to Avista’s Voluntary Severance 17
Incentive Plan (VSIP) executed in late 2012, which reduced 18
employee complement and reduced overall operating 19
expenses. The slope of the operating expense line for 20
future years is also lower, which reflects additional 21
measures taken by the Company to reduce the annual growth 22
in expenses. 23
Morris, Di 20 Avista Corporation
For example, we made changes to the retirement income 1
(pension) and post-retirement medical plans offered to 2
non-union employees, effective January 1, 2014. This 3
reduced future utility operating costs associated with 4
employee benefits. Changes to plans offered to the 5
bargaining unit employees will be subject to future 6
negotiations. 7
For non-union employees, Avista no longer offers a 8
pension plan for new hires beginning January 1, 2014. 9
Avista will make a contribution to a 401(K) fund 10
established for the employee, but no longer offers a 11
defined benefit pension plan that provides an annual 12
annuity upon retirement. 13
Beginning January 1, 2014, Avista no longer provides 14
funding for post-retirement medical for non-union new 15
hires. In addition, for both existing and new hire non-16
union employees, when the retiree reaches age 65, Avista 17
will no longer provide an Avista-sponsored medical plan. 18
Through these changes Avista is transitioning out of 19
funding medical coverage for retirees. 20
Avista also has ongoing measures to mitigate the 21
annual growth in operating expenses, such as a hiring 22
restriction. The hiring restriction requires approval by 23
the Chairman/President/CEO, the President of the Utility, 24
Morris, Di 21 Avista Corporation
the Chief Financial Officer, and the Sr. VP for Human 1
Resources for all replacement or new hire positions. 2
Q. How do Avista’s retail rates compare to other 3
utilities across the country? 4
A. Edison Electric Institute periodically prepares 5
a comparison of residential electric bills for investor-6
owned utilities across the country. Illustration No. 6 7
below provides a comparison of an Avista residential 8
customer’s monthly bill in Idaho and Washington with 9
utility bills in other states. The chart shows that 10
Avista’s residential customers’ rates are the lowest, or 11
are among the lowest, in the Country. 12
Morris, Di 22 Avista Corporation
Illustration No. 6 - Average Residential Monthly Electric Bill 1
January 1, 2015 2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
Morris, Di 23 Avista Corporation
Our relatively low retail rates are due in large part 1
to a history of our Company aggressively pursuing the 2
acquisition and preservation of a diversified portfolio of 3
low cost resources for the benefit of our customers. This 4
portfolio includes hydroelectric, wood-waste fired, gas-5
fired baseload, gas-fired peakers, and coal-fired 6
generation, together with long-term purchases of power and 7
an aggressive energy efficiency program. Our low rates are 8
also a result of Avista’s aggressive efforts to control its 9
costs in order to keep retail rates as low as reasonably 10
possible. 11
12
V. COMMUNICATIONS WITH CUSTOMERS 13
Q. How is Avista communicating with its customers 14
to explain what is driving increased costs for the 15
Company? 16
A. The Company proactively communicates with its 17
customers in a number of ways: customer forums, one-on-one 18
customer interactions through field personnel and account 19
representatives, bill inserts, social media, media 20
contacts, group presentations, and through our employees’ 21
involvement in community, business and civic 22
organizations, to name a few. The information provided to 23
customers through group presentations include, among other 24
Morris, Di 24 Avista Corporation
things, many of the line graphs, photos, and bar charts, 1
shown in Illustrations 1 through 6 above. 2
We believe our communications are helping our 3
customers and the communities we serve to better 4
understand the issues faced by the Company, such as 5
increased infrastructure investment, environmental 6
mitigation, and security; all of which have led to higher 7
costs for our customers. 8
Our employees provide excellent customer service, and 9
this focus on communicating with our customers includes 10
providing our employees messaging and new tools and 11
training to make it easier to have conversations about 12
Avista with friends, family and customers. We are finding 13
that once a customer talks with our employees, and voices 14
their concerns and receives answers to their questions, 15
their satisfaction level increases. 16
We are also continuing our focus on informing 17
customers of the many programs we offer to provide 18
assistance in managing their energy bills, and ensuring 19
that our employees are equipped to engage in these 20
conversations. 21
Morris, Di 25 Avista Corporation
VI. CUSTOMER SATISFACTION 1
Q. What kind of feedback are you receiving from 2
customers related to customer satisfaction? 3
A. While we continue to maintain tight controls on 4
O&M/A&G budgets, our customer service surveys indicate 5
that customer satisfaction remains high. Our overall 6
customer satisfaction from our voice-of-the-customer (VOC) 7
surveys in the fourth quarter of 2014 was 95% in our 8
Idaho, Washington and Oregon operating divisions. The 9
purpose of the VOC Survey is to measure and track customer 10
satisfaction for Avista Utilities’ “contact” customers – 11
i.e., customers who have contact with Avista through the 12
Contact Center and/or work performed through an Avista 13
construction office. This rating reflects a positive 14
experience for customers who have contacted Avista related 15
to the customer service or field service they received. 16
These results can be achieved only with very committed and 17
competent employees. 18
19
VII. CUSTOMER SUPPORT PROGRAMS 20
Q. Please summarize briefly the customer support 21
programs that Avista provides for its customers in Idaho. 22
A. Avista Utilities offers a number of programs for 23
its Idaho customers, such as energy efficiency programs, 24
Morris, Di 26 Avista Corporation
Project Share for emergency assistance to customers, the 1
Customer Assistance Referral and Evaluation Service 2
(CARES) program, level pay plans, and payment 3
arrangements. Some of these programs will serve to 4
mitigate the impact on customers of the proposed rate 5
increases. 6
In the 2013/2014 heating season, 11,331 Idaho 7
customers received approximately $2,056,467 in various 8
forms of energy assistance (Federal LIHEAP program, 9
Project Share, and local community funds). Some of the 10
key programs that we offer or support are as follows: 11
12 1. Project Share. Project Share is a voluntary 13
program allowing customers to donate funds that are 14 distributed through community action agencies to 15 customers in need. In the 2013/2014 heating season, 16
Avista Utilities’ customers, employees and Avista 17 Corp donated $494,313 on a system-wide basis, of 18
which $76,441 was directed to Idaho Community 19 Action Agencies. 20 21 2. Comfort Level Billing. The Company offers the 22
option for all customers to pay the same bill 23
amount each month of the year by averaging their 24 annual usage. Under this program, customers can 25 avoid unpredictable winter heating bills. 26 27 3. CARES Program. CARES provides assistance to 28
special-needs customers through access to specially 29 trained (CARES) representatives who provide 30 referrals to area agencies and churches for help 31
with, among other things, housing, utilities, and 32 medical assistance. 33
34
Morris, Di 27 Avista Corporation
These programs and the partnerships we have formed 1
with community action agencies have been invaluable to 2
customers who often have nowhere else to go for help. 3
Company witness Mr. Kopczynski provides additional detail 4
in his testimony related to these and other programs 5
designed to assist customers. 6
7
VIII. OTHER COMPANY WITNESSES 8
Q. Would you please provide a brief summary of the 9
testimony of the other witnesses representing Avista in 10
this proceeding? 11
A. Yes. The following additional witnesses are 12
presenting direct testimony on behalf of Avista: 13
Mr. Mark Thies, Senior Vice President and Chief 14
Financial Officer, will provide a financial overview of 15
the Company and will explain the proposed capital 16
structure, overall rate of return, and Avista’s credit 17
ratings. He will also discuss, among other things, the 18
Company’s capital expenditures program. In brief, he will 19
provide information that shows: 20
• Avista’s plans call for making significant utility 21 capital investments in our electric and natural gas 22
systems to preserve and enhance service reliability 23 for our customers, including the continued 24
replacement of aging infrastructure. Capital 25 expenditures of $1.08 billion are planned for 2015-26 2017. Avista needs adequate cash flow from 27
Morris, Di 28 Avista Corporation
operations to fund these requirements, together 1 with access to capital from external sources under 2
reasonable terms, on a sustainable basis. 3
• We are proposing an overall rate of return of 7.62 4 percent, which includes a 50.0 percent common 5
equity ratio, a 9.9 percent return on equity, and a 6 cost of debt of 5.34 percent. We believe our 7
proposed overall rate of return of 7.62 percent and 8 proposed capital structure provide a reasonable 9 balance between safety and economy. 10
• Avista’s corporate credit rating from Standard & 11 Poor’s is currently BBB and Baa1 from Moody’s 12 Investors Service. Avista must operate at a level 13 that will support a solid investment grade 14 corporate credit rating in order to access capital 15
markets at reasonable rates. A supportive 16 regulatory environment is an important 17
consideration by the rating agencies when reviewing 18 Avista. Maintaining solid credit metrics and 19 credit ratings will also help support a stock price 20
necessary to issue equity under reasonable terms to 21 fund capital requirements. 22
• Avista completed two significant business unit 23 transactions in 2014: the sale of Ecova and the 24 acquisition of Alaska Electric Light and Power 25
utility operations. These transactions are 26 supportive to our business profile and their 27
financial impacts have positively complemented our 28 ongoing financial structure and operations. 29
30
Mr. Adrien McKenzie, as Vice President of Financial 31
Concepts and Applications (FINCAP), Inc., has been 32
retained to present testimony with respect to the 33
Company’s cost of common equity. He concludes that: 34
• In order to reflect the risks and prospects 35 associated with Avista’s jurisdictional utility 36
operations, his analyses focused on a proxy group 37
Morris, Di 29 Avista Corporation
of 19 other utilities with comparable investment 1 risks. 2
• Because investors’ required return on equity is 3 unobservable and no single method should be viewed 4 in isolation, he applied the DCF, ECAPM, and risk 5
premium methods to estimate a fair ROE for Avista; 6
• Based on the results of these analyses, and giving 7
less weight to extremes at the high and low ends of 8 the range, he concluded that the cost of equity for 9 the proxy group of utilities is in the 9.4 percent 10
to 10.8 percent range, or 9.5 percent to 10.9 11 percent after incorporating an adjustment to 12 account for the impact of common equity flotation 13 costs; and, 14
• As reflected in the testimony of Mark T. Thies, 15
Avista is requesting a fair ROE of 9.9 percent, 16 which falls below the 10.2 percent midpoint of his 17
recommended range. Considering capital market 18 expectations, the exposures faced by Avista, and 19 the economic requirements necessary to maintain 20
financial integrity and support additional capital 21 investment even under adverse circumstances, it is 22 his opinion that 9.9 percent represents a 23 conservative ROE for Avista. 24
25
Mr. Scott Kinney, Director of Power Supply, will 26
provide an overview of Avista’s resource planning and 27
power supply operations. This includes summaries of the 28
Company’s generation resources, the current and future 29
load and resource position, and future resource plans. As 30
part of an overview of the Company’s risk management 31
policy, he will provide an update on the Company’s hedging 32
practices. Mr. Kinney will address hydroelectric and 33
thermal project upgrades, followed by an update on recent 34
developments regarding hydro licensing. 35
Morris, Di 30 Avista Corporation
Mr. Clint Kalich, Manager of Resource Planning & 1
Power Supply Analyses, will describe the Company’s use of 2
the AURORAXMP dispatch model, or “Dispatch Model.” He will 3
explain the key assumptions driving the Dispatch Model’s 4
market forecast of electricity prices. The discussion 5
includes the variables of natural gas, Western 6
Interconnect loads and resources, and hydroelectric 7
conditions. Further, he will describe how the model 8
dispatches its resources and contracts to maximize 9
customer benefit and tracks their values for use in pro 10
forma calculations. Finally, Mr. Kalich will present the 11
modeling results provided to Company witness Mr. Johnson 12
for his power supply pro forma adjustment calculations. 13
Mr. William Johnson, Wholesale Marketing Manager, 14
will: 1) identify and explain the proposed normalizing and 15
pro forma adjustments (2016 and 2017) to the January 2014 16
through December 2014 test period power supply revenues 17
and expenses; and 2) describe the proposed level of 18
expense and load change adjustment rate (LCAR) for Power 19
Cost Adjustment (PCA) purposes, using the pro forma costs 20
proposed by the Company in this filing. 21
Ms. Jody Morehouse, Director of Gas Supply, will 22
describe Avista’s natural gas resource planning process, 23
provide an overview of the Jackson Prairie storage 24
Morris, Di 31 Avista Corporation
facility, and provide an update on the Company’s 2014 1
Natural Gas Integrated Resource Plan. 2
Mr. Don Kopczynski, Vice President of Energy 3
Delivery, will provide an overview of the Company’s 4
electric and natural gas energy delivery facilities, a 5
summary of Avista’s customer support programs in Idaho and 6
an update on our continuing Natural Gas Pipeline 7
Replacement Program. 8
Mr. Bryan Cox, Director, Transmission Operations, 9
describes Avista’s transmission revenues and expenses for 10
the 2016 and 2017 two-year rate plan. Mr. Cox will also 11
discuss Avista’s transmission and distribution capital 12
expenditures, for the period January 2015 through the 2017 13
rate year. 14
Mr. Jim Kensok, Vice President and Chief Information 15
and Security Officer, will describe the costs associated 16
with Avista’s Information Service/Information Technology 17
(IS/IT) programs and projects. These costs include the 18
capital investments for a range of systems used by the 19
Company, including the replacement of the Company’s legacy 20
Customer Information and Work and Asset Management System 21
(“Project Compass”), Avistautilities.com WEB replacement, 22
and several more important applications. He will also 23
describe the additional IS/IT expenses required to support 24
Morris, Di 32 Avista Corporation
a range of new and updated applications and systems for 1
cyber security, the operation of the new Customer 2
Information and Work and Asset Management Systems, the 3
Asset Facilities Management application, etc. 4
Ms. Karen Schuh, Senior Regulatory Analyst, will 5
cover Avista’s planned capital investments in utility 6
plant through December 31, 2017. Company witness Ms. 7
Andrews, has included adjustments to reflect these 8
investments in her electric and natural gas revenue 9
requirements for the 2016 and 2017 two-year rate plan. 10
Ms. Elizabeth Andrews, Manager of Revenue 11
Requirements, will cover accounting and financial data in 12
support of the Company's two-year rate plan and the need 13
for the proposed increase in rates for both 2016 and 2017. 14
She will explain pro formed operating results, including 15
expense and rate base adjustments made to actual operating 16
results and rate base. In addition, Ms. Andrews 17
incorporates the Idaho share of the proposed adjustments 18
of other witnesses in this case. 19
Ms. Tara Knox, Senior Regulatory Analyst, will cover 20
the Company’s electric revenue normalization adjustment to 21
the test year results of operations, the proposed Load 22
Change Adjustment Rate to be used in the Power Cost 23
Morris, Di 33 Avista Corporation
Adjustment mechanism, and the electric cost of service 1
study performed for this proceeding. 2
Mr. Joseph Miller, Senior Regulatory Analyst, will 3
cover the Company’s natural gas revenue normalization 4
adjustments and cost of service study performed for this 5
proceeding. 6
Mr. Patrick Ehrbar, Manager of Rates and Tariffs, 7
discusses the spread of the proposed 2016 and 2017 8
electric and natural gas revenue increases among the 9
Company’s electric and natural gas general service 10
schedules. In addition, he will provide information 11
related to the proposed increases to the residential basic 12
charges, and provide an overview of the Company’s proposed 13
electric and natural gas Fixed Cost Adjustment mechanisms. 14
Q. Does this conclude your pre-filed direct 15
testimony? 16
A. Yes. 17
Morris, Di 34 Avista Corporation