20151218final_order_no_33437.pdf

Office of the Secretary
Service Date
December 18,2015
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF AVISTA CORPORATION DBA AVISTA )CASE NOS.AVU-E-15-05
UTILITIES FOR AUTHORITY TO )AVU-G-15-O1
INCREASE ITS RATES AND CHARGES FOR )
ELECTRIC AND NATURAL GAS SERVICE )ORDER NO.33437
IN IDAHO )
On June 1,2015,Avista Corporation dba Avista Utilities applied to increase its
general rates for electric and natural gas service.The Company proposed to increase both its
electric and gas rates in each year over a two-year period.If approved,electric billed revenues
would increase by $13.2 million (5.2%)on January 1,2016,and by $13.7 million (5.1%)on
January 1,2017.The Company’s proposal would also increase natural gas billed revenues by
$3.2 million (4.5%)on January 1,2016,and by $1.7 million (2.2%)on January 1,2017.As part
of its Application,the Company also proposed to implement an electric and natural gas fixed
cost adjustment (FCA),a normal rate adjustment mechanism designed to break the link between
Avista’s revenues from energy sales and its customers’energy usage.
On June 15,2015,the Commission issued its Notice of Application,suspended the
proposed effective date,1 and set a deadline for intervention.The following parties petitioned to
intervene and were granted intervention:Clearwater Paper Corporation;Idaho Forest Group;
Community Action Partnership Association of Idaho (CAPAI);Idaho Conservation League
(ICL);and Snake River Alliance (SRA).On August 6,2015,the Commission issued a
scheduling Order,which set public workshops in Moscow and Coeur d’Alene;set a settlement
conference;and scheduled a technical hearing for November 23-24,2015.See Order Nos.
33324,33353.
On October 19,2015,the Company and Staff notified the Commission that all parties
agreed to settle the rate case and requested that the Commission approve the parties’Stipulation
and Settlement.As part of the proposed settlement,Avista agreed to a reduced increase in its
electric revenues from $13.2 million (5.2%)to $1.7 million (0.69%)and a reduced increase in its
natural gas revenues from $3.2 million (4.5%)to $2.5 million (3.49%).The settlement does not
Avista requested that the rate increase become effective on July 3,2015.However,the Company previously agreed
to,and the Commission approved,a voluntary “rate freeze”that prohibited any increase in Avista’s base rates until
January 1,2016,at the earliest.See Order No.33130.
ORDER NO.33437
address a second year increase in 2017.In other words,the settlement reflects a significant
reduction in the Company’s revenue requirement.On October 20,2015,the Commission issued
a Notice of Proposed Settlement and requested comments on the proposed settlement.The
Commission convened a telephonic customer hearing and a technical hearing in Boise on
November 23,2015.
Having thoroughly reviewed the Application,the proposed settlement,public
comments and the testimony of the parties,we approve the settlement as set out in greater detail
below.
THE INITIAL APPLICATION
Avista is a public utility engaged in the generation,transmission and distribution of
electricity and natural gas.Avista’s service area includes eastern Washington,northern Idaho,
and parts of southern and eastern Oregon.Avista’s existing base rates and charges for electric
and natural gas services were approved by the Commission on March 27,2013,and took effect
in October 2013.Order No.32769.
In its Application,Avista claimed its existing rates are not fair,just,and reasonable,
and that it must increase them so it can earn a fair return on its investment.Avista notified its
customers about the proposed rate increases by distributing bill stuffers during the June 2015
billing cycle,and through news releases.
Avista maintained that it needs to increase its rates primarily to cover an increase in
net plant investment (including return on investment,depreciation and taxes,and offset by the
tax benefit of interest),and the December 31,2016,expiration of an existing capacity sales
agreement that will increase net power expenses.Application at 3.
Avista requested an overall rate of return of 7.62%,which includes a 50%common
equity ratio,a 9.9%return on equity,and a 5.34%cost of debt.Avista asserted that the proposed
rate of return and capital structure reasonably balance safety and economy.Id.at 7.Avista’s
requested rate increases are based on a 12-month test year ending December 31,2014.Id.at 4.
The initially-proposed rate increases are described below.
A.Electric Service
If Avista’s Application were approved,a residential electric customer using an
average of 929 kilowatt hours (kWh)per month could expect to see a bill increase of $5.92 per
month in 2016,which includes an increase in the basic monthly charge from $5.25 to $8.50.For
ORDER NO.33437 2
2017,the same customer could expect an average increase in his monthly electric bill of $6.10.
The proposed electric rate increase for particular customer classes/schedules is as follows:
Proposed Electric Increase
Proposed 2016 Proposed 2017
Service Schedule Billing Increase Billing Increase
Residential Service Schedule 1 6.9%6.7%
General Service Schedules 1 1 &12 3.5%3.5%
Large General Service Schedules 21 &22 4.5%4.5%
Extra Large General Service Schedule 25 4.5%4.5%
Extra Large General Service Schedule 25P 2.6%2.7%
Overall Annual Increase 5.2%5.1%
B.Gas Service
If Avista’s initial Application were approved,a residential natural gas customer using
an average of 61 therms per month could expect to see a monthly bill increase of $3.90 in 2016,
which includes an increase in the monthly service charge from $4.25 to $8.00.For 2017,the
same customer could expect an average increase of $1.79 per month.The proposed increase in
natural gas rates for particular customer classes/schedules is as follows:
Proposed Natural Gas Increase
Proposed 2016 Proposed 2017
Service Schedule Billing Increase Billing Increase
General Service Schedule 101 6.5%2.9%
Large General Service Schedule 1 11 &112 3.5%1.3%
Interruptible Sales Service Schedules 131 &132 5.5%2.0%
Transportation Service Schedule 146 4.5%5.4%
(excluding natural gas costs)
Overall Annual Increase 5.8%2.5%
C.Fixed Cost Adjustment
Besides the requested base rate increases,Avista also proposes to implement electric
and natural gas fixed cost adjustment (FCA)mechanisms.The FCA is a rate adjustment
mechanism that is designed to break the link between the amount of energy a utility sells and the
revenue it collects to recover the fixed costs2 of providing service to customers designed to break
the link between a utility’s revenues and a consumer’s energy usage.The FCA redefines
2 For example,infrastructure and customer service are largely fixed,whereas commodity costs are variable.
ORDER NO.33437 3
allowed revenue to remove the incentive to utilities to increase sales as a means of increasing
revenue and profits.
Under the proposed FCA mechanism,the Company’s revenues would adjust each
month to reflect revenues based on number of customers,rather than the sale of kilowatt hours
and therms.According to Avista,the difference between revenues based on sales and revenues
based on the number of customers will result in either surcharges or rebates to customers the
following year.
THE PROPOSED SETTLEMENT
After the Company filed its Application,all the parties engaged in settlement
negotiations that resulted in a proposed settlement.The terms of the proposed settlement are
supported by all parties to the case,and would fully resolve all the issues in this case.The
parties agreed that Avista’s requested increase in its electric revenues should be reduced to $1.7
million (0.69%)for 2016,and the increase in its natural gas revenues be reduced to $2.5 million
(3.49%)for 2016.They agreed further that the new settled rates will not go into effect until
January 1,2016.The settlement does not address any increases in 2017.This compares to
Avista’s original request to increase rates by $13.2 million (5.2%)and $3.2 million (4.5%)for
electric and gas service,respectively,in 2016;and by an additional $13.7 million (5.1%)and
$1.7 million (2.2%)for electric and gas service,respectively,in 2017.See Stipulation and
Settlement for a complete list of adjustments.
A.Cost of Capita!
The parties agreed to a 9.5%return on equity and the following capital structure and
rate of return:
Capital Pro Forma Pro Forma
Component Structure Cost Weighted Cost
Total Debt 50.00%5.34%2.67%
Common Equity 50.00%9.50%4.75%
Total 100.00%7.42%
The terms of the settlement reflect a reduction in Avista’s return on equity of $2.438 million for
electric,and $415,000 for natural gas.Settlement at 4,8.
ORDER NO.33437 4
B.Settled Increase by Service Schedule
The following tables reflect the agreed upon percentage increase by schedule for
electric and natural gas service:
Electric Increase
Net Increase in
Rate Schedule Billing Rates
Residential Schedule 1 0.9%
General Service Schedule 1 1/12 0.5%
Large General Service Schedule 2 1/22 0.6%
Extra Large General Service Schedule 25 0.6%
Clearwater Paper Schedule 25P 0.4%
Pumping Service Schedule 3 1/21 0.7%
Street &Area Lights Schedules 0.8%
Overall 0.7%
Natural Gas Increase
Net Increase in
Rate Schedule Billing Rates
General Service Schedule 101 4.1%
Large General Service Schedule 1 1 1/1 12 1.5%
Interruptible Sales Service Schedule 13 1/132 2.7%
Transportation Service Schedule 146 5.2%
Overall 3.5%
C.Fixed Cost Adjustment
The Stipulation also includes implementation of a revenue-per-customer fixed cost
adjustment (“FCA”)mechanism for electric and natural gas operations for an initial term of three
years with a collaborative review at the end of the second full year.The FCA will compare
actual FCA revenues to allowed FCA revenues determined on a per-customer basis,with any
differences deferred for later rebate or surcharge.
Customers in the FCA will be segmented into two rate groups (residential and
commercial).3 FCA surcharges cannot exceed a 3%annual rate adjustment;any unrecovered
balances will be carried forward to future years;FCA balances will accrue interest at the
customer rate for deposit (see Utility Customer Relations Rule 106,IDAPA 31.21.01.106);and
there is no limit on the level of the FCA rebate.
“Commercial”electric customers are in rate Schedules 11,12,21,22,31 and 32;commercial gas customers are in
rate Schedules 111 and 112.
ORDER NO.33437 5
D.Other Settlement Provisions
1.Cost-of-Service.After conducting cost-of-service studies for both electric and
natural gas customers,Avista proposed moving electric customers 25%toward cost-of-service,
and gas customers 33%toward cost-of-service.Based on the presented data,none of the
participating parties found the Company’s proposal objectionable,and thus the parties agreed to
the incremental move for cost-of-service.For settlement purposes,the parties agreed to use a
pro rata allocation of the Company’s electric and natural gas rate spread percentages based on its
proposed moves towards unity.Settlement at 13.
2.Rate Design.For settlement purposes,the parties agreed that the revenue
requirement for each electric and natural gas service schedule would be applied as a uniform
percentage increase to each rate.The parties further agreed that there would be no change to the
electric monthly basic service charge for residential electric customers,and the natural gas
monthly basic service charge for Schedule 101 gas customers would increase by $1.00 per
month,from $4.25 to $5.25.Settlement at 13-14.
3.Rebates.The proposed settlement specifies that the current $2.8 million annual
electric rebate for Schedule 97 customers will continue through December 31,2017,by using
$5.6 million in 2014 revenue sharing.Further,the settlement agreement specifies that $0.2
million in 2014 revenue sharing will be used to partially offset the expiration of the $1.2 million
rebate for natural gas customers on January 1,2016.Id.at 14-15.
4.Low-Income Issues.Under the proposed settlement,Avista has agreed to meet
and confer with interested parties prior to the Company’s next general rate case,with an initial
meeting to take place no later than June 30,2016,to better identify the usage patterns of low-
income customers.The parties agreed further to assess the feasibility and performance of the
Company’s Low Income Weatherization and Low Income Energy Conservation Education
Programs and discuss funding of those programs in the future.Id.at 15-16.
COMMENTS AND SETTLEMENT TESTIMONY
A.Public Comments
After the initial Application was filed,the Commission received approximately 60
customer comments regarding the proposed increase in Avista’s electric and gas rates.The vast
majority of these comments were from residential customers who intensely oppose any increase
ORDER NO.33437 6
in rates.Additionally,a few customers expressed concern that the fixed cost adjustment
mechanism would merely shift an additional financial burden onto customers.
Notably,the Commission received a comment from an Avista customer expressing
dissatisfaction with Avista’s initial rate increase in light of a news report that a local hospital was
awarded a grant from the Avista Foundation.The customer apparently presumed the rate
increase would support things like the grant program as well as the Company’s stock price.4
Following notice of the proposed settlement,the Commission received only one
customer comment expressing support generally for the settlement,but opposing the
implementation of the FCA.No customers testified during the telephonic customer hearing on
November 23,2015.
B.The Company
The Company’s witnesses testified that the settlement is in the public interest and a
fair,just and reasonable compromise of the parties’positions.Tr.at 8.The Company notes that
the settlement is “the end result of extensive audit work conducted through the discovery
process,including various on-site audit visits by Commission Staff,and hard bargaining by all
Parties in this proceeding.”Id.
Company witness Elizabeth Andrews explained that the settlement is in the public
interest for several reasons.First,the settlement is the product of the give-and-take of
negotiation that produced a just and reasonable end result.Second,it is supported by evidence
demonstrating the need for rate adjustments to provide recovery of necessary expenditures and
investment,the costs of which are not offset by a growth in sales margins.Finally,she pointed
out that the settlement enjoys broad-based support from the variety of constituencies represented
in this case.Tr.at 9.
C.CAPAl
CAPAI unconditionally supported and joined in the settlement.Tr.at 99.CAPAI’s
witness Christina Zamora testified that Avista’s original proposal was objectionable because it
included a significantly higher revenue requirement,phased-in over two years.CAPAT
supported the settlement because of the significant reduction in the revenue requirement.Ms.
The Commission notes that the Avista Foundation is a separate,non-profit organization established by Avista
Corp.The foundation does not receive funding from Avista Utilities ratepayers.Furthermore,Avista is not seeking
nor receiving recovery for donations,grants,or company stock.
ORDER NO.33437 7
Zamora also noted that the 3%cap on a FCA surcharge will “help to avoid rate shock in any
given year.”Tr.at 104.
She explained that CAPAI participated fully throughout the entirety of this case and
in all settlement negotiations.At the conclusion of negotiations,CAPAT determined that the
settlement is in the best interests of Avista’s low-income ratepayers and all ratepayers in general.
Tr.at 99.
D.Commission Staff
Staff witness Randy Lobb testified that Staff only agreed to the settlement after a
comprehensive review of “the Company’s application,thorough audit of the Company books and
records and extensive negotiation with parties to the case....“Tr.at 58.Staff identified 23
adjustments to the Company’s requested electric revenue requirements and 16 adjustments on the
gas side.Tr.at 67.
In addition to an overall reduction in return on common equity,Mr.Lobb explained
that Staff focused on adjusting three general categories:(1)eliminate test year pro forma expense
and investment beyond December 31,2015;(2)modify miscellaneous test year expenses;and (3)
lengthen amortization periods for deferred accounts.Tr.at 61.
Mr.Lobb pointed out that the Company had originally proposed a return on common
equity of 9.9%while the settlement specifies a return of 9.5%.Staff reasoned that the lower
return is within a reasonable range for Avista’s financial situation and represents a reasonable
compromise here.Thus,through settlement,the return on equity adjustment reduced electric
revenue requirement by $2.44 million and natural gas revenue requirement by $415,000.He also
stated that “limiting test year pro forma expense and investment to December 31,2015,better
reflects known and measurable costs actually incurred by the Company and is consistent with
[Commission Order No,30772j.”Tr.at 71.Staff accepted the stipulated rate design which is
aimed at moving all customer classes closer to their actual cost-of-service.Further,he insisted
that Staff supported implementation of the proposed FCA mechanism,stating,“[i]f the Company
successfully encourages lower energy and gas consumption,Staff believes the FCA will
undoubtedly save customers money in the long run by deferring or eliminating capital costs that
might otherwise be required to serve growing load.”Tr.at 88.
Throughout the settlement,he maintained that Staff strove to “achieve an outcome
that is better for customers than what otherwise could be achieved through a litigated case.”Tr.
ORDER NO.33437 8
at 67.Based upon Staff’s thorough investigation and analysis,he testified that the proposed
settlement is fair,just,and reasonable and in the public interest.Consequently,Staff
recommended the Commission should approve the settlement.
DISCUSSION AND FINDINGS
A.Standard ofReview
The Commission’s process for considering settlement stipulations is set forth in
Procedural Rules 271-277.IDAPA 31.01.01.271-277.When a settlement is presented to the
Commission,the Commission will prescribe the procedures appropriate to the nature of the
settlement to consider it.In this case,the Commission accepted testimony in support of the
settlement and convened both a technical hearing and public customer hearing on the Settlement.
IDAPA 3 1.01.01.274.The purpose of an evidentiary hearing on a settlement is “to consider the
reasonableness of the settlement and whether acceptance of the settlement is just,fair,and
reasonable,in the public interest,or otherwise in accordance with law or regulatory policy.”
IDAPA 3 1.01.01.274 and .275.Finally,the Commission is not bound by settlement agreements.
Instead,the Commission “will independently review any settlement proposed to it to determine
whether the settlement is just,fair and reasonable,in the public interest,or otherwise in
accordance with law or regulatory policy.”IDAPA 31.01.01.276.
B.The Proposed Settlement
At the outset,we note that the parties to this case represent a wide variety of
customers interests and that all parties have testified or otherwise represented that the settlement
is a reasonable compromise of disputed issues,and that the Commission should approve it in the
public interest.Based upon our thorough review,we find the settlement is fair,just and
reasonable.
The Company initially applied to increase revenue from electric and natural gas
service by $13.2 million and $3.2 million in 2016,and sought an additional $13.7 million and
$1.7 million in 2017.The Company also filed supporting testimony to justify these initial
requests.Commission Staff reviewed the Application and identified a number of adjustments.
Staff acknowledged that it might not have prevailed on some of the identified adjustments if the
matter had proceeded to a full hearing.Under the settlement,Avista will recover much smaller
amounts,$1.7 million in additional annual electric revenue,and $2.5 million in additional annual
ORDER NO.33437 9
natural gas revenue.Put another way,the settlement represents a significant reduction in
Avista’s requested revenue increase.
The Company submits that its existing rates are insufficient to recover costs and
expenses.We find that the stipulated $1.7 million in additional annual electric revenue,and $2.5
million in additional annual natural gas revenue will provide adequate recovery for the Company
without unreasonably burdening the utility’s customers.Consequently,we find the stipulated
revenue increase to be just,fair and reasonable.See Idaho Code §6 1-622.We further find that
the parties’compromises regarding cost of service and rate design are fair and reasonable.
The parties have also agreed upon a three-year FCA pilot for electric and natural gas
operations.The FCA will compare actual FCA revenues to allowed FCA revenues determined
on a per-customer basis.Any differences will be deferred for a rebate or surcharge.There are a
number of customer safeguards,including that an FCA surcharge cannot exceed a 3%annual
rate adjustment.Any unrecovered balances will be carried forward to recover in future years.
Further,there is no limit to the level of the FCA rebate.As part of the Stipulation,Staff and
other interested parties,will review the efficacy of the FCA after its second full year to ensure it
is functioning as intended.Fixed cost adjustment mechanisms are intended to encourage
conservation,and allow customers more control over their bills.Further,the proposed FCA will
remove any financial disincentive of the Company to encourage energy conservation.
Accordingly,on the record in this case,we find the terms of the settlement to be just,
fair,and reasonable.The settlement represents a reasonable compromise of the positions held by
the parties and reflects a significant reduction in the requested revenue increase.We thus find it
is in the public interest.See IDAPA 3 1.01.01.274-276.
The Commission appreciates the parties’work on the settlement,and their ability to
resolve all of the issues in this case.
INTERVENOR FUNDING
On December 7,2015,CAPAI timely filed a Petition for Intervenor Funding,seeking
an award of $7,072.15.See CAPAT’s Petition for Intervenor Funding.Intervenor funding is
available under Idaho Code §61-61 7A,which declares it is the “policy of [Idaho]to encourage
participation at all stages of all proceedings before this Commission so that all affected
customers receive full and fair representation in those proceedings.”The statute empowers the
Commission to order any regulated utility with intrastate annual revenues exceeding $3.5 million
ORDER NO.33437 10
to pay all or a portion of the costs of one or more parties for legal fees,witness fees and
reproduction costs not to exceed a total for all intervening parties combined of $40,000.Id.The
Commission must consider the following factors when deciding whether to award intervenor
funding:
(a)A finding that the participation of the intervenor has materially contributed
to the decision rendered by the Commission;
(b)A finding that the costs of intervention are reasonable in amount and
would be a significant financial hardship for the intervenor;
(c)The recommendation made by the intervenor differed materially from the
testimony and exhibits of the Commission Staff;and
(d)The testimony and participation of the intervenor addressed issues of
concern to the general body of users or consumers.
Idaho Code §61-6l7A(2).To obtain an intervenor funding award,an intervenor must comply
with Commission Rules of Procedure 161 through 165.Rule 162 provides the form and content
for the petition.IDAPA 31.01.01.162.
Commission Findings:We find that CAPAI’s Petition satisfies the intervenor
funding requirements.CAPAT intervened and participated in all aspects of the proceeding,with
a focus on residential rate design issues,with an underlying focus on low-income customers.
CAPAT’s Petition shows that it worked closely with Avista throughout the process both formally
and informally.CAPAI notes that the Company has agreed to meet with CAPAI,Staff and all
other interested parties no later than June 2016,to discuss means by which to obtain better low-
income data including identifying an accurate methodology to identify the Company’s low-
income customer base,and consumption tendencies of those customers.CAPAI further notes
that the Company has agreed to re-assess its Low Income Weatherization Assistance and Low
Income Conservation Education programs,how to maximize their cost-effectiveness and what
appropriate future funding levels could be reasonably justified.
The Commission further finds that CAPAI has materially contributed to the
Commission’s decision.CAPAI’s recommendation materially differs from Staff’s testimony and
exhibits,and CAPAT’S participation addressed issues of concern to the general body of
customers.Finally,we find the costs and fees incurred by CAPAT are reasonable in amount,and
that CAPAI,as a non-profit organization,would suffer financial hardship if the request is not
ORDER NO.33437 11
approved.Accordingly,we approve an award of intervenor funding to CAPAI in the amount of
S7,072.15.This amount will be recovered from Avista residential electric and natural gas
customers.
ORDER
IT IS HEREBY ORDERED that the parties’Motion to Accept the Stipulation and
Settlement is approved.
IT IS FURTHER ORDERED that the proposed electrical and natural gas tariff
schedules,attached to the Stipulation,are approved as filed,effective January 1,2016.
IT IS FURTHER ORDERED that CAPAI’s Petition for Intervenor Funding is
granted in the amount of $7,072.15.
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 §6 1-626.
ORDER NO.33437 12
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this /
day of December 2015.
PAUL KiLLAN ,PRESIDENT
ATTEST:
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J D.Jewell
Cmmission Se’éretary
O:AVU-E-15-05_AVU-G-1 5-O1_bk2
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MARSHA H.SMITH,COMMISSIONER
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KRIST1NE RAPER,COMMISSIONER
ORDER O.33437 13