20150915Comments.pdf

BRANDON KARPEN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-00]4
(208) 334-03s7
IDAHO BAR NO. 7956
Street Address for Express Mail:
472W, WASHINGTON
BOISE, IDAHO 83702-5918
Attomey for the Commission Staff
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION FOR AUTHORITY
TO AMEND ITS ANNUAL POWER COST
ADJUSTMENT (PCA) RATES.
rr"' 4. l. Il, .'l l
BEFORE THE TDAHO PUBLIC UTILITIES COMMISSION
CASE NO. AVU.E-15.07
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Brandon Karpen, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 33368 on August 26,2015,in
Case No. AVU-E-15-07, submits the following comments.
OVERVIEW OF COMPANY APPLICATION
On July 31,2015, Avista Corporation dba Avista Utilities filed its annual Power Cost
Adjustment (PCA) Application. The Company states that annual net power costs for the period
July l, 2014 through June 30, 2015, are approximately $1.203 million lower than net power
supply cost included in base rates. The Company, therefore, requests that the Commission
approve a rebate rate to customers of 0.032(, per kilowatt-hour (kwh) to be effective October 1,
2015. When this rebate is combined with expiration of the existing surcharge of 0.252(,lkw,
customers will see a total rate reduction of 0.284/,lkw or 3.5o/o.
Avista's PCA mechanism is used to track changes in revenues and costs associated with
variations in hydropower generation, power market puichases and sales, fuel costs, and other
STAFF COMMENTS SEPTEMBER I5,20I5
miscellaneous revenues and costs as compared to those embedded in base rates. If actual net
power costs are greater than those recovered through base rates, customers are surcharged the
difference. If net power costs are less, as is the case in this year's filing, then customers receive
a rebate.
Because the PCA rate adjustments are spread on a uniform cents-per-kilowatt-hour basis
the resulting percentage decrease in billed revenues varies by customer groups. The overall
decrease in the PCA rate is 3.5o/o. Application at 6. Decreases by rate schedule are reflected in
the table below.
The PCA rate is combined with the Company's "base rates" to produce a customer's
overall energy rate. According to the Company, the overall decrease is approximately 0.284(,
per kilowatt-hour. Of this decrease, 88% of the reduction is due to removal of last year's
surcharge, while 22o/o is attributed to the rebate in this year's PCA.
STAFF REVIEW
Staff has thoroughly examined the Company's PCA Application by reviewing the
following: (l) actual and authorized expense; (2) net deferral activity; (3) deferral calculation
methodolo gy; (4) actual to authorized net power supply expense (I'{PSE); (5) other adjustment;
and (6) proposed PCA rate adjustments. The results of Staff s review is summarized below.
Type of Service Schedule Billed Revenue 7o Increase
Residential -3.20%
General Service n.12 -2.73%
Large General Service 21,22 -3.42%
Extra Large General Service 25 -5.16%
Clearwater 25P -5.17%
Pumping Service 31,32 -2.81%
Street and Area Lights 4t-49 -r.09%
Total -3.48%
STAFF COMMENTS SEPTEMBER 15,2015
A. Actual and Authorized Expense Audit
Staff conducted an onsite audit during the week of August 31,2015. Staff reviewed and
audited the deferred balance amounts included in the current filing. Staff s review covered
expenses incurred for the period of July 2014 through June 2015. Staff examined a
representative cross section of transactions included in the Purchased Power account (FERC
555), Thermal Fuel account (FERC 501), Combustion Turbine Fuel account (FERC 547), and
the Sales for Resale account (FERC 447). Based on its review of these transactions, Staff
concludes that the various power cost transactions appear reasonable at the time they were made.
Staff also reviewed the other PCA calculations and amounts, including the Natural Gas Transport
Costs previously charged to natural gas customers. Staff verified that Avista's booked amounts
and other calculations have been correctly reflected.
In reviewing the balancing accounts used to develop the PCA rates, Staff noted that the
Company changed the calculated forecast amortization amounts, as shown on Ehrbar workpaper
2 of 5. The Company included forecasted amounts for June 2015, with amortizationof $271,387
and interest of $ 1,960. These amounts represent unbilled revenue with associated interest for
June 2015, and provide a reasonable refinement to the forecast portion of the proposed rate
calculation.
Staff also verified all authorized amounts used to calculate the actual-to-authorized defenal.
Staff believes the base amounts properly reflect rates established in Commission Order No.
AVU-E-12-08.
B. Net Deferral Activity
The net deferral activity represents the Idaho jurisdictional share of the difference in
power costs and associated revenue adjustments deferred under the PCA mechanism by Avista
for the twelve months ending June 30, 2015. A component of the net deferral is the net change
in Power Supply Costs (FERC Accounts 555, 501, 547, and 447). ltlong with the costs of
serving load using Company-owned resources, these PCA accounts also include additional
power purchase costs when market prices are lower than generation costs. Generation costs
associated with off-system sales are offset by the revenue from those sales. The proposed
deferral amount, (-$821,579 without interest; -$819,879 with interest) consists of the following
items. An explanation of each item is provided below.
STAFF COMMENTS SEPTEMBER I5,2015
1. FERC Account 555 - Purchased Power
2. FERC Account 501 - Thermal Fuel
3. FERC Account 547 - CT Fuel
4- FERC Account 447 - Sales for Resale
5. All Clearwater Revenues and Expenses
6. Resource Optimization - Gain on Natural Gas Resold
7. Idaho Retail Revenue Adjustment
8. Net Transmission Revenue and Expense
9. Adjustment to RECs
10. Spokane Energy Net Capacity Sale
1 l. Interest during deferral period
12. Total
$28,999,977
(493,1 86)
1,480,207
(27,283,443)
2,442,913
(1,471,020)
(2,461,477)
(373,431)
0
(1,662,119)
1.700
($819,879)
1. FERC Account 555 - Purchased Power. Purchased Power costs reflectg}% of the
Idaho jurisdictional share of the difference in costs the Company incurred for power purchases in
the review period compared to normalized purchased power costs included in base rates. In the
review period, the Company incurred more purchased power costs than are included in base
rates. The positive amount represents a cost to customers.
2. FERC Account 501 - Thermal Fuel. Thermal Fuel, primarily coal, is used to produce
electricity. The amountis90o/o of the Idaho jurisdictional share of the difference in costs the
Company incurred for thermal fuel compared to the normalized amount included in base rates.
During the review period, the Company incurred lower coal costs than are currently included in
base rates. The negative amount represents a benefit to customers.
3. FERC Account 547 - CT Fuel. Combustion Turbine (CT) Fuel is natural gas burned
in the Company's gas-fired generators. This amount represents 90Yo of the Idaho jurisdictional
share of the difference in costs the Company incurred for gas generator fuel compared to the
amount included in normalized base rates. In the review period, the Company incurred more
natural gas cost than is currently included in base rates. The positive amount represents a cost to
customers.
4. FERC Account 447 - Sales for Resale. Sales for Resale are long-term and short-term
off-system sales. The negative amount represents 90% of the Idaho jurisdictional share of the
increase in off-system sales revenues above the amounts included in base rates. This negative
amount represents an increase in sales for resale revenues, a decrease in costs during the review
period, and is a benefit to customers.
5. All Clearwater Revenues and Expenses. The Clearwater revenue and expense
components are a direct assignment to Idaho, and are not subject to sharing. They are based on
STAFF COMMENTS SEPTEMBER 15,20I5
the difference in Clearwater costs and revenues (for its Lewiston facility) relative to the
normalized Clearwater costs and revenues established in the Company's last general rate case.
A contract that expired prior to the beginning of the deferral period (July 2014 - June
2015) is included in base rates. This contract included Avista's purchase of Clearwater self-
generation at PURPA avoided cost rates. Clearwater is currently a Schedule 25P customer;
however, the revenues and expenses for the expired Clearwater contract are still included in base
rates, until such time as new base rates are set in a general rate case.
In the review period, the Company recorded base revenues and expenses, with no
offsetting Clearwater revenue and expenses separately stated. The net amount of Clearwater
revenue and expenses included in base rates is 52,442,913. This positive amount represents a
cost to customers.
6. Resource Optimization - Gain on Natural Gas Resold. Resource Optimization results
in a cost or a benefit to customers when natural gas purchased in advance for use in generating
plants is later sold because it is more cost effective to sell the gas and purchase electricity than it
is to generate electricity with the gas. Ninety percent of the Idaho jurisdictional share of the gain
or loss on the sale of the gas transactions resulting from optimizing Company resources is
included in the PCA. The gain during the review period, shown as a negative amount, is a
benefit to Idaho customers. Staff notes that this line item only shows one side of the transaction
when the Company utilizes its power plants for economic dispatch, and should not be looked at
independently from the entire optimization of Company resources.
Staff has verified that when the Company initially purchased the gas, the cost of
producing electricity at Avista's natural gas plants (primarily the Coyote Springs and Lancaster
facilities) was less expensive than purchasing electricity on the open market to meet its native
load. Furthermore, Staff has verified that when the Company resold the gas and purchased
electricity to meet native load, the resale of the gas and corresponding electricity purchased was
the least expensive and most cost-effective alternative.
7. Idaho Retail Revenue Adjustment. The Idaho Retail Revenue Adjustment is a load
change adjustment that removes the average energy-related cost of Production from PCA
calculations when load grows, as it has done in this case. When load declines the adjustment
adds back the average energy-related cost ofproduction at the currently approved rate. The rate
is $26.97|MWh for the deferral period. This rate is reestablished whenever base power supply
STAFF COMMENTS SEPTEMBER 15,20I5
costs are reset. The rate is multiplied by the change in load to produce the adjustment, excluding
Clearwater Paper generation.
Ninety percent of the total Idaho Retail Revenue Adjustment is included in the PCA. In
the review period, the Company experienced an increase in load and therefore there is a negative
adjustment. The negative amount represents a benef,rt to customers.
8. Net Transmission Revenue and Expense. The Company proposed, and the
Commission Staff agreed, to include transmission revenues and expenses in the PCA in the 2009
general rate case, AVU-E-09-01. Avista incurs third party transmission costs when it purchases
power and has it wheeled or delivered to its service areaby a third party. Avista also incurs third
party transmission costs when it sells power and pays a third party to deliver it. Third party
transmission revenues occur when Avista is the third party and is delivering power for others.
Including transmission revenues and expenses in the PCA tracks the variability of these items.
In the review period, both the transmission revenues and transmission expenses were less than
what is included in base rates. The net transmission revenue and expense is negative and is a
benefit to customers.
9. Adjustment to RECs. In the deferral period, there were no adjustments to renewable
energy credits, or RECs.
10. Spokane Energ), Net Capacit), Sale. In Order No. 28876, Case No. AVU-E-0I-11,
Avista proposed, and the Commission approved, to use the deferred credit on the Company's
balance sheet related to the monetization of the Portland General Electric (PGE) contract credit
as an offset to the power cost deferral balance to reduce the overall rate impact to customers.
The Company amortized the PGE monetization credit balance over a l6-year period (1991-2014)
to match the original revenue stream under the PGE contract. The monetization contract ended
in2014 and in 2015 the revenues from the capacity sale monetization reverted back to Avista.
The capacity contract continues through 2016. This entry reflects the Idaho jurisdictional portion
of those revenues for January 1,2015 through April2l,20l5. The revenues for Aprrl22,20l5
through June 30, 2015 are reflected in FERC Account 447, Sales for Resale.
I 1. Interest durins Deferral Period. The Company calculates interest on the deferral
balance using the methodology stated in Order No. 29323, Case No. AVU-E-03-04. Staff
reviewed the Company's interest calculation and verified the amounts included in the filing are
correct. The Company uses the Customer Deposit Rate to calculate interest on current year
deferrals and on carryover balances from one year to the next. The Customer Deposit Rate for
STAFF COMMENTS SEPTEMBER 15,2015
2014 and for 2015 is loh. Interest on the deferral balance accumulates during the deferral period
at the customer deposit rate. In the review period, the interest is a cost to customers.
C. Methodology Analysis
Staff conducted a review of the Company's overall deferral calculation methodology
ensuring that it conforms to established methods and relevant past Commission orders.
Clearwater Paper and Avista have been operating under a new contract during the
deferral period. In reviewing the case authorizing the contract and its treatment in the PCA, Staff
verified that the Company did not purchase any Clearwater self-generation instead of offsetting
generation to meet its own load requirements. Staff also verified that Clearwater authorized self-
generation amounts were not included in the authorized sales amounts used to calculate the Load
Change Adjustment (LCA). Inclusion of these amounts would have resulted in double revenue
recovery through the LCA.
Overall, Staff believes the Company's PCA methodology used in this Application
complies with all past Commission Orders. Staff also believes that the method used provides an
adjustment to base rates so that the amount recovered by the Company is no more or less than
actual power supply costs paid by the Company, minus sharing.
D. Analysis of Net Power Supply Expense
Staff performed an analysis of actual net
with NPSE embedded in base rates. A summary
below:
power supply expense (I{PSE) as it compares
of the deferral period is shown in the table
Actual venius Authorized Net Power Supply Expense Differences
As seen in the table, prices for power purchased and sold were higher than those reflected
in base rates. These increases align to increased Mid-C prices that rose between the test year
used to determine base rates and the deferral period. In addition, the Company was able to take
advantage of the higher prices by selling over 120 percent more power on the open market at
Expense Category ltlWh Chanse MWh %Chanse $/MWh Chanse $/MWh %change
Acct 555 Purchases 2,652,094 95%$1.58 Solo
Acct 447 Sales 2,1 69,993 12101 $4.44 l4olo
{cct 501 lhermal Fuel 111,194 6%($1.751 -10%
{cct 547 CT Fuel (44,707"-10ft $1.94 Tolo
STAFF COMMENTS SEPTEMBER 15,2015
prices l4%ohigher as compared to those assumed in base rates while minimizing the impact of
higher prices to purchase additional power needed to meet load at prices only 5 percent higher.
Regarding fuel costs, the Company took advantage of l0 percent lower thermal fuel cost
by increasing the amount of actual generation by 6 percent over those assumed in base rates.
The Company also reacted to higher natural gas prices by slightly reducing the amount of natural
gas-fired generation. After analysis, Staff believes that the Company's actual net power costs
were reasonably incurred.
E. Other Adjustments
Included in the rebate calculation are two items that are not normally included in the PCA
deferral and rate calculation. The first is an adjustment to correct an error related to the
Production and Transmission Ratio used for jurisdictional allocation purposes. The Company
inadvertently used a ratio of 35.29 percent instead of 34.76 percent approved in Case No.
AVU-E-12-08. This resulted in a correction of $5,800 for the error made during the month of
January 2015.
The Company also recorded a second adjustment due to a Commission approved
settlement with BPA for its use of the Company's transmission system (Case No.
AVU-E-I2-08). As approved in Commission Order No. 32769, the Company is allowed to
true-up any residual balances between those allowed in base rates and actual rebate amounts.
As a result, the Company transferred the balance of this amount into the PCA deferral reducing it
by $382,725.
PCA Rate Analysis
The PCA rate is calculated by dividing the PCA surcharge amount by the total number of
kilowatt-hours in the Company's latest revenue forecast for the twelve-month period from
October 1,2015 through September 30,2016. It is then applied to each rate class based on the
number of kilowatt-hours forecasted for each rate class on an even cents per kilowatt-hour basis.
The surcharge amount consists of revenue and expenses booked during the deferral
period (July 1 ,2014 - June 30, 2015) and expected to be booked from the end ofthe deferral
period until rates are put into effect on October 1,2015. It also includes a Revenue Conversion
Amount that grosses up the surcharge amount to capture Commission fees and uncollectibles as
they fluctuate with revenue.
STAFF COMMENTS 8 SEPTEMBER 15,2015
Booked,{routs ?llllil tLru 680115
Ddrfial $i& L*crcst
TraasfierBPA Scdcmcnt
Trao$cr Linaarartizcd Balrue - ?013 PCA
korrisionforRatc Rtfimd
Unamortbed Bahnce - 2014 PCA
[rpected Booked.{uouts (?im5 t&rr 9SSA$
Dcfcrrtl Lltercst (?ll.il5 - 9{30II5}
Amortkxioa imhdflng iatercst
Forccastcd i*ctrx (t0iliH * 9l3fiil6}
Reverue Coovertior -Lrtloslt
Cmission fees aod rmcalcclibkr
Total
TaalArcuat {Rebd€ (-} $Ec}rgc (+}J
Rate Celcd*tiol
Toal Amsm fRebatc (-) &rc]arge (+]J
ForecastcdSaks (k&a)
PCAR* {S,k'*xh)
(8r9,8?9)
(383.725)
342.830
(713,398)
2,722,943
1,149,7?3
(3,012)
(2,116.286)
q:.8{8)
(2,1x4.116)
(4,887)
(979,160)
t979.2&,
3,t03,499,000
(0.00032)
Staff s calculation of the PCA rate matches the rate proposed by the Company. Based on
its analysis, Staff believes that the Company's calculation is accurate and that it complies with
Commission's orders,
CUSTOMER NOTICE AND PRESS RELEASE
Avista filed copies of its press release and customer notice with its Application. Staff
reviewed both documents and determined that they comply with the Commission's Procedural
Rule 125, IDAPA 3 1.01.01.125.
The customer notice was mailed with cyclical billings beginning August 6 and ending
September 4. Customers have the opportunity to file comments on or before September 15,
2015.
STAFF COMMENTS SEPTEMBER 15,2015
CUSTOMER COMMENTS
As of September 14,2015, the Commission has received 0 comments from customers.
STAFF RECOMMENDATIONS
Staff recommends that the Commission authorize the total deferral amount of ($819,879)
(including interest) for recovery from ratepayers and approve Schedule 66 rates as filed in
Exhibit A of the Company's Application to go into effect on October 1,2015.
Respectfully submitted this \5'17 day of September 2015.
Technical Staff: Mike Louis
Kathy Stockton
Daniel Klein
i :umisc/comments/avue I 5.Tbkklsdkml comments
STAFF COMMENTS l0 SEPTEMBER 15,20I5
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 15TH DAY OF SEPTEMBER 2015,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E.15-07, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
KELLY NORWOOD
VP - STATE & FED REG
AVISTA CORPORATION
PO BOX 3727
SPoKANE W A 99220-3727
E-mail: [e-mail]
PETER J RICHARDSON
GREGORY M ADAMS
RICHARDSON ADAMS PLLC
PO BOX 7218
BOISE ID 83702
E-mail: [e-mail]
gre g@rishardsonadams. com
CAROL HAUGEN MARV LEWALLEN
CLEARWATERPAPERCORPORATION CLEARWATERPAPERCORPORATION
E.MAIL ONLY:
carol. hau gen@clearwaterpaper. com
DEAN J MILLER
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83701
E-mail: [e-mail]
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPoKANE W A 99220-3727
E-mail: [e-mail]
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-mail: [e-mail]
E.MAIL ONLY:
marv. lewal len@ clearwaterpaper. com
LARRY A CROWLEY
THE ENERGY STRATEGIES
INSTITUTE INC
5549 S CLIFFSEDGE AVE
BOISE ID 83716
E-mail : [e-mail]
SECRETARY
CERTIFICATE OF SERVICE