20160526Johnson 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-16-03
OF AVISTA CORPORATION FOR THE )
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC SERVICE ) DIRECT TESTIMONY
TO ELECTRIC CUSTOMERS IN THE ) OF
STATE OF IDAHO ) WILLIAM G. JOHNSON
)

FOR AVISTA CORPORATION

(ELECTRIC)

Johnson, Di 1
Avista Corporation
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 address
is 1411 East Mission Avenue, Spokane, Washington, and I am
employed by the Company as a Wholesale Marketing Manager in
the Energy Resources Department.
Q. What is your educational background? 8
A. I graduated from the University of Montana in 1981
with a Bachelor of Arts Degree in Political
Science/Economics. I obtained a Master of Arts Degree in
Economics from the University of Montana in 1985.
Q. How long have you been employed by the Company and 13
what are your duties as a Wholesale Marketing Manager? 14
A. I started working for Avista in April 1990 as a
Demand Side Resource Analyst. I joined the Energy Resources
Department as a Power Contracts Analyst in June 1996. My
primary responsibilities involve power contract origination
and management, and power supply regulatory issues.
Q. What is the scope of your testimony in this 20
proceeding? 21
A. My testimony will 1) identify and explain the
proposed normalizing and pro forma adjustments to the 2015
Johnson, Di 2
Avista Corporation
test period power supply revenues and expenses, and 2)
describe the proposed level of expense and Load Change
Adjustment Rate (LCAR) for Power Cost Adjustment (PCA)
purposes, using the pro forma costs proposed by the Company
in this filing.
Q. Are you sponsoring any exhibits to be introduced in 6
this proceeding? 7
A. Yes. I am sponsoring Exhibit No. 6, Schedules 1
through 4, which were prepared by me. Exhibit No. 6,
Schedule 1 identifies the power supply expense and revenue
items that fall within the scope of my testimony. A brief
description of each adjustment is provided in Exhibit No. 6,
Schedule 2. Exhibit No. 6, Schedule 3 shows the pro forma
fuel costs for each thermal plant and short-term purchase and
sales by month. The proposed authorized PCA power supply
expense and revenue, transmission expense and revenue, retail
sales and LCAR are shown in Exhibit No. 6, Schedule 4.
Q. Are there other Company witnesses providing 18
testimony regarding issues you are addressing? 19
A. Yes. Company witness Mr. Kalich provides detailed
testimony on the AURORA model used by the Company to develop
short-term power purchase expense, fuel expense and short-
term power sales revenue included in my exhibits.
Johnson, Di 3
Avista Corporation
II. OVERVIEW OF PRO FORMA POWER SUPPLY ADJUSTMENT 1
Q. Please provide an overview of the pro forma power 2
supply adjustment. 3
A. The pro forma power supply adjustment involves the
determination of revenues and expenses based on the
generation and dispatch of Company resources and expected
wholesale market power prices as determined by the AURORA
model simulation for the pro forma rate period (calendar year
2017) under normal weather and hydro generation conditions.
In addition, adjustments are made to reflect contract changes
between the historical test period and the 2017 pro forma
period. Table No. 1 below shows total net power supply
expense during the test period and the pro forma period. For
information purposes only, the power supply expense1 currently
in base retail rates, which is based on a calendar 2016 pro
forma period, is also shown.

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 4
Avista Corporation
Idaho
System Allocation
Power Supply Expense in Current Rates (2016 pro forma)$152,790,000 $52,513,923
Actual 2015 Test Period Power Supply Expense $160,422,000 $55,137,041
Proposed 2017 Pro forma Power Supply Expense $168,354,000 $57,863,270
Proposed 2017 Expense vs 2015 Test Period $7,932,000 $2,726,228
Proposed 2017 Expense vs Current Rates $15,564,000 $5,349,347
Power Supply Expense
Table No. 1: 1
2
3
4
5
6
7
The net effect of my adjustments to the test year power
supply expense is an increase in 2017 of $7,932,000
($168,354,000 - $160,422,000) on a system basis and
$2,726,228 Idaho allocation. The increased expense in 2017
from the level in current base rates is $5,349,347 (Idaho
share).

III. PRO FORMA POWER SUPPLY ADJUSTMENTS 15
Q. Please identify the specific power supply cost 16
items that are covered by your testimony and the total 17
adjustment being proposed. 18
A. Exhibit No. 6, Schedule 1 identifies the power
supply expense and revenue items that fall within the scope
of my testimony. These revenue and expense items are related
to power purchases and sales, fuel expenses, transmission
Johnson, Di 5
Avista Corporation
expense, and other miscellaneous power supply expenses and
revenues.
Q. What is the basis for the adjustments to the test 3
period power supply revenues and expenses? 4
A. The purpose of the adjustments to the test period
is to normalize power supply expenses for normal weather and
normal hydroelectric generation and to reflect current
forward natural gas prices using the AURORA model and include
other known and measurable changes for the 2017 pro forma
period.
A brief description of each adjustment is provided in
Exhibit No. 6, Schedule 2. Detailed workpapers have been
provided to the Commission with this filing to support each
of the pro forma revenues and expenses. The detailed
workpapers for each adjustment show the actual revenue or
expense in the test period, and the pro forma revenue or
expense.
Long-Term Contracts 18
Q. How are long-term power contracts included in the 19
pro forma? 20
A. Long-term power contracts are included in the pro
forma by including the energy receipt or obligation
associated with the contract in the AURORA Model and
Johnson, Di 6
Avista Corporation
including the cost or revenue in the pro forma net power
supply expense.
Q. Are there any new long-term power purchases or 3
sales in the pro forma that are not in current base rates?
A. Yes. The 2017 pro forma developed for this case
includes the Palouse Wind power purchase. Currently, the
Palouse Wind purchase is recovered through the Power Cost
Adjustment (PCA) mechanism. For settlement purposes in the
prior two general rate cases, the Company agreed to recover
the Palouse Wind costs through the PCA. The Company is
proposing that Palouse Wind be included in base rates
beginning January 1, 2017.
Q. Was Palouse Wind a prudent resource acquisition?
A. Yes. At the time the contract was entered into,
the Palouse Wind purchase was one of, if not the lowest
priced, wind resource projects in the Northwest. The
purchase price also compared favorably to the Idaho avoided
cost rates at the time. The 20-year (2013-2032) levelized
cost of Palouse Wind was $63.61/MWh. By comparison, Avista’s
Idaho avoided cost rate (effective 8/30/2011), including the
wind integration deduction, for the same period was
$67.41/MWh. At the time the Palouse Wind contract was
Johnson, Di 7
Avista Corporation
entered into, Palouse Wind was a cost-effective, prudent, and
long term firm resource acquisition.
Q. How does the Palouse Wind site compare to other 3
wind facilities in the Pacific Northwest?
A. Palouse Wind is a very good wind site. According
to the Energy Information Administration, the average
capacity factor for wind facilities in the Pacific Northwest
is 25.4%. The life to date (January 2013 through April 2016)
capacity factor at Palouse Wind is 33.5%. This capacity
factor advantage, plus the fact that the site sits only four
miles from an existing Avista 230 kV transmission line, makes
the Palouse Wind project a favorable generation facility for
Avista and its Idaho and Washington customers.
Q. Do Idaho customers receive benefits other than an 14
energy resource from Palouse Wind and other Avista renewable 15
energy resources? 16
A. Yes. Avista is actively involved in the Renewable
Energy Credit (REC) market and has received significant REC
sales revenue due to our mix of renewable resources. While
the state of Idaho may not have a renewable portfolio
standard (RPS), the presence of RPSs in other western states
and the national Green-e REC market has provided significant
benefits to Idaho customers. Avista’s Idaho customers have 23
Johnson, Di 8
Avista Corporation
received $17.58 million dollars of revenue from REC sales for
the period 2007 through 2015. This rate case includes $1.18
million of REC sales revenue for Idaho customers.
Q. Are there any long-term power purchases or sales 4
that are in current base rates but not in this pro forma? 5
A. Yes. The Portland General Electric capacity sale
is in current base rates but not in the pro forma period. In
1998 Avista monetized the majority of the revenue from the
Portland General Electric capacity sale. The monetization
loan was paid off in January 2015 and the full revenue
(approximately $19.2 million) from the contract returned to
the Company beginning January 2015. That contract ends on
December 31, 2016. The sale is a capacity exchange sale
where Portland General Electric can take 150 MW for 10 hours
of their choosing each day and return the energy on the hours
of their choosing. The contract also contains unique real-
time change provisions that are not standard in that type of
contract. Current market conditions do not support a capacity
sale at similar rates to the expiring contract, nor would
Avista desire to enter into a new capacity contract with
similar real-time change provisions.
The increase in power supply expense versus the amount
in current base rates is partially due to this contract
Johnson, Di 9
Avista Corporation
ending. This equates to approximately $4 million (Idaho
share) of the $5.3 million increased power supply net
expense.
Short-Term Power Purchases and Sales 4
Q. How are short-term transactions included in the pro 5
forma? 6
A. Short-term electric power purchases and sales are
an output of the AURORA model. The model calculates both the
volumes and price of short-term purchases and sales that
balance the system’s generation and long-term purchases with
retail load and other obligations. The price of the short-
term transactions represents the price of spot market power
as determined by the AURORA model.
Q. What actual forward short-term transactions are 14
included in the pro forma? 15
A. Consistent with past general rate cases, the pro
forma does not include actual short-term fixed-price
transactions entered into for the 2017 pro forma period.
Thermal Fuel Expense 19
Q. How are thermal fuel expenses determined in the pro 20
forma? 21
A. Thermal fuel expenses include Colstrip coal costs,
Kettle Falls wood-waste costs, and natural gas expense for
Johnson, Di 10
Avista Corporation
the Company’s gas-fired resources including Coyote Springs 2,
Lancaster, Rathdrum, Northeast, Boulder Park, and the Kettle
Falls combustion turbine. Unit coal costs at Colstrip are
based on the long-term coal supply and transportation
agreements. Unit wood fuel costs at Kettle Falls are based
on multiple shorter-term contracts with fuel suppliers and
inventory. Total fuel costs for each plant are based on the
unit fuel cost and the plant’s level of generation as 8
determined by the AURORA model.
Exhibit No. 6, Schedule 3 shows the pro forma fuel costs
by month for each plant. Mr. Kalich provides details and
supporting workpapers regarding the level of generation for
the Company’s thermal plants, and the fuel cost for thermal
and natural gas-fired plants.
Transmission Expense 15
Q. What changes in transmission expense are in the pro 16
forma compared to the test-year and the expense in current 17
base rates? 18
A. BPA’s transmission rates increased October 1, 2015 19
and those increases are reflected in the 2017 pro forma
compared to the test-year. BPA transmission rates are
expected to increase again on October 1, 2017 and those
expected increases are included in the 2017 pro forma.
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REVISED - June 16,2016
Summary
A. PIeaEe summarize your proposed pro forma power
aupply expenEe that is provided to Company witneEg Ms.
Andrews for the Company's electric Pro Forma study.
A. The net effect of my adjustments to the test year
power supply expense is an increase in 20L7 of 97,932,000
($l-58 ,354, 000 - $160 ,422, 000) on a system basis and
$2,726,228 Idaho allocation. The increased expense in 2Ot7
from the Ieve1 in current base rates is $5,349,347 (Idaho
share).
IV. PCA AIITHORIZED VAI.UES
A. What is Avista's proposed authorized power supply
expenEe and revenue for the PCA?
A. The proposed authorized leveI of annual system
power supply expense j-s StiS€.1ii#igEe for the 20L7 pro forma.
This is the sum of Accounts 555 (Purchased Power), 501
(Thermal Fuel), 547 (Fue1), less Account 447 (Sa1e for
Resale). It. also includes transmission expense and
transmissj-on revenue. The proposed leve1 of net Renewable
Energy Credits (REC) revenue is also lncluded ln the total
authorized net expense.
,Johnson, Di 11
Avista Corporation
Johnson, Di 12
Avista Corporation
Q. What is the level of retail sales and the proposed 1
Load Change Adjustment Rate for the PCA? 2
A. The proposed authorized level of retail sales to be
used in the PCA is 2015 weather adjusted Idaho retail sales.
The proposed Load Change Adjustment Rate is $24.96/MWh for
the 2017 pro forma period, which is the energy related
portion of the average production and transmission cost.
The proposed authorized PCA power supply expense and
revenue, transmission expense and revenue, REC revenues, Load
Change Adjustment Rate and retail sales are shown in Exhibit
No. 6, Schedule 4.
Q. Does that conclude your pre-filed direct testimony? 12
A. Yes.