20161114Andrews Stipulation.pdf

Avista Corp.
1411 East Mission P.O. Box 3727
Spokane. Washington 99220-0500
Telephone [phone]
Toll Free 800-727-9170
RECEIVED
ZUF 1lO'J 14 fl."' 9: 50
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, ! ·. ",;·· 1HISSION
FILED ELECTRONICALLY AND VIA OVERNIGHT MAIL
November 10, 2016
Commission Secretary
Idaho Public Utilities Commission
472 W. Washington Street
Boise, ID 83 702
Re: Case No. AVU-E-16-03
Testimony in Support of Stipulation and Settlement
~'JVISTJI"
Corp.
Enclosed for filing with the Commission in the above-referenced docket are the original
and seven copies of Avista Corporation's Testimony in Support of Stipulation and
Settlement. Please direct any questions related to this filing to Patrick Ehrbar at
509.495.8620.
Sincerely,
David J. Meyer
Vice President, Chief Counsel for Regulatory
& Governmental Affairs
Enclosures
c: Service List
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have this 101h day of November, 2016, served the Testimony in
Support of the Settlement and Stipulation, in Case No. AVU-E-16-03 upon the following
parties, by mailing a copy thereof, properly addressed with postage prepaid to:
Jean D Jewell, Secretary
Idaho Public Utilities Commission
Statehouse
Boise, ID 83720-5983
[e-mail]
Brandon Karpen
Deputy Attorneys General
Idaho Public Utilities Commission
472 W. Washington
Boise, ID 83702-0659
Brandon.karpen@puc. idaho. gov
Larry A. Crowley
The Energy Strategies Institute, Inc.
5549 S. Cliffsedge Ave
Boise, ID 83716
[e-mail]
Ken Miller
Clean Energy Program Director
Snake River Alliance
223 N 6th Street, Suite 31 7
Boise, ID 83 702
[e-mail]
ELECTRONIC SERVICE ONLY
Marv Lewallen
Clearwater Paper Corporation
[e-mail]
[e-mail]
Brad M. Purdy
Attorney at Law
2019 N 17th Street
Boise, ID 83 720
[e-mail]
Peter J. Richardson
Richardson Adams, PLLC
515 N. 27th Street
PO Box 7218
Boise, ID 83 702
[e-mail]
Dean J. Miller
Lawyer
3620 E. Warm Springs
Boise, Idaho 83716
[e-mail]
Dr. Don Reading
6070 Hill Road
Boise, ID 83703
[e-mail]
Patrick Ehrbar
Senior Manager, Rates & Tariffs
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]
DAVID .MEYER@AVISTACORP .COM
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BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF AVISTA CORPORATION FOR THE )
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC SERVICE )
TO ELECTRIC CUSTOMERS IN THE STATE)
OF IDAHO ) _________________ )
CASE NO. AVU -E-16-03
DIRECT TESTIMONY
OF ELIZABETH M. ANDREWS
IN SUPPORT OF THE
STIPULATION AND
SETTLEMENT
FOR AVISTA CORPORATION
(ELECTRIC)
1
2 Q.
I.INTRODUCTION
Please state your name , employer and business
3 address.
4 A. My name is Elizabeth M. Andrews and I am
5 employed by Avista Corporation ( "Company" or "Avista")
6 as Senior Manager of Revenue Requirements in the State
7 and Federal Regulation Department, at 1411 East Mission
8 Avenue , Spokane, Washington .
9 Q. Have you previously provided direct testimony
10 in this Case?
11 A. Yes. My previous direct testimony in this
12 proceeding covered accounting and financial data in
13 support of the Company 's need for the proposed electric
14 increase i n rates . I explained pro formed operating
15 resu l ts inc l uding expense and rate base adjustments made
16 to actual operating results and rate base.
17 Q. What is the scope of this testimony?
18 A . The purpose of my testimony is to explain why
19 the Stipulation is in the public interest, as well as
20 describe and support the electric revenue requirement
21
22
elements of the Stipulation and
("Stipulation"), filed on October 24 , 2016 .
Settlement
The parties
23 to the Stipu l ation include the Staff of the Idaho Public
24 Utilities Commission ("Staff '), Clearwater Paper
Andrews , Di 1
Avista Corporation
Corporation ("Clearwater"), Idaho Forest Group, LLC
2 ("Idaho Forest"), the Community Action Partnership
3 Association of Idaho ("CAPAI"), the Snake River Alliance
4 ( "Snake River") and the Company. These entities are
5 collectively referred to as the "Parties," and represent
6
7
all parties in the above-referenced cases .
Stipulation is approved by the Commission ,
If the
it would
8 resolve all of the issues in the Company's filing.
9 Company witness Mr . Ehrbar discusses the non-revenue
10 related elements of the Stipulation agreed to by the
11 Parties, such as electric Cost of Service , Rate Spread
12 and Rate Design, as well as other Stipulation components
13 related to the Power Cost Adjustment (PCA) and Fixed Cost
14 Adjustment Mechanism authorized levels and customer
15 service-related initiatives and programs.
16 Q. Are you sponsoring any exhibits?
17 A. Yes. I am sponsoring Exhibit No. 14, which is
18 a copy of the Stipulation and Settlement filed on October
19 24, 2016, with the Commission.
20 Q. Please explain how the Parties arrived at the
21 Stipulation in this proceeding.
22 A . The Stipulation is the product of settlement
23 discussions held in the Commission offices on October 3 ,
Andrews, Di 2
Avista Corporation
2016.1 It represents a compromise among differing points
2 of view , with concessions made by the Parties, to reach a
3 balancing of interests. As will be explained in the
4 Company's testimony, the Stipulation represents a fair,
5 just and reasonable compromise of the issues and is in
6 the public interest. In addition, the Stipulation is the
7 end result of extensive audit work conducted through the
8 discovery process2 , including various on -site audit
9 visits by Commission Staff, and hard bargaining by the
10 Parties in this proceeding .
11 The Stipulation resolves all issues among the
12 Parties associated with the calculation of the Company's
13 requested cost of capital, including capital structure
14 and cost components, and resolves all revenue
15 requirement issues. As discussed by Mr. Ehr bar, the
16 Stipulation also includes agreement regarding certain
17 cost of service issues, as well as rate spread and rate
18 design.
1 Clearwater and Snake River were unable to attend the Settlement
Conference , but are supportive of the Stipulation and Settlement .
2 Avista responded to over 156 production requests (including sub­
parts) from IPUC Staff and other intervening parties .
Andrews, Di 3
Avista Corporation
Q. Why is the Stipulation in the public interest?
2 A. The Stipulation is in the "public interest"
3 for several reasons. The Stipulation was the product of
4 the give -and-take of negotiation that produced an "end
5 result" that is just and reasonable. In addition, it is
6 supported by the evidence, demonstrating the need for
7 rate adjustments to provide recovery of necessary
8 expenditures and investment, the costs of which are not
9 offset by a growth in sales margins. The Settlement
10
11
enjoys broad-based support from
constituencies , including CAPAI,
a variety of
Clearwater, Idaho
12 Forest, the Snake River Alliance, and the Staff of the
13 Commission, representing all customers.
14 Q. Would you briefly summarize the Stipulation?
15 A. Yes. Under the terms of the Stipulation, as
16 discussed further by Mr. Ehrbar, Avista would implement
17 revised tariff schedules designed to recover additional
18 annual electric revenue of $6.25 million effective
19 January 1, 2017. These rate changes are designed to
20 provide retail revenues necessary to allow the Company
21 the opportunity to earn the rate of return agreed to in
22 the Stipulation for the 2017 rate period.
23 The Parties agree to an overall base rate increase
24 of 2 .6% or $6.25 million in electric annual base tariff
Andrews, Di 4
Avista Corporation
revenues. As noted by Mr. Ehrbar, a residential customer
2 using an average of 918 kilowatt hours per month would
3 see a $2. 64, or 3. 1 %, increase per month for a revised
4 monthly bill of $87. 15. ( See Exhibit No. 14, Paragraph
5 13, for the January 1, 2017 percentage change in rates by
6 rate schedule.)
7 In determining this revenue increase, the Parties
8 have agreed to various adjustments to the Company's
9
10
original filing, which are summarized in the
Stipulation, and described further in my testimony
11 below.
12 The Stipulation calls for an overall rate of return
13 of 7.58 %, determined using a capital structure consisting
14 of 50 % common stock equity and 50 % debt, an authorized
15 return on equity of 9.5 % and cost of debt of 5.67 %.
16 Lastly, the Parties agreed to certain cost of
17 service, and rate spread and rate design changes as
18 described by Mr. Ehrbar in his supporting testimony.
Andrews, Di 5
Avista Corporation
II. SUMMARY OF ORIGINAL FILING
2 Q. P1ease describe the Company 's genera1 rate case
3 request , as fi1ed.
4 A. On May 26, 2016, Avista filed an Application
5 with the Commission for authority to increase revenue
6 effective January 1, 2017 for electric service in Idaho
7 by 6 . 3 %. If approved , the Company 's 201 7 revenues for
8 electric base retail rates would have increased by $15.4
9 million annually . By Order No. 33536, dated June 7, 2016 ,
10 the Commission suspended the proposed schedules of rates
11 and charges for electric service.
12 The Company proposed utilizing the results of its
13 electric cost of service study, sponsored by Company
14 witness Ms . Knox, as a guide to spread the overall
15 requested electric revenue increase by rate schedule on a
16 basis which: 1) moved the rates for nearly all the
17 schedules closer to the cost of providing service, and 2)
18 resulted in a reasonable range in the (net) proposed
19 percentage increase across the schedules . The spread of
20 the proposed electric increase generally resulted in the
21 rates of return for the various service schedules moving
22 approximately 25 % closer to the overall rate of return
23 (unity).
Andrews , Di 6
Avista Corporation
The Company also requested an electric residential
2 basic char ge increase from $5 .25 to $6 .25 .
3 Q. What are the primary factors driving the
4 Company's need for an e1ectric increase?
5 A. The primary factor driving the Company 's
6 proposed electric revenue increase in 2017, representing
7
8
approximately 77 % of the Company's
increase in net plant investment .
request , is an
Specific capital
9 investments over the period 2016-2017 include , among
10 other things, upgrades to certain major generating
11 facilities, such as the Nine Mile Rehabilitation project ,
12 the Little Falls Powerhouse Redevelopment , and the Post
13 Falls South Channel Gate Replacement projects discussed
14 by Company witness Mr. Kinney.
15 For 2017 , approximately 12 % of the Company's
16 requested increase relates to increases in net power
17 supply expenses. The increase in net power supply
18 expense mainly relates to the expiration of a capacity
19 sales agreement with Portland General Electric on
20 December 31 , 2016, increasing overall net power supply
21 costs , as explained by Company witness Mr. Johnson .
Andrews , Di 7
Avista Corporation
III. REVENUE REQUIREMENT ELEMENTS OF THE STIPULATION
2 Q. Pl.ease expl.ain the derivation of the El.ectric
3 Revenue Requirement outl.ined in the Stipul.ation.
4 A. The Parties agreed that an electric revenue
5 increase is necessary, effective January 1, 201 7. While
6
7
Avista's filing requested a 2017 electric revenue
requirement increase of $15.4 million, the Parties
8 agreed-upon adjustments, including the agreed-upon rate
9 of return, result in a recommended electric revenue
10 increase of $ 6 . 2 5 million. The increase is designed to
11 provide sufficient retail revenues for the 2017 rate
12
13
period , which would provide the Company with the
opportunity to earn the return agreed to in the
14 Stipulation.
15 Q. Pl.ease expl.ain the Parties' agreement with
16 regard to an Authorized Rate of Return, incl.uding the
17 Return on Equity.
18 A . The Parties have agreed to an overall rate of
19 return of 7 .58 %, based on a return on equity of 9 .5%, an
20 equity component at 50 % and cost of debt of 5.67 %. By
21 comparison, the Company's original filing requested an
22 overall rate of return of 7 . 78 % , a return on equity of
23 9. 9%, an equity component of 50 % and cost of debt of
24 5 . 67 %.
Andrews , Di 8
Avista Corporation
Q. Please provide an overview of the revenue
2 requirement adjustments agreed to by the Parties.
3
4
5
6
7
A. The Parties agreed to a revenue requirement
that reflects the adjustments shown below in the
excerpted table from the Stipulation:
Table No. 1: Electric Revenue Requirement
SUMMARY TABLE OF ADJUSTMENTS TO ELECTRIC REVENUE REQUIREMENT
EFFECTIVE JANUARY 1, 2017
(OOOs ofDollars)
Revenue
8
9
10
11
12
13
14
Requirement Rate Base
Amount as Filed: $ 15,433 $ 754,636
a.)
b.)
c.)
d.)
e.)
£)
g.)
h.)
i.)
j.)
Adjustments:
Cost of Capital
Revise Net Rate Base
Revise Deferred Debits and Credits to Reflect Corrected 2016 Balances
Remove 2017 Non-Union Labor Expenses
Update 2016 Employee Benefit Costs
Add Nine Mile Investment Tax Credit
Remove Officer Incentives
Remove 2015 Storm Costs
Move Palouse Wind to PCA
Miscellaneous A&G Adjustments: Board of Director Expenses, Reallocation of
Legal Expenses, Expired Leases and Inclusion ofO&M Savings
$
$
$
$
$
$
$
$
$
$
(2,471)
(1,329) $ (740)
(62) $ 107
(310)
1,221
(162)
(171)
(1,057)
(4,509)
(333)
15
16
17
Adjusted Amounts Effective January I, 2017 $ 6,250 $ 754,003
As can be seen by a review of the individual line
18 descriptions provided within the summary table above, the
19 adjustments accepted for settlement purposes cover a
20 broad range of revenue and cost categories, including the
21 authorized rate of return. The individual adjustments
22 should not be viewed in isolation; rather, they should be
23 viewed in total as part of the entire Stipulation, and
24 are the result of hard bargaining and compromise.
Andrews, Di 9
Avista Corporation
Q. Would you please elaborate on the individual
2 line items contained within Table No. 1?
3 A. Yes. A description of the adjustments
4 resulting in the electric revenue requirement, effective
5 January 1, 2017, follows.
6 Cost of Capital ( line a.) The overall revenue
7 requirement reduction related to the cost of capital
8 reduces the overall revenue requirement for electric by
9
10
11
12
13
14
15
16
$2.471 million. The agreed-upon cost of capital
components are shown in Table No. 2 below:
Table No. 2: Cost of Capital
Capital
Component Structure Cost Weighted Cost
Debt 50% 5.67% 2.83%
Common Equity , 50% 9.50% r 4.75%
Total 100% 7.58°/o
Revise Net Rate Base -( line b.) The 2016 electric
17 capital additions were updated by Avista to reflect
18 adjustments for updated information, including, for
19 example, the increase in overall cost of the Nine Mile
20 Hydroelectric Capital Project completed in 2016. The
21 Parties also agreed to remove rate base adjustments
22 proposed by the Company associated with certain Plant
23 Held For Future Use, as well as 201 7 capital additions.
24 Adjusting for the related impact on depreciation expense,
Andrews, Di 10
Avista Corporation
1 as well as accumulated depreciation (A/D) and accumulated
2 deferred federal income taxes (ADFIT), associated with
3 these adjustments, resulted in an overall reduction to
4 rate base of $740,000, and reduced revenue requirement of
5 $1.329 million.
6 Revise Deferred Debits and Credits to reflect
7 corrected 2016 Balances - ( line c.) Deferred debits and
8 credits regulatory balances and amortizations were
9 adjusted to reflect the correct 2016 amortization expense
10 and regulatory balances as of December 31, 2016, rather
11 than the 2017 expense and regulatory balances as proposed
12 by the Company. This adjustment decreases the overall
13 revenue requirement by $62,000 and increases rate base by
14 $107,000.
15 Remove 201 7 Non-Union Labor Expenses ( line d.)
16 This adjustment removes the 2017 incremental non-union
17 labor increases related to increases approved by the
18 Board of Directors for 2017 for its non-union, non-
19 executive employees. This adjustment reduced the electric
20 revenue requirement by $310,000.
21 Update 2016 Employee Benefit Costs (line e.)
22 Employee benefit costs include costs associated with
23
24
pension
expenses
and medical insurance and post-retirement
included in the Company's direct filing.
Andrews, Di 11
Avista Corporation
Pension expense was determined in accordance with
2 Accounting Standard Codification 715 (ASC-715 ) by an
3 independent actuarial firm, Towers Watson, which is
4 reviewed b y the Company's outside account ing firm
5 annually for reasonableness and comparability t o other
6 c ompanies.3 Medical insuran ce and post-retirement
7 expense includes costs associated with the employee and
8 retiree medical plans and the FAS 106 expense, whi ch
9 records the costs associated with post-retirement
10 medical.4 This adjustment reflects updated information,
11 and reflects employee benefits at a 2016 expense level.
12 This adjustment increased the electri c revenue
13 requirement by $1.221 million.
14 Add Nine Mile Investment Tax Credit -(line f.) This
15 adjustment includes the amortizati on of the inv estment
16
17
tax c r edit benefit associated with the Nine Mile
Redevelopment upgrade project on Uni ts 1 and 2 . This
3 In October 2013 , the Company revised its defined benefit pension
plan such that , as of January 1, 2014 , the plan is no longer
offered to i ts non -union employees hired or rehired by Avista on or
after January 1 , 2014 . A defined contribution 40l(k) plan replaced
the defined benefi t pension pla n fo r al l non-union employees hired
or rehired on or af t er January 1, 2014 .
4 I n October 2013 the Company r evi s ed its health care benefit plan
for non-union employee s hired or rehired on or after January 1,
2014 . Upon retirement the Company wi l l no longer pr ovi de a
contribution towar ds his or her medical premiums . The Company will
provide access to the retiree medical plan, but the non-union
employees hired or rehired on or afte r January 1 , 2014, will pay
the full cost of premiums upon retirement .
Andrews, Di 12
Avista Corporation
adjustment reduces the electric revenue requirement by
2 $162,000.
3 Remove Officer Incentives (line g.) This
4 adjustment reflects the removal of all officer incentives
5 included in the Company's original filing. This
6 adjustment reduced the electric revenue requirement by
7 $171,000.
8 Remove 2015 Storm Costs -(line h.) This adjustment
9 removes 2015 storm-related expenses included in the
10 Company's historical test period beyond the 6-year
11
12
average (2009-2014) of storm expenses. This adjustment
also includes $210,000 of amortization expense
13 representing the customer portion ( $ 630,000 ) to recover
14 for regulatory purposes over the period 2017-2019. This
15 adjustment reduces the overall revenue requirement by
16 $1.057 million.
17
18
Move Palouse Wind to Power Cost Adjustment ( "PCA")
Mechanism (line i.) The Parties agree that, for
19 purposes of this case, the recovery of costs related to
20 the Palouse Wind Power Purchase Agreement ( "PPA") will
21 continue to be included in the PCA, subject to the
22 current sharing (90 % customer, 10% Company) . This
23 adjustment removes the Palouse Wind PPA expenses from the
24 pro forma power supply adjustment included in the
Andrews, Di 13
Avista Corporation
Company's original filing. This adjustment reduced the
2 electric revenue requirement by $4.509 million.
3 Miscellaneous Adjustments -(line j .) The Company
4 adopted, for settlement purposes, Staff 's proposal to
5 adjust or remove various administrative and general (A&G)
6 expenses including: 1) removing certain Board of Director
7 expenses included in the Company's 2015 historical test
8 period ($159,000); 2) removing legal expenses allocated
9 to Idaho electric in error ($33 ,000); 3) removing
10 expenses associated with certain expired leases in 2015
11 ($62 ,000); and 4) inclusion of the O&M savings associated
12 with the Company 's Street & Area Light project ($79 ,000 ).
13 This adjustment decreases the overall electric revenue
14 requirement by $333,000.
15 Q. Please summarize the impact of these
16 adjustments on the electric revenue requirement agreed to
17 by the Parties.
18
19
20
21
A. The adjustments discussed above, and agreed to
by the Parties, reduce Avista's electric revenue
requirement of $15.433 million to $6 .25 million,
resulting in a 2. 6% electric base rate increase. Net
22 rate base for electric is $754 million, effective January
23 1, 2 01 7 .
Andrews, Di 14
Avista Corporation
IV. CONCLUSION
2 Q. In conc1usion, why is this Stipu1ation in the
3 pub1ic interest?
4 A. This Stipulation strikes a reasonable balance
5 between the interests of the Company and its customers ,
6
7
including
represents
its low-income
a reasonable
customers. As such, it
compromise among differing
8 interests and points of view .
9 The terms of the Stipulation represents an electric
10 base rate increase designed to provide necessary retail
11 revenues. The Parties have agreed that the Company has
12 demonstrated the need for a revenue increase for its
13 electric operations , thus providing recovery of its
14 costs over the 2017 rate period.
15
16
In the final analysis, any settlement reflects a
compromise in the give-and-take of negotiations. The
17 Commission has before it a Stipulation that is supported
18 by sound analysis and supporting evidence, the approval
19 of which is in the public interest.
20 Q.
21 A.
Does this conc1ude your direct testimony?
Yes, it does.
Andrews, Di 15
Avista Corporation