20161228final_order_no_33682.pdf

Office of the Secretary
Service Date
December 28, 2016
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF A VISTA CORPORATION DBA A VISTA ) CASE NOS. A VU-E-16-03
UTILITIES FOR AUTHORITY TO )
INCREASE ITS RATES AND CHARGES FOR )
ELECTRIC AND NATURAL GAS SERVICE ) ORDER NO. 33682
IN IDAHO )
On May 26, 2016, A vista Corporation applied to the Commission for authority to
increase its electric base rates by $15.4 million (6.3%) on January 1, 2017. If approved, the
average Avista residential customer would experience an electric bill increase of $6.54 (7.7%)
per monthly bill.
On June 7, 2016, the Commission issued a Notice of Application, suspended the
proposed effective date, and set a June 21, 2016 intervention deadline. The following parties
intervened: Clearwater Paper Corporation; Idaho Forest Group, LLC; Snake River Alliance
(SRA); and Community Action Partnership Association of Idaho (CAPAI). On July 15, 2016,
the Commission set deadlines for the filing of testimony, set a settlement conference, and a
technical hearing. The Commission subsequently ordered Staff to conduct two public
workshops, in Moscow and Coeur d'Alene. Order Nos. 33536, 33555, and 33634.
On October 24, 2016, the Company and Staff notified the Commission that all parties
had agreed to settle the rate case, and recommended that the Commission approve the parties'
Stipulation and Settlement. As part of the proposed settlement, A vista agreed to a reduced
increase of $6.25 million (2.57%), effective January 1, 2017. On October 20, 2016, the
Commission issued a Notice of Proposed Settlement and requested comments on the proposed
settlement. Order No. 33641. The Commission convened a telephonic customer hearing on
November 29, 2016, and a technical hearing in Boise on December 2, 2016. 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
A vista is a public utility engaged in the generation, transmission and distribution of
electricity and natural gas. Avista's electric service area includes eastern Washington and
northern Idaho. Avista's existing base rates and charges for electric and natural gas services
ORDER NO. 33682 1
were approved by the Commission on December 18, 2015, and took effect in January 2016.
Order No. 33437.
Avista claimed its existing electric rates are not fair, just, and reasonable, and that it
must increase them so it can earn a fair return on its investment. A vista notified its customers
about the proposed rate increase by distributing bill stuffers during the June 2016 billing cycle.
A vista claimed that approximately 77% of the proposed increase is to cover an
increase in net plant investment (including return on investment, depreciation and taxes, and
offset by the tax benefit of interest). Application at 3. A vista requested an overall rate of return
of 7.78%, which includes a 50% common equity ratio, and a 9.9% return on equity. Avista
asserted that the proposed rate of return and capital structure reasonably balance safety and
economy. Id. at 7. Avista's requested rate increase is based on a 12-month test year ending
December 31, 2015. Id. at 4.
If the Commission were to approve the Application as requested, residential electric
customers using an average of 918 kilowatt hours (kWh) per month could expect to see a bill
increase of $6.54 per month in 2017, including an increase in the basic monthly charge from
$5.25 to $6.25. The proposed electric rate increase for particular customer classes/schedules is
as follows:
Increase in
Rate Schedule Base Rates
Residential Schedule 1 7.7%
General Service Schedule 11/12 4.5%
Large General Service Schedule 21/22 5.6%
Extra Large General Service Schedule 25 4.7%
Schedule 25P 4.5%
Pumping Service Schedule 31/21 7.5%
Street & Area Lights Schedules 8.2%
Overall 6.3%
THEPROPOSEDSETTLMENT
On October 3, 2016, 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 now before us. The parties agreed that the
Company's requested increase should be reduced to $6.25 million (2.57%) and go into effect
January 1, 2017. The settlement also includes a $0.50 increase in the monthly residential
customer charge.
ORDER NO. 33682 2
A. Cost of Capital
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% 5.67% 2.83%
Common Equity 50.00% 9.50% 4.75%
Total 100.00% 7.58%
Settlement at 3.
B. Settled Increase by Service Schedule
The following table reflects the agreed upon percentage increase by:
Net Increase in
Rate Schedule Billing Rates
Residential Schedule 1 3.1%
General Service Schedule 11/12 1.8%
Large General Service Schedule 21/22 2.3%
Extra Large General Service Schedule 25 1.9%
Clearwater Paper Schedule 25P 1.8%
Pumping Service Schedule 31 /21 3.0%
Street & Area Lights Schedules 3.3%
Overall 2.5%
Id. at 7.
C. Other Settlement Provisions
1. Cost-of-Service. The parties agreed that, prior to the filing of the next general
rate case, they will meet and confer to discuss the methodologies used by the Company to
classify and allocate costs, and review the changes that result from the filing of this case. The
Company agreed to provide meaningful data, as requested, to enable meaningful discussions.
2. Low-Income Issues. A vista agreed to meet and confer with interested parties
prior to the filing of the Company's next general rate case to assess and discuss the performance
of the Company's Low Income Weatherization and Low Income Energy Conservation Education
programs with the goal of enhancing and improving those programs. Id. at 15-16.
ORDER NO. 33682 3
COMMENTS AND SETTLEMENT TESTIMONY
A. Public Comments
After the Application was filed in late May, the Commission received 11 customer
comments regarding the proposed increase in Avista's electric rates. These comments were
entirely from residential customers who oppose any increase in rates. The customers generally
argue that their income is being outpaced by the Company's rate increases. They also expressed
general disapproval of the perception of where the Company is spending the money ( executive
pay, charitable matters, and marketing).
Following notice of the proposed settlement, the Commission received six customer
comments objecting to the Company's initial request. One customer filed comments in support
of the settlement as a compromise of the Company's initial position. No customers testified
during the telephonic customer hearing on November 29, 2016.
B. The Company
The Company offered two witnesses who testified that the settlement is in the public
interest and a fair, just and reasonable compromise of the parties' positions. See Andrews Direct
at 3-4, see also, Ehrbar Direct. The Company notes that the proposed settlement is "the end
result" of extensive Staff audits, discovery, various on-site audit visits by Staff, and "hard
bargaining by all Parties in this proceeding." Andrews Direct at 3-4.
Ms. Andrews described that the settlement is in the public interest for several reasons:
Overall, Ms. Andrews noted that the settlement is the product of thorough give-and-take of
negotiations that produced a just and reasonable end result. Id. Further, Ms. Andrews noted that
the proposed settlement is supported by record evidence demonstrating the need for rate
adjustments. Id. Finally, she pointed out that the settlement enjoys unanimous support from the
parties in this case. Id.
C. CAPAI
CAP AI witness Christina Zamora provided unconditional support of the proposed
settlement. Zamora Direct at 4. Ms. Zamora testified that the proposed settlement is agreeable
to CAP AI because it presents a revenue requirement, rate spread, and overall increase that is fair,
just, and reasonable. Id. at 6-10. Ms. Zamora also testified that the $0.50 increase on the fixed
monthly residential basic charge is not excessive and will not be contrary to the interests of the
low-income customers represented by CAPAI. Id. at 5.
ORDER NO. 33682 4
Ms. Zamora further explained that CAP AI participated fully throughout the entirety
of the case and in all settlement negotiations. At the conclusion of negotiations, CAP AI
determined that the settlement is in the best interest of A vista's low-income ratepayers and all
ratepayers in general. Id. at 4.
D. Commission Staff
Staff witness Randy Lobb testified on behalf of Commission Staff. Mr. Lobb stated
that Staff agreed to the settlement only "[a]fter a comprehensive review of the Company's
application, thorough audit of the Company books and records and extensive negotiation with
parties to the case .... " Lobb Direct at 2. Mr. Lobb noted that the proposed agreement includes
nine adjustments to the Company's requested base rate revenue requirements: (1) removal of
$4.5 million associated with the Palouse Wind project; (2) a $2.47 million reduction to the
proposed return on equity; (3) a $1.33 million reduction to capital plant additions; (4) a $1.06
million reduction to reflect removal of 2015 storm costs; (5) adjustment to actual 2016 deferred
debits and credits; (6) removal of 2017 non-union labor expenses; (7) inclusion of a Nine Mile
investment tax credit; (8) removal of officer incentives; and (9) removal of legal expenses. Id. at
5.
Mr. Lobb explained that Staffs approach to the settlement "was to extensively review
the Company's filing, identify adjustments to its revenue requirement request and prepare to file
testimony for a fully-litigated proceeding." Id. at 7. He noted Staffs active discovery process,
included on-site investigation, and auditing. He further stated that Staff went into the settlement
conference with several revenue requirement adjustments, test year pro forma changes, class
revenue allocations and rate design modifications. Id.
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%, which Staff believed is within a
reasonable range for A vista's financial situation and consistent with the proposed capital
structure. Id. at 12. The settlement includes a $0.50 increase in the customer charge, with
direction that the proposed increase be allocated to the various customer classes using a prorated
25% move toward cost-of-service. Staff felt that these measures will better move all customer
classes closer to their actual cost-of-service. Id. at 5-6.
Mr. Lobb maintained that Staffs position m settlement was aimed to reach a
conclusion that "was as good or better [for customers] than what could be achieved through
ORDER NO. 33682 5
litigation." Id. at 9. Based upon Staff's investigation and analysis, he concluded that "the
proposed Settlement represents a reasonable compromise of revenue requirement issues." Id. at
2. Consequently, Staff recommended that the Commission should approve the settlement.
DISCUSSION AND FINDINGS
A. Standard of Review
The Commission's process regarding settlement stipulations is set forth in Rules 271-
277, IDAPA 31.01.01.271-277. Generally, 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. IDAP A
31.01.01.274. The purpose of the evidentiary hearing is "to consider the reasonableness of the
settlement." IDAPA 31.01.01.274 and .275. Finally, we note that the Commission is not bound
by settlement agreements. Rather, 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
The proposed settlement comes to the Commission with the unanimous support of the
parties to this case. The parties represent a wide variety of customers and have testified or
otherwise represented that the settlement is a reasonable compromise of disputed issues, and that
the Commission should approve it as in the public interest. Based upon our thorough review of
the record, we find the settlement is fair, just and reasonable.
The Company initiated this process with an Application seeking approval of an
electric rate increase of $15.4 million (6.3%), effective January 1, 2017. The Company provided
supporting testimony, calculations, and projections to justify these initial requests. Staff
reviewed the Application, performed an audit of Company records, and identified a number of
adjustments to the Company's proposal. In October, the parties met and conducted settlement
negotiations and a settlement was reached. Under the terms of the agreement, A vista will
recover a much lower amount, $6.25 million (2.57%) in additional annual electric revenue. This
is a significant departure from Avista's requested revenue increase. According to party
witnesses, this reduction is due primarily to: ( 1) the removal of Palouse Wind contract expenses;
ORDER NO. 33682 6
(2) a lower return on equity; (3) removal of projected plant; and (4) an adjustment to storm
expense projections.
The Company submits that its existing rates are insufficient to recover costs and
expenses. We find that claim has merit and that the stipulated $6.25 million in additional annual
electric revenue will provide adequate recovery for the Company without unreasonably
burdening the utility's customers. Consequently, we find the stipulated revenue increase to be
fair, just and reasonable. See Idaho Code § 61-622. We further find that the parties'
compromises regarding cost-of-service and rate design are fair and reasonable. We further find
the agreement that the interested parties meet on low-income energy efficiency issues, including
appropriate funding levels, as well as the $0.50 increase in monthly residential customer charges
are fair and reasonable.
We specifically note the large single adjustment of $4.5 million relating to the
Palouse Wind contract expenses. Circumstances and evidence suggests that the Company
acquired Palouse Wind to meet Resource Portfolio Standards for the State of Washington, not to
meet Idaho load needs. Further, we find that the difference between what A vista pays for the
project's energy and the market value of the energy is substantial. Still, we recognize that some
power produced by the project necessarily serves Idaho load. Over the years, the compromise
has been to remove the above market value from base rate recovery and flow it through the PCA
at 90%. This has resulted in "a savings to Idaho customers of $450,000 annually." See Lobb
Direct at 11. We continue to support this treatment and find it results in just and reasonable
recovery of expenses.
Accordingly, based on the record in this case, we find the terms of the settlement to
be fair, just 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 31.01.01.274-276.
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 23, 2016, CAPAI timely filed a Petition for Intervenor Funding,
seeking an award of $12,870. See CAP Al's Petition for Intervenor Funding. Intervenor funding
is available under Idaho Code § 61-61 7 A, which declares it is the "policy of [Idaho] to
ORDER NO. 33682 7
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 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§ 61-617A(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.
We find that CAP AI' s Petition satisfies the intervenor funding requirements. CAP AI
intervened and participated in all aspects of the proceeding, with a focus on low-income
customers. CAP AI' s Petition shows that it worked closely with A vista throughout the process
both formally and informally since March 2016, prior to the Company's filing. CAPAI noted its
role in the Company agreeing to meet with CAP AI and other interested parties to discuss the
Company's Low Income Weatherization Assistance and Low Income Conservation Education
programs with the goal of improving those programs. CAP Al also noted its role in the Company
agreeing to commence a study of low income customers similar to what the Company has done
in the state of Washington. CAP Al stated it also participated in the formulation of the overall
revenue requirement increase, and on rate design issues including the proposed and agreed upon
customer charge.
The Commission finds that CAP AI has materially contributed to the Commission's
decision. CAP AI' s recommendation materially differs from Staffs testimony and exhibits, and
ORDER NO. 33682 8
CAP AI' s participation addressed issues of concern to the general body of customers. Finally, we
find the costs and fees incurred by CAP AI are reasonable in amount, and that CAP AI, as a non­
profit organization, would suffer financial hardship if the request is not approved. Accordingly,
we approve an award of intervenor funding to CAPAI in the amount of $12,870. This amount
will be recovered from Avista's residential electric 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 electric tariff schedules, attached to
the Stipulation, are approved as filed, effective January 1, 2017.
IT IS FURTHER ORDERED that CAPAI's Petition for Intervenor Funding 1s
granted in the amount of $12,870.
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§ 61-626.
ORDER NO. 33682 9
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
day of December 2016.
ERIC ANDERSON, COMMISSIONER
ATTEST:
O:AVU-E-16-03_bk5
ORDER NO. 33682 10