20170831Comments.pdf

DAPHNE HUANG
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 8370
IN THE MATTER OT THE FIXED COST
ADJUSTMENT MECHANISM (FCA) ANNUAL
RATE ADJUSTMENT FILING OF AVISTA
CORPORATION FOR ELECTRIC SERVICE
FROM OCTOBER 1,2017 THROUGH
SEPTEMBER 30, 2018.
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Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. AVU-E-17-04
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attomey of record, Daphne Huang, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 33817, submits the following
comments.
BACKGROUND
On July 3,2017, Avista Corporation ("Avista" or "the Company") filed an Application
asking the Commission for authorization to implement Fixed Cost Adjustment (FCA) rates for
electric service from October 1,2077 through September 30,2018, and to approve its
corresponding modifications to Schedule 75, "Fixed Cost Adjustment Mechanism - Electric."
The Company separately applied to implement FCA rates for natural gas service in Case No.
AVU-G-17-03. The Company proposes per kilowatt-hour (kWh) FCA surcharge rates for both
residential and non-residential groups in this case.
1STAFF COMMENTS AUGUST 3I,2OI7
The Commission approved Avista's FCA as a three-year pilot program, and part of the
approved settlement of Avista's 2015 rate case, Case Nos. AVU-E-15-05, AVU-G-I5-01.
Application at 3; Order No. 33437 at 10. In the Order approving the FCA program, the
Commission noted that the parties to Avista's rate case agreed to review the program's
effectiveness at the end of its second full year, to ensure it is functioning as intended. Id. at3-4,
The Order also set forth how the FCA mechanism works, including treatment of existing versus
new customers, quarterly reporting, annual filings, interest, accounting, and 3Yo rate increase cap.
Id. at 4-6.
The FCA is a rate adjustment mechanism designed to break the link between the amount of
energy a utility sells and the revenue it collects to recover fixed costsl of providing service, thus
decoupling the utility's revenues from its customers' energy usage. Order No. 33437 at 3. This
decoupling removes a utility's incentive to increase sales as a means of increasing revenue and
profits, and encourages energy conservation. Id. at3-4; Application at 4.
The Application (at 4, lines 1-6) quotes from the Commission Order No. 33437, which
approved Avista's Fixed Cost Adjustment Mechanism:
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.
STAFF ANALYSIS
In its electric FCA filing, Avista proposes to increase rates for each rate group, based on
the deferred revenue recorded for January through December 2016. The Company mostly
attributes these electric FCA surcharges to abnormally warm weather and savings from energy
efficiency programs in20l6. Application at 7 -8.
Avista recorded $4,028,203 in surcharge deferred revenue for its electric residential
customer group in2016, which is affected by the 3%orate increase cap. Id. at 9 (table includes
interest and revenue-related expenses), 12-13. The Company proposes to increase residential rates
by 0.281 cents per kwh, to recover $3,290,149 from residential customers. Id. at 9. If approved
by the Commission, the Company would record this amount in a regulatory asset balancing
account and reduce the account balance each month by the revenue collected under the tarrff. Id.
| "Fixed costs" are a utility's costs to provide service that do not vary with energy use, output, or production, and
remain relatively stable between rate cases - for example, infrastructure and customer service.
2STAFF COMMENTS AUGUST 31,2017
at 10. The remaining deferral balance of $814,802 would be carried over to be recovered or
potentially offset in a future period. Id.
For its non-residential group, Avista recorded $2,556,424 in surcharge deferred revenue in
2016, which is not affected by the 3Yo rate increase cap. Id. (able includes interest and revenue-
related expenses), 13-14. The Company proposes to increase non-residential rates by 0.241 cents
per kWh, to recover $2,601,585 from commercial and industrial customers. Id. at 10-l l. If
approved by the Commission, the Company would record this amount in a regulatory asset
balancing account and reduce the account balance each month by the revenue collected under the
tariff. Id. at ll.
Staff has reviewed the Company's filing, supporting workpapers, and production responses
and verified that the Company used the Commission-approved methodology authorized by Order
No. 33437 to calculate the FCA deferral balance and associated rates for residential and non-
residential classes. Based on its review, Staff recommends that the Commission allow the
Company to recover 53,290,149 for the residential customer group and $2,601,585 for the non-
residential customer group in the 2017 FCAyear.
History of Avista's FCA
As noted above, the Commission approved Avista's FCA as part of the settlement in the
Company's 2015 rate case. The Parties to that settlement based the mechanism on Idaho Power's
FCA, but made several refinements to that mechanism. Most significantly, Parties agreed that
existing and new customers (i.e., customers added after the 2014 test year) would be treated
differently for the FCA defenal calculation. For new customers, recovery of incremental revenue
related to fixed production and transmission costs is excluded from the FCA. Consequently, the
FCA revenue-per-customer for new customers is less than the FCA revenue-per-customer for
existing customers. This prevents what the Staff views as a cost over-recovery by the Company
and helps keep FCA surcharges and customers' bills lower.
Additionally, Avista's FCA applies over a broader group of non-residential customers than
Idaho Power's FCA. Avista's FCA is applicable to non-residential customers up to a demand of
2,500 kilovolt-amperes. Avista's FCA also applies to pumping service and farm pumping service
(agricultural irrigation). Idaho Power's FCA applies to one non-residential rate schedule,
Schedule 7 (Small General Service). Schedule 7 is limited to customers with monthly energy use
STAFF COMMENTS AUGUST 3I,2OI7J
of 2,000 kWh or less, which is about three times the average residential level of usage or less
Idaho Power's FCA does not apply to pumping service.
2016 FCA Balances and,2017 FCA Rate Calculation
Staff verified that the Company correctly calculated the residential customer group deferral
balance as $4,028,203 and correctly limited rate recovery through the 2017 FCA residential rate to
the 3Yo cap of $3,290,149. Staff confirmed that applyingthe 3Yo cap results in a 2017 FCA
residential rate of 0.281 cents per kWh. Staff agrees that the remaining deferral balance of
$814,802 should be recovered or offset in a future period.
Staff also verified that the Company correctly calculated the non-residential customer
group deferral balance as $2,601,585 and that it is not affected by the 3%o cap. Staff confirmed the
2017 FCA non-residential rate of 0.241 cents per kWh is correct. The Company's proposed20lT
FCA rates of 0.281 cents per kWh and 0.241 cents per kWh, for residential and non-residential
classes respectively, are shown in the Company's proposed First Revision Sheet 75 under Monthly
Rate for Group 1 (residential) and Group 2 (non-residential).
Future Collection of the Remaining Residential Balance
Excluding the effect of the remaining $814,802 from the 2016 deferral balance, mid-year
estimates of the 2017 FCA residential deferral balance indicate that it may result in a rebate, rather
than a surcharge, to customers. It is important to note that the 2017 residential deferral balance is
still preliminary and six months remain in the FCA year, so the final2017 residential deferral
balance is still uncertain. However, if the current trend holds, it may be possible to collect the
remaining $814,802 from the 2016 defenal balance at the same time as the 2017 defenal balance
without exceeding the 3Yo cap. Staff will continue to monitor the 2017 deferral balance and will
evaluate the collection of the outstanding 2016 balance when the Company makes its 201 8 FCA
filing.
Drivers of Declining Energy Usage
The Company states that the FCA balances are surcharges because the monthly use-per-
customer in 2016 was lower than the use-per-customer established in the 2014 test year. The
Company identif,res weather, energy efficiency and "other" as drivers of the lower use-per
customer in2016. The Company further states that it has estimated that the approximate $4
4STAFF COMMENTS AUGUST 3I,2OI7
million residential FCA deferral balance is comprised of a $2.4 million (60%) deferral due to
weather, a $ 1 .5 million (37 .5%) deferral due to energy efficiency programs, and a $0.1 million
(2.5%) deferral due to other factors. For non-residential classes, the Company has estimated that
the approximate $2.5 million FCA deferral balance is comprised of a $0.3 million (12%) deferral
due to weather, a $ 1 .2 million (48%) deferral due to energy effrciency programs, and a $ L0
million (40%) deferral due to other factors. For the combined residential and non-residential FCA
revenue deferral, 41.5% is due to weather, 42.5% is due to energy efficiency programs and l6.9Yo
is due to other factors. The Company's analysis shows that less than half of the total FCA revenue
deferral balance is caused by declining usage associated with energy efficiency programs.
Risk Reduction Attributable to the FCA
Staff agrees that fixed cost adjustment mechanisms remove financial disincentives for
utilities to pursue energy efficiency. While Staff is encouraged by the Company's successful work
to acquire cost-effective energy efficiency, the Company's programs are responsible for less than
half of the overall decline in sales recovered through the FCA. The 2016 use-per-customer
analysis described above demonstrates that Avista's FCA removes financial disincentives for
energy efficiency, but it also removes risk of declining sales associated with weather fluctuations,
business cycles, and all other factors. Mitigating weather and other risks has significant value
from the Company's standpoint. However, it is less clear how customers benefit from FCA rate
adjustments for weather and other factors. Staff believes that Avista, Staff, and other interested
parties should evaluate the relative benefits of the FCA to the Company and its customers, and
determine how the value of risk reduction realized by the Company should be shared with
customers. Staff believes these issues should be addressed by interested parties at the end of the
second full year of the FCA's initial three-year term, which is the time established in the
Stipulation and Settlement (approved by the Commission in Order No. 33437) for program
review.
Tariff Revisions
The Company proposes revisions to Tariff Sheets 75A,758, and 75C to more precisely
describe the steps to calculate the FCA deferral balance and associated rates. Specifically, the
proposed revision to Tariff Sheet 75A provides detail on the calculation of Fixed Production and
Transmission Revenue (Step 2) and on the calculation of Delivery and Power Plant Revenue
STAFF COMMENTS AUGUST 3I,2OI75
(Step 3). The revision affecting Delivery and Power Plant Revenue provides clarification on
differences in the calculation for existing customers and for new customers.
The proposed revision to Tariff Sheet 75B provides clarification on differences in Steps 5
and 6 of the calculation of the Monthly FCA Deferral for existing customers and for new
customers. The revision also specifies that interest on the deferred balance (the difference on
Actual FCA revenue and Allowed FCA Revenue) accrues at the customer deposit rate.
The proposed revision to Tariff Sheet 75C provides a detailed explanation of the 3Yorate
increase limitation. Staff believes that revisions to Tariff Sheets 15A,758, andl5C provide
clarification and enhanced transparency, and better conform the FCA tariffs to the terms of the
Stipulation and Settlement approved by the Commission in Order No. 33437.
CUSTOMER NOTICE AND PRESS RELEASE
Avista filed its Application on July 5,2017. The Company noted that it would be filing
several additional rate adjustment cases in the near future, and "in an effort to minimize potential
customer confusion, a single news release will be issued ... providing details about each of the
Company's rate requests." Application at 17. Similarly, the Company intended to provide a
single notice to customers addressing four separate cases: Fixed Cost Adjustment
(AVU-E- 1 7-04); Residential Exchange Program (AVU-E- 1 7-05); Energy Efficiency Rider
(AVU-E-17-06); and Power Cost Adjustment (AVU-E-17-07).
The Company filed its press release and customer notice covering all four cases on
August 4,2017. Staff reviewed both documents and determined that, with respect to this case
(AVU-E-l7-04), they do not comply with Rule 125 of the Commission's Rules of Procedure.
IDAPA31.01.01.125. Rulesl25.04andl25.05requirethepressreleaseandcustomernoticeto
be filed with the Company's Application. Although the Staff understands the Company's desire to
minimize potential customer confusion and provide information in a way that emphasizes the net
effect of all four cases, the lengthy delay, coupled with the Commission's comment deadline of
August 31,2017 , created the need to provide direct notice to some customers at additional cost to
the Company. In the future, Staff recommends that the Company not delay issuing press releases
and customer notifications.
The notice was included with customer bills beginning August 8,2017 and ending
August 24,2017 . On August 24,2017 , 9,959 customers who would have received a bill after that
date were sent a copy of the customer notice by direct mail. Also on August 24,2017, electronic
STAFF COMMENTS AUGUST 3I,2OI76
notices were emailedto 26,498 customers. Given the Company's efforts, customers will be made
aware of cases and have an opportunity to file comments by August 31 ,2017 . Nevertheless, Staff
recommends that the Commission accept late-filed comments from customers.
CUSTOMER COMMENTS
As of August3l,2ll7, the Commission has received 12 comments from customers, all of
which were opposed to the proposed increase.
STAFF RECOMMENDATION
Staff recommends that the Commission approve the Company's FCA filing, specifically:
1. The deferral balance of $4,028,203 for the electric residential customer group in2016,
while limiting recovery through the2017 FCA to the 3%o cap at $3,290,149. The
remaining deferral balance of $814,802 should be recovered or offset in a future period.
This results in a 2017 FCA residential rate of 0.281 cents per kwh.
2. The deferral balance of $2,601,585 for the non-residential electric customer group in 2016.
This results in a2017 FCA non-residential rate of 0.241 cents per kWh.
3. The Company proposed revisions to Tariff Sheets 75A,758, and 75C.
Additionally, Staff recommends that the Commission accept late-filed comments from
customers.
Staff believes these rates provide adequate opportunity for the Company to collect its
authorized deferred revenue and allow the Company a fair and equitable recovery of fixed costs.
Respectfully submitted this 3 ( { u^v of Augus t2ot7.
Huang
Deputy Attorney General
Technical Staff: Bentley Erdwurm
Donn English
Rachelle Farnsworth
Daniel Klein
i :umisc:comments/avue I T.4djhdkderfbe comments
7STAFF COMMENTS AUGUST 31,2017
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 3IST DAY OF AUGUST 2017,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-17-04, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
SR MGR RATES & TARIFFS
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-mail: [e-mail]
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail: [e-mail]
-bSECRETAilT/
CERTIFICATE OF SERVICE