20170915Comments.pdf

CAMILLE CHRISTEN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720.0074
[phone]
BAR NO. t0t77
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE POWER COST
ADJUSTMENT (PCA) ANNUAL RATE
ADJUSTMENT FILING OF AVISTA
CORPORATION
CASE NO. AVU-E-17-07
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Camille Christen, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 33841 on August 16,2017, tn
Case No. AVU-E-17-07, submits the following comments.
OVERVIEW OF COMPANY APPLICATION
The Power Cost Adjustment (PCA) is an annual cost adjustment mechanism that tracks
changes in the Company's hydropower generation, fuel costs, power market purchases and sales,
transmission revenue and expenses, Renewable Energy Credit (REC) revenue, power contract
revenue and expenses, and other miscellaneous revenue and expenses. It ensures that customers
do not pay more or less than the Company's prudently incurred actual net power costs (NPC).
When the actual NPC are greater than that recovered through base rates, customers are
surcharged the difference. When the actual NPC are lower, customers receive a rebate. The
annual PCA rate is combined with the Company's base rate to produce aratepayer's overall
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ISTAFF COMMENTS SEPTEMBER 15,2017
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energy rate. The money collected from ratepayers through the PCA surcharge can only be used
to pay approved NPC, and the Company's earnings are not increased by the PCA mechanism.
The Company asks the Commission to approve a PCA rebate rate of 0.240 cents per
kilowatt-hour (kWh) to be effective October 1,2077, in place of the current 0.017 cents per kWh
rebate approved by Order No. 33605. Under the Company's proposal, the PCA rate for all
customers, including residential customers, would decrease the billing rate by 0.223 cents per
kwh. Since the PCA rate adjustments are spread on a uniform cents-per-kWh basis, the
resulting percentage increase varies by rate schedule. The overall decrease is2.7Yo. The table
below shows the percentage change on billed revenue for each customer group.
Percent Change on Billed Revenue for Each Type of Service
STAFF REVIEW
Staff has thoroughly examined the Company's PCA Application by reviewing: (1) actual
and authorized expenses included in the deferral; (2) the deferral calculation method; (3) the
prudence of actual NPC incurred during the deferral period; (4) the calculation of balancing
accounts and interest used to determine the final PCA rate; and (5) the calculation of the PCA
rate. Major findings as a result of Stafls review are as follows.
1. The Company correctly booked actual NPC amounts and antortrzatrons for the PCA
period (July 2016 through June 2017) and utilized proper loads and NPC amounts
embedded in base rates to calculate the deferral.
2
Types of Service Schedule Numbers Percent Change on Billed
Revenue
Residential I -2.4%
General Service \\,\2 1 ao/-L.L /O
Large General Service )1 ))-2.7%
Extra Large General Service 25 -4.3%
Clearwater 25P -4.6%
Pumping Service 37,32 -2.4%
Street and Area Lights 41-49 -0.7%
Total -2.7%
STAFF COMMENTS SEPTEMBER 15,20I7
2. The Company properly calculated the deferral using the methods approved by the
Commission.
3. The amount of actual NPC incuned to serve customer load was reasonable and
prudent.
4. The Company calculated PCA rates using methods approved by the Commission
providing a rebate to customers ensuring they will pay no more or no less than actual
costs minus sharing.
Details of Staff s major findings are provided in the sections below.
Audit of Actual and Authorized Amounts
Staff conducted an on-site audit during the week of August 14,2017 . Staff reviewed and
audited the deferred balance amounts included in the current filing. Additionally Staff reviewed
and audited the amounts from the prior PCA deferral that is currently being amortized, and finds
the amortization of the prior year's PCA deferral to be correct.
Staffs review ofthe deferral balance covered expenses incurred for the period ofJuly
2016 through June 2017. Staff examined transactions included in the Purchased Power account
(FERC Account 555), Thermal Fuel account (FERC Account 501), Combustion Turbine Fuel
account (FERC Account 547), and the Sales for Resale account (FERC Account 447). Based on
its review of these transactions, Staff concludes that the various power cost transactions are
reasonable and were prudently incurred at the time they were made. Staff confirmed that all
transactions comply with Avista Utilities Energy Resources Risk Policy. Staff also verified that
Avista's booked amounts and other calculations have been correctly reflected in the deferral.
Staff checked the authorized amounts used to calculate the deferral and confirmed they
were the same used to determine base rates that were authorized during the deferral period. Base
rates that were in effect during the deferral were authorized in Case Nos. AVU-E-15-05 for
July I ,2016 through December 31,2016, and AVU-E-16-03 for January 1,2017 through
June 30 2017.
Calculation of the Deferral
The final deferral balance with interest is a rebate to Idaho customers of $7,233,993. It
includes a NPC deferral of $7,180,332, a REC Retirement Benefit of $36,414, and interest of
JSTAFF COMMENTS SEPTEMBER I5,2017
517,247. The power cost deferral captures the difference between actual NPC and the revenue
that recovers NPC through base rates for the twelve months ending June 30, 2017. It is then
adjusted by the load change adjustment (LCA) and the REC revenue adjustment.
Under Avista's PCA, the Company and its ratepayers share the difference between actual
NPC and NPC embedded in base rates. The sharing percentage is 90o/o for ratepayers and 10%
for the Company. When actual costs are higher than those recovered through base rates, Idaho
customers only have to pay 90o/o of the difference. When actual costs are lower, customers are
credited 90%o of the difference allowing the Company to keep l0%. This provides an incentive
for the Company to lower NPC by operating their system more efficiently.
Staff examined each account and item that contributes to the final deferral balance and
reviewed the method used in the Company's calculations. Staff believes that the amount of
deferral balance is accurate, and the method used to derive it complies with past Commission
orders. The amount represents the over-recovery of NPC through base rates during the deferral
period and thus is a refund to customers.
Deferral
l. FERC Account 555 - Purchased Power. Purchased Power costs reflect 90yo of the
Idaho jurisdictional share of the difference in costs the Company incurred for power purchases in
the review period compared to authorized power costs included in base rates. In the review
4
Number Accounts and ltems Amount
5 1q,q89,903
(L4,382,464)
(1,,043,710)
(472,1.45)
(L,'J.12,633)
35,225
(3,743,3241
(65,438)
45,328
J______17J80332)
(36,4L4)
5 0,2L6,7461
(17,247)
s (7,233,993)
3 4
L
2
3
4
5a
sb
6
7
8
9
10
11
FERC Account 555 - Purchased Power
FERC Account 447 - Sale for Resale
FERC Account 501 - Thermal Fuel
FERC AccounI54T - Combustion Turbine Fuel
FERC Account 456 - Transmission Revenue
FERC Account 565 - Transmission Expense
FERC Account 557 - Resource Optimization
ldaho Load Change Adjustment
Other Expense
Renewable Energy Credits Revenue
Net Power Cost lncrease (Decrease)
REC Revenue Credit for WA RPS
Net Deferral Balance
lnterest on the Deferral Balance
Deferral Balance with lnterest for Review Period
STAFF COMMENTS SEPTEMBER 15,2017
period, the Company incurred more purchased power costs than are included in base rates. The
positive amount is a cost to customers.
Palouse Wind expenses are included in the Purchased Power costs. In the most recent
general rate case (Case No. AVU-E-16-03), Palouse Wind was removed from base rates and the
expenses have been required to flow through the PCA accounting mechanism. This expense
treatment requires Avista to share 10% of the Idaho jurisdictional costs of Palouse. Had the
costs been included in base rates, customers would have paid 100% of the costs associated with
the Palouse Wind Project.
2. FERC Account 447 - Sale for Resale. Sales for Resale are long-term and short-term
off-system sales. The amount represents 90% of the Idaho jurisdictional share of the difference
between the actual off-system sale revenues and off-system sale revenues included in base rates.
The negative amount in the Company's Application reflects an increase in sales for resale
revenues and is a benefit to customers.
3. FERC Account 501 - Thermal Fuel. Thermal Fuel, primarily coal, is used to produce
electricity. The amount represents 90Yo 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 actually incurred lower coal costs than are
currently included in base rates. The negative amount in the Application is a benefit to
customers.
4. FERC Account 547 - CT Fuel. Combustion Turbine (CT) Fuel is natural gas burned
in the Company's gas-fired generators. This amount represents90o/o of the Idaho jurisdictional
share of the difference in costs the Company actually incurred for gas generator fuel compared to
the amount included in normalized base rates. In the review period, the Company incurred less
natural gas cost than is currently included in base rates. The negative amount here is a benefit to
customers.
5a and 5b. Transmission Revenue (FERC Acppuut4SOan@
(FERC Account 565). In Case No. AVU-E-09-01, the Commission approved a multi-party
settlement that authorized the Company to include transmission revenues and expenses in the
PCA. Avista incurs third party transmission costs when it purchases power and has it wheeled or
delivered to its service area by a third party. Third party transmission revenues occur when
Avista is the third party and is delivering power for others. Including transmission revenues and
STAFF COMMENTS SEPTEMBER 15,20I75
expenses in the PCA tracks the variability of these items. Avista's actual transmission revenue
was greater than that included in the Company's base rates. This negative amount is a benefit to
the customers. Avista's actual transmission expense was greater than that included in the
Company's base rates. This positive amount is a cost to its customers.
6. Resource Optimization. Resource Optimization results in a cost or a benefit to
customers when natural gas is purchased in advance for use in generating plants, then is later
sold because it is more cost effective to sell the gas and purchase electricity than it is to generate
electricity. Ninety percent of the Idaho jurisdictional share of the gain or loss on the sale of gas
transactions resulting from optimizing the Company resources is included in the PCA. The gain
during the review period, shown as a negative amount, is a benefit to Idaho customers.
7. Idaho Load Change Adjustment (Retail Revenue Adjustment). This adjustment
captures the over or under recovery of net power supply expense through base rates attributable
to the difference between actual sales and sales used to set base rates. During the review period,
the Company experienced greater sales than what was used to set base rates. This results in a
negative adjustment and a benefit to customers. The amount is subject to 90%o sharing.
8. Other Expense. This expense represents the Merchandise Processing Fees associated
with U.S. Customs and Border Protection (CBP). Avista maintains that all of its natural gas
imports should qualify for preferential treatment and not be assessed a merchandise processing
fee. Other natural gas importers in the Northwest and across the United States have either been
through, or in the midst of investigations similar to this issue. The industry, working with the
American Gas Association, has requested reconsideration of its requirements for proof of
Canadian origin. Staff agrees that the approximately $45,000 included in actual NPC is currently
reasonable but recommends that the issue be revisited during the next PCA case when further
information is available regarding the status of the investigation and related fees.
9. Renewable Ener$, Credits (REC) Revenue. The Company continues to book REC
revenue in Account No. 557 along with Resource Optimizatron. Based on Order No. 33605, the
Company has separately reported actual and authorized REC revenue and expenses in its PCA
filing. The revenue generated from Avista's sale of RECs was greater than the amounts
authorized in base rates. This is subject to sharing and is a benefit of almost $1 million to
customers.
STAFF COMMENTS SEPTEMBER 15,20176
10. REC Revenue Credit for W Renewable Portfolio Standards. The REC
Retirement Benefits for RECs used to meet Washington Renewable Portfolio Standards (RPS)
are tracked 100% in the PCA; it is based on the Idaho allocation of RECs that were retired to
meet Washington RPS requirements that would have otherwise been sold. The benefit to Idaho
customers this year is $36,414.
1 l. Interest durins Deferral Period. The Company calculates interest on the deferral
balance using the Customer Deposit Rate of l%o. Due to the overall deferral balance being a
benefit the interest is also a benefit to customers.
Net Power Cost Analysis
Staff determined that the Company's actual NPC incurred during the PCA year (July
2016 through June 2017) was reasonable. This was determined by comparing the actual unit cost
and the amounts of generation to those assumed in base rates for each supply source. The results
of Staff s analysis are shown in the table below:
Actualversus Authofized Net Power Supply Expense Differences
The largest contributing factors to the Company's decrease in actual NPC during the
PCA deferral period was higher-than-normal hydro generation and lower natural gas prices
which reduced market electricity prices throughout the region. Company-owned zero-fuel cost
hydro resources generated 24oh more energy than what was assumed in base rates. Additionally,
lower natural gas prices generally result in lower market electricity prices which allowed the
Company to purchase more electricity from the market than was reflected in the base. Lower
natural gas prices also led to the Company generating 4lYo more from their gas-fired units. The
combination of more hydro generation, higher amounts of gas-fired generation, and more market
purchases allowed the Company to appropriately reduce generation from the Company's coal-
7
Exptnse Category lfrYh Change M!1lh % Change $MlYh Change $M?llh % change
A{sta ffiro 80i,s6 21}ffa rt'a
Acd 5$ Purdax 1,78,013 89S (S10 Z1 .21S
Aco417 Sab 1,519,9,l6 103%{$611 .1016
AcO 501 ilsnslFud {Caal&Wood}{1,0&,s&.sxi $84 7trfi
&cd *7 CT Frcl {illatrral Sas}7m.42 (s11Ai .31$
STAFF COMMENTS SEPTEMBER 15,2017
11qbl
fired thermal plants. Staff believes the resulting lower capacity factors contributed to less
efficient coal-plant operation increasing the unit cost.
The Company received slightly lower market prices for off-system sales. Staff would
have expected to see lower off-system sales amounts, all things being equal. However, increased
hydro generation likely contributed to the Company's ability to sell into the market by having
excess capacity of lower cost resources increasing the amount of sales.
Analysis of PCA rates
Staff believes the Company's proposed rates are accurate and will fairly reimburse
customers for over collection of actual net power cost embedded in base rates. Residential
customers using an average of 910 kWhs per month would see their monthly bills decrease by
2.35% from $86.39 to $84.36.
As illustrated in the table below, the PCA rate is calculated by dividing the PCA revenue
requirement by the forecasted Idaho electricity usage during the next PCA billing period. The
revenue requirement is converted from the total amortization and deferral balance including
interest as of September 3 0, 20 1 7 through a conversion factor of 0.99327 6, which grosses up the
revenue requirement for Commission fees and uncollectible amounts approved in the Company's
last rate case (Case No. AVU-E-16-03). The total amortization and deferral balance includes the
unamortized ending balance in the deferral account as of June 2016, the current PCA deferral,
the REC Retirement Benefit adjustment, amortizations based on the current PCA rates, and a
projected amortization for the months of July, August, and September of 2017. The projected
amortization will be trued up in next year's PCA.
Interest is calculated based on the authorized customer deposit rate, which is currently set
at lo/o for the period from July 2016 through September 2017. Based on Staff s
recommendations in the last PCA case and authorized by the Commission (Order No. 33605),
the Company has adopted the simplified method to calculate interest, which adds greater
transparency to this and future PCA filings.
Staff verified the components of the revenue requirement and confirmed that a negative
$7,324,133 amount results in a proposed 0.24 cents per kwh PCA rebate to customers.
STAFF COMMENTS SEPTEMBER I5,20178
PCA Rate Calculation
Amounts Total
2015-2016 PCA Ending Balance (June 30, 2016)
2016-17 Incremental Power Cost Deferral
2016-17 RPS Compliance Adjustment
2016-17 Amortization
Subtotal
Jul - Sept 2017 Projected Amortrzation
Subtotal
Interest July 2016 - Sept 2017
Grand Total
Conversion Factor
PCA Revenue Requirement
Forecasted Sales during Collection Period (kwh)
Final Proposed PCA Rate ($/kwh)
CUSTOMER NOTICE AND PRESS RELEASE
The Company's press release and customer notice were included with its Application.
Staff reviewed the documents and determined that both comply with Rule 125 of the
Commission's Rules of Procedure, IDAPA 31.01.01.125.
The notice was included with customer bills beginning August 8 and ending August 24.
On August 24,9,959 customers who would have received a bill after that date were sent a copy
of the customer notice by direct mail. Also on August 24th, electronic notices were emailed to
26,498 customers. Customers have the opportunity to file comments on or before September 15,
2017.
CUSTOMER COMMENTS
As of September 15,2017,the Commissionhas receivedzero comments from customers.
STAFF COMMENTS SEPTEMBER I5,20179
$ (770,347)
$ (7,180,332)
$ (36,414)
$ 627,818
$ (124,398)
$ (6,588,928)
$ (4o,oo9)
s ( 124,398)
s (7,274,886)
0.993276
$ (7,324,133)
3,049,182,386
(0.00240)
STAFF RECOMMENDATIONS
Staff recommends that the Commission authorize the total deferral balance with interest
in the amount of $7,233,993 to be refunded to ratepayers and approve Schedule 66 as filed in
Exhibit A of the Company's Application to go into effect on October l, 2017 .
1G,14^
Respectfully submitted this t ') day of September 2017 .
0"r^,11^ I P',*fo,^
Camille Christen
Deputy Attorney General
Technical Staff: Rachelle Famsworth
Patricia Harms
Daniel Klein
Yao Yin
Mike Louis
i : umisc/comments/avue I 7. Tccrfdephdkyyml comments
STAFF COMMENTS 10 SEPTEMBER 15,20I7
CERTIFICATE OF SBRVTCB
I HEREBY CERTIFY THAT I HAVE THIS 15TH DAY OF SEPTEMBER 2017,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU.F,-17-07, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
SR MGR RATES & TARIFFS
AVISTA CORPORATION
PO BOX 3127
SPOKANE WA99220-3727
E-mail : [e-mail]
DAVID J MEYER
VP & CHIEF COLINSEL
AVISTA CORPORATION
PO BOX 3727
SPOKANE WA99220-3727
E-mail: [e-mail]
-t" ,//rhr^
SECRET,{Rf/,/
CERTIFICATE OF SERVICE