20180720Decision Memo.pdf

DECISTON MEMORANDUM
TO COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:SEAN COSTELLO
DEPUTY ATTORNEY GENERAL
DATE: JULY 16,2018
SUBJECT:AVISTA'S APPLICATION TO IMPLEMENT FCA RATES FOR
ELECTRTC SERVTCE FROM OCTOBER 1,2018 THROUGH
SEPTEMBER 30, 2019; CASE NO. AVU-E-18-06.
On July 2,2018, Avista Corporation applied to the Commission for authorization to
implement Fixed Cost Adjustment (FCA) rates for electric service from October 1, 2018, through
September 30,2019, 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-18-03. The Company requests that the Commission issue
an order approving FCA deferrals for the period January 1,2017, through December 31,2017 , and
approve a per kilowatt-hour (kwh) FCA rebate rate of -0.176 cents for its Residential Group and
a per kilowatt-hour FCA surchargerate of 0.056 cents for its Non-Residential Group from October
1, 2018, through September 30, 2019. Application at L Avista asks that its Application be
processed by Modified Procedure, and requests an effective date of October 1, 2018. Id. at2;14.
BACKGROUND
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. Id. at3-4. This
decoupling removes a utility's incentive to increase sales as a means of increasing revenue and
profits, and encourages energy conservation. Id. at 4. The Commission approved Avista's FCA
as a three-year pilot program, and part of the approved settlement of Avista's 2015 rate case. See
Case Nos. AVU-E-15-05, AVU-G-15-01; Application at 3; and Order No. 33437 at 10. In the
I "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.
IDECISION MEMORANDUM
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. See Application al3-4. The Order also set forth how the FCA mechanism
works, including treatment of existing versus new customers, quarterly reporting, annual filings,
interest, accounting , and 3o/o rate increase cap. Id. at 4-6.
On June 15,2018, the Commission approved an addendum to the settlement stipulation
approved in AVE-E-15-05 and AVU-G-15-01, which extended the term of the Company's FCA
pilot for an additional year. See Order No. 34085. As a result, the Company updated its Tariff
Sheet 75 to reflect, among other proposed changes: (l) an FCA mechanism term of four years; and
(2) interested parties will conduct an effectiveness review at the end of the thirdyear. Id.
PROPOSED 2018-2019 FCA RATE ADJUSTMENT
In its electric FCA filing Avista proposes to decrease rates for its electric residential
customer group and increase rates for its non-residential electric customer groups based on the
deferred revenue recorded for January through December 2017. The Company mostly attributes
these proposed changes to drivers such as abnormally cold weather in January and February 2017,
and hot weather during the summer of 2017, and savings from energy efficiency programs in20l7.
Id- at 7-8. Other drivers are not easily quantifiable but include, among other things, the effects of
non-programmatic energy efhciency and changes in business cycles. Id. at8.
Avista recorded $2,816,256 in the rebate direction in deferred revenue for its electric
residential customer group in 2017, which includes the actual 2016 Carry Over Balance of
$788,461 . Id. at 9 (table includes, carry over balance, interest and revenue-related expenses). The
Company's proposed rate of -0.176 cents per kWh is designed to rebate $2,071,515 to the
Company's residential electric customers served under rate Schedule 1. Id. al9; Exhibit B. If
approved by the Commission, the Company would record this amount in a regulatory liability
balancing account and reduce the account balance each month by the rebate received by customers
under the tariff. Id. at 10.
For its non-residential group, Avista recorded 8610,929 in surcharge defemed revenue
in2017. Id. atl0-ll (table includes, carry over balance, interest and revenue-related expenses).
The Company proposes to increase non-residential rates by 0.056 cents per kWh, to recover
$603,669 from commercial and industrial customers. Id. at l0-l l; Exhibit B. If approved by the
Commission, the Company would record this amount in a regulatory asset balancing account, with
2DECISION MEMORANDUM
any outstanding balance from the surcharge approved in Case No. AVU-E-17-04, and reduce the
account balance each month by the revenue collected under the tariff. Id. at 11.
With its Application, Avista submitted its residential and non-residential rate
calculations, support for the Company's deferrals, and its proposed FCA tariff, Schedule 75.
STAFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure with a comment
deadline of September 13,2018, and reply deadline of September20,2018.
COMMISSION DECISION
Does the Commission wish to process this case under Modified Procedure with a
comment deadline of September 13, 2018, and reply deadline of September 20,2018?
Sean Costello
Deputy Attorney General
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JDECISION MEMORANDUM