20180913Comments.pdf

SEAN COSTELLO
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 8743
IN THE MATTER OF AVISTA
CORPORATION'S APPLICATION TO
IMPLEMENT FIXED COST ADJUSTMENT
RATES FOR ELECTRIC SERVICE FROM
OCTOBER 1,2018 THROUGH
SEPTEMBER 30, 2019.
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Street Address for Express Mail:
472 W, WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. AVU-E-18-06
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Sean Costello, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 341 12 on July 26,2018, in
Case No. AVU-E-18-06, submits the following comments.
BACKGROUND
On July 2,2078, Avista Corporation (Avista) 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. The Company also requests the Commission
approve a per kilowatt-hour (kWh) FCA rebate rate of 0.176 cents for its Residential Group and
1STAFF COMMENTS SEPTEMBER 13,2018
a per kwh FCA surcharge rate of 0.056 cents for its Non-Residential Group from October 1,
2018, through September 30,2019. Application at 1. Avista requests an effective date of
October 1,2018. Id. at2;14.
History of Avista's FCA
An 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 sales. This decoupling is intended to remove a
utility's disincentive to pursue energy efficiency savings.
Staff has argued in past comments that while the FCA is effective at shielding utility
revenues from the reduction in sales produced by energy efficiency, the mechanism has a much
broader impact. Avista's FCA removes the Company's fixed cost risk of reduced sales caused
by many factors beyond energy efficiency, including weather, economic cycles, improved
building codes and standards, improved appliance standards, and behavioral responses to higher
electric bills. Addressing these risks has value from the Company's standpoint because it
stabilizes revenue and may lower capital costs.
The Commission approved Avista's FCA as a three-year pilot program, and part of the
approved settlement of Avista's 2015 generalrate case. See Case Nos. AVU-E-15-05,
AVU-G-15-01; Application at 3; and Order No. 33437 at 10. The Order set forth how the FCA
mechanism works, including treatment of existing versus new customers, quarterly reporting,
annual filings, interest, accounting,anda3Yorate increase cap. Id. at4-6.
Avista's approved FCA mechanism is based on Idaho Power's FCA mechanism, with
several refinements specific to Avista. Most significantly, existing and new customers (i.e.,
customers added after the 2014 test year) have a separate input for the FCA deferral calculation.
Specifically, electric customers added since the test year are subject to a FCA revenue-per-
customer that excludes incremental revenue related to fixed production and transmission costs.
In order to segregate customers for this calculation, Avista tracks usage of new customers since
January 1,2016, separately from existing customers. Consequently, FCA revenue-per-customer
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 costs.
2STAFF COMMENTS SEPTEMBER 13,20I8
for new customers is less than that for existing customers. This mechanism prevents over-
recovery by the Company and helps keep FCA surcharges and customers' bills lower.
The non-residential customer group identified by Avista for the FCA is also broader than
Idaho Power's FCA group. Idaho Power's FCA non-residential group only applies to one rate
schedule, Schedule 7 (Small General Service). Avista's FCA is applicable to non-residential
customers with a demand as high as 2,500 kilovolt-Amperes and also includes pumping service
and farm pumping service (agricultural irrigation). These two rate groups were targeted in the
FCA mechanism because the Company's fixed costs are recovered through variable usage rates
that can be strongly affected by weather and other factors.
In Order No. 33437, the Commission ordered the parties to Avista's rate case to review
the program's effectiveness at the end of its second full year, to ensure it is functioning as
intended. See Application at 3-4. However, on June 15, 2078, the Commission approved an
addendum to the settlement stipulation approved in AVU-E-I5-05 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 changes: (l) an FCA
mechanism term of four years; and (2) interested parties will conduct an effectiveness review at
the end of the third year of the pilot. Id.
STAFF REVIEW
Staff reviewed the FCA and associated documentation and then verified that the deferral
balance and FCA rates are materially accurate. Based on its review, Staff recommends that the
Commission allow the Company to rebate $2,071,515 to the residential customer group with a
rate of 0.176 cents per kWh and recover $603,669 for the non-residential customer group in the
2018 FCA year with arate of 0.056 cents per kWh. On the other hand, Staff could not reconcile
the Company's demand-side management (DSM) savings estimates identified as a driver of
reduced energy consumption, though this finding does not affect Staff s recommendation at this
time. Lastly, Staff suggests the Company assess the balance of risk between itself and customers
when the program is reviewed after the third year of the pilot program.
Audit Results
Staff has reviewed the Company's filing, supporting workpapers, and production
responses and verified that the Company used the Commission-approved methodology
STAFF COMMENTS 3 SEPTEMBER 13,2018
authorized by Order No. 33437 to calculate the FCA deferral balance and associated rates for
residential and non-residential classes. Staff has reasonable assurance that the Company's FCA
deferral and FCA rate are materially accurate. Staff audited the amortization from the prior
year's deferral balance, the kWh sales for the FCA year, new and existing customer counts,
revenue from fixed cost collections, and the interest calculation. The audit included a review of
internal control processes as well as internal audit documents pertaining to these items. Staff
checked the authorized amounts used to calculate the deferral and confirmed that they were the
same used to determine base rates that were authorized during the deferral period. Staff then
recalculated the FCA deferral amount and rates. Staff agrees that in this case the FCA deferral is
not subject to the 3Yo cap because there is no proposed carry-over for either rate class.
2017 FCA Balances and 2018 FCA Rate Calculation
In its Application, Avista proposes to decrease rates for both the electric residential
customer group and the non-residential electric customer groups based on the deferred revenue
recorded for January through December 2017. Though non-residential customer groups' rates
are lower than2017, the rate is still a surcharge. The Company mostly attributes these changes
to drivers such as abnormally cold weather in January and February 2017, hot weather during the
summer of 2017, and savings from energy efficiency programs in2017. Id. at7-8. The
Company states that other drivers are not easily quantifiable but include, among others, the
effects of non-programmatic energy efficiency and changes in business cycles. Id. at 8.
The Company asserts that the FCA balances are the result of higher monthly use-per-
customer than the use in the 2015 test year. Abnormally cold winter weather, and abnormally
warrn summer weather in20l7 resulted in excess revenue of approximately $3.2 million
residential and $ L 1 million for non-residential. Id. at 7 . The Company calculated that under
normal weather conditions there would have been a $1.8 million residential and $2.5 million
non-residential revenue shortfall associated with programmatic energy efficiency savings.
Id. at8.
Avista proposes to credit electric residential customers (Group 1 * Schedules l, 12, and
22) $2,071,5 15. The Company calculated this amount by reducing the calendar year 2017
deferral of $2,816,256 by the actual 2016 carry-over balance of $788,461, increased by the
interest of $31,328, and increased by the revenue-related expense adjustment of $12,392.
4STAFF COMMENTS SEPTEMBER I3,2018
Id. at 9. If approved by the Commission, the currently authorized residential FCA surcharge rate
of 0.28 I cents per kWh will be revised to a rebate rate of 0.17 6 cents per kwh. This will reduce
the Company's residential revenue by $5.4 million (4.7% reduction). Id. at9; and Exhibit B.
The Company proposes to 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. The FCA proposal reduces the monthly bill of a residential customer using 910 kWh per
month by $4.16 - from $88.49 to $84.33 - a4.7Yo decrease.
Avista also proposes to surcharge $603,669 from commercial and industrial customers
(Group 2 - Schedules 1 l, 12,21,22, 3l and 32). Id. at l0-l I ; Exhibit B. The Company
calculated this amount by reducing the calendar year 2017 defenal of $610,929 by the actual
2016 cany-over balance of $1 5,748, adding $7,623 in interest, and adding a revenue-related
expense adjustment of $865. If approved by the Commission, the current authorized non-
residential surcharge rate of 0.241 cents per kWh will be revised to 0.056 cents per kWh. Id. at
10-1 1. This proposed change in the non-residential FCA rate from alarger surcharge to a
smaller surcharge reduces non-residential revenue by $2.0 million (2.0% reduction). The
Company proposes to record this amount in a regulatory asset balancing account, with 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 ll.
Energy Consumption Drivers
According to the Company, uncharacteristic weather patterns in2017 resulted in
increased per-customer residential (38 kwh) and non-residential (67 kwh) monthly consumption
relative to the 20 I 5 base year . Id. at 8. Absent calendar year 2017' s exceptional weather
conditions, Staff believes that per-customer consumption would have decreased; however, Staff
is not convinced that the reductions the Company attributes to its DSM programs are credible.
Staff notes that since the Commission approved the Company's FCA mechanism in20l5,
total monthly weather normalized consumption has decreased by 9.29 kWh per residential
customer and 108.44 kWh per non-residential customer. See Company's response to Staff s
Production Request No. 3. These decreases represent a |.}Yo reduction in residential artd2.8oh
reduction in non-residential consumption compared to 2015 weather-normalized consumption.
The Company reported that its energy efficiency programs resulted an average monthly
decrease of 22 kWh per residential customer and 150.5 kwh per non-residential customer
5STAFF COMMENTS SEPTEMBER 13,20I8
relative to the 2015 test year. Given that the energy efficiency decreases are much greater that
the total decreases in weather-normalized consumption, Staff believes the Company's energy
efficiency savings are overstated.
Staff has expressed concerns about the Company's reported energy efficiency savings
estimates in previous cases. See Case Nos. AVU-E-I3-09, AVU-E-l4-07, and AVU-E-I6-06.
Most recently, in AVU-E-16-06, Staff wrote: "[i]n this case, the Company's Annual Reports
were unreliable for use by [S]taff because there are questions as to the validity of the information
contained within it." See Case No. AVU-E-16-06 Staff Comments at 10.
Although energy efficiency was an important justification for the FCA, energy savings
estimates are not a component of the FCA calculation. Therefore, the Company's claims
regarding its energy efficiency program savings does not directly affect Staff s recommendations
to approve the Company's Application in this case. However, Staff will closely scrutinize the
Company's energy savings when it next files for prudency of its DSM expenses.
Risk Reduction Attributable to the FCA
As stated above, the FCA helps stabilize revenue and lower risk to the Company, thus
potentially lowering its cost of capital. However, it is less clear how customers benefit from
FCA rate adjustments. Avista, Staff, and other interested parties should determine how the value
of risk reduction realized by the Company should be shared with customers. Thus far, Staff has
not recommended a lower cost of equity to recognize the lower risk to the Company, but Staff
may consider such a proposal in the future. Staff believes these issues should be addressed by
interested parties during the program review following the end of the third full-year, as approved
by Order No. 34085.
CUSTOMER NOTICE AND PRESS RELEASE
The Company's press release and customer notice were included with its Application on
Jr;.ly 2,2018. Staff reviewed the documents and determined both meet the requirements of Rule
125 of the Commission's Rules of Procedure. IDAPA 31.01.01.125. The notice was included
with bills mailed to customers beginning July 12,2018 and ending August 10,2018, providing
customers with a reasonable opportunity to file timely comments with the Commission by the
September 13, 2018 deadline. As of September 11 ,2018, no comments had been filed.
6STAFF COMMENTS SEPTEMBER I3,2018
STAFF RE,COMMENDATIONS
Staff recommends that the Commission approve the Company's FCA filing, specifically
l. The deferral balance of $2,816,256 for the electric residential customer group in
2017. This results in a 2018 FCA residential rate of -0.176 cents per kwh.
2. The deferral balance of $610,929 for the non-residential electric customer group in
2017. This results in a 2018 FCA non-residential rate of 0.056 cents per kwh.
Staff believes these rates provide adequate opportunity for the Company to collect its
deferred authorized level offixed costs.
Respectfully submitted this /?#day of September 2018
o
Sean Costello
Deputy Attorney General
Technical Staff: Cassie Koerner
Bentley Erdwurm
Mike Morrison
Joe TerrY
Johnathan Farley
Michael Eldred
Johan Kalala-Kasanda
i :umisc/comments/avue I 8.6scjfbemmckmejtjk comments
7STAFF COMMENTS SEPTEMBER 13,2018
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS l3th DAY OF SEPTEMBER 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-18-06, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
DIRECTOR REGULATORY AFFAIRS
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-mail : [e-mail]
DAVID J MEYER
VP & CHIEF COLTNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail : [e-mail]
.L,42-,^
CERTIFICATE OF SERVICE