20180913Comments.pdf

EDWARD JEWELL
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10446
fI.iTEIVED
;.; ifi S:IP i 3 Ptl l: 36
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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
IN THE MATTER OF THE POWER COST
ADJUSTMENT (PCA) ANNUAL RATE
ADJUSTMENT FILING OF AVISTA
CORPORATION
CASE NO. AVU.E.18.O7
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Edward Jewell, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 34125 on August 15, 2018, in
Case No. AVU-E-18-07, 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
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1STAFF COMMENTS SEPTEMBER I3,2018
annual PCA rate is combined with the Company's base rate to produce a ratepayer's overall
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 of 0.326 cents per kilowatt-
hour (kWh) to be effective October 1, 2018, in place of the current 0.240 cents per kWh rebate
approved by Order No. 33894. Under the Company's proposal, the PCA rate for all customers,
including residential customers, would decrease the billing rate by 0.086 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 is 1.0%. The table below shows the
percentage change on billed revenue for each customer group.
Percent on Billed Revenue for Each e of Service
STAF'F REVIEW
Staff has thoroughly examined the Company's PCA Application by reviewing: (1) actual
and authorized expenses included in the defenal; (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. Based on Staff s review, Staff concludes:
l. The Company correctly booked actual NPC amounts and amortization for the PCA
period (July 2017 through June 2018) and utilized proper loads and NPC amounts
embedded in base rates to calculate the deferral.
2. Calculating and reporting PCA expenses on the PCA year, instead of a calendar year,
in the quarterly PCA reports would more closely align with the PCA filing.
2
Types of Service Schedule Numbers Percent Change on
Billed Revenue
Residential 1 -0.9%
General Service I I I 2 -0.8%
Large General Service 21,22 -1.0%
Extra Large General Service 25 -1.6%
Clearwater 25P -1.6%
Pumping Service 31,32 -0.9%
Street and Area Lights 4t-49 -0.3%
Total -1.0%
SEPTEMBER I3,2018STAFF COMMENTS
3. The Company properly calculated the deferral using the methods approved by the
Commission.
4. The amount of actual NPC incurred to serve the customer load was reasonable and
prudent.
5. 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 conclusions are provided in the sections below.
Review of Actual and Authorized Amounts
Staff conducted an on-site audit during the week of August 27,2018, and confirmed the
Company correctly booked the current deferral balance and the amortization of the prior year's
PCA deferral. Staff examined transactions included in the Purchased Power account (FERC
Account 555), Thermal Fuel account (FERC Account 2015), Combustion Turbine Fuel account
(FERC Account 547), and Sales for Resale account (FERC Account 447). Based on its review
of the transactions, Staff has reasonable assurance that the various power cost transactions are
reasonable and prudently incurred at the time they were made. Staff is reasonably assured that
all transactions comply with Avista Utilities Energy Resources Risk Policy. Staff also audited
and assures that Avista's booked amounts and other calculations have been correctly reflected in
the deferral.
Staff confirmed the authorized NPC amounts used to calculate the deferral 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-16-03 for July 1,2017 through
December 31,2017, and AVU-E-17-01for January 1,2018 through June 30, 2018.
The Company currently submits quarterly PCA reports that outline the actual net power
supply expenses and calculate monthly deferral balances based on a calendar year. Staff believes
calculating and reporting PCA expenses on a PCA year, instead of a calendar year, in the
quarterly PCA reports would more closely align with the PCA filing. Staff requests that the
quarterly PCA reports reflect the current PCA year in the future.
JSTAFF COMMENTS SEPTEMBER 13,2018
Calculation of the Deferral
Staff believes the Company properly calculated the current deferral balance using the
methods approved by the Commission. As seen in the table below, the final deferral balance
with interest is a rebate to customers of $9,3 13,625. It includes a NPC deferral of $9,293,696, a
REC Retirement Benefit of $ 1,706 and interest of $ 1 8,223. 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, 2018. 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 imbedded in rates. The sharing percentage is 90Yo for ratepayers and l0% for the
Company. When actual costs are higher than those recovered through base rates, Idaho
customers pay 90o/o of the difference. When actual costs are lower, customers are credited 90%
of the difference allowing the Company to keep 10%. This provides an incentive for the
Company to lower NPC by operating their system more efficiently.
Staff examined each account that contributes to the final deferral balance and reviewed
the method used in the Company's calculations. Staff believes that the amount of the 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.
4STAFF COMMENTS SEPTEMBER 13,20I8
Deferral Activity
1. FERC Account 555 - Purchased Power. Purchased power costs reflect90% of the
Idaho jurisdictional share of the difference in costs the Company incurred for power purchases in
the deferral period compared to authorized power costs included in base rates. In the deferral
period, the Company incurred more purchased power costs than are included in rates. The
positive amount reflects an additional cost to customers.
Palouse Wind expenses are included in the Purchased Power costs. In the most recent
general rate case (Case No. AVU-E-17-01), Palouse Wind was not included in base rates and the
expenses continue to run through the PCA. This expense treatment requires Avista to share 10%
of the Idaho jurisdictional costs of Palouse Wind. Had the costs been included in base rates,
customers would have paid 100% of the costs associated with Palouse Wind.
5
Number Accounts and Items Amount
ll
t2
I
2
J
4
5a
sb
6
7
8
9
FERC Account - 555 Purchased Power
FERC Account - 447 Sales for Resale
FERC Account - 501 Thermal Fuel
FERC Account - 547 CT Fuel
FERC Account - 456 Transmission Revenue
FERC Account - 565 Transmission Expense
Resource Optimization
MT Invasive Species Expense
Idaho Load Change Adjustment
Other Expense
Renewable Energy Credits Revenue
Net Power Cost Increase (Decrease)
REC Revenue Credit for WA RPS
Net Deferral balance
Interest on the Deferral balance
Deferral Balance with Interest for Review Period
$ 12,651,341
(21,587,823)
189,907
4,053,464
(514,518)
10,240
(2,839,126)
239,544
(1,224,071)
53,258
G2s.912\
$ (9.293.6eO
(1,706)
$ (9.29s^402\
(18,223)
$ (9.313.62s)
STAFF COMMENTS SEPTEMBER 13,20I8
l0
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 actual off-system sales revenue and off-system sales 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 90o/o of the Idaho jurisdictional share of the difference
between actual costs the Company incurred for thermal fuel compared to the normalized amount
included in base rates. During the deferral period, the Company incurred slightly higher costs
than are currently included in rates. The positive number is a cost to customers.
4. FERC Account 547 - CT Fuel. Combustion Turbine (CT) Fuel is natural gas burned
in the Company's gas-fired generators. The amount represents 90Yo of the Idaho jurisdictional
share of the difference between actual costs the Company incurred for CT fuel compared to the
normalized amount included in base rates. During the deferral period, the Company incurred
higher costs than are currently included in base rates. The positive number is a cost to
customers.
5a and 5b. Transmission Revenue (FERC Account 456) and Transmission Expense
(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 areaby a third party. Third party transmission revenues occur when
Avista is the third party and is delivering power for others. Including transmission revenues and
expenses in the PCA tracks the variability of these items. Avista's actual transmission revenue
was higher than was included in the Company's base rates. The negative amount is a benefit to
customers. Avista's actual transmission expense was greater than the amount included in base
rates. This positive amount is a cost to customers.
6. Resource Optimization. Resource Optimization results in a cost or benefit to
customers when natural gas is purchased in advance for use in generating electricity, then is later
sold because it was more cost effective to sell the gas and purchase electricity than to generate
electricity. Ninety percent of the Idaho jurisdictional share of the gain or loss on the sale of gas
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.
6STAFF COMMENTS SEPTEMBER 13,20I8
7. MT Invasive Species Expense. The Company included the fees imposed under
Montana Senate Bill 363 which assist with supporting endangered species. This amount is 90Yo
of those expenses. The positive amount is a cost to customers.
8. Idaho Load Chanee 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 deferral period,
the Company experienced greater sales than was used to set base rates. This results in a negative
adjustment and a benefit to customers. This amount is subject to 90o/o sharing.
9. Other Expense. This represents the Merchandise Processing Fees associated with U.S.
Customers and Border Protection (CPB). 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 are in the midst of investigations similar to this issue. The industry, working through
the American Gas Association, has requested reconsideration of its requirement of proof of
Canadian origin. Staff agrees that the approximately $53,000 included in actual NPC is
reasonable, but will continue to monitor this issue as more information becomes available.
10. Renewable Energv Credit (REC) Revenue. The Company continues to book REC
revenue in Account No. 557 along with Res.ource Optimization. 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 sales of REC was greater than the amounts
authorized in base rates. This is subject to sharing and is a benefit to customers.
I 1. REC Revenue Credit for Washington Renewable Enersy Portfolio Standards. The
REC Retirement Benefits for RECs used to meet Washington Renewable Portfolio Standards
(RPS) are tracked 100% through the PCA. It is based on the Idaho allocation of RECs that were
retired to meet Washington RPS requirement that would have otherwise been sold. The benefit
to Idaho customers this year is $1,706.
12. Interest during Deferral Period. The Company calculates interest on the deferral
balance using the Customer Deposit Rate of 1%. Due to the overall deferral balance being a
benefit, the interest is also a benefit to the customers.
7STAFF COMMENTS SEPTEMBER 13,20I8
Net Power Cost Analysis
Staff finds that the Company's actual NPC during the PCA year (July 2017 throtgh June
2018) was reasonable. To analyze the Company's NPC, Staff compared the actual amount of
generation and unit cost to those used to determine authorized rates. A summary of the analysis
is provided in the table below:
Actual versus Authorized Net Power Supply Expense Differences
The major drivers decreasing actual NPC were lower natural gas and wholesale power
prices as well as lower thermal fuel costs. Lower gas prices affected the Company's NPC in two
ways. First, it put downward pressure on wholesale electricity prices reducing the price the
Company payed for purchased electricity by 15% from prices assumed in base rates. As a result,
the Company appropriately sourced 70%o more electricity from purchases to serve Customer
load. Second, lower gas prices also reduced the cost of generation from the Company's gas-fired
units. As a result, the Company increased the amount of generation from its gas-fired units by
24%.
The Company also paid approximately 9olo less per MWh of generation in thermal fuel
costs as reflected in Account 501. This allowed the Company to increase generation from its
Colstrip and Kettle Falls plants by 208,141MWh more the level included in base rates.
Finally, the Company was also able to sell 2,599,422 MWh more than the amount
assumed in base rates receiving approximately $2.01 per MWh more than electricity prices
forecasted in the last general rate case. The increase in oflsystem sales is likely due to increased
generation from the Company's hydro resources and increased natural gas and thermal
generation from its thermal fleet due to lower overall natural gas and thermal fuel cost allowing
the Company to sell into the market more often.
8
Expense Category MWh Chanse MWh % Chanse $/MWh Chanse $/MWh 7o change
Avista Hydro 174,997 4.6%n/a n/a
Acct 555 Purchases 1,570,417 70%($6.2e)-t5%
Acct 447 Sales 2,599,422 170%s2.01 8%
Acct 501 Thermal Fuel (Coal & Wood)208,141 t2%($ t.++;-9%
Acct 547 CT Fuel (Natural Gas)686,832 24%($0.30)-1%
STAFF COMMENTS SEPTEMBER I3,2018
Analvsis of PCA Rates
Staff verified that the Company's proposed rates are accurate and will appropriately
reimburse customers for over-collection of actual net power costs embedded in base rates.
Residential customers using an average of 910 kWhs would see their monthly bill decrease by
0.9oA, from $88.49 to $87.70, if rates are authorized.
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 determined by applying a conversion factor of 0.994162, which accounts
for Commission fees and uncollectable amounts approved in the Company's last rate case
(AVU-E-17-01) to the total amortization and defemal balance including interest as of
September 30,2018. The total amortization and deferral balance includes the unamortized
ending balance in the deferral account as of June 2017, 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 2018. 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 l%o for the period from July 2017 through September 2018. Staff verified components of the
revenue requirement and confirmed that a negative $9.8 million results in a proposed PCA rebate
to customers of $0.33 cents per kwh.
9STAFF COMMENTS SEPTEMBER 13,2018
PCA Rate Calculation
Amounts Total
2016-2017 PCA Ending Balance (June 30, 2017)
2017 -18 Incremental Power Cost Deferral
2017-18 RPS Compliance Adiustment
2017-18 Amortization
Subtotal
July - Sept 2018 Projected Amortization
2017 -s 2018 Interest
Grand Total
Conversion Factor
PCA Revenue Requirement
Forecasted Sales during Collection Period (kwh)
Final PCA Rate wh
* Rounding difference of $3.00
CUSTOMER NOTICE AND PRESS RELEASE
The Company's press release and customer notice were included with its Application on
July 30,2018. Each document addresses two cases: this case (AVU-E-18-07) and the
Residential and Small Farm Energy Rate Adjustment case (AVU-E-I8-08). Staff reviewed the
documents and determined both meet the requirements of Rule 125 of the Commission's Rules
of Procedure (IDAPA 31.01.01). The notice was included with bills mailed to customers
beginning August I , 2018 and ending September I 1 , 20 1 8.
The Commission set a comment deadline of September 13, 201 8. As of September 7,
2018, no comments have been filed. Because the last customer notices were not inserted into
bills until September 11, some customers in the last billing cycles will not receive their notices or
have adequate time to submit comments before the deadline. Because this year's Power Cost
Adjustment will result in a decrease in customers' rates, it is unlikely customers will object to the
proposed rate changes. However, customers must have the opportunity to file comments and
have those comments considered by the Commission. Staff recommends the Commission accept
late-filed comments from customers.
$ (9,293,696)
$ (1,706)
$ 5,261,699
$ (7,380,935)
$ (4,033,703)
$ 7,729,786
$ (lol,316)
$ (9,786,168)*
0.994162
$ (9,843,635)
$ 3,019,759,000
($0.326)
STAFF COMMENTS l0 SEPTEMBER 13,2018
STAFF RECOMMENDATION
Staff recommends the following:
l. The Commission authorize the total deferral balance with interest in the amount of
$9,313,625 be refunded to ratepayers.
2. Approve Schedule 66 as filed in Exhibit A of the Company's Application to go into
effect on October 1,2018.
3. The Commission order the Company to report PCA expenses in their quarterly
reports by the PCA year.
4. The Commission accept late-filed comments from customers.
Respectfully submitted this \ j*ary of September 2018.
Jewell
Deputy Attorney
Technical Staff: Michael Eldred
Johnathan Farley
Rachelle Farnsworth
Johan Kalala-Kasanda
Joseph Terry
i : umisc: comments/avue 1 8.Tejmejtjkjfrf comments
(
STAFF COMMENTS ll SEPTEMBER I3,2018
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-18-07, 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 COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail: [e-mail]
CERTIFICATE OF SERVICE
.. L, ,4"2-,n-
SECRETAR/