20190726Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DAYN HARDIE
DEPUTY ATTORNEY GENERAL
DATE: JULY 25,2019
SUBJECT:AVISTA'S APPLICATION TO IMPLEMENT FCA RATES FOR
ELECTRIC SERVICE FROM OCTOBER 1,2019 THROUGH
SEPTEMBER 30, 2020; CASE NO. AVU-E-19-07.
On July l, 2019, Avista Corporation ("Company" or "Avista") applied to the
Commission for authorization to increase its Fixed Cost Adjustment ("FCA") rates for electric
service from October l,2019, through September 30,2020, and to approve its corresponding
modifications to Schedule 75, "Fixed Cost Adjustment Mechanism - Electric." Application at l.
Avista also asks that the Commission approve the level of electric FCA revenue deferred during
calendar year 2018. Id. The Company separately applied to implement FCA rates for natural gas
service in Case No. AVU-G-19-04. The Company proposes a per kilowatt-hour ("kWh") FCA
surcharge rate for its residential and non-residential customers. Application at l-2;13. The
Company's Application, if approved, would increase its overall electric revenues by about $4.9
million. See id. at 2. The monthly bill of an average residential electric customer would increase
by about $3.00, or 3.6Yo. Id. at 12-13. Avista asks that its Application be processed by Modified
Procedure, and requests an effective date of October 1,2019. Id. at2;13.
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. 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. at 3-4. The Commission approved
| "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.
DECISION MEMORANDUM I
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 OrderNo. 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 etfectiveness at the end of its second full year, to ensure
it was functioning as intended. Application at 3-4. The settlement stipulation in those cases, and
Taritf Sheet 75, also set forth how the FCA mechanism works, including: treatment of existing
versus new customers, quarterly reporting, annual filings, interest, accounting, and 3%o rate
increase cap. Id. at4.
On June 15, 2018, the Commission approved an addendum to the settlement stipulation
approved in AVE-E-I5-05 and AVU-G-I5-01, 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) that parties would review the effectiveness of the FCA at the end of the third year. Id. at2.
Per Order No. 34085, the Company and interested parties reviewed the FCA
mechanisms on March 27, 2019. Application at 4 n.2. The Company has separately applied to
extend the electric and gas FCA mechanisms through March 31,2025 in Case Nos. AVE-E-19-06
and AVU-G-19-03.
PROPOSED 2OI9.2O2O FCA RATE ADJUSTMENT
In its electric FCA filing, Avista proposes to increase rates fbr its electric residential
customer group and its non-residential electric customer groups based on the deferred revenue
recorded for January 1,2018 through December 31,2018. The Company mostly attributes these
proposed changes to drivers such as warrn weather in January and December 2018, and savings
from energy efficiency programs in 2018. Id. at 6-7. According to the Company, other drivers are
not easily quantifiable but include, among other things, the effects of non-programmatic energy
efficiency and changes in business cycles. Id. at 7 .
For its electric residential customer group, Avista recorded 91,753,478 in surcharge
deferred revenue during 2018, and a carryover balance of $75,245 from2017.ld. at7-8 (table
includes: carry over balance, interest, and revenue-related expenses). The Company's proposed
rate increase of 0.158 cents per kWh is designed to recover $1,882,375 from the Company's
residential electric customers served under rate Schedule l. Id. at 7; 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 approved for recovery in Case No. AVU-E- l8-06, and reduce the account
balance each month by the revenue collected under the taritl. Id. at 8.
For its non-residential customer groups, Avista recorded $1,421,402 in surcharge
deferred revenue in20l8, and a canyover balance of $67,892 from 2017 . Id. at 8-9 (table includes:
carry over balance, interest, and revenue-related expenses). The Company proposes to increase its
non-residential customer groups' rates by 0.145 cents per kwh, to recover $1,536,397 from rate
Schedules 11,72,21,22,31, and 32. Id. at 8-9; Exhibit B. If approved by the Commission, the
Company would record this amount in a regulatory asset balancing account, with any outstanding
balance from the surcharge approved in Case No. AVU-E-I8-06, and reduce the account balance
each month by the revenue collected under the tariff. Id. at 9.
With its Application, Avista submitted its residential and non-residential rate
calculations, support tbr the Company's deferrals, and its proposed FCA tariff, Schedule 75, which
includes a revision of an inadvertent oversight and the proposed FCA rates.
STAFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure with a comment
deadline of September 10,2019, and reply deadline of September 17,2019.
COMMISSION DECISION
Does the Commission wish to process this case under Modified Procedure with a
comment deadline of September I 0, 2019, and reply deadline of Septemb er 17 , 2019?
Dayn Hardie
Deputy Attorney General
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JDECISION MEMORANDUM