20190910Comments.pdf

DAYN HARDIE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 9917
IN THE MATTER OF AVISTA
CORPORATION'S APPLICATION TO
IMPLEMENT FIXED COST ADJUST-
MENT RATES FOR ELECTRIC SERVICE
FROM OCTOBER 1,2019 THROUGH
SEPTEMBER 30,2O2O
RECTIVET)
Z$19 SIP i0 Pt'l lr htr
Street Address for Express Mail
472 W. WASHINGTON
BOISE, TDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
)
)
)
)
)
)
)
)
CASE NO. AVU.E-19-07
COMMENTS OF THE
COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission, by and through its Attorney of
record, Dayn Hardie, Deputy Attorney General, submits the following comments.
BACKGROUND
On July 1,2019, Avista Corporation ("Company" or "Avista") applied to the
Commission for authorization to implement Fixed Cost Adjustment ("FCA") rates for electric
service customers from October 1,2019 through September 30,2020, and to approve its
corresponding modifications to Schedule 75, "Fixed Cost Adjustment Mechanism - Electric."
The Company requested that the Commission issue an order approving FCA defenals for the
period January 1,2018 through December 31,2018, and approve separate per kilowatt-hour
("kwh") FCA surcharge rates for its residential group and non-residential group customers. The
Company's Application, if approved, would increase its overall electric revenues by about $4.9
1STAFF COMMENTS SEPTEMBER IO,2019
million. The monthly bill of an average residential electric customer (898 kwh per month)
would increase by about $3.00, from $82.57 to $85.57 (3.6%).
The Application states that the Company's proposed FCA rates conform to the 3o/o anntnl
rate increase limitation for both the residential and non-residential classes. The 2017 residential
deferral was a rebate of a negative 0.176 cents per kWh. However, for purposes of confirming
the 3Yo rate increase limitation, the calculation uses a surcharge rate of zero as the base to begin
the new period. Using the zero base, the proposed FCA rate change represents a residential
increase of $ I .9 million (l .7%) and a non-residential increase of 0.9 million (1.0%). As both the
residential deferral and the non-residential defenal incremental surcharges are both less than 3oZ,
there is no proposed carry-over for either class. Avista requested that its Application be
processed by Modified Procedure with an effective date of October 1,2019.
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 hxed 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 opined 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 as a result may lower capital costs.
The Commission approved Avista's FCA as a three-year pilot program as part of the
settlement stipulation for Avista's 2015 general rate case. See Case Nos. AVU-E-15-05,
AVU-G-15-01; and Order No. 33437 at 10. The Order also set forth how the FCA mechanism
works, including: treatment of existing versus new customers, quarterly reporting, annual filings,
interest, accounting, and the 3Yorate increase cap. Order No. 33437 at 10. On June 15,2018,
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 10,2019
the Commission approved an addendum to the settlement stipulation approved in AVU-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.
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 on or after January 1,2017; i.e., after the 2016 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 separate customers for this calculation, Avista
tracks usage of new customers independently from existing customers. Consequently, FCA
revenue-per-customer 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.
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 included 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.
STAFF ANALYSIS
For the 2018 FCA year, Staff recommends that the Commission allow the Company to
recover $1,882,379 from the residential customer group with a surcharge rate of 0.158 cents per
kWh and recover $1,536,397 from the non-residential customer group with a rate of 0.145 cents
per kWh. The proposed FCA rates represent increases from (l) the current rebate level of
negative 0.176 cents per kWh for the residential group and (2) surcharge rate of 0.056 cents per
kWh for the non-residential group.
Staff s recommendation is based on its review of the Company's Application, including
the supporting workpapers and responses to production requests. Staff also verified that the
Company used the Commission-approved methodology authorized by Order No. 33437 to
calculate its FCA deferral balance and associated rates for both residential and non-residential
classes. Staff reviewed the amortrzation from the prior year's deferral balance, the kWh sales for
JSTAFF COMMENTS SEPTEMBER 10,2019
the FCA year, new and existing customer counts, revenue from fixed costs collections, the
interest calculation, plus the internal control processes and internal audit documents pertaining to
the aforementioned items. Staff also verified that the authorized amounts used to calculate the
deferral were the same used to determine base rates that were authorized during the deferral
period. Staff then verified the FCA deferral amount and rates for residential and non-residential
customers.
Avista's proposed surcharge of $1,882,379 from electric residential customers is
calculated by adjusting the calendar year 201 8 deferral of $ 1,753 ,478 upward by the actual2077
carry-over balance of $75,245, adding $43,553 in interest, and adding a revenue-related expense
adjustment of $10,102. The Company's proposed 0.158 cents per kWh rate is designed to
recover the $l ,882,379 surcharge from the Company's residential electric customers. Staff
verified these residential calculations. If approved by the Commission, the Company would
record this amount in a regulatory asset balancing account and reduce the account balance each
month by the revenue collected under the tariff.
Avista's proposed surcharge of $1,536,397 from electric non-residential customers is
calculated by adj usting the calendar year 20 1 8 deferral of $ 1 ,42 7 ,402 lpward by the actual 2017
carry-over balance of $67,892, adding 536,421 in interest, and adding a revenue-related expense
adjustment of $10,683. The Company proposes to increase non-residential rates by 0.145 cents
per kWh in order to recover $ 1,536,397 from customers in Schedules 17, 12,21,22,31, and 32
(affected non-residential schedules). Staff verified these non-residential calculations. If
approved by the Commission, the Company would record this amount in a regulatory asset
balancing account, and reduce the account balance each month by the revenue collected under
the tariff.
Energy Consumption Drivers
The proposed FCA surcharge deferrals are the result of reductions in use-per-customer
from levels in the 2016 test year, used to establish the FCA base period. Monthly use-per-
customer in 2018 declined by 25 kWh and 135 kwh for the residential and non-residential
groups, respectively, when compared to the base period. Avista estimated the impact of three
primary drivers of FCA revenue deferrals: (1) Weather, (2) Energy Efficiency and (3) "Other."
The Company identifies the "Other" drivers as items that are more difficult to quantiff, such as
4STAFF COMMENTS SEPTEMBER 10,2019
the effects of non-programmatic energy effrciency and the business cycle. The "Other" dri'','ers
have a more significant impact on the non-residential group than on the residential group.
Weather is a more significant driver for residential group than for non-residential group. This is
expected because residential energy usage is relatively sensitive to weather fluctuations. The
following table shows Avista's estimates of these drivers on use-per-customer (UPC) in kWh
and FCA revenue in million dollars (MM$). The results demonstrate that energy efficiency is
not the sole driver of declining energy sales, and that the FCA mechanism provides fixed cost
recovery for a wide range of factors.
Effects of the Drivers on Use-per-Customer and
FCA Revenue in Million Dollars (MM $)
Source
Resid
UPC
(kwh)
Resid
FCA
Revenue
MM$
Non-Resid
UPC
(kwh)
Non-Resid
FCA
Revenue
MM$
Weather -13 -$1.1 .\-L -$0.1
Energy Efficiency -15 -$1.2 -196 -s3.2
Other +3 +$0.5 +63 +$1.9
Total _r<-$1.8 -135 -$1.4
Risk Reduction Attributable to the FCA
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. 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.
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 meet the requirements of Rule 125 of the
Commission's Rules of Procedure. The notice was included with bills mailed to customers
beginning July 17, 2019 and ending August 16,2019, providing customers with a reasonable
5STAFF COMMENTS SEPTEMBER IO,20I9
opportunity to file timely comments with the Commission by the September 10,2019, deadline.
As of September 9,2019, no customer comments had been filed.
STAFF RECOMMENDATION
Staff recommends that the Commission approve the Company's FCA filing, specifically:
l. The proposed FCA residential surcharge rate of 0.158 cents per kwh, which is
designed to recover $1,882,379 from the Company's residential electric customers.
2. The proposed FCA non-residential surcharge rate of 0.145 cents per kwh, which is
designed to recover $1,536,397 from the Company's non-residential electric
customers.
Respectfully submiffed this /Olt day of September 2019.
Dayn Hardie
Deputy Attorney General
Technical Staff: Bentley Erdwurm
Jolene Bossard
Johan Kalala-Kasanda
Yao Yin
i:umisc/comments/avuel9.Tdhbejkyyjb comments
6STAFF COMMENTS SEPTEMBER 10,2019
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS IOTH DAY OF SEPTEMBER 2019,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-E-19-07, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
DIR OF REGULATORY AFFAIRS
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-MAIL: patrick.ehrbar(ilavistacorp.conr
avi stadockcts (?avi stac or?. corn
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710 N 6TH ST
BOISE ID 83702
E-MAIL: bottofdidahoconsen ation.org
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-MAIL: david.meyer(a)arvistacorp.conl
CERTIFICATE OF SERVICE