20201001Final_Order_No_34802.pdf

ORDER NO. 34802 1

Office of the Secretary
Service Date
October 1, 2020
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF AVISTA
CORPORATION’S ANNUAL FIXED COST
ADJUSTMENT MECHANISM FILING
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CASE NO. AVU-E-20-06

ORDER NO. 34802

On June 30, 2020, Avista Corporation (“Company” or “Avista”) applied to the
Commission for authority to set FCA rates for electric service from October 1, 2020, through
September 30, 2021, and to approve its corresponding modifications to Schedule 75, “Fixed Cost
Adjustment Mechanism – Electric.” The Company proposes to reduce its present FCA surcharge
rates for residential and non-residential customers. Specifically, the Company requested an FCA
surcharge rate of 0.028 cents per kilowatt-hour (“kWh”) for the Residential Group (Schedule 1)
and a FCA surcharge rate of 0.011 cents per kWh for the Non-Residential Group (Schedules 11,
12, 21, 22, 31 and 32). Application at 1-2. The proposed Residential Group rate change is a $1.6
million, or 1.4% decrease to residential customers, and the proposed Non-Residential Group rate
change is a $1.4 million, or 1.6% decrease to non-residential customers. Id. at 2. The Company
asked that its Application be processed by Modified Procedure and requested an October 1, 2020,
effective date. Id. at 2.
On July 20, 2020, the Commission issued Notice of Application and Notice of Modified
Procedure establishing a public comment period and Company reply deadline. The Commission
Staff (“Staff”) filed comments on September 9, 2020. The Company did not file reply comments.
Having reviewed the record, the Commission enters this Order approving the
Company’s Application.
BACKGROUND
The FCA is a rate adjustment mechanism designed to break the link between the energy
a utility sells and the revenue it collects to recover fixed costs1 of providing service, thus
decoupling the utility’s revenues from its customers’ energy usage. See Order No. 33437 at 3.
Decoupling encourages energy conservation by removing a utility’s incentive to sell more to
increase revenue and profits. Id. at 10.

1 “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.

ORDER NO. 34802 2
The Commission approved the Company’s FCA as a three-year pilot program in the
approved settlement (“Settlement”) of Avista’s 2015 general rate case. See Case Nos. AVU-E-
15-05, AVU-G-15-01; Application at 3; and Order No. 33437 at 10. Order No. 33437 set forth
how the FCA mechanism works, including: treatment of existing versus new customers, quarterly
reporting, annual filings, interest, accounting, and a 3% rate increase cap. Order No. 33437 at 10.
On June 15, 2018, the Commission approved an addendum to the Settlement, which
extended the Company’s FCA pilot for an additional year. See Order No. 34085 at 2; Application
at 3-4. Pursuant to the addendum to the Settlement, the Company, Staff, and interested parties met
on March 27, 2019, to review the effectiveness of the FCA mechanism. Application at 5. The
Commission approved the extension of the FCA from January 1, 2020 through March 31, 2025.
See Order No. 34502 at 4. As part of the extension, the Commission approved the modification
of the deferral period to a July to June basis by using a one-time 18-month deferral period, January
1, 2020, through June 30, 2021. Id. The effective date of electric FCA rate adjustments is still
October 1, but the annual rate adjustment filings will be made by July 31 of each year, beginning
with next year's filing. Id; see also Application at 6. Other modifications to the FCA include an
annual revenue-per-customer true-up to the deferral calculation and quarterly reports due by 60-
days after the end of each quarter. Id.; see also Application at 6.
APPLICATION
In its electric FCA filing, Avista proposed to decrease rates for its Residential Group
and Non-Residential Groups based on the deferred revenue recorded for January 1, 2019, through
December 31, 2019. The Company attributed its electric FCA surcharge deferred revenues to
lower monthly use-per-customer (“UPC”) than the UPC that was embedded in the 2016 test year.
The primary drivers for the change in UPC are mostly due to cooler weather in February and March
of 2019, that fluctuated with offsetting impacts through the rest of the year and savings from energy
efficiency programs in 2019. Id. at 6-7.
1. Residential Group Rate Determination
Avista recorded $337,502 in the surcharge direction in deferred revenue in 2019 for its
Residential Group and -$9,294 in 2018 FCA carryover and other adjustments for accumulated
interest and revenue related expense. Id. at 8. The Company proposed to decrease the FCA
surcharge rate for the Residential Group from 0.158 cents per kWh to 0.028 cents per kWh to
recover $333,905 from the Company’s residential electric customers served under rate Schedule

ORDER NO. 34802 3
1. Id. at 8. The Company represented that interest on the deferred balance would accrue at the
customer deposit interest rate. Id. at 8-9. If the proposed surcharge is approved by the
Commission, the 2019 deferral balance, plus interest through September, will be transferred into
the regulatory asset balancing account with any outstanding balance from the surcharge approved
for recovery in the prior year FCA rate filing. Id. at 9. Avista stated the balance in the account
will be reduced each month by the revenue collected under the tariff. Id. at 9. The Company
represented that residential customers using an average of 898 kilowatt-hours per month would
see their monthly bills decrease from $85.30 to $84.13, a decrease of $1.17 per month, or 4%. Id.
at 12.
2. Non-Residential Group Rate Determination
Avista recorded $109,351 in the FCA surcharge direction in deferred revenue in 2019
for its Non-Residential Groups and $7,242 in 2018 FCA carryover and other adjustments for
accumulated interest and revenue related expense. Id. at 9. The Company proposes to decrease
the FCA surcharge rate for the Non-Residential Groups from 0.145 cents per kWh to 0.011 cents
per kWh to recover $116,684 from non-residential electric customers in Schedules 11, 12, 21, 22,
31, and 32. Id. at 9. If the Commission were to approve the proposed surcharge, then Avista
would transfer the 2019 deferral balance, plus interest through September, into the regulatory asset
balancing account with any outstanding balance from the surcharge approved for recovery in the
prior year FCA rate filing. Id. at 10. Avista stated the balance in the account will be reduced each
month by the revenue collected under the tariff. Id.
3. Proposed Tariff Modifications
As part of its Application, the Company included revisions to the Term provision stated
on tariff Sheet 75, the Calculation of Monthly FCA Deferral mechanism description stated on tariff
Sheet 75B, and the Annual Electric FCA Rate Adjustment provision on tariff Sheet 75C to reflect
these approved modifications to the mechanism going forward in compliance with the Commission
Order. Id. at 6.
4. 3% Annual Rate Increase Test
Avista asserted that the 3% annual rate increase limitation is not an issue in this case
because the Company is proposing to decrease its FCA surcharge rates. Id. at 10-11.

ORDER NO. 34802 4
5. Existing and New Customers
Avista represented that the Settlement provides that electric customers added after the
test year are subject to an FCA Revenue-Per Customer that excludes incremental revenue related
to fixed production and transmission costs. Id. at 11. The Company stated separate calculations
for new versus existing customers are clearly identified in the FCA base approved in Order No.
33953 for rates effective January 1, 2019 and Order No. 34499 for rates effective December 1,
2019. Id.
Due to this segregation, Avista tracks the usage of new customers since January 1,
2017, as compared with existing customers. Id. In general, the average usage of new customers
is lower compared to the average usage of existing customers. Id. The Company represented that
new customer meters, on average, have less usage in the first 6 to 12 months, and then generally
see increases until usage is consistent with the average usage of existing customers after that
period. Id. at 11-12. This is due, in part, to the lag that occurs between when a meter is installed
and billing commences, and when a customer moves into the premises. Id. at 12. Avista will
continue to track the usage of new customers over the FCA term. Id
6. Communications and Service of Application
Avista represented it brought the Application to the attention of customers by serving
a copy on the service list in Case Nos. AVU-E-15-05 and AVU-G-15-01, the cases that gave rise
to the FCA mechanisms. Id. at 12-13. The Company also stated that a news release and customer
notice was issued on June 30, 2020, and the customer notice would be inserted in customer bills
starting in the July timeframe and will run for a full billing cycle. Id.
COMMENTS
Staff recommended that the Commission approve the Company’s proposed, decreased
surcharges and corresponding surcharge rates of 0.028 cents per kWh and 0.011 cents per kWh for
the Residential Group and Non-Residential Groups for the 2019 FCA year. Staff Comments at 3.
Additionally, Staff recommended that the Commission approve the Company's proposed revisions
to Schedule 75, "Fixed Cost Adjustment Mechanism - Electric." Id. Staff noted the Company
included revisions to the Term provision stated on tariff Sheet 75, the Calculation of Monthly FCA
Deferral mechanism description stated on tariff Sheet 75B, and the Annual Electric FCA Rate
Adjustment provision on tariff Sheet 75C. Id.

ORDER NO. 34802 5
After its review Staff believed that it has reasonable assurance that the FCA deferral
balance and associated rates for the Residential Group and Non-Residential Groups have been
correctly calculated by the Company. Id.
Staff asserted that Avista’s estimates of UPC in kWh and FCA revenue demonstrated
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. Id. Staff also stated that the FCA helps
stabilize revenue-lowering risk to the Company, potentially lowering its cost of capital. Id. at 5.
However, Staff asserted that it is less clear how customers benefit from FCA rate adjustments. Id.
Staff indicated that although Staff is not currently recommending a lower cost of equity to
recognize the lower risk to the Company, it may do so in the future. Id.
Staff noted Avista has made two other rate adjustment filings that request an October
1, 2020, effective date. Avista's proposed Power Cost Adjustment ("PCA") filing (AVU-E-20-
07), if approved, will increase electric revenues by about $2.2 million (0.9% increase) and its
proposed Residential and Small Farm Energy Rate Adjustment (“BPA”) filing (AVU-E-20-08), if
approved, will increase electric revenues by $0.6 million (0.2% increase). Id. The $3.0 million
decrease in electric revenues from the proposed FCA represents a 1.2% revenue decrease. Id. The
net effect of Avista's three filings is to decrease electric revenues by $0.2 million (0.1% decrease).
Id. As a result, if these proposals are approved the average residential electric customer's monthly
bill will decrease by 6 cents (0.1% decrease). Id.
Staff stated the Company's press release and customer notice addressed three cases:
this case (AVU-E-20-06), the natural gas Fixed Cost Adjustment (AVU-G-20-5), and the
Purchased Gas Cost Adjustment (AVU-G-20-04). Id. Staff reviewed the documents and
determined that both meet the requirements of Rule 125 of the Commission's Rules of Procedure.
Id. The notice was included with bills mailed to customers beginning July 6, and ending August
3, 2020, providing customers with a reasonable opportunity to file timely comments with the
Commission by the September 9, 2020, deadline. Id. at 5-6. As of September 16, 2020, no
customer comments had been filed.
Staff recommended that the Commission approve the Company's FCA filing with
corresponding modifications to Schedule 75, Fixed Cost Adjustment Mechanism-Electric, as filed.

ORDER NO. 34802 6
COMMISSION DISCUSSION AND FINDINGS
The Commission has jurisdiction over the Company and this matter pursuant to Idaho
Code §§ 61-336, 61-502, 61-503 and 61-622. The Commission has the express statutory authority
to investigate rates, charges, rules, regulations, practices, and contracts of public utilities and to
determine whether they are just, reasonable, preferential, discriminatory, or in violation of any
provision of law, and may fix the same by order. Idaho Code §§ 61-502 and 61-503.
The Commission has reviewed the record and finds the Company's requested FCA
Residential Group (Schedule 1) surcharge rate of 0.028 cents per kWh, and FCA Non-Residential
Group (Schedules 11, 12, 21, 22, 31 and 32) surcharge rate of 0.011 cents per kWh to be fair, just,
and reasonable. The Commission finds that the Company correctly calculated its deferral balances.
The 3% annual rate adjustment cap is not operative. See Order No. 34451. The Commission thus
approves the Company's Application and proposed revisions to Schedule 75, including revisions
to the Term provision on tariff Sheet 75, the Calculation of Monthly FCA Deferral mechanism
description on tariff Sheet 75B, and the Annual Electric FCA Rate Adjustment provision on tariff
Sheet 75C.
O R D E R
IT IS HEREBY ORDERED that the Company's Application is approved. Avista’s
FCA Filing for Electric Service from October 1, 2020 through September 30, 2021, is granted as
requested, effective October 1, 2020. The Company is authorized to implement a FCA surcharge
rate of 0.028 cents per kWh for its Residential Group (Schedule 1) and 0.011 cents per kWh for
its Non-Residential Group (Schedules 11, 12, 21, 22, 31 and 32).
IT IS FURTHER ORDERED that the Commission approves the Company's proposed
Schedule 75 as filed, that includes revisions to the Term provision on tariff Sheet 75, the
Calculation of Monthly FCA Deferral mechanism description on tariff Sheet 75B, and the Annual
Electric FCA Rate Adjustment provision on tariff Sheet 75C.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7)
days after any person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code § 61-626.

ORDER NO. 34802 7
DONE by order of the Idaho Public Utilities Commission at Boise, Idaho this 1st day
of October 2020.

__________________________________________
PAUL KJELLANDER, PRESIDENT

__________________________________________
KRISTINE RAPER, COMMISSIONER

__________________________________________
ERIC ANDERSON, COMMISSIONER

ATTEST:

_________________________________
Jan Noriyuki
Commission Secretary

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