20210129Anderson Direct.pdf

DAVID J. MEYER VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION P.O. BOX 3727 1411 EAST MISSION AVENUE SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone] [e-mail]

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION ) OF AVISTA CORPORATION FOR THE ) CASE NO. AVU-G-21-01 AUTHORITY TO INCREASE ITS RATES ) AND CHARGES FOR ELECTRIC AND )
NATURAL GAS SERVICE TO ELECTRIC ) DIRECT TESTIMONY
AND NATURAL GAS CUSTOMERS IN THE ) OF STATE OF IDAHO ) JOEL C. ANDERSON )

FOR AVISTA CORPORATION

(NATURAL GAS ONLY)
Anderson, Di 1 Avista Corporation
I. INTRODUCTION 1
Q. Please state your name, business address and present position with Avista 2
Corporation. 3
A. My name is Joel C. Anderson. My business address is 1411 East Mission 4
Avenue, Spokane, Washington. I am employed as a Regulatory Analyst in the Regulatory 5
Affairs Department. 6
Q. Please describe your educational background and professional 7
experience. 8
A. I am a 2005 graduate of Eastern Washington University with a bachelor’s 9
degree in Business Administration, majoring in Finance. In 2012, I became a Certified Public 10
Accountant in the State of Washington. I joined the Company in January 2013, after spending 11
seven years working in various accounting positions in the banking industry. I started with 12
Avista as an Internal Auditor. In January 2016, I joined the Regulatory Affairs Department 13
as a Regulatory Analyst. In my current role as a Regulatory Analyst, I am responsible for the 14
Company’s natural gas cost of service studies in all jurisdictions, among other things. 15
Q. What is the scope of your testimony in this proceeding? 16
A. My testimony and exhibits will cover the Company’s natural gas revenue 17
normalization adjustment and cost of service study performed for this proceeding. A table of 18
contents for my testimony is as follows: 19
Description Page 20
I. Introduction 1 21
II. Natural Gas Revenue Normalization 2 22
III. Natural Gas Cost of Service 5 23
IV. Cost of Service Results 7 24
Anderson, Di 2 Avista Corporation
Q. Are you sponsoring any Exhibits in this case? 1
A. Yes. I am sponsoring Exhibit No. 17, Schedule 1 which includes a narrative 2
of the natural gas cost of service study process, and Schedule 2, the natural gas cost of service 3
study summary results. 4
Q. Were these Exhibits prepared by you or under your direction? 5
A. Yes, they were. 6
7
II. NATURAL GAS REVENUE NORMALIZATION 8
Q. Would you please describe the natural gas revenue adjustment included 9
in Company witness Ms. Andrews’ pro forma results of operations? 10
A. Yes. Similar to the electric revenue normalization adjustment sponsored by 11
Company witness Ms. Knox, the natural gas revenue normalization adjustment represents the 12
difference between the Company’s actual recorded retail revenues during the 12-months 13
ended December 2019 test period, and retail revenues on a normalized (pro forma) basis. The 14
adjustment includes the re-pricing of pro forma sales and transportation volumes at present 15
rates using pro forma sales volumes that have been adjusted for unbilled sales, abnormal 16
weather, eliminating the deferred revenue associated with the 2019 Fixed Cost Adjustment 17
(FCA) mechanism, and any material customer load or schedule changes. The rates used 18
exclude: 1) Purchase Gas Cost Adjustment Schedule 150, which reflects the costs related to 19
purchasing and transporting natural gas approved in the Company’s last PGA filing, 2) 20
Temporary Gas Rate Adjustment Schedule 155, which reflects the approved amortization rate 21
for prior deferred natural gas costs approved in the Company’s last PGA filing, 3) Fixed Cost 22
Anderson, Di 3 Avista Corporation
Adjustment Schedule 175, and 4) Demand Side Management Rate Adjustment Schedule 191.1 1
Q. Does the Revenue Normalization Adjustment contain a component 2
reflecting normalized natural gas costs? 3
A. No, natural gas commodity costs have been removed from the Company’s 4
filing. 5
Q. Have you determined the impact of each of the components of this 6
adjustment? 7
A. Yes. The net operating income impact for each of the components is as 8
follows: 9
1. Re-pricing of base distribution revenue, including Permanent Tax Reform rate 10
adjustment Schedule 172, increased net operating income by $284,000. 11
2. Re-pricing base distribution unbilled revenue increased net operating income 12
by $400,000. 13
3. The weather adjustment at present base rates decreased net operating come by 14
$788,000. 15
4. The elimination of the deferred decoupling revenue increased net operating 16
income by $518,000. 17
18
The total net amount of the natural gas revenue normalization adjustment is an 19
increase to net operating income of $414,000, as shown in adjustment column 2.07, on page 20
7 of Ms. Andrews Exhibit No. 5, Schedule 2. 21
Q. Would you please briefly discuss natural gas weather normalization? 22
A. Yes. The natural gas weather normalization adjustment is developed from a 23
regression analysis of ten years of billed usage per customer and billing period heating degree-24
day data. The resulting seasonal weather sensitivity factors (use-per-customer-per-heating-25

1 Documentation related to this adjustment is detailed in my workpapers accompanying this case.
Anderson, Di 4 Avista Corporation
degree day) are applied to monthly test period customers, and the difference between normal 1
heating degree-days and monthly test period observed heating degree-days. This calculation 2
produces the change in therm usage required to adjust existing loads to the amount expected 3
if weather had been normal. 4
Q. In the discussion of electric weather normalization sponsored by Ms. 5
Knox, she indicated that the adjustment utilized sensitivity factors from the 10-year 6
period January 2010 through December 2019. Is this true for natural gas as well? 7
A. Yes, the natural gas weather adjustment utilized weather sensitivity factors for 8
the same 10-year period. 9
Q. What data did you use to determine “normal” heating degree days? 10
A. Normal heating degree-days are based on a rolling 30-year average of heating 11
degree-days reported for each month by the National Weather Service for the Spokane Airport 12
weather station. Each year the normal values are adjusted to capture the most recent year with 13
the oldest year dropping off, thereby reflecting the most recent information available at the 14
end of each calendar year. The calculation includes the 30-year period from 1990 through 15
2019. 16
Q. Is this proposed weather adjustment methodology consistent with the 17
methodology utilized in the Company’s last general rate case in Idaho? 18
A. Yes. The process for determining the weather sensitivity factors and the 19
monthly adjustment calculation is consistent with the methodology presented in Case No. 20
AVU-G-17-01. 21
Q. What was the impact of natural gas weather normalization on the 12-22
months ended December 2019 test year? 23
Anderson, Di 5 Avista Corporation
A. Weather was colder than normal during the January 2019 through December 1
2019 period. The adjustment to normal required the decrease of 229 heating degree-days 2
from January through June and October through December.2 The adjustment to sales volumes 3
was a decrease of 2,544,075 therms which is approximately 1.65% of total billed usage. 4
5
III. NATURAL GAS COST OF SERVICE 6
Q. Please describe the natural gas cost of service study and its purpose. 7
A. A natural gas cost of service study is an engineering-economic study which 8
separates the revenue, expenses, and rate base associated with providing natural gas service 9
to designated groups of customers. The groups are made up of customers with similar usage 10
characteristics and facility requirements. Costs are assigned in relation to each group’s test 11
year load and facilities requirements, resulting in an evaluation of the cost of the service 12
provided to each group. The rate of return by customer group indicates whether the revenue 13
provided by the customers in each group recovers the cost to serve those customers. The 14
study results are used as a guide in determining the appropriate rate spread among the groups 15
of customers. Exhibit No. 17, Schedule 1 explains the basic concepts involved in performing 16
a natural gas cost of service study. It also details the specific methodology and assumptions 17
utilized in the Company’s Base Case cost of service study. 18
Q. What is the basis for the natural gas cost of service study provided in this 19
case? 20
A. The cost of service study provided by the Company as Exhibit No. 17, 21
Schedule 2 is based on the 12-months ended December 2019 test year pro forma results of 22

2 Heating degree days that occur during July through September do not impact the natural gas weather normalization adjustment as the seasonal sensitivity factor is zero for summer months.
Anderson, Di 6 Avista Corporation
operations presented by Ms. Andrews in Exhibit No. 5, Schedule 2. 1
Q. Would you please explain the natural gas cost of service study presented 2
in Schedule 2? 3
A. Yes. Exhibit No. 17, Schedule 2 is composed of a series of summaries of the 4
cost of service study results. Page 1 shows the results of the study by FERC account category. 5
The rate of return and the ratio of each schedule’s return to the overall return are shown on 6
lines 38 and 39. This summary is provided to Company witness Mr. Miller for his 7
consideration regarding rate spread and rate design. The results will be presented later in my 8
testimony. Additional summaries show the costs organized by functional category (page 2) 9
and classification (page 3), including margin and unit cost analysis at current and proposed 10
rates. Finally, page 4 is a summary identifying specific customer-related costs embedded in 11
the study. 12
The Excel model used to calculate the natural gas cost of service and supporting 13
schedules has been included in its entirety both electronically and hard copy in the natural gas 14
workpapers accompanying this case. 15
Q. Does the Natural Gas Base Case cost of service study utilize the same 16
methodology as the Company’s last natural gas case in Idaho? 17
A. Yes, the Base Case cost of service study was prepared using the same 18
methodology applied to the study presented in Docket No. AVU-G-17-01. 19
Q. What are the key elements that define the cost of service methodology? 20
A. Underground storage costs are allocated by normalized winter throughput. 21
Natural gas main investment has been segregated into large and small mains. Large usage 22
customers that take service from large mains do not receive an allocation of small mains. 23
Anderson, Di 7 Avista Corporation
System facilities that serve all customers are classified by the peak and average ratio that 1
reflects the system load factor, then allocated by coincident peak demand and throughput, 2
respectively. Meter installation and services investment is allocated by number of customers 3
weighted by the relative current cost of those items. General plant is allocated based on the 4
Company’s blended four-part factor allocator (four-factor). Administrative & general 5
expenses are segregated into labor-related, plant-related, revenue-related, and “other”. The 6
costs are then allocated by factors associated with labor, plant in service, or revenue, 7
respectively. The “other” A&G amounts are allocated based on the Company’s four-factor. 8
A detailed description of the methodology is included in Exhibit No. 17, Schedule 1. 9
10
IV. RESULTS 11
Q. What are the results of the Company’s natural gas cost of service study? 12
A. The Base Case cost of service study presented in this filing we believe provides 13
a fair representation of the costs to serve each customer group. The study indicates that the 14
General Service Schedule 101 (serving most residential customers) is providing less than the 15
overall rate of return (unity), and Large General, and Transportation service schedules 16
(111/112 and 146) are providing more than unity. Table No. 1 shows the rate of return and 17
the relative return ratio at present rates for each rate schedule: 18
Table No.1: Base Case Results 19
20
21
22
23
Customer Class Rate of Return Return Ratio
General Service Schedule 101 6.59% 0.90
Large General Service Schedule 111/112 10.55% 1.45
Transportation Schedule 146 12.70% 1.74
Total Idaho Natural Gas System 7.29% 1.00
Anderson, Di 8 Avista Corporation
The summary results of this study were provided to Mr. Miller for consideration in the 1
development of the proposed rates. 2
Q. Does this conclude your pre-filed direct testimony? 3
A. Yes. 4