20210719English Direct in Support of Settlement.pdf

BEFORE THE
IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )OF AVISTA CORPORATION FOR )CASE NO.AVU-E-21-01
AUTHORITY TO INCREASE ITS RATES )AVU-G-21-01
AND CHARGES FOR ELECTRIC AND )NATURAL GAS SERVICE FOR ELECTRIC )AND NATURAL GAS CUSTOMERS IN THE )STATE OF IDAHO )
DIRECT TESTIMONY OF DONN ENGLISH
IN SUPPORT OF THE STIPULATION
AND SETTLEMENT
IDAHO PUBLIC UTILITIES COMMISSION
JULY 19,2021
1 Q.Please state your name and business address?
2 A.My name is Donn English.My business address is
3 11331 W.Chinden Blvd.,BLDG 8,STE 201-A,Boise,Idaho
4 83714.
5 Q.By whom are you employed and in what capacity?
6 A.I am employed by the Idaho Public Utilities
7 Commission as a Program Manager overseeing the Accounting
8 and Audit Department in the Utilities Division.I am also
9 the Program Manager overseeing the Technical Analysis
10 Department,also within the Utilities Division.
11 Q.Please describe your educational background and
12 professional experience.
13 A.My educational background and professional
14 experiences are shown in Exhibit No.101.
15 Q.What is the purpose of your testimony in this
16 proceeding?
17 A.The purpose of my testimony is to describe the
18 Application of Avista Corporation ("Avista"or "Company")
19 to increase its rates and charges for electric and natural
20 gas service in Idaho,describe the proposed comprehensive
21 Stipulation and Settlement ("Settlement")reached by the
22 parties in this case,and explain Staff's support for the
23 stipulated revenue requirement.Staff witness Mike Louis'
24 testimony provides support for cost of service and rate
25 design issues agreed to by the parties and also discusses
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)107/19/21 STAFF
1 the appropriate level of net power supply expenses to
2 include in base rates.
3 Q.How is your testimony organized?
4 A.My testimony is subdivided under the following
5 headings:
6 Background Page 2
Staff Investigation Page 6
Settlement Evaluation Page 7
9 Settlement Overview Page 8
10 Colstrip Transmission Page 16
11 Background
12 Q.Please describe Avista's original filing.
13 A.Avista made its original filing with the Idaho
14 Public Utilities Commission ("Commission")on January 29,
15 2021,proposing a two-year rate plan to increase its
16 revenue.The Company requested authority to increase its
17 electric base revenue in Idaho by $24.8 million,or 10.1%,
18 effective September 1,2021,and $8.7 million,or 3.2%,
19 effective September 1,2022.For natural gas,the Company
20 requested an increase in base revenue of $52,000,or 0.1%,
21 effective September 1,2021,and $1.0 million,or 2.2%,
22 effective September 1,2022.With the two-year rate plan,
23 the Company would not file another general rate case with a
24 proposed effective date prior to September 1,2023.
25 The Company's requested increases were based on a
CASE NO.AVU-E-21-01/AVD-G-21-01 ENGLISH,D.(Stip)207/19/21 STAFF
1 test period ending December 31,2019,with specific expense
2 adjustments based on pro forma period ending August 31,
3 2021,for the first increase in the two-year rate plan,and
4 August 31,2022,for the second increase.Capital
5 additions through August 31,2022,were included in the
6 Company's proposed first-year increase and calculated on an
7 Average of Monthly Averages ("AMA")basis.For the second
8 year of the rate plan,capital additions were included
9 through August 31,2023,and were also calculated on an AMA
10 basis.
11 The Company proposed using a capital structure of
12 50%equity and 50%debt,and a return on common equity
13 ("ROE")of 9.9%,for an overall weighted average cost of
14 capital of 7.3%.
15 Q.How did the Company propose to mitigate the
16 effect of its requested increase on customers?
17 A.In Order No.34906,the Commission approved the
18 Company's Tax Accounting Application request authorizing it
19 to change its accounting for federal income tax expense
20 from a normalization method to a flow-through method for
21 certain plant basis adjustments,including Industry
22 Director Directive No.5 ("IDD #5")and meters (Case Nos.
23 AVU-E-20-12 and AVU-G-20-07).The change in accounting
24 method provided immediate benefits to Idaho customers,
25 which Avista recorded in a regulatory liability account.
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)307/19/21 STAFF
1 Avista proposed to amortize and return those deferred tax
2 benefits to customers ($31.3 million Idaho electric and
3 $12.1 million Idaho natural gas)through separate tariff
4 schedules,Tax Customer Credit Tariff Schedule 76
5 (electric)and 176 (natural gas),to offset the requested
6 increases.
For Idaho electric customers,the Company
8 proposed to use the tax benefit to offset the entire first-
9 year rate increase,resulting in no billed impact to
10 electric customers until approximately December of 2022.
11 For Idaho natural gas customers,the Company proposed a
12 ten-year amortization of the tax benefits,resulting in a
13 first year decrease in billed rates of approximately 1.8%.
14 For the second year,the Company proposed to offset the
15 requested increase of approximately $1.0 million by using
16 the "Natural Gas Deferred Depreciation Expense"regulatory
17 liability approved in Order No.34276 in Case Nos.AVU-E-
18 18-03 and AVU-G-18-02 (see Settlement at page 9,para.14).
19 The Natural Gas Deferred Depreciation Expense balance is
20 estimated to be approximately $900,000 through August 31,
21 2021.Under the Company's proposal,Idaho natural gas
22 customers would see a second-year increase in billed rates
23 of approximately 0.1%.
24 Q.How was this case processed after the Company's
25 filing was received?
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)407/19/21 STAFF
1 A.The Commission issued a combined Notice of
2 Application and Notice of Intervention Deadline ("Notice")
3 on February 23,2021,establishing an Intervention Deadline
4 of March 16,2021.Intervenor status was subsequently
5 granted to Clearwater Paper Corporation,Idaho Forest
6 Group,LLC,the Community Action Partnership Association of
7 Idaho,Inc.,the Idaho Conservation League,and Walmart
8 Inc.,(collectively referred to as the "Parties").The
9 Parties participated in two settlement conferences,and on
10 June 14,2021,the proposed settlement signed by all
11 Parties was filed with the Commission.
12 Staff Investigation
13 Q.What type of investigation did Staff conduct to
14 evaluate the Company's rate increase request?
15 A.Staff's approach in any general rate case is to
16 extensively review the Company's Application and associated
17 testimony and workpapers,identify adjustments to its
18 revenue requirement,and prepare to file testimony for a
19 f llY¯litigated proceeding.There were 17 Staff members
20 analyzing this case consisting of auditors,engineers,
21 utility analysts,and consumer investigators,along with
22 supervisors.Staff auditors reviewed the Company's test
23 year results of operations,capital budgets,capital
24 spending trends,operations,and maintenance ("O&M")
25 expenses and trends,and verified all of the Company's
CASE NO.AVD-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)507/19/21 STAFF
1 calculations and assumptions with regard to the overall
2 revenue requirement.Because of the public health
3 emergency due to the COVID-19 virus,Staff members were not
4 able to conduct onsite audits or reviews of the Company's
5 books and records and they did not have extensive in-person
6 interviews with Company personnel.However,the auditors
7 reviewed thousands of transactions,selected samples,and
8 performed transaction testing in accordance with standard
9 audit practices.Staff reviewed the Company's labor
10 expense,incentive plans,and employee benefits to ensure
11 the appropriate level of expenditures are included in
12 rates.
13 Staff reviewed both completed and proposed
14 Company investments to determine the prudence of capital
15 additions.Expenditures including pension expense,
16 salaries,and O&M expenses were also examined.
17 Additionally,Staff investigated the Company's cost of
18 capital,actual and proposed capital structure,cost of
19 service,and revenue normalization.In total,Staff
20 submitted over 180 production requests and held several
21 virtual meetings with Company personnel as a part of its
22 comprehensive investigation.
23 Based on the success of its investigation,Staff
24 proposed 27 separate revenue requirement adjustments during
25 settlement discussions,all of which were either completely
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)607/19/21 STAFF
1 or partially accepted by the Company.
2 Settlement Evaluation
3 Q.How did Staff determine that the overall
4 Settlement was reasonable?
5 A.In every settlement evaluation,Staff and other
6 parties must examine the risks of losing positions at
7 hearing and determine if the agreement is a better overall
8 outcome.Staff must evaluate each individual adjustment
9 and determine the likelihood of the Commission accepting or
10 rejecting Staff's rationale for the adjustment.
11 Ultimately,Staff's intent in every settlement conference
12 is to negotiate the best possible outcome for customers.
13 Q.Does Staff support the Settlement as reasonable?
14 A.Yes.After a comprehensive review of the
15 Company's Application,thorough audit of the Company's
16 books and records,and extensive negotiations with the
17 parties to the case,Staff supports the proposed
18 Settlement.The Settlement offers a reasonable balance
19 between the Company's opportunity to earn a reasonable
20 return on its investment and affordable rates for
21 customers.Staff believes the Settlement,supported by the
22 Parties,is in the public interest,fair,just,and
23 reasonable;and should be approved by the Commission.
24 Settlement Overview
25 Q.Would you please describe the terms of the
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)707/19/21 STAFF
1 Settlement?
2 A.The proposed Settlement provides a reduction in
3 the Company's requested revenue requirement.Instead of
4 the Company's proposed electric base rate increase $24.8
5 million (10.1%)and natural gas base rate increase of
6 $52,000 (0.1%)for the first year of the two-year rate
7 plan,base rates under the proposed Settlement for Idaho
8 electric customers will increase by $10.6 million (4.3%),
9 and natural gas customers will see a base rate decrease of
10 $1.6 million (3.7%)effective September 1,2021.On
11 September 1,2022,Idaho electric customers'base rates
12 under the proposed Settlement will increase by $8.0 million
13 (3.1%)compared to the proposed $8.7 million (3.5%),while
14 natural gas customers'base rates will increase by $0.9
15 million.These base rate increases are before any offsets
16 from the Tax Customer Credit Schedule Nos.76 and 176.
17 The Tax Customer Credit Schedule No.76 will
18 entirely offset the base rate increases under the proposed
19 Settlement for Idaho electric customers for both years of
20 the two-year rate plan.Schedule No.176 will amortize the
21 available tax deferral balance for Idaho natural gas
22 customers over 10 years which will result in a billed rate
23 decrease of 4.5%on September 1,2021,and a billed rate
24 increase of 1.5%on September 1,2022,under the proposed
25 Settlement.During the Company's next general rate case,
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)807/19/21 STAFF
1 the remaining balance of the Customer Tax Credit for
2 natural gas and the remaining amortization will be
3 revisited and possibly modified.
4 Q.How was the stipulated revenue requirement
5 derived?
6 A.The Settlement first-year revenue requirement was
7 calculated by starting with the Company's proposed revenue
8 requirement and subtracting the agreed upon adjustments
9 proposed by Staff and the Parties.The calculation of the
10 Settlement revenue requirement is shown on Table No.1
11 (electric)and Table No.3 (natural gas)of the Settlement.
12 Table No.2 (electric)and Table No.4 (natural gas)
13 illustrate the additional proforma adjustments accepted by
14 the Parties to come to a second-year revenue requirement
15 under the proposed Settlement.Several agreed upon
16 adjustments to the Company's revenue requirement were
17 timing differences where amortization periods were
18 extended,while other adjustments updated the Company's
19 proforma estimates to actual amounts as they became known.
20 Rather than discuss every adjustment that was proposed and
21 agreed upon,I will highlight the adjustments that had a
22 significant impact to revenue requirement and those that
23 require additional policy discussions.
24 Q.Please explain the cost of capital and return on
25 equity components of the Settlement.
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)907/19/21 STAFF
1 A.In its Application,Avista proposed a 50%common
2 equity ratio and a 9.9%ROE.The Parties agreed to a ROE
3 of 9.4%while accepting the 50%common equity ratio.A
4 9.4%ROE reduces the Company's requested first-year
5 electric revenue requirement by approximately $2.9 million
6 and requested first-year natural gas revenue requirement by
7 approximately $0.6 million.
8 Q.How does the Settlement account for the Company's
g capital investments in net rate base?
10 A.In its Application,the Company proposed to
11 include capital investments through August 31,2022,in the
12 calculation of net rate base for the first-year increase.
13 The Parties agreed that only capital investments scheduled
14 to be placed in service before August 31,2021,will be
15 included in the first-year revenue requirement.Those
16 capital additions will be in service and benefitting
17 customers when new rates are effective on September 1,
18 2021.
19 For the second-year increase effective September
20 1,2022,the Company proposed capital additions through
21 August 31,2023,to be included in the calculation of net
22 rate base.The Parties agreed that any capital investment
23 after August 31,2022 would be excluded,and the Settlement
24 revenue requirement for the second-year of the rate plan
25 would only include a portion of the Company's capital
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)1007/19/21 STAFF
1 investments from September 1,2021,through August 31,
2 2022.
3 Q.Does the Settlement address any specific capital
4 projects?
5 A.Yes,for settlement purposes,the Rattlesnake
6 Flats Interconnection and Transmission/Substation projects
7 were removed from the Company's net rate base.
8 Additionally,5%of certain IS/IT investments and 50%of
9 the Customer Facing Technology projects were removed.The
10 Parties agree that these projects will be further reviewed
11 in the Company's next general rate case.
12 Q.Will you please summarize how employee labor and
13 incentive payments are accounted for in the Settlement?
14 A.For executive compensation,all wage increases,
15 and incentive payments were removed from revenue
16 requirement consistent with Staff's recommendation in other
17 rate cases.The Company will recover the Idaho
18 jurisdictional portion of executive salaries at the 2019
19 test year level.
20 For non-executive labor,the Company will recover
21 the 2019 Idaho jurisdictional portion of employee salaries
22 plus the contractually obligated 2020 bargaining unit
23 ("union")increases during the first year of the two-year
24 rate plan.On September 1,2022,the Company will begin
25 recovering the 2020 non-union annualized labor increases as
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)1107/19/21 STAFF
1 well at the 2021 union annualized labor increases.
2 The Company proposed to recover the 6-year
3 average of Idaho's jurisdictional share of non-executive
4 incentive payments.The Settlement provides recovery of
5 non-executive incentive payments at the 2019 test year
6 target levels,reducing the proposed revenue requirement.
7 Staff believes that recovery of employee incentive payments
8 should not be greater than the Company's actual target
9 levels.
10 Q.Please discuss the adjustment to the Company's
11 proposed Wildfire Expenses.
12 A.This adjustment includes in revenue requirement
13 the Company's actual wildfire expenses for the period
14 September 1,2020,through December 31,2021,as well as
15 expected amounts from January 2021 through August 2021.
16 The Idaho electric jurisdictional share of $1.471 million
17 establishes the base level of wildfire expense recovery and
18 reduces the first-year revenue requirement by $727,000.
19 During the second year of the rate plan,the base level of
20 wildfire expenses included in revenue requirement increases
21 to $1.836 million.
22 In Order No.34883,Case No.AVU-E-20-05,the
23 Company received approval to defer into a regulatory asset
24 account the incremental expenses associated with the
25 Company's Wildfire Mitigation Plan.The Company will
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)1207/19/21 STAFF
1 continue to defer any difference in actual wildfire expense
2 from the authorized level approved in base rates into the
3 Wildfire Expense Balancing Account.The balance in the
4 deferral will be included for review and recovery in a
5 future general rate case.
6 Q.How does the Settlement account for investments
7 the Company has made to join the Energy Imbalance Market
8 ("EIM")?
9 A.The Company included its capital investments in
10 preparing to join the EIM in the first-year rate increase.
11 Because the expected "Go-Live"date for the Company's
12 participation in the EIM is not until March 1,2022,the
13 Parties agreed to delay recovery of this investment until
14 the second-year rate increase effective on September 1,
15 2022.
16 Per Order No.34606 in Case No.AVU-E-20-01,the
17 Idaho jurisdictional share of the incremental EIM O&M
18 expenses are being deferred until the expected "Go-Live"
19 date.The Parties agree that effective with the expected
20 March 1,2022 "Go-Live"date,the Company will begin to
21 reflect Idaho's share of incremental EIM O&M expenses
22 through the annual Power Cost Adjustment ("PCA")mechanism,
23 up to Idaho's share of the EIM benefits that will also flow
24 through the PCA.Any incremental EIM O&M expenses
25 exceeding the EIM benefits will continue to be deferred and
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)1307/19/21 STAFF
1 reviewed for recovery in a future proceeding.
2 Q.Do you have any other comments on the Settlement?
3 A.Yes.Staff believes that an important aspect of
4 a two-year rate plan is to provide rate stability and
5 certainty to customers.Although not explicitly stated in
6 the Settlement,the Parties agreed that other than this
7 two-year rate plan,base rates from a general rate case
8 filing would not increase before September 1,2023.
9 Stability and certainty in rates only occur if the Company
10 does not file another general rate case during the two-year
11 rate plan.Therefore,it is important that the Commission
12 order in this case require the Company not to file another
13 general rate case with rates effective prior to September
14 1,2023.With that caveat,Staff believes the Settlement
15 represents a fair,just,and reasonable compromise of the
16 positions put forth by all parties and is in the public
17 interest.Therefore,Staff recommends the Commission
18 approve the Settlement without material changes or
19 modifications.
20 Colstrip Transmission Investments
21 Q.Please provide a brief summary of the accounting
22 treatment approved by the Commission for Colstrip Units 3
23 and 4.
24 A.In Order No.34276 in Case No.AVU-E-18-03,the
25 Commission approved the Settlement Stipulation proposed by
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)1407/19/21 STAFF
1 the settling parties regarding Avista's recovery of its
2 undepreciated investment in Colstrip Units 3 and 4 and the
3 asset retirement obligations ("ARO")for Colstrip,assuming
4 a useful life of those units through December 31,2027.
5 The current level of Idaho's share of the depreciation
6 expense ($2.475 million annually)would continue to be
y recovered through December 31,2027.The undepreciated
8 balance as of December 31,2027,and the ARO would be
9 offset by $6.41 million of tax credits derived from the Tax
10 Cuts and Jobs Act of 2018.The remaining balance not
11 recovered through depreciation will be recovered through
12 the amortization of a Regulatory Asset (FERC Account No.
13 183.327 -Colstrip Regulatory Asset)and amortized over
14 34.75 years (beginning April 1,2019)through 2053.The
15 Colstrip Regulatory Asset,net of accumulated deferred
16 federal income taxes,is included in rate base.
17 Q.Does the Settlement change the accounting
18 treatment for Colstrip Units 3 and 4?
19 A.No,the Settlement is silent on the accounting
20 treatment for Colstrip.However,Company witness Andrews
21 testimony discusses Avista's proposal to remove
22 transmission assets from the Colstrip Regulatory Asset and
23 begin depreciating those transmission assets using the same
24 depreciation rates approved for non-Colstrip transmission
25 assets.The Company has determined that the transmission
CASE NO.AVU-E-21-01/AVD-G-21-01 ENGLISH,D.(Stip)1507/19/21 STAFF
1 assets will be functional if and when Colstrip generating
2 units are no longer functional.Therefore,the Company
3 proposed to move the Colstrip transmission assets from the
4 Regulatory Asset account to Plant in Service.
5 Although the Settlement is silent on this
6 accounting proposal,the stipulated revenue requirement
7 accounts for a reduction in the Colstrip amortization
e expense by $125,000.On June 24,2021,after the
9 Settlement was signed by all Parties and filed with the
10 Commission,Avista sent an email to the Parties explaining
11 that the Settlement did not address the new depreciation
12 rates for the Colstrip transmission assets,although
13 embedded in the agreed upon revenue requirement.Because
14 Avista must use the updated depreciation rates on its books
15 to match the accounting for the Colstrip transmission
16 assets,the Commission must approve the change in
17 depreciation rates in an order.All Parties to the case
18 concurred that the Commission Order in this case should
19 address the depreciation rates for the Colstrip
20 transmission assets.
21 Q.Does this conclude your testimony?
22 A.Yes,it does.
23
24
25
CASE NO.AVU-E-21-01/AVU-G-21-01 ENGLISH,D.(Stip)1607/19/21 STAFF
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 19TH DAY OF JULY 2021,
SERVED THE FOREGOING DIRECT TESTIMONY OF DONN ENGLISH IN
SUPPORT OF THE STIPULATION AND SETTLEMENT,IN CASE NOS.
AVU-E-21-01/AVU-G-21-01,BY E-MAILING A COPY THEREOF TO THE
FOLLOWING:
PATRICK EHRBAR DAVID J MEYER
DIR OF REGULATORY AFFAIRS VP &CHIEF COUNSEL
AVISTA CORPORATION AVISTA CORPORATION
PO BOX 3727 PO BOX 3727
SPOKANE WA 99220-3727 SPOKANE WA 99220-3727
E-mail:[e-mail] E-mail:[e-mail]
[e-mail]
BENJAMIN J OTTO NORMAN M.SEMANKO
DAINEE GIBSON-WEBB PARSONS BEHLE &LATIMER
ID CONSERVATION LEAGUE 800 WEST MAIN STREET SUITE 1300
710 N 6TH ST BOISE ID 83702
BOISE ID 83702 E-mail:[e-mail]
E-mail:[e-mail]
[e-mail]
VICKI M BALDWIN Electronic Service Only:
PARSON BEHLE &LATIMER STEVE W CHRISS
201 SOUTH MAIN STREET SUITE 1800 DIRECTOR ENERGY SERVICES
SALT LAKE CITY UT 84111 WALMART INC
E-mail:[e-mail] E-mail:[e-mail]
RONALD L WILLIAMS LARRY A CROWLEY DIRECTOR
WILLIAMS BRADBURY PC THE ENERGY STRATEGIES INSTITUTE
PO BOX 388 3738 S HARRIS RANCH AVE.
BOISE ID 83701 BOISE ID 83716
E-mail:[e-mail] E-mail:[e-mail]
PETER J RICHARDSON DR DON READING
RICHARDSON ADAMS PLLC 6070 HILL ROAD
515 N 27TH STREET BOISE ID 83703
BOISE ID 83702 E-mail:[e-mail]
E-mail:[e-mail]
Electronic Service Only:
[e-mail]
[e-mail]
[e-mail]
CERTIFICATE OF SERVICE
BRAD M PURDY
ATTORNEY AT LAW
2019 N 17TH STREET
BOISE IDAHO 83702
E-mail:[e-mail]
SECRETARY
CERTIFICATE OF SERVICE