20210719Louis 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-21-01AUTHORITYTOINCREASEITSRATES)AVU-G-21-01ANDCHARGESFORELECTRICAND)NATURAL GAS SERVICE FOR ELECTRIC )AND NATURAL GAS CUSTOMERS IN THE )STATE OF IDAHO )
DIRECT TESTIMONY OF MICHAEL LOUIS
IN SUPPORT OF THE STIPULATION
AND SETTLEMENT
IDAHO PUBLIC UTILITIES COMMISSION
JULY 19,2021
1 Q.Please state your name and business address for
2 the record.
3 A.My name is Michael Louis.My business address is
4 11331 W.Chinden Blvd.,BLDG 8,STE 201-A,Boise,Idaho
5 83714.
6 Q.By whom are you employed and in what capacity?
7 A.I am employed by the Idaho Public Utilities
e Commission as the Engineering Section Program Manager.
9 Q.What is your educational and professional
10 background?
11 A.My educational background and professional
12 experiences are shown in Exhibit No.102.
13 Q.What is the purpose of your testimony and how is
14 your testimony organized?
15 A.The purpose of my testimony is to provide support
16 for the comprehensive Stipulation and Settlement
17 ("Settlement")filed as a result of the Settlement reached
18 between the Parties in both the electric and natural gas
19 cases.Specifically,my testimony addresses concerns
20 related to:(1)net power supply expense and transmission-
21 related expenses ("PSE")included in the electric case
22 revenue requirement and the adjustments that were made from
23 the original Application including the removal of the
24 Rattlesnake Flat and Palouse wind contracts from base PSE;
25 (2)the removal of network upgrade investment costs from
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)107/19/21 STAFF
1 the revenue requirement associated with Rattlesnake Flat;
2 (3)the spread of the 2021 and 2022 electric and natural
3 gas revenue requirements among the different customer
4 classes;and (4)changes to rate design for electric and
5 natural gas rates.An outline of my testimony is as
6 follows:
7 I.PSE in Electric Base Rates
8 Palouse Wind PSE Adjustment
9 Rattlesnake Flat PSE Adjustment
10 II.Rattlesnake Flat Network Upgrade Cost
11 III.Spread of Revenue Requirement to Customer Classes
12 Electric Revenue Requirement Class Allocation
13 Natural Gas Revenue Requirement Class Allocation
14 IV.Rate Design
15 I.PSE in Electric Base Rates
16 Q.What were your overall conclusions for base PSE
17 included in the revenue requirement for electric?
18 A.I believe the PSE agreed to by the Parties is
19 fair and reasonable because it represents an amount that
20 the Company will likely incur given what is known and
21 measurable and because the amount is adjusted for costs
22 that are driven by Idaho customers'needs and requirements.
23 Q.Please summarize the PSE included in the
24 Settlement and the adjustments made to the amount included
25 in the Company's original Application.
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)207/19/21 STAFF
1 A.If the Settlement is approved,the total amount
2 of annual PSE in electric base rates will be $126 million
3 for the system,of which $43 million is Idaho's
4 jurisdictional share.Idaho's share reflects five
5 adjustments to the Company's requested PSE amount as
6 summarized in the table below for a total reduction of
7 about $5 million in PSE:
8
9 ADJUSTMENTS $(000)
10 Removal of Palouse Wind (decrease)(3,717)
11 Removal of Rattlesnake Flat (decrease)(232)
12 Update to Electric and Gas Forecast (increase)1,878
13 Idaho Power Transmission Contracts (decrease)(1,105)
14 FERC General Rate Case (decrease)(1,399)
15 Remove BPA Contract (decrease)(383)
16 Total Adjustments (4,958)
17
18 Q.What were your major concerns regarding the PSE
19 filed in the original Application?
20 A.My two greatest concerns were the inclusion of
21 Palouse Wind and Rattlesnake Flat wind projects.Staff
22 also evaluated potential known and measurable Pro Forma
23 updates to PSE that should occur prior to rates going into
24 effect on September 1,2021.
25
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)307/19/21 STAFF
1 Palouse Wind PSE Adjustment
2 Q.What is your concern with the Palouse Wind
3 project relative to PSE?
4 A.I was concerned with the prudence of including
5 Palouse Wind in base PSE as in the Company's Application.
6 The Palouse Wind project has not been included in Idaho
7 base rates since it was originally submitted for base rate
8 recovery in Case No.AVU-E-12-08.In that case,"Staff
9 objected to the project because the Company acquired it to
10 satisfy a Washington State Renewable Portfolio Standard
11 without any immediate need to serve load.Moreover,Staff
12 determined that the project's PSE would exceed project
13 benefits under near term normalized load and power supply
14 conditions."Lobb,DI,Case No.AVU-E-12-08,p.13.For
15 settlement purposes in Case No.AVU-E-12-08,the net
16 cost/benefits have been tracked and recovered through the
17 Power Cost Adjustment ("PCA")mechanism with 90%/10%
18 Company/Customer sharing band that effectively allows the
19 Company to recover 90%of Palouse's contribution to PSE.
20 In the general rate cases that followed,the cost
21 difference of the contract rates compared to market rates,
22 including the comparison I completed in this case,have
23 maintained a sizable difference supporting Staff's view
24 that the project is uneconomic for Idaho customers.The
25 treatment through the PCA effectively provides a 10%
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)407/19/21 STAFF
1 discount for the cost of the project's power for Idaho
2 customers,has been maintained in all subsequent general
3 rate cases.
4 Q.How were the concerns with Palouse Wind PSE
5 addressed in the Settlement in this case?
6 A.The Settlement maintains the same PCA treatment
7 as in past general rate cases for the cost of Palouse Wind
a power,which on balance with the overall Settlement,
9 provides reasonable PSE for Idaho customers.
10 Rattlesnake Flat PSE Adjustment
11 ·What is your concern with the Rattlesnake Flat
12 project relative to PSE?
13 A.Like the Palouse Wind project,I was concerned
14 with the prudence of including Rattlesnake Flat in base
15 PSE,especially since the project went online in 2019
16 several years before a need for capacity to meet load.1
17 Without a need for capacity,the project is required to
18 meet an economic threshold defined by the next best
19 alternative.As in the case of Palouse Wind,I believe
20 that market electricity cost for the same amount of
21 generation serves as a good proxy for evaluation purposes.
22
23
24 IDecember 2026 was the first capacity deficiency dateauthorizedinOrderNo.33958 at the time when the project25wentonline.November 2026 was the first capacitydeficiencydateauthorizedinOrderNo.34981 when this case
was filed.
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)507/19/21 STAFF
1 In Case No.AVU-E-19-04,Staff had concerns about
2 the impact Rattlesnake Flat had on PSE.In Staff's
3 analysis,market electricity price forecasts from their
4 most recent IRP were less expensive than Rattlesnake Flat
5 contract prices,while adjusting for wind integration costs
6 and renewable energy credits ("REC")earned by the project,
7 over the term of the contract.
8 The Settlement between the parties in Case No.
9 AVU-E-19-04 utilized the same treatment as Palouse Wind,
10 leaving the cost of Rattlesnake Flat out of base rates and
11 flowing the project's PSE through the PCA,effectively
12 reducing PSE of the project by 10%.
13 Staff's analysis in this case showed similar
14 results as those in Case No.AVU-E-19-04 general rate case.
15 Staff analysis showed the cost of the Rattlesnake Flat
16 project over the term of the contract being higher than
17 market rates,even when adjusting for potential REC
18 revenue,wind integration costs,and network upgrade costs
19 associated with the project.
20 Q.How were concerns with the PSE of Rattlesnake
21 Flat addressed in the Settlement in this case?
22 A.The Settlement maintains the same PCA treatment
23 for Rattlesnake Flat as was negotiated in Case No.
24 AVD-E-19-04,by not including the cost of the project in
25 base rates but flowing it through the PCA at 90%.Staff
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)607/19/21 STAFF
1 believes the treatment of Rattlesnake Flat in this
2 Settlement makes the project's contribution to PSE
3 reasonable for Idaho customers.
4 Miscellaneous PSE Pro Forma Adjustments
5 Q.What other adjustments to PSE did the Settlement
6 address?
7 A.The Settlement incorporated four other
8 adjustments to PSE in base rates.Three of these
9 adjustments represent a decrease in base PSE,while the
10 fourth-an update in the natural gas price forecast-
11 represents an increase in base PSE.
12 The three adjustments that resulted in decreases
13 were adjustments to costs and revenues with outside
14 entities.These include (1)new firm transmission
15 contracts with Idaho Power that will earn the Company
16 additional revenue;(2)incremental transmission revenue
17 that will result from a Federal Energy Regulatory
18 Commission rate case that will be completed by the end of
19 2021;and (3)a reduction in transmission cost resulting
20 from a Bonneville Power Agency contract that was not
21 renewed.
22 Q.Please explain the increase in PSE due to an
23 update in the electric and natural gas forecast.
24 A.Unlike other types of expense,the Company uses
25 projected PSE dispatch costs developed through an AURORA
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)707/19/21 STAFF
1 model run starting with the date that customer rates
2 go into effect.An historical test period is used to
3 normalize loads and resource costs.Exceptions are the
4 market natural gas and electricity price forecasts,which
5 are major drivers of dispatch cost for the Company's gas-
6 fired generators and for electricity market prices that the
7 Company purchases from the Mid-Columbia trading-hub.
8 Because the forecasts are based on forward contract prices,
9 they represent the best indicators of future natural gas
10 and electricity prices,at least in the near term when
11 there is a sufficient volume of trading.
12 Staff has historically requested the Company run
13 its AURORA model with the latest natural gas forecast to
14 get the most accurate dispatch cost included in base PSE.
15 In the past several general rate cases,while the price of
16 natural gas was experiencing a declining trend,
17 incorporating the latest natural gas price has resulted in
18 updates to PSE in the customer's favor.However,more
19 recently market fundamentals have caused market prices to
20 trend upwards compared to the forecast submitted in the
21 Application making it reasonable to reflect higher PSE due
22 to anticipated higher future natural gas prices.
23 II.Rattlesnake Flat Network Upgrade Cost
24 Q.What is your concern with Rattlesnake Flat
25 Interconnection Costs that were included in plant-in-
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)807/19/21 STAFF
1 service in the Company's Application?
2 A.I was concerned with the cost of the network
3 upgrades on the Company's side of the point of
4 interconnection.Given that I could not recommend a
5 determination of prudence to include the Rattlesnake Flat
6 project in base rates from a PSE standpoint,which included
7 adjustments for the cost of the network upgrades,it would
8 not be reasonable to determine the network upgrade costs
9 are prudent from an Idaho ratepayer perspective,since the
10 wind project was the cause of the network upgrades cost.
11 Essentially,the investment in network upgrades without the
12 Rattlesnake Flat wind project would not be needed.
13 Q.How were these same network costs handled in the
14 settlement agreement approved by the Commission in the last
15 general rate case,Case No.AVU-E-19-04?
16 A.The network upgrade costs were not included.
17 Q.How was your concern addressed in the Settlement
18 in this case?
19 A.The Parties agreed to not include the network
20 upgrade costs in the Company's plant-in-service for this
21 case.
22 III.Spread of Revenue Requirement to Customer Classes
23 Electric Revenue Requirement Class Allocation
24 Q.Please summarize the class allocation of the
25 revenue requirement for electric service in the Settlement.
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)907/19/21 STAFF
1 A.The two-year rate plan in the Settlement utilizes
2 available tax credits owed to customers as discussed in
3 Staff witness English's direct testimony.The tax credits
4 would be used to offset portions of the increases in base
5 rates over both years.The tax credits provided an
6 opportunity for certain classes to make movements in the
7 allocation of the revenue requirement to achieve greater
8 equity based on their cost-of-service.For all other
9 classes that did not include movements toward cost-of-
10 service,base rate increases were spread on a uniform
11 percentage basis.
12 Q.Please explain the movements in the class
13 allocation towards cost-of-service in the Settlement.
14 A.The primary principle in cost-of-service-based
15 ratemaking is to assign costs to the customer classes
16 causing the cost so that rates for the various customer
17 classes can be developed to recover the costs assigned to
18 them.The Company's cost-of-service analysis results
19 included in Company witness Tara Knox's direct testimony
20 provides the rate of return for each customer class based
21 on current rates.Dividing the rate of return for each
22 customer class by the overall rate of return provides a
23 Relative Return Ratio for each customer class.A customer
24 class with a Relative Return Ratio equal to one (or at
25 unity)is assumed to be paying no more and no less than its
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)1007/19/21 STAFF
1 cost-of-service.A ratio greater than one indicates that
2 the class is paying more than its fair share of costs,
3 while a ratio less than one indicates that the class is not
4 paying its fair share.
5 Relying on the results of the cost-of-service
6 analysis as a guide,the Parties agreed to move 75%towards
7 unity for Schedule 25P (Clearwater)starting in Year 1 of
8 the rate plan and by moving Schedules 11/12 (small
9 commercial service)customers by the same amount starting
10 in Year 2.In both cases,these re-allocations were
11 accomplished by allocating more of the revenue requirement
12 to Schedule 1 (residential service)customers.
13 Q.Do you have any concerns with the class
14 allocations in the Settlement?
15 A.I believe the reductions in the allocation of the
16 revenue requirement towards unity for Schedules 11/12 and
17 25P by increasing the allocation for Schedule 1 customers
18 are reasonable.Under current rates,Schedules 11/12 and
19 25P have both been overpaying their cost-of-service,while
20 Schedule 1 customers have been paying less than their fair
21 share.However,my largest concern is with the rate
22 changes that occur at the end of Year 2.
23 Q.Please explain your concern with the rate changes
24 at the end of Year 2 and overall rate plan in more detail.
25 A.There is a likelihood that there will be a
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)1107/19/21 STAFF
1 "pancaking"of rates after the end of Year 2.This may
2 negatively affect rate stability.After Year 2,the
3 increase in base rates will be immediately reflected in
4 customer's bills without the offset from the tax credits.
5 If the Company files another general rate case
6 with an effective date soon after Year 2 ends,there will
7 be an additional increase in customer rates.
8 However,it is important to consider that the
9 impact of the tax credit refunds to customers,regardless
10 of any other changes in rates automatically causes issues
11 related to rate stability.It is the customer's money and
12 the mere fact of providing a refund will cause a temporary
13 change in customer rates reflected in customer bills.
14 It is possible to refund the tax credit amount
15 over a longer period to lessen the effects on rate
16 stability;however,doing so causes issues with
17 intergenerational equity.If the period were extended,the
18 body of customers who paid those taxes in the Company's
19 rates may not necessarily be same customers receiving the
20 refund due to customers who move into and out of the
21 Company's service territory.Refunding the tax credit over
22 a longer period to improve rate stability,would only
23 increase these inequities.
24 However,I believe making progress in developing
25 rates that adhere to the principles of cost-of-service rate
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)1207/19/21 STAFF
1 making to provide equity across the customer classes is
2 important.Balancing rate movements with rate stability is
3 also important,otherwise no movements toward cost-of-
4 service would ever occur.In this case,I believe the
5 movements are justified and more easily facilitated
6 because of the offsets from the tax credit refunds.
7 Natural Gas Revenue Requirement Class Allocation
8 Q.Please summarize the class allocation of the
9 revenue requirement for natural gas service in the
10 Settlement.
11 A.There are no changes in the class allocation
12 percentages of the revenue requirement for natural gas
13 service in the Settlement.All the decreases in base rate
14 revenue requirement occurring during Year 1 of the two-year
15 rate plan and the increases in Year 2 are spread to
16 customer classes on a uniform percentage basis.
17 Q.Do you have any concerns with the class
18 allocations or the overall rate plan in the Settlement?
19 A.I do not have any concerns.I believe the
20 resulting spread of the rates to different customer classes
21 is fair and reasonable,given that there are no changes in
22 the current class allocation.
23 IV.Rate Design
24 Q.Please summarize changes in rate design
25 incorporated into the Settlement.
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)1307/19/21 STAFF
1 A.For Year 1 of the two-year rate plan,all of the
2 base rate revenue increases or decreases are recovered 100%
3 through the energy charge for all rate schedules.The only
4 meaningful change for Year 2 is a $1 per month increase-
5 from $6 to $7-in the electric and natural gas Residential
6 Basic Charge (Schedules 1 and 101).
7 Q.Please discuss the increase in the electric and
e natural gas Residential Basic Charge for Year 2.
9 A.The last increase in the Basic Charge resulted
10 from Case Nos.AVU-E-17-01 and AVU-G-17-01.The increase
11 was $0.25 from $5.75 to $6.00 for electric service and
12 $0.75 from $5.25 to $6.00 for natural gas service.
13 The Basic Charge is designed to recover costs
14 incurred on a per customer basis and these costs do not
15 vary with the amount of electricity or natural gas
16 consumed.Examples include billing costs,meter reading
17 costs,and the cost of the meter.The current amount in
18 the cost-of-service for these expenses is over six times as
19 much as the existing $6 per month Basic Charge.By
20 increasing the basic charge,it will also reduce the
21 volumetric ($per kilowatt-hour or $per therm)portion of
22 rates so customers should not see drastic changes in their
23 total bill.However,it should increase rate stability
24 with bills that vary less across all months of the year.
25 For these reasons,I believe the increase in the Basic
CASE NO.AVU-E-21-01/AVU-G-21-01 LOUIS,M.(Stip)1407/19/21 STAFF
1 Charge is reasonable.
2 Q.Does this conclude your testimony in this
3 proceeding?
4 A.Yes,it does.
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CASE NO.AVU-E-21-01/AVD-G-21-01 LOUIS,M.(Stip)1507/19/21 STAFF
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 19TH DAY OF JULY 2021,SERVED THE FOREGOING DIRECT TESTIMONY OF MICHAEL LOUIS INSUPPORTOFTHESTIPULATIONANDSETTLEMENT,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 COUNSELAVISTACORPORATIONAVISTACORPORATION
PO BOX 3727 PO BOX 3727
SPOKANE WA 99220-3727 SPOKANE WA 99220-3727
E-mail:patrick.ehrbar avistacorp.com E-mail:[e-mail]
avistadockets avistacorp.com
BENJAMIN J OTTO NORMAN M.SEMANKODAINEEGIBSON-WEBB PARSONS BEHLE &LATIMERIDCONSERVATIONLEAGUE800WESTMAINSTREETSUITE 1300710N61"ST BOISE ID 83702BOISEID83702E-mail:nsemanko parsonsbehle.comE-mail:[e-mail]
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CERTIFICATE OF SERVICE
BRAD M PURDY
ATTORNEY AT LAW
2019 N 17TH STREET
BOISE IDAHO 83702
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