20230201Anderson 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]
[e-mail]

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION )
OF AVISTA CORPORATION FOR THE ) CASE NO. AVU-G-23-01
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 2
Avista 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 10
Public Accountant in the State of Washington. I joined the Company in January 2013, after 11
spending seven years working in various accounting positions in the banking industry. I 12
started with Avista as an Internal Auditor. In January 2016, I joined the Regulatory Affairs 13
Department. In my current role as a Regulatory Analyst, I am responsible for the Company’s 14
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 18
of 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 8 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. Schultz pro forma results of operations? 10
A. Yes. Similar to the electric revenue normalization adjustment sponsored by 11
Company witness Mr. Garbarino, the natural gas revenue normalization adjustment 12
represents the difference between the Company’s actual recorded retail revenues during the 13
12-months ended June 2022 test period, and retail revenues on a normalized (pro forma) 14
basis. The adjustment includes the re-pricing of pro forma sales and transportation volumes 15
at present rates using pro forma sales volumes that have been adjusted for unbilled sales, 16
abnormal weather, eliminating the deferred revenue associated with the 12 months ended 17
June 2022 Fixed Cost Adjustment (FCA) mechanism, and any material customer load or 18
schedule changes. The rates used exclude: 1) Purchase Gas Cost Adjustment Schedule 150, 19
which reflects the costs related to purchasing and transporting natural gas approved in the 20
Company’s last PGA filing, 2) Temporary Gas Rate Adjustment Schedule 155, which 21
reflects the approved amortization rate for prior deferred natural gas costs approved in the 22
Company’s last PGA filing, 3) Fixed Cost Adjustment Schedule 175, 4) Tax Customer 23
Anderson, Di 3
Avista Corporation
Credit Schedule 176, 5) Deferred Balances Credit Schedule 178, and 6) Demand Side 1
Management Rate Adjustment Schedule 191.1 2
Q. Does the Revenue Normalization Adjustment contain a component 3
reflecting normalized natural gas costs? 4
A. No, natural gas commodity costs have been removed from the Company’s 5
filing. 6
Q. Have you determined the impact of each of the components of this 7
adjustment? 8
A. Yes. The net operating income impact for each of the components is as 9
follows: 10
1. Re-pricing of base distribution revenue, increased net operating income by 11
$937,000. 12
2. Re-pricing base distribution unbilled revenue decreased net operating income 13
by $9,000. 14
3. The weather normalization adjustment at present base rates decreased net 15
operating come by $237,000. 16
4. The elimination of the deferred FCA revenue increased net operating income 17
by $533,000. 18
19
The total net amount of the natural gas revenue normalization adjustment is an 20
increase to net operating income of $1,226,000, as shown in adjustment column 2.07, on 21
page 7 of Company witness Ms. Schultz’s Exhibit No. 4, Schedule 2. 22
Q. Would you please briefly discuss natural gas weather normalization? 23
A. Yes. The natural gas weather normalization adjustment is developed from an 24
analysis of ten years (January 2012 through December 2021) of calendarized usage per 25

1 Documentation related to this adjustment is detailed in my workpapers accompanying this case.
Anderson, Di 4
Avista Corporation
customer and calendar period heating degree-day data. The resulting monthly weather 1
sensitivity factors (use-per-customer sensitivity to heating-degree days) are applied to the 2
difference between normal monthly heating degree-days and monthly observed heating 3
degree-days to calculate the difference needed to adjust usage to a normal weather level. In 4
other words, this calculation produces the change in therm usage required to adjust actual 5
usage to the amount expected if weather had been normal. 6
Q. Is this proposed weather adjustment methodology consistent with the 7
methodology utilized in the Company’s last general rate case in Idaho? 8
A. The Company is proposing two changes to the weather normalization 9
methodology. First, the Company proposes to change the definition of “normal” from a 30-10
year to a 20-year rolling average. Second, the Company proposes to adjust its non-degree 11
day seasonal regression factors from seasonal factors to monthly factors. These two changes 12
are discussed in detail in Company witness Dr. Forsyth’s testimony. 13
Q. What data did you use to determine “normal” heating degree days? 14
A. Normal heating degree-days are based on a rolling 20-year average of heating 15
degree-days reported for each month by the National Weather Service for the Spokane 16
Airport weather station. Each year the normal values are adjusted to capture the most recent 17
year with the oldest year dropping off, thereby reflecting the most recent information 18
available at the end of each calendar year. The calculation includes the 20-year period from 19
2002 through 2021. 20
Q. What was the change in therms resulting from weather normalization 21
for the twelve-months-ended June 2022 test year? 22
A. During the test year, weather was near normal during the winter. Weather 23
Anderson, Di 5
Avista Corporation
normalization required a reduction to usage as a result of more heating degree days during 1
the test year compared to normal. The annual total adjustment to Idaho natural gas sales 2
volumes was a reduction of 756,715 therms, which is approximately 0.5% of billed usage. 3
4
III. NATURAL GAS COST OF SERVICE 5
Q. Please describe the natural gas cost of service study and its purpose. 6
A. A natural gas cost of service study is an engineering-economic study which 7
separates the revenue, expenses, and rate base associated with providing natural gas service 8
to designated groups of customers. The groups are made up of customers with similar usage 9
characteristics and facility requirements. Costs are assigned in relation to each group’s test 10
year load and facilities requirements, resulting in an evaluation of the cost of the service 11
provided to each group. The rate of return by customer group indicates whether the revenue 12
provided by the customers in each group recovers the cost to serve those customers. The 13
study results are used as a guide in determining the appropriate rate spread among the groups 14
of customers. Exhibit No. 17, Schedule 1 explains the basic concepts involved in performing 15
a natural gas cost of service study. It also details the specific methodology and assumptions 16
utilized in the Company’s Base Case cost of service study. 17
Q. What is the basis for the natural gas cost of service study provided in this 18
case? 19
A. The cost of service study provided by the Company as Exhibit No. 17, 20
Schedule 2 is based on the 12-months ended June 2022 test year pro forma results of 21
operations presented by Ms. Schultz in Exhibit No. 4, Schedule 2. 22
Q. What are the key elements that define the cost of service methodology? 23
Anderson, Di 6
Avista Corporation
A. Underground storage costs are allocated by normalized winter throughput. 1
Natural gas main investment has been segregated into large and small mains. System 2
facilities that serve all customers are classified by the peak and average ratio that reflects the 3
system load factor, then allocated by coincident peak demand and throughput, respectively. 4
Meter installation and services investment is allocated by number of customers weighted by 5
the relative current cost of those items. General plant is allocated based on the Company’s 6
blended four-part factor allocator (four-factor). Administrative & general expenses are 7
segregated into labor-related, plant-related, revenue-related, and “other”. The costs are then 8
allocated by factors associated with labor, plant in service, or revenue, respectively. The 9
“other” A&G amounts are allocated based on the Company’s four-factor. A detailed 10
description of the methodology is included in Exhibit No. 17, Schedule 1. 11
Q. Would you please explain the natural gas cost of service study presented 12
in Schedule 2? 13
A. Yes. Exhibit No. 17, Schedule 2 is composed of a series of summaries of the 14
cost of service study results. Page 1 shows the results of the study by FERC account 15
category. The rate of return and the ratio of each schedule’s return to the overall return are 16
shown on lines 35 and 36. This summary is provided to Company witness Mr. Miller for 17
his consideration regarding rate spread and rate design. The results will be presented later 18
in my testimony. Additional summaries show the costs organized by functional category 19
(page 2) and classification (page 3), including margin and unit cost analysis at current and 20
proposed rates. Finally, page 4 is a summary identifying specific customer-related costs 21
embedded in the study. 22
The Excel model used to calculate the natural gas cost of service and supporting 23
Anderson, Di 7
Avista Corporation
schedules has been included in its entirety electronically in the natural gas workpapers 1
accompanying this case. 2
Q. Does the Natural Gas Base Case cost of service study utilize the same 3
methodology as the Company’s last natural gas case in Idaho? 4
A. The Base Case cost of service study was prepared using the same 5
methodology applied to the study presented in Case No. AVU-G-21-01, with one exception. 6
Q. What changed in the Natural Gas Base Case cost of service study since 7
the last natural gas case? 8
A. A portion of the small mains coincident peak costs have been allocated to 9
Schedule 146. Previously, no costs for mains smaller than 4 inches were allocated to 10
Schedule 146. 11
Q. What is the reason for this change? 12
A. The natural gas distribution network provides an integrated system which 13
benefits all customers, regardless of the customer’s location on the system and regardless of 14
which specific diameter of pipe they are served from on a peak day. The Company believes 15
that larger customers do benefit, at some level, from the 2 and 3 inch main on the natural gas 16
distribution network. Large customers benefit because the Company has small main 17
throughout its distribution system which is interconnected with large main. This 18
interconnectedness helps to minimize pressure drop on a peak day and keeps reliability up. 19
While large customers may not benefit from all the small main, we believe it is not 20
reasonable to assert that small main provides no benefit to large customers. Therefore, small 21
main coincident peak cost has been allocated 33 percent to Schedule 146 based on weather 22
Anderson, Di 8
Avista Corporation
normalized throughput. This change resulted in $23,000 of net operating income shifting 1
from Schedule 146 to Schedules 101 and 111. 2
3
IV. RESULTS 4
Q. What are the results of the Company’s natural gas cost of service study? 5
A. The Base Case cost of service study presented in this filing we believe 6
provides a fair representation of the costs to serve each customer group. The study indicates 7
that the General Service Schedule 101 (serving most residential customers) is providing less 8
than the overall rate of return (unity), and Large General, and Transportation service 9
schedules (111/112 and 146) are providing more than unity. Table No. 1 shows the rate of 10
return and the relative return ratio at present rates for each rate schedule: 11
Table No.1: Base Case Results 12
13
14
15
16
The summary results of this study were provided to Mr. Miller for consideration in the 17
development of the proposed rates. 18
Q. Does this conclude your pre-filed direct testimony? 19
A. Yes. 20
Customer Class Rate of Return Return Ratio
General Service Schedule 101 5.96% 0.91
Large General Service Schedule 111/112 9.20% 1.41
Transportation Schedule 146 11.71% 1.79
Total Idaho Natural Gas System 6.54% 1.00