20001113avug002-swmfuss.doc

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 1895

Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983

Attorney for the Commission Staff

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE FILING BY AVISTA CORPORATION DBA AVISTA UTILITIES - WASHINGTON WATER POWER DIVISION OF ITS 2000 NATURAL GAS INTEGRATED RESOURCE PLAN (IRP).
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CASE NO. AVU-G-00-2

COMMENTS OF THE COMMISSION STAFF

COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of Filing, Notice of Comment Deadline issued on September 26, 2000, submits the following comments.
On July 20, 2000, Avista Corporation, dba Avista Utilities—Washington Water Power Division (Avista; Company) filed its year 2000 natural gas Integrated Resource Plan (IRP) with the Idaho Public Utilities Commission (Commission). The Company’s filing complies with the Commission’s direction in Order No. 25342, Case No. GNR-G-93-2 (reference PURPA Section 303(b)(3), Energy Policy Act of 1992). Pursuant to the Commission’s Order, the Company is required to file every two years. The Company was granted an extension in Order No. 27636 to postpone its scheduled February 1999 natural gas IRP filing until February 2000, and was informally granted further extension to August 1, 2000.
Commission Order No. 25342, Case No. GNR-G-93-2 initiated Integrated Resource Plan (IRP) requirements for local gas distribution companies (LDC) in accordance with amended Section 303 of the Federal Public Utility Regulatory Policy Act of 1978 (PURPA). In its order the Commission listed the elements that should be contained in the IRP. The following is a listing of these elements and policy requirements including Staff comments associated with each in regards to the 2000 IRP filed by Avista.

Purpose and Process
No Comments

Definition.
No Comments

Elements of Plan. Each gas utility shall submit to the Commission on biennial basis an integrated resource plan that shall include:

A range of forecasts of future gas demand in firm and interruptible markets for each customer class for one, five, and twenty years using methods that examine the effect of economic forces on the consumption of gas and that address changes in the number, type and efficiency of gas end-uses.

Appendix ‘A’ of Avista’s IRP provides the Company’s natural gas sales forecast. The Company’s planning horizon is ten years for capital budgeting and pipeline capacity and five years for revenue budgeting. The Company is consistent with these forecast horizons throughout the plan. The shorter planning horizon than outlined in Order No. 25342 is consistent within the industry. The IPUC has recognized the shorter planning requirements of the gas utilities under its jurisdiction. Reference ON 27024. Due to the volatility in the Natural Gas Market, LDCs planning horizons are much shorter than outlined to allow for flexibility with the market.
The Company has used Standard & Poor’s Data Resources, Inc. (DRI) research services for its economic forecast. The forecast is based on winter 1999 information produced in February 1999 and is the basis for the econometric model.
The most significant demand indicator for the Company is weather. The Company uses the 30-year average weather data published by the National Oceanic Atmospheric Administration. The weather data is included via heating degree-days in the Company’s SENDOUT model for overall system optimization and appears to be in accordance with industry standards.

Natural Gas Price Forecasts
The Company estimates retail natural gas prices to increase 2.6%/yr. on average over the ten year forecast period before taking out inflation. It further states that retail prices are expected to be only four percent higher in inflation adjusted terms in 2010 over the year 2000. Over the same period natural gas commodity costs are expected to increase by 5.3%.
The Company’s estimate was questioned in Staff's Production Request No. 4, due to the run up in prices in the recent past. The Company’s response was that the IRP was performed at a point in time (March 2000) before significant increases in gas prices occurred.
The Company stated,
The IRP is a snapshot in time but includes a high and low
case analysis that would take into account a higher than
normal commodity portion of the total cost of serving customers.
With respect to how this may effect the IRP, the cost of supplies
will be higher, and our storage dispatch procedure may change,
but the core customer needs, and the use of transportation, is not
effected. We will be looking into the demand elasticity based on
current gas prices, but this was not included in detail in this IRP.

Staff does not dispute that the IRP is based on expected conditions at a particular point in time; however, the significant price spike in the summer of 2000 is likely to affect the accuracy of the IRP over the forecast period should gas prices continue the current trends The Commission
should expect to see higher prices in the Company’s next biennial IRP should the current market trends continue over time.

An assessment for each customer class of the technically feasible improvements in the efficient use of gas including load management, as well as the policies and programs needed to obtain the efficiency improvements.

Appendix B of the IRP addresses the Company’s Demand Side Management (DSM) Program. The program was discontinued in 1997 due to the low avoided gas cost at that time. The IRP states that with the current avoided cost rates a DSM program may be feasible and the Company will be reviewing potential opportunities.

A detailed calculation of avoided costs for Avista is outlined in Appendix E of the IRP. The avoided costs from the Company's past three IRP’s are summarized as follows:

The Company is currently considering a tariff rider for the implementation of a natural gas DSM program. Staff has had an opportunity to review and comment on a draft proposal for the DSM program and anticipate formal submittal of the plan in the near future.

An analysis for each customer class of gas supply options, including: (1) a projection of spot market versus long-term purchases for both firm and interruptible markets; (2) an evaluation of the opportunities for using Company-owned or contracted storage or production; (3) an analysis of prospects for Company participation in a gas futures market; and (4) an assessment of opportunities for access to multiple pipeline suppliers or direct purchases from producers.

(1) In IRP Appendix E the Company extensively uses its SENDOUT model program to provide an analysis and projection of available supply components over the Company’s ten-year planning horizon. In Staff Production Request No. 1, Staff queried "Please elaborate on the apparent shift in resource options from firm supply to meet firm demand to an

increased utilization of spot market supply and prices?" The Company’s response was that the report reflects current firm contracts. It further stated that the Company contracts for firm supplies to meet system peak day every year and that the contracts may be priced in several different ways. The use of spot market prices are used as place holders in the IRP. Pricing methods of future contracts are yet to be determined.
(2) The Company does not own any direct supplies of gas (i.e. wells). All gas is purchased from gas suppliers through interstate pipelines. The Company through its SENDOUT model does show optimizing the use of its Jackson Prairie Underground Storage Facility and its Plymouth LNG station, both in Washington State. The Company is also looking at other storage opportunities such as LNG facilities, propane-air and further underground storage facilities in southeast Washington State. The Company states that these facilities are not cost effective at this time. Staff encourages the continued review of these facilities to optimize gas purchase options.
(3) In Case No. AVU-G-99-1 the Commission approved Avista's contract with Avista Energy, an unregulated affiliate, to manage all supply and transportation needs for Avista. The Avista Energy contract also provides an additional supply mechanism and pricing structure for potential new large-demand customers such as Avista's Proposed Combined Cycle generating plant. It is Staff’s assumption that Avista Energy, in the unregulated free market for gas will have the staff and resources to optimize the use of futures contracts and other available instruments in the Commodity Markets.
In Order No. 27908 in Case No. WWP-G-98-01 the gas benchmark costing mechanism was approved. The cost mechanism was thoroughly reviewed by the Commission and it is assumed to continue to be equitable at this time for the procurement of gas through the deregulated arm of Avista Corp., Avista Energy. No additional evaluation is provided at this time.
(4) Avista Energy is under contract with Avista Utilities to provide the supply of gas. The exact percentages are open to the free market; however, the gas price index is set within the benchmark mechanism based on 25% of Rockies Hub (Domestic), 25% Sumas (British Columbia) Hub and 50% on the AECO (Alberta) Hub. The reported supply mix based on Table 4 on Sheet E-17 is 78-73% Alberta, 12-16% British Columbia, and 10-11% Rockies for years 99/00 and 08/09 respectively. The benchmark mechanism is a benefit to both the customers and the

Company. The benchmark allows for a definable review standard and an opportunity for price arbitrage for the Company with the customers sharing in the profits but shielded from significant losses.

A comparative evaluation of gas purchasing options and improvements in the efficient use of gas based on a consistent method for calculating cost-effectiveness.

Disregarding the DSM programs planned as described earlier, the Company has demonstrated a comparative evaluation of gas purchasing options. In Appendix ‘C’ Supply Side Resources the Company has provided an evaluation of commodity resources, underground storage options, pipeline capacity, capacity release opportunities, and additional storage facility options. The commodity resource options are provided through the Avista Energy contract, which provides for some price protection for consumers and also price arbitrage opportunities for Avista with a majority share of the benefits also provided to the consumers. Avista uses the Jackson Prairie underground facility in its resource and pricing options to store less expensive gas for peak releases. Pipeline capacity and capacity releases provide an opportunity for Avista to gain additional revenue to offset the transportation cost of gas through a more efficient use of its firm and interruptible pipeline capacity resources. The Company has also reviewed a number of LNG, Propane-air, and Underground storage facilities to determine the economic viability of additional storage and peaking options. Many of the actual cost estimates and/or cost benefits for the additional storage facilities are not included in the IRP but statements of the cost effectiveness are included. Staff believes that the Company is reviewing these options thoroughly, however in future plans, additional cost benefit information may be warranted in this area.

The integration of the demand forecast and resource evaluations into a long-range (e.g., twenty-year) integrated resource plan describing the strategies designed to meet current and future needs at the lowest cost to the utility and its ratepayers.

In Appendix E the Company provides an extensive review of supply resources and, it appears, ample SENDOUT Model outputs for estimated supply resources and cost analysis throughout the planning horizon. The Model takes into account input data from demand forecasts

for a given area by customer type, weather pattern information, transportation data including distribution network and the physical movement of gas and pipeline costs, supply options consisting of gas contract prices, minimum and maximum take requirements, gas storage options, and capacity release data. The Model output is used extensively by the Company for planning purposes. The use of what-if scenarios within the Model allows the Company to make educated economic supply decisions across the planning horizon and demand forecasts.

A short-term (e.g., two-year) plan outlining the specific actions to be taken by the utility in implementing the integrated resource plan.

Appendix ‘G’ is the Action Plan. The 2000 action plan includes six areas. The Company addresses specific actions (Appendix '4') in the areas of sales forecasting, modeling, daily forecasting, supply and capacity, demand side management, distribution planning, and public involvement.

Relationship Between Plans. All plans following the initial integrated resource plan shall include a progress report that relates the new plan to the previously filed plan.

In Appendix ‘G’ the Company provides an action plan review and reports on the outcome of the previous action plan. In general the Company has followed the previous action plan.
The Company has provided comparison between previous IRPs throughout the text. The Company provides for a change in the demographic environment and other resource areas. Staff would recommend that in future IRPs the Company provide more historical data built within the provided charts and tables to facilitate progress and trend accuracy review for the various forecast elements. An example would be to include a beginning date of the last IRP in the supply estimates chart, in this case the 1997 IRP.

Plans to Be Considered in Rate Cases.

Not applicable in this Case.

Public Participation. In formulating its plan, the gas utility must provide an opportunity for public participation and comment and must provide methods that will be available to the public of validating predicted performance.

The public participation element is outlined in Appendix ‘F’. The Company held three public Technical Advisory Committee (TAC) Meetings to review different phases of the plan during 1999. Meetings were held on August 19, 1999 in Spokane, Washington, August 26, 1999 in Salem, Oregon, and October 15, 1999 in Spokane, Washington.

Legal Effect of Plan.

No Comments on this Section.

ADDITIONAL GENERAL COMMENTS
Plan Format
The 2000 Integrated Resource Plan (IRP) submitted by Avista is in a slightly new format from previous versions. The IRP has integrated both Avista’s North (Idaho and Washington) and South (Oregon and California) operating regions into one concise plan. Previous versions were separated by operating regions and required more duplication of efforts. Staff has had the opportunity to review both plans to assure an understanding of the Avista Gas Operation. The incorporation of the two operating regions into one plan greatly assists in the understanding of Avista’s total resource needs without continuous cross-checking.
The report is much easier for comparison, however there are some areas for improvement. One possible area for improvement would be to improve on chart labeling to assure it is clear which operation section is represented. In addition, where possible summary charts could be included that combine the two operating areas.

Summary
The Avista 2000 Integrated Resource Plan provides the Company's load growth and pricing forecasts. It provides insight into the Company's use of integrated resources by analyzing supply alternatives, including spot, firm and interruptible markets. The IRP further includes the use of storage futures options, multiple pipeline purchases, and demand side management to provide an integrated look at the Company's natural gas resources.
Conclusion
Staff believes that Avista’s 2000 IRP satisfies the technical requirements of Commission Order No. 25342 and should be accepted for filing. Staff’s recommendation should not be interpreted as approval, or as a judgment of prudence of the IRP or the prudence of following or not following the plan.

Dated at Boise, Idaho, this day of November 2000.

_________________________________
Scott Woodbury
Deputy Attorney General

Technical Staff: Michael Fuss

Attachments

SW:MF:gdk:i:wpfiles/umisc/comments/avug002.swmfuss

STAFF COMMENTS 2 NOVEMBER 17, 2000

Sheet1
Avoided Cost Summary Comparison
Annual Supply Avoided:
Load Factor
Supply Cost per Therm
Transportation Component
Winter Supply Avoided:
Avoided Cost Results:
(30 years levelized per therm)
Nominal:(key for WA/ID DSM)
Annual
Winter
1995.00
1997.00
2000.00
1.00
1.00
1.00
$0.17
$0.12
$0.26
$0.03
$0.03
$0.03
0.56
0.56
0.56
$0.20
$0.12
$0.28
$0.05
$0.03
$0.06
$0.34
$0.23
$0.50
$0.40
$0.27
$0.58