2001012528624.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION OF AVISTA CORPORATION FOR APPROVAL OF A REVISED INTEREST RATE TO BE APPLIED TO DEFERRED GAS COSTS. )
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CASE NO. AVU-G-00-04

ORDER NO. 28624

On November 29, 2000, Avista Corporation dba Avista Utilities – Washington Water Power Division – Idaho (Avista) filed an Application with the Idaho Public Utilities Commission (Commission) requesting a change in the interest rate applied to deferred gas costs, costs recorded monthly in Accounts 191.30 and 191.31. The interest rate presently applied to the balance in these accounts is the customer deposit rate, a rate that is published annually by the Commission. The current customer deposit rate is 5.0%. Avista indicates that this rate is substantially less than its short term borrowing rate. Short-term borrowings, the Company states, are used to finance the balance of deferred gas costs. The Company proposes to utilize a rate that is more representative of its short term borrowing costs.
As represented by the Company, its present (variable) short term borrowing cost is approximately 7.5%, excluding fixed charges and fees. Fixed charges and fees currently add about 1% to the rate. Recent increases in gas prices, the Company states, have caused the Company’s deferral balance to increase substantially. Without a compensatory rate applied to the deferred balance, the Company states that it has a financial incentive to collect a deferred balance owing the Company as quickly as possible and to refund a balance owing customers as slowly as possible.
In order to simplify the monthly calculation of the rate to be applied to deferred gas costs and to provide a reasonable audit trail, the Company proposes to use an average of the variable rate under its line of credit for the first and last day of each month. The Company receives a bank confirmation showing the effective variable interest date for each day it borrows funds under its credit line, and therefore contends that the rate applied to the gas deferral balances will be simple to calculate and supported by just two documents each month.
The Company requested that its Application be approved on or before December 15, 2000. To provide sufficient time for public comment, the Commission in Order No. 28590 suspended the proposed effective date to February 01, 2001.
On December 14, 2000, the Commission issued a Notice of Application and Modified Procedure in Case No. AVU-G-00-04. The deadline for filing written comments was January 5, 2001. Commission Staff was the only party to file comments. Staff recommends that the Company’s request be denied.
Staff acknowledges that the Company is accruing significant balances in its deferral accounts. The estimated balance as of December 31, 2000, is $12,420,000.
Based on its review of other utilities, Staff states that despite the Company’s contentions to the contrary, Avista gas currently calculates interest at approximately the same rate as all other utilities that have deferral mechanisms with an interest component. Staff contends that the customer deposit rate remains the appropriate rate for the Company to accrue interest on Purchase Gas Adjustment (PGA) deferral amounts.
Staff recommends that the Company’s request be denied for the following reasons.
The customer deposit rate increased from 5.0% to 6.0% on January 1, 2001. Six percent is much closer to the actual cost of borrowing than 5%. This increase helps to mitigate the costs to the Company.

The Federal Reserve lowered the fed funds rate and the discount rate to 6.0% and 5.75% on January 3, 2001. The discount rate was further reduced to 5.5% on January 4, 2001. This discount rate should allow the Company to pay a lower rate on its short-term borrowings.

By maintaining the customer deposit rate as a rate for the Company to accrue interest for the PGA, the Company will accrue interest at a rate that is similar to the other utilities in Idaho that accrue interest on deferred balances.

The increased interest costs, if allowed, will be passed on to customers.

COMMISSION FINDINGS
The Commission has reviewed and considered the filings of record in Case No. AVUG00-04 including the comments of the Commission Staff. We find Staff’s argument for denying the change in interest rate to be persuasive. Of significance, since the Company’s filing, the customer deposit rate has increased and the cost of borrowing money has decreased. We find that the perceived inequity that prompted the Company’s filing has to a large degree been mitigated. We accordingly find no compelling reason to change the interest rate on PGA deferred gas costs. We therefore find it reasonable to deny the Company’s Application.
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over Avista Corporation dba Avista Utilities—Washington Water Power Division—Idaho, a natural gas utility, and the issues raised in Case No. AVU-G-00-04 pursuant to the authority granted in Idaho Code, Title 61 and the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
O R D E R
In consideration of the foregoing and as more particularly described above, IT IS HEREBY ORDERED and the Commission does hereby deny the Company’s requested change in the interest rate applied to PGA deferred gas costs.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for reconsideration within twenty-one (21) days of the service date of this Order. Within seven (7) days after any person has petitioned for reconsideration, any other person may cross-petition for reconsideration. See Idaho Code § 61-626.

DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this _______ day of January 2001.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:AVU-G-00-04_sw2

ORDER NO. 28624 1

Office of the Secretary
Service Date
January 25, 2001