28641.doc

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF APPLICATION OF AVISTA CORPORATION DBA AVISTA UTILITIES—WASHINGTON WATER POWER DIVISION (Idaho) FOR AN ORDER APPROVING A CHANGE IN NATURAL GAS RATES AND CHARGES. )
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CASE NO. AVU-G-00-5

ORDER NO. 28641

SUMMARY
On December 8, 2000, Avista Corporation dba Avista Utilities—Washington Water Power Division—Idaho (Avista; Company) applied to the Idaho Public Utilities Commission (Commission) for authority to implement new rates and charges for natural gas service in the state of Idaho to be effective January 11, 2001. The total requested net annual revenue increase is $14,106,437 (29.19%).
On December 21, 2000, in Order No. 28602 the Commission suspended the Company proposed effective date from January 11 to February 8, 2001. On the same date the Commission issued Notices of Application and Modified Procedure establishing a January 26, 2001 comment deadline. Public workshops and hearings were held in Lewiston on January 22 and Coeur d’Alene on January 23. A workshop was held in Sandpoint on January 24. No petitions for intervention were filed.
Timely comments were filed by Commission Staff, Potlatch Corporation and the City of Bonners Ferry. Also received were many e-mails, letters, faxes and petitions from customers opposing the increase.
By this Order and for reasons discussed below, the Commission approves the Company proposed increase in rates to be effective on February 15, 2001. The increase in price per therm to residential customers is approximately 28.20%. Large commercial customers served under Schedules 111 and 121 will experience average increases of 32.1% and 35.9% respectively, with the higher percentage due to their lower base rates. Actual increases in customer bills will vary based on the amount of therms consumed.
The overall effect of the proposed changes will be to increase customer rates per therm in the following amounts:

Schedule

Description
Present
Rate
Dollar Per Therm Increase
New
Rate
Percentage Increase 101 General 0.62036 $0.18649 0.80685 28.20% 111 Large General
First 200 Therms
Next 800 Therms
Over 1,000 Therms
0.63674
0.62036
0.52814 $0.18649
0.82323
0.80685
0.71463 32.14% 112 Large General
First 200 Therms
Next 800 Therms
Over 1,000 Therms
0.60520
0.58882
0.49660 $0.18649
0.79169
0.77531
0.68309 35.11% 121 Commercial
First 500 Therms
Next 500 Therms
Next 9,000 Therms
Over 10,000 Therms
0.62691
0.62036
0.52814
0.51123 $0.18649
0.81340
0.80685
0.71463
0.69772 35.91% 122 Commercial
First 500 Therms
Next 500 Therms
Next 9,000 Therms
Over 10,000 Therms
0.59537
0.58883
0.49660
0.47969 $0.18649
0.78186
0.77531
0.68309
0.66618 38.77% 131/132 Interruptible 0.40235 $0.18544 0.58779 46.09% 146 Firm Transportation 0.10574 $ 0.00 0.10574 0.00%
COMMISSION FINDINGS
Based on the Commission’s review and consideration of the Application and record in Case No. AVU-G-00-05, we accept the Company’s proposed rates, charges and adjustments as fair, just and reasonable. We further find to be reasonable an implementation date for the new tariffs of February 15, 2001. Although this extends the period of suspension from February 8th to February 15th (reference IDAPA 31.01.01.134.02; Idaho Code §§ 61-307, 61-622), we find that the additional time of suspension is reasonable and can be effectively used by the Company to communicate this increase to its customers, to provide information regarding energy conservation, energy assistance programs, available payment methods and resources for financial assistance, and to provide eligible customers with assistance and referrals.
The Commission’s decision rests on a review and consideration of the Company’s Application, the related comments and recommendations of Staff, Potlatch, the City of Bonners Ferry and the public testimony from the Lewiston and Coeur d’Alene hearings and the many letters, faxes, e-mails and petitions from Avista customers protesting the proposed increase.
Avista’s Schedule 150—Purchase Gas Cost Adjustment is used to reflect continuing changes in the cost of purchasing and transporting gas for customers. The wholesale price of natural gas has been deregulated at the federal level for more than a decade. State public utility commissions have no authority over the wholesale price of gas or the cost of pipeline transportation. Since rates were last approved, the net change in commodity, demand and storage gas costs results in an increase of $0.18649/therm for firm gas schedules 101 through 122; an increase of $0.18544/therm for interruptible schedules 131 and 132; and no change for transportation schedule 146. The resultant net increase in annual revenue requirement for Idaho related to Schedule 150 changes is $14,106,437. The Company calculates its current weighted average cost of gas (WACOG) to be $0.48044, an increase of $0.18544 from the previous $0.29500.
The annual revenue increase is necessary due to continued upward pressure on gas prices nationwide. Market prices for gas have more than doubled since the Company’s last PGA increase of $9,941,262, effective September 1, 2000. Reference Case No. AVU-G-00-3, Order No. 28496. The Company’s forecasted WACOG based on first of the month prices for January 2001 is over $.90 per therm and the forward/future prices predicted for the remainder of 2001 do not drop below $.50 per therm. As reflected in the comments provided by the Staff, demand for gas continues to push supply to the limits. One of the major factors causing the price to rise is the increased demand for gas to generate electricity. Increased demand is also caused by cold weather in the Northwest and throughout the country, late storage injections and the purchase of Western Canadian gas by customers in the Midwest. Limited drilling and exploration for new gas supplies has not kept up with demand. Finally, Northwest Pipeline operating requirements mandate purchases from the more expensive Sumas Citygate. This requirement in the form of an “Operational Flow Order” has limited access to supply options at lower prices.
Not only is gas expensive, but also the market continues to be extremely volatile. Prices continue to change ten to twenty percent or more in a single day. This makes forecasting extremely difficult. Potlatch Corporation notes in its comments that it appears wholesale gas prices in the Pacific Northwest will be at levels well above prices experienced from 1990-1999 for at least a year or two.
Based on last year's gas price increases, this Commission in September 2000 authorized a 29% natural gas increase and urged the Company to provide information to its customers regarding payment and energy assistance programs. Regrettably, we find ourselves now, only a short time later, in the position of approving another increase that has been proven to be necessary. Clearly, the region is in the midst of an energy crisis. As before, we, as a Commission, find that we have little choice when faced with the demonstrated cost increases but to approve the Application.
Avista did not request and the rates approved in this order do not include the pass through of any of the under collected gas costs that have been deferred since the last tracker filing. The new rates reflect only the change in Avista’s weighted average cost of gas.
The Company’s deferred gas costs were nearly $13 million at year end 2000. The Staff expressed concern that the Company’s continued cost deferral balances could exceed $25 million by the end of 2001. This would represent an increase in rates of over 50% just to collect deferred costs. The Commission is also very concerned about this continued deferral, but we find it would not be in the public interest to include deferred costs in this rate increase.
Nearly all the numerous letters, e-mails, faxes and petitions from hundreds of the Company’s customers object to the requested increase. The City of Bonners Ferry implores the Commission to not allow this rate increase. We recognize the painful economic hardship this rate increase will impose on customers. However, there is no evidence in the record to support a Commission finding of Company imprudence and no evidence that will support a disallowance of the increase requested.
The costs included in the Company’s PGA are external costs over which the Company has little or no control. Based on our review of the record and the Company’s practices, the Company’s actions of procuring gas supply for its customers appear neither out-of-the-ordinary nor imprudent. These are extraordinary times in the energy industries. Demand and supply are driving the short-term market price of natural gas to unprecedented levels. The rate increase requested in this case is solely related to the recovery of costs by the Company of the increased cost of natural gas. Avista will receive no additional profits from the increased rates, as any adjustment to rates is offset by the cost of gas purchased.
Staff in its comments also provides an assessment of the Company’s natural gas benchmark mechanism. Reference WWP-G-98-4, Order No. 27908. The benchmark mechanism sets the price customers will pay for gas at monthly index prices. Staff concludes that Avista’s benchmark mechanism provides its natural gas customers (1) a set monthly price with a price discount during months that prices increase, (2) revenues from capacity releases and off-system sales and (3) administrative savings. The benefits to customers through November 2000 amount to the following:
$1,700,000 Estimated purchase savings ($1,460,000) Net capacity releases and off system sales $ 38,000 Administrative and overhead savings since September 1999 (13 months) $278,000 Total savings through November 2000
The identified cost savings, however, seem almost insignificant when compared to customer exposure from rapidly increasing market prices.
Staff proposes and we direct that it should conduct further review of the Company’s benchmark mechanism and hedging practices to ascertain whether the Company and its customers are receiving adequate services for the fees paid to Avista Energy for its expertise and gas acquisition and transport. This review should address whether services that include risk assessment and development of a gas purchase strategy are a function for the distribution company or services that should be included in the current contract with Avista Energy.
Staff should work with the Company to determine what services should appropriately be provided by Avista Energy in its acquisition of gas for Idaho customers. Staff should also continue to review all purchase decisions with respect to:
• Current market conditions
• Current and future prices
• Information available to the affiliate marketer
• Any other information useful in establishing purchase strategies
CONCLUSIONS OF LAW
The Idaho Public Utilities Commission has jurisdiction over this matter and Avista Corporation dba Avista Utilities—Washington Water Power Division, a gas utility, pursuant to the authority and power granted under Title 61, Idaho Code 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 that Avista Corporation dba Avista Utilities—Washington Water Power Division be authorized to adjust its Idaho rates and charges in the manner requested in its Application and as reflected in the tariff schedules submitted in Case No. AVU-G-00-5 to be effective on February 15, 2001.
To assure that our proposed date of implementation is not frustrated by statutory prescription, IT IS FURTHER ORDERED and the Commission does hereby further suspend the effective date for the proposed tariff change in Case No. AVU-G-00-5 from February 8, 2001 (reference Order No. 28602) to February 15, 2001.
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 February 2001.

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Jean D. Jewell
Commission Secretary

vld/O:avug005_sw2

ORDER NO. 28641 1

Office of the Secretary
Service Date
February 9, 2001