HomeMy WebLinkAbout20001025sw.docDECISION MEMORANDUM
TO: COMMISSIONER HANSEN
COMMISSIONER SMITH
COMMISSIONER KJELLANDER
JEAN JEWELL
RON LAW
LOU ANN WESTERFIELD
TONYA CLARK
DON HOWELL
DAVE SCHUNKE
RANDY LOBB
NANCY HARMAN
ALDEN HOLM
MICHAEL FUSS
WORKING FILE
FROM:
DATE:
FEBRUARY 1, 2001 RE: CASE NO. AVU-G-00-5 (Avista)
PGA INCREASE $14,106,437 (29.19%)
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. As computed by the Company, the total requested net annual revenue increase in Idaho is $14,106,437 (29.19%). The change in rates and charges to customers will vary according to customer class and usage. The Company maintains that the public interest does not require a hearing on its Application and requests that the matter be processed under Modified Procedure, i.e., by written submission rather than by hearing. Reference Commission Rules of Procedure, IDAPA 31.01.01.201-204. The Company has requested an effective date of January 11, 2001.
Avista serves approximately 59,237 customers in Idaho. Over 58,626 of those customers are residential. The increase in price per therm to residential customers is approximately 28.20%. Residential customers using an average of 80 therms per month under the Company’s proposal can expect an increase in their average bill of $14.92. Large commercial customers served under Schedules 111 and 121 can expect to see an average increase of 32.1% and 35.9% respectively, with the higher percentage due to lower base rates. Actual customer increases will vary based on therms consumed.
The overall effect of the proposed changes, if authorized, would be to increase customer rates per therm in the following amounts:
Average Increase per Customer Avista Idaho Gas Customers
Schedule
Description
Present
Rate Proposed Dollar Per Therm Increase
Proposed
Rate Estimated Monthly Increase Estimated Increase Percentage 101 General 0.62036 $0.18649 0.80685 $ 14.92 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 $ 342.02 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 $ 514.71 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 $ 6,063.35 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 $36,256.83 38.77% 131/132 Interruptible 0.40235 $0.18544 0.58779 $ 5,913.31 46.09% 146 Firm Transportation 0.10574 $ 0.00 0.10574 $ 0.00 0.00%
SCHEDULE 155—GAS RATE ADJUSTMENT—(Idaho)
Schedule 155—Gas Rate Adjustment (Idaho) is used by the Company to pass through any under- or over-collection of gas costs since its last tracker filing. The Company in this filing proposes no adjustment or changes to its tariff Schedule 155 rates. The Commission is apprised that the Company as of November 1, 2000, is deferring approximately $9 million in Schedule 155 under-collected gas costs.
SCHEDULE 150—PURCHASE GAS COST ADJUSTMENT—(Idaho)
Schedule 150—Purchase Gas Cost Adjustment (Idaho) is used by the Company to reflect continuing changes in the cost of purchasing and transporting gas for customers. 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. As per the Company’s Application, the resultant annual net increase in annual revenue requirement (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.
As reflected in the Company’s Application, the proposed annual revenue increase is necessary due to continued upward pressure on gas prices. Market prices for gas have more than doubled since the Company’s last PGA ($9,941,262 (29.04%) increase), 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 for all of 2001 do not drop below $.50 per therm. The Company requested WACOG for the next 12 months based on forward/future published prices is $.48044.
On December 21, 2000, in Order No. 28602 the Commission suspended the Company proposed effective date for its proposed PGA increase 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 in Case No. AVU-G-00-5 and held in Lewiston (January 22), Coeur d’Alene (January 23) and Sandpoint (workshop only, January 24). Although a January 12 intervention deadline was established, no petitions 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 Company customers opposing the increase. The comments can be summarized as follows:
Commission Staff
Based on its review, Staff recommends that the Company’s Application to adjust its WACOG be approved. Staff performed a limited audit that revealed no irregularities. Staff notes that the Company’s earnings will not be changed by this increase.
Staff supports the Company’s continued deferral of Schedule 155 deferred gas cost balances (estimated December 31, 2000 balance of $12,900,000). Staff is concerned, however, that the deferral balance total could grow to an estimated $25 million by the end of 2001. Twenty-five million dollars represents an increase in one year rates of over 50% just to collect deferred costs.
Regarding Schedule 150 and the Company’s proposal to increase its WACOG, Staff states
Schedule 150 is used by the Company to reflect continuing changes in the cost of purchasing and transporting gas for customers. These costs are increasing in Idaho and throughout North America. 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. Staff was able to compare gas futures prices for the coming year with the Company’s proposed WACOG. Here are some selected futures prices based on Benchmark proportions (AECO, 50%; Sumas, 25%; and Rockies, 25%) on January 8, 2001:
February 2001 $.8990/therm
April 2001 $.5770/therm
July 2001 $.5770/therm
October 2001 $.5490/therm
December 2001 $.6310/therm
Compared to these prices, Avista’s commodity WACOG of $.48044/therm is below current market levels for every month. The Company is hoping to secure cheaper gas in the future than is currently available on the market. Because of the high prices we have seen lately and the $12,900,000 currently estimated to be in the deferral account, Staff believes it is important to grant the entire amount requested by the Company in the permanent adjustment schedule as soon as possible. The increase will send the correct price signal to the Company’s customers regarding the need to adjust their gas usage and conserve where possible.
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, Staff notes, seem almost insignificant when compared to customer exposure from rapidly increasing market prices.
Staff proposes to 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. Staff believes its continued review will address whether services that include risk assessment and development of a gas purchase strategy are a function for the distribution company or a service that should be included in the current contract with Avista Energy.
Staff intends to work with the Company to determine what services should appropriately be provided by Avista Energy in its acquisition of gas for Idaho customers. Staff will 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
Recognizing the hardships that the proposed increase will work on many of the Company’s customers, Staff recommends that Avista be directed to continue its efforts providing customers information regarding energy conservation (demand side management or DSM), available payment methods and resources for financial assistance.
Potlatch Corporation
Potlatch, in its comments, states that it purchases gas under Avista’s tariff and also directly in the market. Potlatch notes the increases in the purchased price of gas during the past year. Clearly, Potlatch states, on a short-term basis the utility should receive some financial relief for its purchases. In the Commission’s deliberation, Potlatch suggests that:
The Commission recognize the similarities and differences between the two local gas distribution companies it regulates, Avista and Intermountain Gas;
To the extent the two utilities are similar there should be similarity in treatment. Potlatch notes that Intermountain Gas received a gas rate increase in Case No. INT-G-00-2;
The Commission recognize that in the Pacific Northwest it appears that wholesale gas prices will be at least for a year or two at levels well above prices experienced in 1990 to 1999; and
The Commission conduct a more formal examination of the gas supply and price situation in the region and the utility responses to it. Both local distribution companies should participate in the examination and public hearing. Hopefully from such a review, all interested parties will provide input and the Commission will formulate how it will go forward in the new gas supply and price world.
City of Bonners Ferry
The City of Bonners Ferry appeals to the Commission to disallow the requested increase. Citing Idaho Department of Labor and U.S. Bureau of Census statistics, the City notes that, not including the recent layoff of 50 to 75 workers at the Crown Pacific Mill, the unemployment rate for Boundary County is 8.9% (compared to a state average of 4.9%). The per capita income in Boundary County is $16,669 (compared to a state average of $22,000 and a national average of $27,000). For 1999, the average annual wage for Boundary County was $22,191, for Bonner County $22,632 (compared to a state average of $26,000 and a national average of $33,000).
The bottom line, the city councilman states, is that Bonners Ferry is not an affluent area.—many-many of the City’s residents are in a daily struggle just to get by. Hundreds of Bonners Ferry residents switched to gas in the early 90s. Still reeling from the last gas increase, today, faced with little recourse and another proposed increase, they are hostages and feel almost violated.
The City implores the Commission to not allow this rate increase. Bonner and Boundary Counties cannot live with it.
Residential and Commercial Customers
The Commission in this case has received letters, e-mails, faxes and petitions from hundreds of the Company’s customers. All object to the requested increase. The following excerpts provide a sense of the concerns raised:
I am on fixed income, and conserving a lot, temperature 58 degrees, adding layers rather than raising thermostat. I have covered my water heater years ago, wash away from home (laundry), and limit cooking to microwave and crock-pot. Life gets more expensive for us, as my former employer insurance does not cover me now and any social security cost of living increases (COLA) are eaten up by new costs for meds, utilities, food, doctors, etc.
Many people in the north Idaho region are close to the poverty level.
We’d all be better off burning wood and kerosene lamps and to hell with the utility companies and their greed.
Outrageous!!
We as consumers are being held hostage.
I am totally sickened and disgusted with the results of the deregulation of public utilities. The greed exhibited by the power brokers is appalling and non-American. Stop the extortion.
Let there be fairness for all and let the CEOs take some out of their pockets to keep their companies running.
All us citizens ask for is a fair chance at life.
For years, gas companies told the public that electricity was too costly, not efficient for heating houses and water. Heating oil supplies were not reliable. We were told that gas supplies were extremely stable and plentiful. They even offered assistance and low interest loans so people would convert from oil/electric to gas or install all gas in new homes. We listened—and took their advice. And now they are saying that demand is too high and prices are skyrocketing as supplies dwindle!!!! Excuse me, is there something wrong with this picture? Have we been set up?
Avista made the comment that they need to keep their stockholders happy. This should not be done at the customers’ expense.
How are we who are on fixed incomes supposed to pay for this increase?
It’s more greed than need.
It is imperative that the Public Utilities Commission do its best to protect the citizens of Idaho from unregulated suppliers. Follow the money trail. This has all the earmarks of something that has been orchestrated. With the limits put on utilities at the “delivery end”, it would only make sense to “maximize profit” at the “supplier level”. Too many things have come to a head at one time for this not to have been “cabal of self interest”.
Too many families are one paycheck away from being homeless.
We need Avista management to confirm that rate hikes are not due to poor management decisions.
I feel we have been continuously lied to about this issue.
If this increase takes effect, I will be forced to change my source of fuel back to wood.
I am a single mother of two small children three and two. I am having a difficult time paying my bill on a limited income. I have inquired about help through Project Share programs but they have a three-month waiting list. What am I to do? Am I to choose between heat and feeding my children with another gas price increase? Help!
When we can’t pay our bill who will come to our aid, as we have for California.
The people who are involved in the higher rates get the candy while we lick the spoon.
I would be much more sympathetic to Avista’s second rate hike if I was seeing some evidence that Avista’s CEO and other high-paid management were taking a voluntary cut in pay.
I’m further upset that Avista is putting money in natural gas-fired electricity production facilities. This will only add to the scarcity of natural gas and further drive up the price to its customers.
The problem with Avista is that the management doesn’t know how to manage—they have spread themselves into too many other areas—home warranties, internet service, selling products and they are doing a crappy job with everything they touch. . . .When will the PUC give us a choice? You can be assured that our choice would never be Avista—they have no business sense or customer service.
Please note the word “Public” in your title which means you serve the citizens of Idaho and not utility companies. Avista’s latest attempt to hike gas rates is just another way for them to recover lost revenue.
If this rate increase goes through you will start seeing a lot more homeless people and a lot more crime…because people will start doing what they have to do to come up with money to pay their utility bills. They will be like the criminal stealing to pay for their drug use. People will be stealing to stay warm.
Avista should have planned ahead, anticipated this market change, and not given such gross raises to its corporate leaders. A retail consumer does not have the ability to defer their cost to a third party, neither should Avista.
What I foresee as the result of a rate increase is a deluge of bankruptcies, houses having to be repossessed due to inability to keep both a roof over one’s head together with heat and lights in the same structure…children becoming wards of the state because of the inability of the parents to maintain their care, our welfare roles going through the roof…multifold problems created from one thoughtless government act lobbied for by those with the income not to worry how much anything costs.
Utility services are central components to the lives of older Americans. We are particularly vulnerable to heating and energy prices.
Since the closing of major mining in this area, the residents and business owners struggle with declining revenue, increased prices and low wages.
Idaho consumers should not be penalized for Avista’s poor business judgment and practices. If anyone is affected, it should be the stockholders, who then should hold the Company responsible for its actions.
This feels like taxation without representation. Ever since WWP sold to Avista, there has been nothing but problems.
. . .
At the public hearings in Lewiston and Coeur d’Alene comments were received from Avista customers, and AARP and Community Action Agency representatives. The Company was both praised and criticized for its customer relations. The public questions the unforseeability of the gas shortage and competition for limited supplies. Natural gas generation by Avista, it was stated, does not appear to be a prudent choice at this time. It was suggested that the Company pursue renewable resources. No rate increase should be granted, one customer commented, until efficient and aggressive conservation is implemented. Weatherization, it was stated, is far cheaper than new generation resources. It was also suggested that the Commission consider implementing a tiered rate design (inverted block) to encourage conservation.
Also questioned at hearing was the appropriateness of using a capitalistic free market in the pricing of natural gas. Some things the Commission was reminded need to be regulated – food is a necessity; water is a necessity; energy is a necessity. Somewhere in this fiasco, it was observed that someone is making a fortune. How can there be deregulation if the customers have no choice, the demand is inelastic and customers are captive?
Commission Decision
Avista has requested a PGA increase of $14,106,437 (29.19%). Should the Company’s Application be approved or denied (in whole or in part)? Any comments regarding energy conservation, energy assistance programs, available payment methods and resources for financial assistance?
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DECISION MEMORANDUM 10