20021030Order No. 29142.pdf

Office of the Secretary
Service Date
October 30, 2002
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
VISTA CORPORATION FOR AUTHORITY TO
DECREASE ITS RATES FOR SERVICE.
CASE NO. A VU-O2-
ORDER NO. 29142
On September 16, 2002, A vista Corporation filed a Purchased Gas Cost Adjustment
(PGA) Application with the Commission for authority to place new rate schedules into effect on
November 1 2002. The proposed rates would decrease the Company s annualized revenues by
approximately $10 million. If its Application is approved, A vista stated that customer gas rates
would decrease on average by 15.5%. According to Avista, the proposed price reduction
primarily reflects decreases in the cost of gas purchased for customer use and would not affect its
earnings. Avista supplies natural gas to approximately 56 000 customers in northern Idaho. On
September 27, 2002, the Commission issued a Notice of Application, Modified Procedure and
Comment Deadline. Comments were filed by the Commission Staff and two customers. After
reviewing the comments and record in this case, the Commission grants the Application as
amended below.
THE APPLICATION
A vista requested this rate reduction to true-up the differences between A vista s actual
weighted average cost of gas (W ACOG) and the W ACOG embedded in rates that has been
deferred since September 1999. The Company also deferred the revenue received from Cascade
Natural Gas for the release of storage capacity at the Jackson Prairie Storage Facility, various
pipeline refunds or charges, and miscellaneous revenue received from gas-related transactions.
To incorporate these deferred costs and credits into rates, Avista proposed modifying two rate
schedules that will adjust the W ACOG and the deferral surcharge.
First, the Company advocated reducing the prospective natural gas cost component
(the W ACOG) included in customer rates via Rate Schedule 150 by $0.14727 per therm to
$0.33098. This reduction resulted from netting the W ACOG reduction of $0.14946 per them
against the demand-related increase of $0.00219 per thermo
ORDER NO. 29142
Second, A vista sought to recover the previous timing differences accumulated in the
gas cost deferral account over the 12-month period of November 2002 through October 2003
with a surcharge. When the last PGA filing was approved on August 20 2001 , the gas deferral
account totaled approximately $22.3 million and was to be collected over a two-and-a-half year
period. Avista estimated the remaining balance to be $8.7 million as of June 30, 2002 and
expects it to be fully recovered by November 2003. The Company proposed increasing Schedule
155's amortization rates to recover this amount. If approved, firm sales gas customers on Rate
Schedules 101 , 111 , and 121 (General, Large General and Commercial) would experience a
$0.0079 per therm increase and interruptible sales customers on Rate Schedule 131 would
experience a $0.01098 per therm increase.
A vista proposed that the large transportation and interruptible customers be given the
option of receiving/paying their portion of the deferred gas costs either through a lump sum
credit/charge or through an amortization rate as set forth in the Company s tariffs. If these
customers chose the lump sum method, Avista proposed adjusting these billings' credits/charges
by the amount of interest that accumulated from the end of the test period used in this filing to
the date of actual settlement. The Company stated that this proposal would clear out the small
residual balances related to interest charges that are carried forward between PGA filings for
large customers.
If the Application is approved, A vista stated that the Company s estimated annual
natural gas revenue would decrease by approximately $10 030 000 (15.5%). Avista estimated
that the average residential customer using 75 therms per month would see their monthly bill
decrease by approximately $10.45 (14.8%). Larger commercial customers would experience an
average decrease between 16.4% and 17., with the higher decrease percentages due to lower
base rates.Incorporating its proposed changes to Rate Schedules 150 and 155, Avista
recommended the following annualized change in rates per customer class effective November 1
2002:
ORDER NO. 29142
COMPANY PROPOSED RATES
Proposed Estimated Proposed
Average Decrease Average Decrease Average Price
Customer Class Schedule $/Therm % Change $/Therm
General 101 $0.13937 14.$0.75816
Large General 111 $0.13937 16.4%$0.7089
Commercial 121 $0.13937 17.$0.6654
Large General 112 $0.14727 21.2%$0.5484
Interruptible 131 $0.13848 19.$0.58661
Interruptible 132 $0.14946 25.$0.44127
Transportation 146 none none $0.10574
STAFF COMMENTS
While performing an audit of Avista s gas purchases from April 2001 through June
2002, Staff reviewed the Application and additional information supplied by the Company and
third parties. Avista requested recovery of approximately $8.7 million that accrued through June
2002 and modification of the WACOG it collects from customers. Staff verified that the $8.
million sought and itemized the deferred account as follows:
Staff Table 1
Amount
Accrued Through
Deferred Account Item June 2002
~eginning Deferred Costs Balance $23 629 349
1Wh0iesaie Gas Costs Below W ACOG 649 005)
Surcharges to Customers and Interest Collected on Surcharge 829 073)
Clark Capacity Releases (108 230)
Cascade Natural Capacity Releases (209 280)
Benchmark Capacity Releases 216 588)
Off-System Sales (16 755)
Interest on Deferrals 459 101
Guaranteed Payments from A vista Energy (41 183)
Northwest Pipeline Refund (335 165)
Refunds to Industrial Customers (395)
Total Amount Owed by Customers as of June 2002 682 775
Staff stated that these two Avista requests would require changes to the Company s tariff
components Schedule 150 and Schedule 155.
Schedule 150 - Purchase Cost Adjustment.Staff described the purchase gas cost
adjustment as a forward-looking cost adjustment that reflects anticipated changes in the variable
ORDER NO. 29142
cost to purchase and transport gas. As a result of significant gas price decreases during the past
PGA year and a forecast of continued lower prices for next year, the Company proposed to
decrease the W ACOG by 31 % from $0.480 per therm to $0.331 per thermo Staff anticipated that
variable transportation costs would remain nearly the same as last year and should have little
effect on next year s rates.
The calculation of next year s W ACOG depends on the forward price of gas weighted
for the volume of gas used throughout the year. Historically, Idaho s share of gas costs are
allocated based on Idaho s consumed portion of the total gas purchased by the Company. In this
case, Staff stated that the Company inadvertently used peak demand rather than "volume
consumed" to calculate Idaho s share of total Company gas purchase costs. Staff indicated that
both Staff and the Company agree the historical methodology which allocates costs based on
consumption is most appropriate because gas costs are incurred as a result of volumetric
consumption.Therefore, Staff recommended the calculation proposed by the Company be
modified because volumetric allocation is more equitable, it more accurately reflects expected
gas costs, and it maintains the gas purchased cost allocation used in all prior PGA filings.
Staff also recognized that approval of this adjustment would slightly increase next
year s W ACOG over that proposed by the Company in its original Application. Specifically, the
W ACOG would be $0.346 per therm rather than $0.331 per thermo
Schedule 155 - Deferred Expenses. Avista uses Schedule 155 to pass through any
over- or under-collections of accrued gas costs since the last tracker adjustment.Staff
recommended that the Commission allow A vista to recover the $11 million relating to hedges
that accrued in the deferral account through June 2002. Staff encouraged the Company to
continue looking for ways to provide price stability and reduce gas costs for customers. Staff
also noted that the Company s efforts to balance these goals should be thoroughly documented to
facilitate future audits.
Staff stated that the Company was generally able to secure gas at a price that was
10wer than the Commission-authorized W ACOG from April 2001 through June 2002. That
allowed the Company to credit customers with the difference and pay down the deferral account
faster than previously forecasted. The deferred costs also included credits for capacity releases
off-system sales, a refund from Northwest Pipeline, interest charges and credits, and other items
ORDER NO. 29142
listed in Staff s deferred account table above. After reducing the $11 million attributable to
hedges by these credits and refunds, only $8.7 million remained as of June 2002.
In the last PGA case, A vista recommended an extended deferral recovery period
approximately two-and-a-half years. Because A vista s cost of gas was below the W ACOG, the
deferral account decreased faster than originally anticipated. Consequently, the Company
recommended a slight increase in the surcharge to allow a one-year recovery rather than recovery
over 18 months. Staff favored the one-year recovery, but was concerned that the Company-
recommended surcharge was calculated on the June 30, 2002 balance. By calculating the
surcharge on that date, Staff argued that the Company did not recognize that customers have
been paying the surcharge and a higher-than-actual W ACOG for the months of July 2002
through October 2002. Based on actual costs for July and August and Avista s projections for
September and October, Staff estimated that A vista recovered an additional $1.2 million.
In light of this timing difference, Staff recommended that the Commission amend
Schedule 155 tariff and reduce the proposed surcharge rate by including additional deferral
recovery through October. By including the amounts already collected, the surcharge rate would
be reduced to $.11018 per thermo Although Staff did not audit the Company s July 2002 through
October 2002 amounts, Staff indicated it would do so in the next PGA filing. Any cost recovery
for those months that differ from the amounts included in this case would be adjusted in next
year s PGA tracker.
Effect of Staff Recommendations on Customer Rates.By maintaining the
historical allocation methodology used to calculate Schedule 150 and adding the additional
deferred costs already recovered to Schedule 155 , Staff recommended a slightly larger rate
decrease of 15.64% than the 15.5% proposed by the Company. Staffs recommended customer
prices are listed below:
ORDER NO. 29142
STAFF PROPOSED RATES
Proposed Estimated Proposed
Schedule Average Decrease Average Decrease Average Price
Customer Class $/Therm % Change $/Therm
General 101 $0.1403 14.90%$0.7572
Large General 111 $0.1403 16.54%$0.7079
~arge General 112 $0.1325 19.05%$0.5632
Commercial 121 $0.1403 17.43%$0.6645
Interruptible 131 $0.1531 21.11%$0.5720
Transportation 146 none none $0.1057
Lan!e Customers . In addition to Schedule 150 and 155 adjustments for the general
body of ratepayers, Staff noted that the Company is working directly with its large gas customers
on the deferral collection. Many of these customers have switched from tariffed gas commodity
service to transportation-only service. A vista provided each large customer with an accounting
of its portion of the deferral and a lump sum or deferral payment plan in the Company s 2001
PGA filing. The majority of the large customers have now paid their share of the deferral and
many could receive an individual true-up refund as a part of this filing. Staff monitored the
large customer deferral payment activity and found that the resulting deferral collection benefited
A vista s large customers and protected the general body of ratepayers.
Customer Issues . Since the Application was received, the Commission received two
written comments asking the Commission to lower gas rates. The Consumer Assistance Staff
did not receive any calls concerning the proposed reduction in rates.
During the year that A vista s last gas increase was in effect until its Application was
filed on September 1 , 2002 , the Consumer Assistance Staff received six complaints concerning
the rate increase that resulted in higher bills with no change in consumption. Two of the
complaints mentioned that rates remained high while the wholesale cost of natural gas was
dropping. Staff anticipated the pending rate decrease would help alleviate customers' concerns
over the cost of natural gas and how that affected their monthly bills.
DISCUSSION AND FINDINGS
A. The WACOG
The Commission is required to establish "just and reasonable" rates. Idaho Code
61-502. Wholesale natural gas prices have fluctuated dramatically over the past few years
ORDER NO. 29142
resulting in higher natural gas costs for gas utilities nationally and in Idaho. As a result of the
increased commodity prices that Avista paid its suppliers in 2000 and 2001 , the Commission
approved a substantial rate increase. Needless to say, we are relieved that Avista customers will
finally experience significant rate relief. The primary issue raised by the Company s Application
is not whether rates should be decreased, but by how much.
After reviewing the utility s Application and the comments, we adopt the Staffs
W ACOG adjustment using "volume consumed" rather than peak demand. We further find it is
reasonable to use a one-year recovery deferral period as recommended by Staff as of October
2002. Staff may true-up the Company s July 2002 through October 2002 deferrals in the next
PGA filing.
For the foregoing reasons, we find it reasonable to reduce the W ACOG from $0.480
to $0.34572 per thermo When combined with the adjustments, surcharges and credits, rates per
therm will decrease on average by 15.64%. The following table indicates the annualized change
in rates per customer class:
APPROVED RATES
Approved Approved
Average Decrease Average Decrease Average Price
Customer Class Schedule $/Therm % Change $/Therm
General 101 $0.1403 14.90%$0.7572
Large General 111 $0.1403 16.54%$0.7079
Large General 112 $0.1325 19.05%$0.5632
Commercial 121 $0.1403 17.43%$0.6645
Interruptible 131 $0.1531 21.11%$0.5720
Transportation 146 none none $0.1057
The rate decrease approved in this Order shall become effective on November 1
2002. The Commission orders Avista to adjust its billing and file new tariffs prior to
implementing the new rate. Idaho Code 9 61-618.
ORDER
IT IS HEREBY ORDERED that Avista s Application is granted as amended -above.
The Company shall file tariffs in conformance with a W ACOG of $0.34572 per therm to be
ORDER NO. 29142
effective November 1 , 2002. For meters read after November 1, 2002, usage will be prorated
back to November 1 2002.
IT IS FURTHER ORDERED that Avista pass through its proposed permanent
adjustments and temporary surcharges and credits to customers as proposed by the Staff.
IT IS FURTHER ORDERED that Avista continue to file updated WACOG
projections quarterly.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) or in interlocutory Orders previously issued in this Case No. A VU-02-
may petition for reconsideration within twenty-one (21) days of the service date of this Order
with regard to any matter decided in this order or in interlocutory Orders previously issued in this
Case No. A VU-02-2. For purposes of filing a petition for reconsideration, this order shall
become effective as of the service date. Idaho Code 9 61-626. Within seven (7) days after any
person has petitioned for reconsideration, any other person may cross-petition for
reconsideration. See Idaho Code 9 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 30
r+--
day of October 2002.
1/~
MARSHA H. SMITH, COMMISSIONER
ATTEST:
J ea Jewell
Commission Secretary
O:A VUGO202 In
ORDER NO. 29142