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Home My WebLink About20021024Decision Memo.docDECISION MEMORANDUM TO: COMMISSIONER KJELLANDER COMMISSIONER SMITH COMMISSIONER HANSEN JEAN JEWELL RON LAW LOU ANN WESTERFIELD RANDY LOBB DON HOWELL TERRI CARLOCK DAVE SCHUNKE NANCY HARMAN ALDEN HOLM MICHAEL FUSS TONYA CLARK BEVERLY BARKER GENE FADNESS WORKING FILE FROM: LISA NORDSTROM DATE: OCTOBER 24, 2002 RE: IN THE MATTER OF THE APPLICATION OF AVISTA CORPORATION FOR AUTHORITY TO DECREASE ITS RATES FOR SERVICE. CASE NO. AVU-G-02-2. On September 16, 2002, Avista 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 that would decrease its annualized revenues by approximately $10 million. If its Application is approved, Avista stated that customer 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 as a result of the proposed decrease in prices and revenues. THE APPLICATON Avista requested this rate reduction to true-up the differences between Avista’s actual weighted average cost of gas (WACOG) purchased and the WACOG 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 WACOG and the deferral surcharge. WACOG: First, the Company advocated reducing the prospective natural gas cost component (the WACOG) included in customer rates via Rate Schedule 150 by $0.14727 per therm to $0.33098. This reduction resulted from netting the WACOG reduction of $0.14946 per therm against the demand-related increase of $0.00219 per therm. The chart below depicts gas prices for Avista’s Rate Schedule 101 over the past five years. Assuming the deferral is fully recovered in November 2003 and the WACOG remains as proposed, Staff estimated a cost to customers of $0.6323 – which is reflected below as the estimated price of gas in 2003. By comparison, Natural Gas Monthly listed the year-to-date average price of natural gas delivered to residential customers as 89.6 cents per therm in Idaho versus 73.2 cents per therm nationally. Deferral Surcharge: Second, Avista 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. As depicted on the following graph, Avista estimated the remaining balance to be $8.7 million as of June 30, 2002 and expected 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 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. Avista 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, Avista 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 17.3%, 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: Customer Class Schedule Proposed Average Decrease $/Therm Estimated Average Decrease % Change Proposed Average Price $/Therm General Large General Commercial 101 111 121 $0.13937 $0.13937 $0.13937 14.8% 16.4% 17.3% $0.75816 $0.7089 $0.6654 Large General 112 $0.14727 21.2% $0.5484 Interruptible 131 $0.13848 19.1% $0.58661 Interruptible 132 $0.14946 25.3% $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 has accrued through June 2002 and modification of the WACOG it collects from customers. Staff verified that the $8.7 million sought and itemized the deferred account as follows: Deferred Account Item Amount Accrued Through June 2002 Beginning Deferred Costs Balance $23,629,349 Wholesale Gas Costs Below WACOG (3,649,005) Surcharges to Customers and Interest Collected on Surcharge (8,829,073) Clark Capacity Releases (108,230) Cascade Natural Capacity Releases (209,280) Benchmark Capacity Releases (2,216,588) Off-System Sales (16,755) Interest on Deferrals 459,101 Guaranteed Payments from Avista Energy (41,183) Northwest Pipeline Refund (335,165) Refunds to Industrial Customers (395) Total Amount Owed by Customers as of June 2002 $8,682,775 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 The purchase gas cost adjustment is a forward-looking cost adjustment that reflects anticipated changes in the variable 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 WACOG by 31% from $0.480 per therm to $0.331 per therm. 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 WACOG depends on the forward price of gas weighted for the volume of gas used throughout the year. Historically, Idaho’s share of gas costs were 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 that allocates costs based on consumption is most appropriate because gas costs are incurred as a result of volumetric consumption. Therefore, Staff recommended that 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 WACOG over that proposed by the Company in its original Application. Specifically, the WACOG would be $0.346 per therm rather than $0.331 per therm. 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 addressed three major items regarding the deferred gas costs in Schedule 155: the cost of hedges purchased for price stability, gas costs deferred during this PGA period, and gas costs deferred during previous PGA periods. 1. Hedges for Price Stability: Staff recommended that the Commission allow Avista 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. 2. Gas Costs Deferred during this PGA Period: Even with the price-stabilizing hedges, the authorized forward price was both lower and higher than the amount the Company paid for gas during the last PGA period. However, from April 2001 through June 2002, Staff stated that the Company was generally able to secure gas at a price that was lower than the Commission-authorized WACOG. 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 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. 3. Collection of Previously Deferred Amounts: In the last PGA case, Avista recommended an extended deferral recovery period of approximately two-and-a-half years. Because Avista’s cost of gas was below the WACOG, 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 WACOG 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 Avista 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 therm. 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. Staff’s recommended customer prices are listed below: Customer Class Schedule Proposed Average Decrease $/Therm Estimated Average Decrease % Change Proposed Average Price $/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 Large 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. Avista 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 Avista’s large customers and protected the general body of ratepayers. Customer Issues Since the Application was received, the Commission received one written comment asking the Commission to vote “in favor of the reduction.” The Consumer Assistance Staff did not receive any calls concerning the proposed reduction in rates. During the year that Avista’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. COMMISSION DECISION 1. Does the Commission wish to approve Avista’s Application for authority to place new rate schedules into effect on November 1, 2002 that will decrease its annualized revenues by approximately $10 million? 2. Does the Commission wish to adopt the following Staff recommendations that when combined would result in a slightly larger rate decrease (15.64% rather than the 15.5% proposed by the Company)? ▪ Reduce Avista’s proposed surcharge rate by including additional deferral recovery for the months of July 2002 to October 2002. ▪ Calculate Idaho’s share of projected gas costs included in the Company’s WACOG based on Idaho’s percentage of the Company’s actual volumetric usage rather than the percentage of five-peak-day usage. ___________________________ Lisa Nordstrom M: AVUG0202_ln2 Energy Information Administration, Natural Gas Monthly August 2002. DECISION MEMORANDUM 1 Sheet3 Sheet2 Graphs Chart1 AVU-G-02-2 Workpapers Avista 2002 PGA Filing Date Rate Deferral Amount ?11?/?1?/?2004 ?11?/?1?/?2003 $0.63 0.13 ?11?/?1?/?2003 $0.00 ?11?/?1?/?2002 $0.76 ?7?/?1?/?2002 $8,700,000.00 ?8?/?20?/?2001 $0.90 ?8?/?20?/?2001 $22,340,517.00 ?2?/?8?/?2001 $0.81 ?2?/?8?/?2001 $13,000,000.00 ?9?/?1?/?2000 $0.62 ?9?/?1?/?2000 $4,890,000.00 ?11?/?1?/?1999 $0.48 ?11?/?1?/?1999 $2,377,457.00 ?11?/?1?/?1998 $0.44 ?11?/?1?/?1997 Avista Gas Residential and Small Business Gas Prices $/Therm Avista Deferral Account Avista Deferral Account 37926.00 37438.00 37123.00 36930.00 36770.00 36465.00 0.00 8700000.00 22340517.00 13000000.00 4890000.00 2377457.00 Sheet3 Sheet2 Graphs Chart1 AVU-G-02-2 Workpapers Avista 2002 PGA Filing Date Rate Deferral Amount ?11?/?1?/?2004 ?11?/?1?/?2003 $0.63 0.13 ?11?/?1?/?2003 $0.00 ?11?/?1?/?2002 $0.76 ?7?/?1?/?2002 $8,700,000.00 ?8?/?20?/?2001 $0.90 ?8?/?20?/?2001 $22,340,517.00 ?2?/?8?/?2001 $0.81 ?2?/?8?/?2001 $13,000,000.00 ?9?/?1?/?2000 $0.62 ?9?/?1?/?2000 $4,890,000.00 ?11?/?1?/?1999 $0.48 ?11?/?1?/?1999 $2,377,457.00 ?11?/?1?/?1998 $0.44 ?11?/?1?/?1997 Avista Gas Residential and Small Business Gas Prices $/Therm Avista Deferral Account Avista Gas Residential and Small Business Gas Prices at Year-End in $/Therm 37926.00 37561.00 37123.00 36930.00 36770.00 36465.00 36100.00 0.63 0.76 0.90 0.81 0.62 0.48 0.44