20031003Final Order No 29342.pdf

Office of the Secretary
Service Date
October 3, 2003
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
AVISTA UTILITIES, A UNIT OF AVISTA )
CORPORATION, FOR AUTHORITY TO )
INCREASE ITS RATES FOR NATURAL GASSERVICE.
CASE NO. A VU-O3-
ORDER NO. 29342
On August 5 , 2003 , Avista Utilities, a unit of Avista Corporation (Avista; Company),
filed its annual Purchased Gas Cost Adjustment (PGA) Application with the Commission for
authority to place into effect new rate schedules that will result in an overall increase in revenues
of approximately $1.2 million or 2.4%.1 Avista requested an effective date of September 15
2003 for its proposed rate schedules. The Company supplies natural gas service to
approximately 59 500 customers in northern Idaho. On September 8 and 9, 2003 , the
Commission convened public workshops in Lewiston and Couer d' Alene, Idaho. The
Commission also received written comments from members of the public, the Commission Staff
and the Company. After reviewing the record in this case, the Commission grants Avista
Application.
BACKGROUND
A. Procedural History
After receipt of Avista s Application the Commission issued a combined Notice of
Application, Notice of Public Workshops, Notice of Modified Procedure and Notice of Comment
Deadlines on August 20, 2003. Order No. 29325. In order to provide adequate time to hold
public workshops and to allow the parties and the public to comment on the Company
Application, the Commission suspended the effective date of A vista s proposed rate schedules
for 60 days or until it issued an Order approving, rejecting or modifying its Application
whichever date was earlier. Order No. 29325 at 3. Accordingly, pursuant to the Notices the
Commission: 1) convened two public workshops in A vista s Idaho service territory on
September 8 and 9, 2003; 2) set a deadline for any written comments authored by the
Commission Staff or members of the public be filed in this case on or before September 15
1 Avista s PGA is a mechanism used on a annual basis to set the price of gas it anticipates purchasing in the coming
year and to account for over- and under-collections of gas purchases.
ORDER NO. 29342
2003; and 3) set a deadline for the Company to file any reply comments on or before September
2003. Id. at 3-
B. The Application
The underlying fixed tariff rates for Avista s natural gas customers are the rates
established in the Company s last rate case. They include the cost of gas , overhead, operations
transportation, other fixed costs and the allowed rate of return (Case No. WWP-88-, Order
No. 22749). Avista s fixed tariff rates for its firm service customers are described in Schedules
101 - General Service, 111 - Large General Service, and 121 - High Annual Load Factor Large
General Service. However, these fixed rates are subject to four potential annual adjustments that
affect the actual rate customers pay. These adjustments are described in Schedules 150 -
Purchase Gas Cost Adjustment, 155 - Gas Rate Adjustment, 158 - Tax Adjustment, and 191 -
Energy Efficiency Rider. Avista requests Commission authorization to adjust only its Schedules
150 and 155 that in turn will result in an increase in revenues to cover gas related costs the
Company anticipates incurring or has incurred.
Schedule 150, or the Purchase Gas Cost Adjustment (also known as Permanent Gas
Cost Changes) is a forward-looking cost adjustment that reflects anticipated changes in the
variable cost to purchase and transport gas. The Company requests authorization to increase
rates as a result of higher anticipated natural gas costs and changes to transportation costs
through its Schedule 150 and associated customer tariffs. Application at 3. Avista s estimate of
its costs for October 2003 to September 2004 is based on forward natural gas prices obtained on
July 24, 2003 and fixed price hedges that it has executed to date. Accordingly, the Company
requests that the Commission authorize it to set its Schedule 150 rate for Schedule 101, 111 , 112
121 and 122 customers, at $0.27186/therm, an increase of$0.09919/therm over last year s rate of
$0. 17267/therm.3 This increase is a combination of a $0.1O417/therm increase in the projected
price for gas and a $0.00498/therm decrease in the pipeline transportation costs. The Company
proposed changes in Schedule 150 would result in a weighted average cost of gas (W ACOG)
included in rates of $0.44989/therm for these customers as compared to the $0.34572/therm set
2 The cost of gas is the average cost of gas and transportation that was determined at the time of the rate case.
3 The Company does not have any Schedule 122 customers and only one Schedule 112 customer in Idaho.
ORDER NO. 29342
in last year s PGA case.4 Order No. 29142, Case No. A VU-02-2. This represents a 30%
increase in average gas costs over last year.
Avista also proposes a significant decrease in its Schedule 155 - or the Gas Rate
Adjustment (also known as the Temporary Adjustment) used by the Company as a true up for
over- or under-collected gas costs since the last PGA case. Avista proposes a decrease from
$0.11018 to $0.03093 per therm for its firm sales customers on its Rate Schedules 101 , 111 and
121.This reduced rate is projected to recover the $2.3 million that has accrued in the
Company s deferred accounts for the deferral period of July 2002 through June 2003. The
Company also proposes a reduction in the rate used to recover the timing differences from
$0.11598/therm to $0.035/therm for its interruptible customers (off peak) on Schedule 131.
The Company states that after netting the proposed increase of Schedule 150 and
proposed decrease of Schedule 155, customers on Schedules 101 , 111 and 121 will see a rate
increase of $0.01994/therm.6 Residential and small business customers served under Schedule
101 using an average of70 therms per month can expect to see an average increase of $1.39 per
month or about 2.5%. Larger commercial customers served under Schedules 111 and 121 can
expect to see an average increase of 2.8% and 3%, respectively, with the higher increase
percentages due to the lower base rates.
The Company also proposed that large transportation and interruptible customers be
given an option of receiving/paying a portion of the deferred gas costs either through a lump sum
credit/charge or through an amortization rate.
Avista states that Notice of its proposed tariffs was given simultaneously with the
filing of its Application by: 1) posting a notice at each of its district offices in Idaho, Application
Exhibit B; 2) a press release distributed to various informational agencies, Application, Exhibit
4 The Company also requests that the Commission authorize it to change its Schedule 150 rate for Schedule 131 and
132 customers to $ 0.2437 /thenn, up from $ 0.13953/therm. This increase also raises the W ACOG for these
customers. Currently, A vista has two Schedule 132 customers and no Schedule 131 customers in Idaho.
5 Because there are no Schedule 131 customers in Idaho this reduction in Schedule 155 does not impact any
customer. However, it does provide the rate should a customer in Idaho take service from this Schedule.
6 The Company states that customers on Schedule 112 and 122 will see a rate increase of$0.9919/therm. Customers
on Schedule 131 will see an increase of $0.02319/therm and customers on Schedule 132 will see an increase of
$0. 10 417/therm.
ORDER NO. 29342
E; and 3) a separate notice to each Idaho gas customer included in their billings, mailed between
August 1 2003 and ending September 2 2003 , Application, Exhibit B-
Based on the foregoing, A vista requested that the Commission issue an Order finding
its proposed rates to be just reasonable and nondiscriminatory.
THE PUBLIC WORKSHOPS
On September 8 , 2003 , the first of two public workshops was held in Lewiston, Idaho
to discuss the proposed rate increase. Other than representatives from the IPUC and Avista
there were three individuals in attendance: a customer, a newspaper reporter, and a private
energy consultant from Boise. On September 9 , 2003, another workshop was held in Coeur
d' Alene, Idaho. Attendees included the IPUC Staff, Avista representatives, and one reporter
from a local newspaper. No customers attended.
WRITTEN COMMENTS
1. Public Comments
The Commission received written comments from three Avista natural gas customers.
Two of the comments opposed Avista s Application based on arguments that natural gas service
is a necessity and not a luxury; the rate increase merely goes to the stockholders and for salary
increases for employees; and that natural gas and storage indicators clearly show that prices for
the commodity will follow more traditional cost trends in 2003. One commenter supported the
Company s Application and disagreed with Staffs recommendation stating that several small
increases on a year-to-year basis when the utility s cost of gas goes up are easier on most budgets
than waiting several years and increasing rates significantly at one time. Additionally, this
commenter stated that higher prices will promote conservation.
2. The Commission Staff
The Commission Staff noted in its comments that the increasing market price trends
for natural gas since early spring of 2003 described in Avista s Application were caused in large
part by: 1) depleted gas storage due to unseasonably cold weather in late winter for the eastern
half of the US.; 2) increased reliance on natural gas-fired electric generation throughout the
; 3) increased pressure on fuel switching because of high petroleum prices; and 4) increased
gas pipeline capacity from fields in the western Canadian and US. Rockies to the Midwest and
California. Against this backdrop Staff reviewed Avista s Application, performed an audit of the
ORDER NO. 29342
Company s gas purchases from July 2002 through June 2003 and reviewed additional market
information supplied by the Company and third parties.
First, Staff recommended that the Commission authorize A vista to recover the $2.
million owed to the Company as of July 2003 for the deferral period of July 2002 through June
2003 under its proposed Schedule 155.
Second, Staff recommended that the Commission set A vista s W ACOG lower than
the Company requested. A vista requested that the Commission authorize it to raise its W ACOG
to $0.44989/therm, up from $0.34572/therm as set in last year s PGA case. Order No. 29142
Case No. A VU-02-2. Staff recommended the Commission set the Company s W ACOG at
$0.42995, using a lower Schedule 150 rate of $0.25192, in order to provide price stability at a
time when the natural gas market is demonstrating a high degree of volatility. This would cause
Avista s overall rate to remain the same as last year.Staff also believed that setting the
W ACOG at this level and maintaining current overall rates would not significantly increase the
deferral balance subject to possible recovery next year. Staff stated that the Company would
have the opportunity to recover any deferral balance resulting from this lower W ACOG through
its PGA mechanism by demonstrating that additional gas costs were prudently incurred.
Staff noted the Company is working directly with its large gas customers on the
proposed deferral collection. In the Company s 2001 PGA filing, A vista provided each large
customer with an accounting of its portion of the deferral and a lump sum payment or deferral
payment plan option. The Company has continued this practice in its 2003 PGA filing. In the
past, providing the large customers with an individual payment option has reduced the deferral
and avoided a shift of costs to the general body of ratepayers. Neither the Company nor Staff is
aware of any additionallarge customers planning to shift to transportation rates but continuing
provide large customers with a clear understanding of their deferral balances allows these
customers a better understanding of their obligation. Staff stated it would continue to monitor
the Company s treatment of its large customer deferrals.
Staff reviewed the Company s notices and determined they complied with the
requirements of IDAP A 31.21.02.102. The notices were mailed with customer bills beginning
7 Under Staffs recommendation other rates may have minor changes and it would result in an overall decrease of
$77 ,000 in revenues to the Company because of large customer payments.
ORDER NO. 29342
August 1 2003 and ending on September 2 2003. The press release dated August 1 2003, was
also reviewed and determined to be compliant with the Commission s Rules of Procedure.
Finally, Staff stated that since Avista s last PGA adjustment in November 2002, five
natural gas-related complaints were investigated. Staff represented that these complaints did not
reveal any patterns or trends that raised further concerns.
3. A vista Reply Comments
Avista stated it is sensitive to concerns related to additional increases in prices;
however, it believes that Commission approval of its Application as filed is advisable given the
most recent projections for its W ACOG based on the market and its hedging practices. On
September 2, 2003 the Company provided Staff with an update of its anticipated W ACOG for
the coming year of $0.48/therm. The Company stated that Staff recognized this projection in its
Comments. Staff Comments at 4. However, Avista still requested that the Commission
authorize the Company to set its WACOG at $0.44989/therm. Thus, Avista argued that Staffs
proposal of a W ACOG of $0.43/therm is to low. Avista stated that implementing this modest
increase now may help mitigate a potentially larger increase in rates next year if the Company
actual W ACOG turns out to be $0.450/therm or higher as projected. In conclusion, Avista
believes its proposal will provide better rate stability for its customers than Staffs
recommendation.
COMMISSION DICUSSION AND FINDINGS
A. Jurisdiction
A vista is a gas utility that is engaged in the sale of and distribution of natural gas
within the State of Idaho. See Idaho Code gg 61-117 and 61-129. Thus, the Commission has
jurisdiction over the Company and the subject matter of its Application in this case, pursuant to
the authority and power granted under Title 61 of the Idaho Code and the Commission s Rules of
Procedure, IDAPA 31.01.01.000 et seq.
B. Deferral Balances and W ACOG
According to Idaho law, utilities cannot increase their rates for service without a
finding by the Commission that the increase is justified. Idaho Code g 61-622. Based on the
record, we find that gas prices have increased and the gas rates previously authorized in Order
No. 29142, Case No. A VU-02-, are not adequate to compensate Avista for the prices it pays
ORDER NO. 29342
its gas suppliers. Consequently, we find the previously authorized rates to no longer be "just and
reasonable" as required by Idaho Code g 61-502.
Avista requests that the Commission authorize it to decrease its Schedule 155, or the
Gas Rate Adjustment used by the Company as a true up for over- or under-collected gas costs
since the last PGA case. The Company proposed a decrease from $0.11018 to $0.03093 per
therm for its firm sales customers on its Rate Schedules 101 , 111 and 121.8 Avista seeks to use
this reduced rate to recover $2.3 million that has accrued in the Company s deferred accounts for
the deferral period of July 2002 through June 2003. Based on Staffs recommendation and the
record, the Commission finds that there are no inconsistencies or irregularities that require
adjustments to this amount. Thus, the Commission finds this amount to have been prudently
incurred. The Commission authorizes the Company to employ this reduced rate to recover the
$2.3 million that has accrued in the Company s deferred accounts for the deferral period of July
2002 through June 2003.
In setting the Company s W ACOG the Commission considered Avista s interests, the
burdens that will be incurred by consumers due to an increase in rates and Staff s position that
the Company s W ACOG should be set lower than requested by the Company. After carefully
considering these matters the Commission finds that the Company s request to set its W ACOG at
$0.44989 per therm is reasonable. While the Staff recommendation to lower the W ACOG would
provide rate stability in the short term, the Commission is concerned it will cause deferral
amounts that will exacerbate the need for a rate increase next year. Avista s current hedging
practices have secured a significant portion of the gas needed to meet projected customer usage
for the coming November through March heating season. The volatility in the natural gas market
continues. The Commission finds therefore, that the more prudent course is to approve the
Company s request and authorize a Schedule 150 rate of $0.27186 per therm, which results in a
W ACOG of $0.44989 per therm for customers on Schedules 101 , 111 , 112, 121 and 122. The
Commission also finds it reasonable to authorize the Company to revise its Schedule 150 rate for
Schedule 131 and 132 customers to $0.2437 per thermo
8 The Company also proposes to lower the Schedule 155 tariff amount from $.11598 to $.0350 for Schedule 131
interruptible customers.
ORDER NO. 29342
The Commission orders the Company to continue to file its quarterly Benchmark
Report for the current gas year. These reports allow the Commission and Staff to monitor the
cost of gas purchased for customers throughout the year.
Combining the adjustments to Avista s Schedules 150 and 155 the Commission
authorizes the Company to increase its revenues by $1.2 million or 2.4%. Residential and small
business customers served under Schedule 101 using an average of 70 therms per month can
expect to see an average increase of $1.39 per month or about 2.5%.Larger commercial
customers served under Schedules 111 and 121 can expect to see an average increase of 2.
and 3%, respectively, with the higher increase percentages due to the fact that their rates are
lower than the residential base rates. The following tables represent the Commission authorized
changes in rates per customer class.
Present Proposed Estimated Estimated
Number of Rate Rate Monthly Percentage
Schedule Customer Class Customers Per Therm Per Therm Increase Increase
101 General Service 908 7572 7772 $1.39 63%
111 Large General Service 577 7192 7392 $34.77%
112 Large General Service 0.5634 6625 045.46 17.61%
121 High Load Factor Service 6598 6797 $425.02%
132 Interruptible Service 0.4560 5602 718.22.84%
We recognize that these higher overall rates will have an impact on consumers at a
time when many can ill afford any additional expenses. Based on the risk of gas purchase costs
that will have to be recovered in the future with interest and the desire to match this year s gas
costs with this year s gas customers the Commission finds it reasonable and necessary to allow
this rate increase.
A vista shall allocate the change in rates to each of its customer classes in accordance with
its Purchased Gas Cost Adjustment tariff and associated schedules on October 3 2003.
ORDER
IT IS HEREBY ORDERED that A vista Utilities' Application is granted. The
Company shall file tariffs to increase its Schedule 150 rate to $0.27186 per therm to result in a
W ACOG of $0.44989 per therm for its Schedule 101, 111 , 112, 121 and 122. In addition, the
9 This percentage increase is higher than the 2.5% change shown in the Company s Application because it did not
include the fixed montWy service charge of$3.28.
ORDER NO. 29342
Company shall also file tariffs to increase its Schedule 150 rate for its Schedule 131 and 132
customers to $0.2435 per thermo The new tariffs shall be effective on October 3 2003.
IT IS FURTHER ORDERED that the $2.3 million that has accrued in the Company
deferral accounts shall be recovered through the Company s new Schedule 155, effective
October 3 2003.
IT IS FURTHER ORDERED that Avista Utilities notify its customers of the rate
changes approved in this Order. The Company shall also advise its customers of how to obtain
assistance from state and local natural gas customer assistance programs.
IT IS FURTHER ORDERED that Avista Utilities continue to file its quarterly
Benchmark Report with the Commission.
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-03-
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-03-Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code g 61-
626.
ORDER NO. 29342
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this :1
r-l
day of October 2003.
SIDENT
MARSHA H. SMITH, COMMISSIONER
ATTEST:
~Jt~
Commission Secretary
O:A VUGO30ljh2
ORDER NO. 29342