20030926Decison Memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
COMMISSIONER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:JOHN HAMMOND
DATE:SEPTEMBER 24, 2003
SUBJECT:IN THE MATTER OF THE APPLI CA TI 0 N OF AVIS T A UTILITIES FOR
AUTHORITY TO INCREASE ITS NATURAL GAS RATES FOR
SERVICE, CASE NO. AVU-03-1.
On August 5, 2003, Avista Utilities, a unit of Avista Corporation, filed an
Application for authority to place into effect new rate schedules that would increase the
Company s estimated annual natural gas revenue by $1.2 million or by about 2.4%.1 The
Application represented that should the Commission approve its request the average increase for
all customer rates would be 2.5%. Avista requested that the Commission process its Application
by Modified Procedure pursuant to Rules 201 through 204 of the Commission s Rules of
Procedure. IDAPA 31.01.01.201-.204. Finally, the Company requested that its revised rate
schedules be approved and become effective on September 15, 2003.
On August 20, 2003 , the Commission suspended the effective date for the
Company s proposed tariff sheets for 60 days or until it issued an Order approving, rejecting or
modifying its Application, whichever date is earlier. Order No. 29325 at 3. The Commission
also issued Notice of Application, Notice of Public Workshops and Notice of Comment
Deadlines. Id. at 3-
THE APPLICATION
Avista s firm service rates are subject to four adjustments that affect the actual rate
customers pay.A vista requests that the Commission authorize changes to two of these
adjustments, Schedule 150 - Purchase Gas Cost Adjustment (also known as Permanent Gas Cost
1 The Company serves 59 500 customers in northern Idaho.
DECISION MEMORANDUM
Changes) and Schedule 155 - Gas Rate Adjustment (also known as the Temporary Adjustment).
A vista seeks with its Application to pass through to each of its customer classes the change in
gas related costs resulting from these proposed adjustments.
The Company requests an increase of $0.09919/therm for a total rate of
$0.27186/therm on its Schedule 150. This increase is a combination of a $0.10417/therm
increase in the projected price for gas and a $0.00498/therm decrease in the pipeline
transportation costs. The proposed changes result in a weighted average cost of gas (W ACOG)
included in rates of $0.44989/therm, an increase of 30% over last year. The Company makes
this request based on price increases in the Northwest wholesale natural gas market.
A vista also proposes a significant decrease in Schedule 155 from $0.11 0 18
$0.03093 per therm for most customers.3 This reduced rate is projected to recover the $2.
million that was owed the Company as of July 2003 for the deferral period of July 2002 through
June 2003.
The Company also proposes 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.
COMMENTS
1. Public Comments
As of September 22, 2003 , the Commission has received three written comments
submitted by customers of Avista in Idaho. Two of the comments opposed Avista s request and
one supported it.
2. The Commission Staff
The Commission Staff noted the increasing market price trends for natural gas since
the early spring of 2003 was caused in large part to: 1) depleted gas storage due to unseasonably
cold weather in late winter for the eastern half of the u.S.; 2) increased reliance on natural gas
fired electric generation throughout the u.S.; 3) increased pressure on fuel switching because of
high petroleum prices; and 4) increased gas pipeline capacity from fields in the western Canadian
and U.S. Rockies to the Midwest and California. Against this backdrop Staff reviewed the
2 The W ACOG (weighted average cost of gas) is the amount included in the tariff to reimburse the Company for the
gas purchased. This amount is reviewed and adjusted as necessary during each PGA review.
3 The Company proposes to lower the Schedule 155 tariff amount from $.11598 to $.0350 for Schedule 131
Interruptible Service (Off Peak).
DECISION MEMORANDUM
Company s Application, performed an audit of the gas purchases from July 2002 through June
2003, reviewed additional market information supplied by the Company and third parties and
made its recommendations.
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 Avista s WACOG lower than
the Company requested. A vista requested that the Commission authorize it to raise its W ACOG
to $.44989/therrn, up from $.34572/therrn 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 clearly demonstrating a high degree of volatility. This
would cause Avista s overall rate to remain the same as last year.4 Staff also did not believe that
setting the W ACOG at this level would cause the Company to accrue a significant deferral
balance. Furthermore, by setting the W ACOG at this level Staff stated that the Commission
would not be disallowing any possible recovery of gas costs that exceed this level because the
PGA mechanism would assure that the Company would have the opportunity to collect all gas
costs that it could demonstrate were prudently incurred and refund credits through its deferred
expense tariff (Schedule 155). Based on the foregoing, Staff believed its proposal is reasonable.
Staff also noted the Company is working directly with its large gas customers on the
proposed deferral collection. In the Company s 2001 PGA filing, Avista 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 additional large customers planning to shift to transportation rates but continuing to
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.
4 Other rates may have minor changes and it would result in an overall decrease of $77 000 in revenues to the
Company because oflarge customer payments.
DECISION MEMORANDUM
Avista s Purchased Gas Cost Adjustment (PGA) Application filed on August 5, 2003
contained the customer notice. Staff reviewed the notice and determined it complied with the
requirements of IDAPA 31.21.02.102. The notices were mailed with customer bills beginning
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 IDAP A requirements. Customers have
until September 15 2003 to file comments with the Commission.
On September 8, 2003 , Staff presented a workshop in Lewiston to discuss the
proposed rate increase. Other than representatives from the IPUC and A vista, 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.Attendees
included the IPUC Staff, Avista representatives, and one reporter from a local newspaper. No
customers attended.
Since Avista s last PGA in November 2002, five natural gas-related complaints were
investigated by Consumer Staff. With only five complaints, no patterns or trends could
identified.
3. A vista Reply Comments
Avista states that it is sensitive to concerns related to additional increases in prices
however, it believes that Commission approval of the proposed increase of 2.4% is advisable
given the most recent projections of natural gas prices. The Company states that Staffs proposal
of a W ACOG of 43 cents per therm is significantly less than recent forward price projections.
The Company states that implementing this relatively modest increase now may help mitigate
against a potentially larger increase in the fall of 2004 and provide better price stability.
COMMISSION DECISION
Does the Commission wish to approve, reject or modify Avista s Application for
Authority to Increase its Rates for Natural Gas Service?
M:A VUGO30 1 jh2
DECISION MEMORANDUM