20040727Decision Memo.pdf

DECISION MEMORANDUM
TO:CO MMISSI 0 NER KJELLAND ER
CO MMISSI 0 NER SMITH
CO MMISSI 0 NER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:SCOTT WOODBURY
DATE:JULY 22, 2004
RE:CASE NO. A VU-03-2 (Avista)
2003 NATURAL GAS INTEGRATED RESOURCE PLAN (IRP)
On December 30, 2003 , Avista Corporation, dba Avista Utilities (Avista; Company) filed
its year 2003 natural gas Integrated Resource Plan (IRP) with the Idaho Public Utilities Commission
(Commission).The Company filing complies with the Commission direction in Order
No. 25342, Case No. GNR-93-(reference PURP Section 303(b )(3), Energy Policy Act of
1992). Pursuant to the Commission s Order, the Company is required to file every two years.
Integrated Resource Planning, the Company states, is a comprehensive, long-range
planning tool that fully integrates forecasted energy requirements with potential energy resources.
The process determines the most cost-effective means for the Company to meet projected firm load
requirements.
The Company s Integrated Resource Plan is presented in a combined format to provide
the reader with an overall view of the Company s total natural gas operations and planning processes.
In addition to Idaho, the Company s IRP is filed with the regulatory authorities in Washington and
Oregon. A vista Utilities prepares its natural gas forecasts concurrently with its electric operations
forecast where electricity and natural gas are both provided to customers, thus utilizing common
assumptions for both energy products.
Avista s 2003 natural gas IRP addresses the following subject areas: natural gas sales
forecast, demand side management, supply side resources, distribution planning, integrated resource
portfolio, public involvement and action plan.
Avista s gas and electric energy efficiency activities in Idaho and Washington have been
funded under a Tariff Rider mechanism since 1995. This allows for the funding of energy efficiency
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activities without creating a regulatory asset. The gas Tariff Rider is currently set at 0.50/0. This
funding mechanism Yields approximately $1 million in annual revenues. The four year (2002-2005
inclusive) business plan calls for combined gas and electric DSM expenditures to be limited to
approximately 62% of Tariff Rider revenues.
Electric and gas DSM programs are subdivided into three portfolios: non-residential
residential and limited income. Within the non-residential portfolio there is a heavy reliance upon
site specific calculations of energy savings.Residential segment gas DSM is composed of
prescriptive programs.Prescriptive residential gas efficiency programs for programmable
thermostats, high-efficiency gas furnaces, high-efficiency gas water heating and weatherization (duct
floor, wall, ceiling and attic) are currently available. Qualified limited income customers are eligible
for incentives implemented through five separate community action program (CAP) agencies within
the A vista service territories.
The supply options of A vista integrated resource portfolio consist of vanous
components. These include firm and non-firm supplies contracted for on a long-term and short-term
basis, firm and interruptible transportation on seven interstate pipelines, and three storage services. A
diversity of delivery points and load requirements adds to the options available to meet customer
needs. The utilization of these components varies depending on demand and operating conditions.
The Company notes that it entered into an agreement with A vista Energy in 1999 to have
Avista Energy manage all the supply and transportation needs of Avista Utilities (except California).
The pricing and sharing structures vary between the states. The current mechanism is approved in
Oregon and Idaho until March 31 , 2005 and until January 29, 2004, in Washington. At the time of its
IRP filing, A vista was awaiting the WUTC Order to determine the future status of the
benchmarking" mechanism.
In 2000, the industry experienced the highest prices ever seen. In response, A vista
Utilities, through Avista Energy, has established a schedule to lock-in hedges and volumes for price
stability. The hedging schedule provides for both structure and flexibility for both timing and
volumes. Avista has established a base line that approximately 50% of annual monthly loads will be
hedged prior to entering into the heating season, that being November 15 , with fixed priced natural
gas.
The Company in its resource management activities also considers other potential
resources. These potential resources include those requiring physical assets and those dependent
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upon contractual or financial arrangements, e., Jackson Prairie Storage Project; pipeline capacity;
capacity release; additional storage facilities. The Company holds several long-term contracts for
supplies from three separate supply basins. These supplies are for annual and seasonal core customer
needs. The Company does not make long-term firm commitments to serve interruptible customers.
Avista contends that its firm and interruptible transportation contracts provide the
Company with sufficient available capacity to meet current and future core load demands. Based on
the current forecast, the Company s north operating division (Washington and Idaho) will need to
acquire additional transportation by the 2007/2008 heating season. As reflected in its filing, the
Company s strategy is to contract for a reasonable amount of transportation to serve firm customers
should a designed peak day occur in a seven- to ten-year period. Too much firm transportation could
keep the Company from achieving its goal of being a low-cost energy provider. The ability to release
capacity, however, acts to offset the cost of holding under-utilized capacity. Too little firm
transportation impairs the Company s goal of being a reliable energy provider.
A vista s analysis and selection of resource options in the context of the IRP for its natural
gas operations as well as the resulting strategies employed to develop an Integrated Resource Plan are
comprised of:
Resource options summary
Gas resource model
Analysis framework
Weather data
Avoided cost
Environmental externalities
Portfolio integration
The foundation for the selection of resources for the Company s integrated resource portfolio is the
annual and peak day load forecast requirements.
The objective of A vista s 2003 Action Plan is to continue to further integrate the
objectives of integrated resource planning and least cost planning into the Company s daily
operations.The 2003 Action Plan is focused on six key areas: sales forecasting;
modeling/forecasting; supply/capacity; DSM; distribution planning and public involvement.
On June 4 2004, the Commission issued a Notice of Filing in Case No. A VU-03-2 and
established a June 25 comment deadline. Timely comments were filed by Commission Staff. Staff
believes that Avista s 2003 Natural Gas IRP satisfies and complies with the technical requirements of
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Commission Order No. 25342.Staff notes that Avista s 2003 Natural Gas IRP provides the
Company s load growth and pricing forecast. It provides insight into the Company s use of
integrated resources by analyzing supply alternatives, including spot, firm and interruptible markets.
The IRP further includes the use of storage, futures, options, multiple pipeline purchases, and demand
side management to provide an integrated look at the Company s natural gas resources.Staff
recommends that the Company s filing be acknowledged and accepted. Staff provides additional
comments on the Company s Schedule 163 Natural Gas Benchmark Mechanism.
Benchmark Mechanism
Staff notes that on February 13 , 2004 , the Washington Utilities and Transportation
Commission (WUTC) in Docket No. UG-021584 found that Avista s Benchmark Mechanism
proposal had not provided adequate safeguards in affiliate transactions between A vista and A vista
Energy nor were there significant measurable benefits to ratepayers. The natural gas Benchmark
Mechanism is a Schedule 163 tariff program where A vista Energy manages all of A vista Utilities
natural gas marketing and storage facilities. The program establishes the cost of natural gas for the
States of Washington, Idaho and Oregon. It prices natural gas at the first of the month price based on
an artificial weighting of the three supply basins serving the Northwest regardless of actual purchase
price or delivery location. The Benchmark Mechanism also includes storage management, a hedging
program and sharing of capacity releases between A vista Energy and A vista Utilities for all three
states.
The WUTC rejected Avista s proposed modifications to the natural gas Benchmark
Mechanism and extended the current mechanism for 60 days for A vista to submit a transition plan.
On April 2, 2004, the WUTC extended the expiration of the Benchmark Mechanism to April 30
2004 and approved A vista s plan for transitioning from purchasing natural gas through A vista Energy
and the Benchmark Program to the direct purchase of natural gas by A vista Utilities. The transition
plan calls for A vista Utilities to contract with A vista Energy to purchase natural gas based on A vista
Utilities purchase decisions until March 2005. A vista Utilities proposes to acquire and train
additional personnel and return to internally purchasing natural gas for all of its natural gas customers
in Oregon and Idaho effective April 1 , 2005.
Staff notes that Avista s 2003 IRP only briefly mentions the then pending actions of the
Washington Commission in Appendix G, under evaluation of the previous plan, supply/capacity.
Staff believes that the WUTC's rejection of the Benchmark Mechanism is a significant event that
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should be addressed greater a supplemental filing associated with the IRP. Staff admits that the
change should not affect the overall demand for natural gas. However, the change will affect the way
the Company buys natural gas. Changes will also occur in personnel costs as well as in transportation
and storage planning.Furthermore, the overall strategy for hedge purchasing and storage
management is subject to change, because it is an integral part of the current Benchmark Mechanism.
Staff believes that Idaho customers have benefited from some of the Benchmark
components. Staff is concerned that with the loss of the Benchmark Mechanism, beneficial programs
may be lost and additional costs may be shifted to Idaho. Staff recommends that the Company be
directed to provide Staff copies of all Benchmark transition documents submitted in
other states.
Pursuant to Commission Order in Case No. A VU-01-, the Company is to file an
analysis of the Benchmark program detailing the costs and benefits to customers, to the Company and
to Avista Energy seven (7) months (i., on or before August 31 2004) prior to the contract's
termination on March 31 , 2005. Order No. 28941 at 7. Staff will review the required filing and
continue to monitor the Company s transition actions closely.
COMMISSION DECISION:
Staff recommends that A vista s Natural Gas Integrated Resource Plan filing be
acknowledged and accepted. Staff recommends that the acknowledgement not be interpreted as
approval, or as a judgment of prudence of the IRP or the prudence of following or not following the
plan. Staff notes that elimination of the Benchmark Mechanism has the potential for significant
ramifications in Idaho. Staff recommends that Avista be directed to provide Staff copies of all
Benchmark transition documents submitted in the Company s other jurisdictional states. Does the
Commission wish to acknowledge the Company s 2003 Natural Gas IRP and direct the Company to
provide Staff with Benchmark transition documents? Does the Commission wish to direct the
Company to make a supplemental IRP filing addressing the Benchmark Mechanism, regulatory
changes and related ramifications? Ifnot, how does the Commission wish to proceed?
Scott D. Woodbury
blsIM:A VUGO302 sw2
DECISION MEMORANDUM