20040909Final Order No 29590.pdf

Office of the Secretary
Service Date
September 9, 2004
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
VISTA CORPORATION FOR AUTHORITY TO
INCREASE ITS PURCHASED GAS COST
ADJUSTMENT (PGA) RATE.
CASE NO. A VU-04-
ORDER NO. 29590
On July 23 , 2004, Avista Utilities (Avista, Company) filed its annual Purchased Gas
Cost Adjustment (PGA) Application with the Commission for authority to place into effect on
September 9 2004, new rate schedules that will increase its annualized revenues by $7.8 million.
The PGA account is a deferral mechanism for over- and under-collections and a true-up for spot
market gas purchases. If its Application is approved, A vista s rates will increase on average by
approximately 14.2% over last year s PGA rates. Because these adjustments reflect only
changes in its gas-related costs, A vista s earnings will not be affected as a result of the proposed
increase in prices and revenues.
The Commission issued a Notice of Application, Modified Procedure, and Comment
Deadline on July 29, 2004. Order No. 29554. As of the August 26 comment deadline, the
Commission had received comments from Staff and six A vista customers. After reviewing the
comments and record in this case, the Commission grants the Application as set out in greater
detail below.
THE APPLICATION
A vista believes this Application should be approved because it purchases natural gas
from a subsidiary of Avista Corporation, Avista Energy, under the provisions of Tariff Schedule
163 (the Natural Gas Benchmark Mechanism). Avista transports this gas over Williams Pipeline
West (d.a. Northwest Pipeline Corporation) and Westcoast Pipeline systems, deferring the
effect of timing differences due to: 1) implementation of rate changes, and 2) differences
between A vista s actual weighted average cost of gas (W ACOG) purchased and the ACOG
embedded in rates. A vista also defers 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.
ORDER NO. 29590
Avista filed proposed tariff sheet 150 that increases the prospective natural gas cost
component included in the rates charged to customers by 11.730 cents per thermo This requested
rate change consists of a 10.750 cents per therm increase related to the variable commodity cost
of purchasing and transporting gas for customer usage and a .980 cents per therm increase related
to fixed pipeline costs.
The commodity cost increase is based on a proposed increase in the present W ACOG
included in the Company s gas service schedules. Gas prices have increased markedly since the
fall of 2003. The Company s present W ACOG included in its gas sales rates is 44.989 cents per
therm, which was approved by Commission Order No. 29342. The W ACOG proposed in this
requested increase is 55.739 cents per therm, reflecting the first-of-the-month (FOM) forward
gas prices as of July 13 and hedges executed to date. FOM forward prices, weighted by basin
are multiplied by the monthly projected load requirements, less volumes hedged to date. The
Company has executed three hedges to date for the coming winter (November-March) at an
average price of 58.4 cents per thermo Additional hedges will be executed prior to this winter
with total hedged volumes representing approximately 50% of the total annual projected load
requirements for the July 2004 - June 2005 period. Should future FOM or hedged prices
substantially change the W ACOG requested in this filing, A vista committed to revise this filing
or submit an additional PGA filing to reflect those changes.
In this filing, A vista is not proposing to change the present amortization rate( s) set
forth under Schedule 155. This amortization rate is used to refund or surcharge customers the
difference between actual gas costs and projected gas costs from the last PGA filing. The
Company has a deferred gas cost balance of approximately $3.3 million as of June 30, 2004
reflecting gas costs higher than those projected last year. However, the present amortization rate
is a surcharge of 3.093 cents per thermo At this level, the present deferral balance will be
recovered over an approximate 18-month period. The Company believes this estimated recovery
period is reasonable and, given the substantial increase proposed in the W ACOG, is not
proposing a change to the amortization rate.
If the Commission approves the proposed increase, firm sales customers on Schedules
101 , 111 , 112, 121 and 122 will see a rate increase of 11.730 cents per thermo Interruptible sales
customers on Schedules 131 and 132 will see a rate increase of 10.750 cents per thermo The
ORDER NO. 29590
Application presumes that upon completion of this PGA tracker case, the Company s Tariff
Schedule 150 will be changed to appropriately address both base rate and PGA tracker changes.
A vista proposes 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. If these customers choose the lump sum method
A vista proposes to adjust these billing credits/charges by the amount of interest that accumulates
from the end of the test period used in this filing to the date of actual settlement. 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 states that the Company s estimated annual
natural gas revenue will increase by approximately $7.8 million. Avista estimates that the
average residential customer using 70 therms per month would see their monthly bill increase by
approximately $8.21.
STAFF COMMENTS
Staff has reviewed the Application, performed an audit of the gas purchases from
August 2003 through July 2004, and examined additional information supplied by the Company
and third parties. Staff recommends that the Commission: 1) approve the Company s request to
leave Schedule 155 at $.03093 per therm to recover the deferred balance in approximately
months, 2) approve the Company-requested W ACOG of $0.55739 per therm, and 3) require the
Company to file for an out-of-period rate decrease if the projected W ACOG decreases 5% or
more.
Staff believes that failure to increase rates to reflect market prices that have been
volatile over the past five years would: 1) send an inappropriate price signal to customers, and 2)
may also cause significant deferred gas costs accumulate and cause increases next year. Even
with the increase proposed by the Company, gas cost deferrals could still occur. If the Company
were to file based on August 13 2004 forward prices, the W ACOG would be about 5t higher
than the proposed W ACOG. Therefore, Staff recommends approving the Company s W ACOG
as requested. Considering market volatility and the possibility for price softening, Staff
recommends that the Company be directed to file for an out-of-period rate decrease if the
proj ected W ACOG decreases 5% or more from the requested level.
ORDER NO. 29590
In analyzing A vista s proposal, Staff noted that during the prior PGA period, the
Company followed its price stabilization practice of systematically fixing portions of gas costs
using financial instruments. These hedges provided substantial price protection and provided
Idaho customers a benefit of $43 252 for the period.
Staff also discussed the ramifications of a Northwest Pipeline metering error. During
a review of gas purchased from suppliers and sold to customers, A vista determined that it sold
more gas to customers in the Lewiston area than it had purchased. Upon further investigation, it
was determined that one of the Northwest Pipeline (Northwest) meters in the Lewiston area was
set at a fixed-flow rate during September 2002 through February 2004. As a result, the deliveries
to Lewiston from Northwest were significantly under-recorded and Avista owed the difference to
Northwest. Northwest's tariff states that the gas must be replaced, and Avista was faced with
purchasing significant amounts of gas from the current high-priced market. Because the gas is
currently more expensive than during the time of the incorrectly set meter and the meter error was
Northwest's fault, the Company was able to negotiate a settlement with Northwest to return less
gas than was undercounted. Staff attached an analysis of the settlement agreement as
Confidential Attachment A and the confidential settlement agreement between A vista and
Northwest that details the amounts in question as Confidential Attachment B to its comments.
Because the allocation of pipeline and gas costs between Washington and Idaho is
based on pipeline meter readings, the costs recorded during the meter error time period were
incorrectly allocated. Staff has reviewed A vista s re-allocation of costs between Idaho and
Washington and believes it accurately represents actual conditions. Because the error occurred
in Idaho, the Idaho allocation will change and Idaho customers will be required to pay the
majority of the costs associated with the meter error. The Company has appropriately re-
allocated some of the costs originally assigned to Washington back to the Idaho deferral account.
The approximately $3.5 million will be paid back through a $2.4 million increase in the Idaho
deferral account and a $1.1 million increase in future gas costs.
PUBLIC COMMENTS
As of August 26, 2004, the Commission had received six comments from customers
regarding the proposed 14.2% purchased gas cost adjustment. All opposed the increase.
Comments from fixed-income customers stated it would be nearly impossible to pay higher rates
for natural gas. As one customer stated
, "
I implore the Utilities Commission to reduce, if not
ORDER NO. 29590
deny outright, Avista s most recent request for rate increases.Several commenters cited the
history of sizable rate increases over the past several years and insisted that the previously-
approved rate increases should be sufficient for A vista s needs.
DISCUSSION AND FINDINGS
A vista gas rates are determined by adding variable PGA commodity rates to fixed
base rates. In most years the base rate does not change - just the PGA rate changes. However
on September 9, 2004, both the base rates 1 and the PGA rates will change simultaneously.
Consequently, the rate calculations in this Order that compare this year s rates to last year s rates
are more complex than in most PGA Orders.
After reviewing the utility s Application, the record, and comments filed in this case
the Commission is required to establish "just and reasonable" rates. Idaho Code 9 61-502. As
we stated in the Notice of Application, the annual PGA tracker reflects only those changes in gas
costs that are generally recognized as outside the Company s control. Order No. 29554 at 5. To
collect the deferred balance owed by customers, the Commission finds it reasonable and
appropriate to leave Schedule 155 at $0.03093 per thermo This will spread the deferral balance
over 18 months rather than 12, mitigating the impact on customer rates. We further find that the
projected gas prices found in Avista s proposed W ACOG are just and reasonable in light of
current market conditions. Should forward commodity prices decrease by 5% or more over the
W ACOG, we direct A vista to file for an out-of-period rate decrease to realign PGA rates with
commodity prices.
For the foregoing reasons we find it reasonable to increase the ACOG from
$0.44989 to $0.55739 per thermo When combined with the adjustments, surcharges and credits
PGA rates per therm will increase on average by 14.2% over last year s PGA rate. The
following table indicates the annualized change in PGA rates per customer class when viewed in
isolation and in combination with the base rate changes approved in Order No. 29588:
1 The Commission approved new base rates for Avista s gas and electric operations in Order No. 29588.
ORDER NO. 29590
Customer Schedule PGA Rate PGA % Rate Ave. Overall Rate Ave. Overall
Class Approved in Change over (PGA rates set in this % Increase
this Order Last Year Order + Base Rates over Last
($/therm)Rates set in O.N. 29588)Year s Rates
General 101 $0.11730 14.23%$0.99790 21.39%
Large General 111 $0.11730 15.92%$0.87068 18.88%
Extra Large 121 $0.10730 17.24%$0.81034 19.09%
General
Interruptible 131 $0.10750 18.06%$0.71130 19.51 %
Transportation 146 none none $0.11360 7.43%
For example, an average customer taking general service under Schedule 101 2 using 73 therms
will pay $72.85 per month, an average monthly increase of $12.84 (21.39%) over last year
overall rate.
The PGA rate approved in this Order shall become effective on September 9, 2004.
The Commission orders A vista 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. The Company shall
file tariffs in conformance with a W ACOG of $0.55739 per therm to be effective September 9
2004. For meters read after September 9, 2004, usage will be pro-rated back to September 9
2004. A vista shall promptly seek a rate adjustment if forward commodity prices decrease by 5%
or more below this W ACOG.
IT IS FURTHER ORDERED that Avista pass through its proposed permanent
adjustments and temporary surcharges and credits to customers as filed.
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-04-
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
2 According to customer bills, nearly 99% of A vista s Idaho customers take service under General Schedule 101.
ORDER NO. 29590
Case No. A VU-04-2. 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 Jo/./v
day of September 2004.
MARSHA H. SMITH, COMMISSIONER
ATTEST:
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Barbara Barrows
Assistant Commission Secretary
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ORDER NO. 29590