20040727Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL
FROM:LISA NORDSTROM
DATE:JULY 26, 2004
RE:IN THE MATTER OF THE APPLICATION OF A VISTA UTILITIES FOR
AUTHORITY TO INCREASE ITS PURCHASED GAS COST ADJUSTMENT
(PGA) RATE. CASE NO. A VU-04-
On July 23 , 2004, Avista Utilities 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. Avista states that
any increases resulting from this PGA filing directly results from the cost of gas purchased in the
marketplace; A vista Utilities makes no additional profits from the PGA rate change. If this
Application is approved, A vista states that Company revenues will increase by approximately
14.2%. When combined with the base rate increase requested in pending Case No. A VU-04-
, Company revenues could increase by approximately 22%.
THE APPLICATION
A vista believes this Application should be approved because it purchases natural gas
from a subsidiary of A vista Corporation, A vista Energy, under the provisions of tariff Schedule
163 (the Natural Gas Benchmark Mechanism). Avista transports this gas over Williams Pipeline
West (dba Northwest Pipeline Corporation) and Westcoast Pipeline systems and defers the effect
of timing differences due to implementation of rate changes and differences between A vista
actual weighted average cost of gas (W ACOG) purchased and the W ACOG embedded in rates.
A vista also defers the revenue received from Cascade Natural Gas for the release of storage
1 The 22% combined increase is comprised of a 14.2% PGA revenue increase in this case and the 7.82% base rate
increase requested in the Company s rebuttal testimony filed in Case No. A VU -O4-
DECISION MEMORANDUM
capacity at the Jackson Prairie Storage Facility, vanous pipeline refunds or charges, and
miscellaneous revenue received from gas-related transactions.
A vista filed proposed tariff sheet 150, which 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 an increase of 10.750 cents per therm related to the (variable)
commodity cost of purchasing and transporting gas for customer usage and an increase of .980
cents per therm 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 fall
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
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 proj ected gas costs (from the last PGA filing) over the
past year. The Company has a deferred gas cost balance of approximately $3.3 million, as of
June 30, 2004, reflecting higher gas costs than projected during the past year. However, the
present amortization rate is a surcharge of 3.093 cents per therm, which would recover the
present deferral balance 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
DECISION MEMORANDUM
customers on Schedules 131 and 132 will see a rate increase of 10.750 cents per thermo The
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 is proposing 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 billings 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, Avista states that the Company s estimated annual
natural gas revenue will increase by approximately $7.8 million (14.2%). Avista estimates that
the average residential customer using 70 therms per month would see their monthly bill increase
by approximately $8.21 (14.2%). Larger commercial customers would experience an average
increase between 15.9% and 17.2%, with the higher increase percentages due to lower base rates.
Incorporating its proposed changes to Rate Schedules 150, A vista recommends the following
annualized change in PGA rates per customer class:
Customer Class Schedule Proposed Estimated Proposed
Average Increase Average Increase Average Price
$ /Therm % Change $/Therm
General 101 $0.11730 14.23%$0.89446
Large General 111 $0.11730 15.92%$0.85418
Commercial 121 $0.11730 17.24%$0.79758
Large General 112 $0.11730 17.51 %$0.78702
Interruptible 131 $0.10750 18.06 %$0.70268
Interruptible 132 $0.10750 19.19%$0.66768
Transportation 146 none none $0.10574
The Company requests these rates be approved to become effective September 9
2004 and that this matter be handled under Modified Procedure pursuant to Rules 201-210 of the
Commission s Rules of Procedure.
DECISION MEMORANDUM
STAFF RECOMMENDATION
Avista has informed Staff that all of its customers will have received individual notice
(i., bill stuffers) of the proposed rate increase by August 24, 2004. Staff recommends the
Commission issue a final Order utilizing the September 9, 2004 effective date proposed by
A vista to coincide with the change in gas rates resulting from the Company s pending general
rate filing in Case No. A VU-04-1. Anticipating that this case will be on the August 30
decision agenda, Staff recommends that the Commission process the case under Modified
Procedure and establish an August 26 comment deadline.
COMMISSION DECISION
1. Does the Commission wish to process this case under Modified Procedure?
2. Pursuant to Commission Procedural Rule 125, does the Commission wish to have
Staff conduct public workshops to dispense information concerning the Company s Application
and receive public comment prior to Staff filing comments in this case?
Lisa
M: A VUGO402 in
DECISION MEMORANDUM