20040826Comments.pdf

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LISA D. NORDSTROM
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5733
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Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5983
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF
VISTA UTILITIES FOR AUTHORITY TO
INCREASE ITS PURCHASED GAS COST
ADJUSTMENT (PGA) RATE.
CASE NO. A VU-O4-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Lisa D. Nordstrom, Deputy Attorney General, and in response to the Notice
of Application, Notice of Modified Procedure and Notice of Comment Deadline issued in Order
No. 29554 on July 29, 2004, submits the following comments.
On July 23 , 2004 , A vista 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. A vista states that any
increases resulting from this PGA filing directly result 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%.
STAFF COMMENTS AUGUST 26, 2004
VISTA FIRM NATURAL GAS TARIFF COMPONENTS
The Company s base rates, as described in Schedules 101 through 121 , are subject to four
adjustments that affect the actual rate customers pay. These four adjustments are described in
Schedules 150 - Purchase Gas Cost Adjustment, Schedule 155 - Gas Rate Adjustment, 158-
Tax Adjustment, and 191 - Energy Efficiency Rider.
The underlying base rate for customers is the rate established in the most recent rate case
and includes part of the cost of gas, overheads, operations, transportation costs and the allowed
rate of return. Schedule 150 - Purchase Gas Cost Adjustment (also known as the Permanent Gas
Cost Changes) is a forward-looking cost adjustment that reflects anticipated changes in the
variable cost to purchase and transport gas. Schedule 155 - Gas Rate Adjustment (also known as
the Temporary Adjustment), is a true up for over- and under-collected gas costs. Schedule 158 -
Tax Adjustment adds the local franchise fee taxes to customer rates and is adjusted as the
franchise fees are changed. Schedule 191 - Energy Efficiency Rider Adjustment, is used to fund
authorized Demand Side Management programs. The sum of the base rate plus (or minus if a
credit) Schedule 150, Schedule 155 , Schedule 158 and Schedule 191 , comprise the total rate the
customers pay per therm each month. In this Application, A vista proposes to increase the
Schedule 150 rate and leave the Schedule 155 rate in its current amount. No changes are being
proposed for any other schedules.
The rates proposed by the Company, based on base rates currently in place, are shown
below. The final base rates will be determined with the resolution of the pending general rate
case, Case No. A VU -04-
Proposed
Schedule 150 Estimated Proposed
Average Increase Average Increase Average Price
Customer Class Schedule $/Therm Change $/Therm
General 101 11730 14.23%89446
Large General 111 11730 15.920/0 85418
Commercial 121 11730 17.24%79758
Large General 112 11730 17.51 %78702
Interruptible 131 10750 18.06%70268
Interruptible 132 10750 19.19%66768
Transportation 146 00000 00%10574
STAFF COMMENTS AUGUST 26, 2004
SCHEDULE 150 PURCHASE GAS COST ADJUSTMENT
The purchase gas cost adjustment is a forward-looking cost adjustment that reflects the
anticipated changes in the variable cost to purchase and transport natural gas for customers.
A vista requests a Schedule 150 rate after rate case adjustments of $.11730/therm for rate
Schedules 101 111 , 112, 121 and 122, and a rate of $. 10750/therm for interruptible sales
Schedules 131 and 132. The rate is based on an overall Weighted Average Cost of Gas
(W ACOG) of $0.55739/therm in rates. The request is a $0.1075 increase over the current
$0.44989/therm W ACOG in rates. The increase also includes higher fixed pipeline
transportation charges of $0.0098/therm.
Staff understands the burden the Company s additional W ACOG increase will have on
customers when combined with a potential general rate increase. However, significant upward
pressure remains on the price of natural gas. Some of the factors that we believe are causing the
upward pressure include: a strong demand for electricity and natural gas, oil prices at or near
record levels, improved access by new markets to northwest natural gas, and a new pipeline
anticipated to begin delivery in 2005 from Wyoming to Kansas.
Not all market indicators are negative. Increased natural gas prices have spurred
significant increases in natural gas exploration, drilling rig counts have continued to increase
over the last 12 months, and approximately three dozen sites are proposed for new liquefied
natural gas (LNG) import terminals. The first of the new LNG terminals is anticipated to come
on line in late 2004 or 2005. Imports to the existing four LNG receiving terminals are also
significantly higher than,in years past.
Natural gas is a commodity subject to the market forces of supply and demand both in
spot and futures markets. Natural gas prices over the past five years have been highly volatile
and unpredictable. Failure to increase rates to reflect market prices would send an inappropriate
price signal to customers. It may also cause significant deferred gas costs to be recovered
through 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 2.5~ higher than the proposed W ACOG. Therefore, Staff
recommends approving the Company s W ACOG as requested. However, while the Company
should recover prudently incurred costs, customers rates should be reduced whenever possible.
Considering market volatility and the possibility for price softening, Staff recommends that the
STAFF COMMENTS AUGUST 26, 2004
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.
SCHEDULE 155 - DEFERRED EXPENSES
Avista uses Schedule 155 to pass through any over- or under-collections of gas costs
accrued since the last PGA case. In this Application, the Company requests recovery of
approximately $3.5 million that has accrued through July 2004 using the Schedule 155 surcharge
of$.03093 per thermo At this rate, Avista projects recovery of the deferred costs in
approximately 18 months.
The $3.5 million consists of the following:
Amount
Accrued Through
Deferred Account Item June 2004
BeginnIng Deferred Costs Balance ($977,407)
Wholesale Gas Costs More Than the W ACOG 229 142
Cascade Natural Capacity Releases (173 236)
Benchmark Deferrals (l,659 895)
Off-System Capacity Releases/Sales (211 693)
Interest on Deferrals (750)
Administrative & General Benefit Credit (From Avista Energy)(35 300)
Northwest Pipeline Meter Error 2,406 570
Refunds to Industrial Customers/Transfer to Amortization Accounts 926,421
Total Amount Owed by Customers 503 852
Staff has reviewed the Application, performed an audit of the gas purchases from August
2003 through July 2004, and reviewed additional information supplied by the Company and third
parties. In analyzing A vista s proposal, Staff believes there are two things that need to be
addressed: the cost of hedges purchased for price stability and a Northwest Pipeline meter error.
Financial Hedges and Instruments
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 COMMENTS AUGUST 26, 2004
Northwest Pipeline Meter Error
During a review of gas purchased from suppliers and sold to customers, A vista determined
that the Lewiston area had a significant amount of unaccounted for gas. In other words, A vista
sold more gas to customers than it had purchased. Upon further investigation, it was determined
that one of the Northwest Pipelinel (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 has attached an analysis of the settlement agreement as
Confidential Attachment A. Staff has also attached the confidential settlement agreement
between Avista and Northwest that details the amounts in question as Confidential Attachment B.
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 reallocation of costs between Idaho and
Washington and believes it accurately represents actual conditions. Because the error occurred
in Idaho, Idaho customers will be required to pay the majority of the costs associated with the
meter error. The Company has appropriately reallocated 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.
CONSUMER ISSUES
As of August 26 2004, the Commission had received 5 comments from customers
regarding the proposed 14.2% purchased gas cost adjustment. All opposed the increase.
Northwest Pipeline is one of the major interstate pipeline systems that supply utilities and industrial customers in
the northwest region with gas from a variety of suppliers. Its tariffs and operating procedures are regulated by the
Federal Energy Regulatory Commission (FERC). Avista must agree to the tariffs to receive service from Northwest
Pipeline.
STAFF COMMENTS AUGUST 26, 2004
Comments from the 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 deny outright, A vista s most recent request for rate increases." It is apparent from
comments that consumers continue to have the perception that the Commission can "just say no
to requests for rate increases from utility companies.
Financial assistance is available to qualifYing low-income customers through the Low
Income Home Energy Assistance Program (LIHEAP). Additional financial assistance may be
available through the Project Share program. Funds are also available through local Community
Action Agencies to make homes more energy efficient. Customers can receive more information
on assistance programs available to them by calling Avista s Customer Line at 1-800-227-9187.
Telephone numbers for agencies that administer assistance are also available on the IPUC'
Web site at www.puc.state.id.. To obtain the telephone numbers for the nearest agencies
customers should go to the IPUC Home Page, click on Consumer Information, then click on
Energy Assistance by County.
STAFF RECOMMENDATIONS
Based on the above comments, 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 18 months.
2. Approve the Company-requested W ACOG of$0.55739 per thermo
3. Require the Company to file for an out-of-period rate decrease if the projected
ACOG decreases 5% or more.
Respectively submitted this 2b day of August 2004,
Lisa D. Nordstrom
Deputy Attorney General
Technical Staff: Michael Fuss
Alden Holm
Marilyn Parker
i: umisc: commen ts/ avugO4.2Lnmfussahmp
STAFF COMMENTS AUGUST 26, 2004
ATTACHMENTS TO THESE COMMENTS ARE
CONFIDENTIAL AND ONLY WENT TO THE
A VISTA, COMMISSIONERS, AND STAFF
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 26TH DAY OF AUGUST 2004
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. A VU-04-, BY MAILING A COpy THEREOF POSTAGE PREPAID TO THE
FOLLOWING:
DAVID J. MEYER
SR VP AND GENERAL COUNSEL
AVIS T A UTILITIES
PO BOX 3727
SPOKANE W A 99220-3727
KELLY NORWOOD
VICE PRESIDENT
VISTA UTILITIES
PO BOX 3727
SPOKANE WA 99220-3727
CERTIFICATE OF SERVICE
CONFIDENTIAL
ATTACHMENTS FILED