20060609Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO, 1895
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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 FILING BY A VISTA)
CORPORATION DBA A VISTA UTILITIES OF
ITS 2006 NATURAL GAS INTEGRATEDRESOURCE PLAN (IRP).
CASE NO. A VU-06-
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Scott Woodbury, Deputy Attorney General, and in response to the Notice of
Filing and Notice of Comment Deadline issued on May 11 , 2006 , submits the following
comments,
BACKGROUND
On March 31 , 2006, A vista Corporation dba A vista Utilities (A vista; Company) filed its
2006 natural gas Integrated Resource Plan (IRP) with the Idaho Public Utilities Commission
(Commission). The Company s filing complies with the Commission s direction in Order No,
25342, Case No. GNR-93-2 (Reference Public Utility Regulatory Policies Act of 1978
(PURPA) Section 303(b)(3); Energy Policy Act of 1992). Pursuant to the Commission s Order
the Company is required to file an IRP every two years.
STAFF COMMENTS JUNE 9, 2006
A vista notes that it has a statutory obligation to provide reliable natural gas service to
customers. Avista regards its IRP as a methodology for identifying and evaluating various
resource options and as a process by which to establish a plan of action for resource decisions.
Avista s 2006 natural gas IRP identifies a strategic gas-supply portfolio that meets the
Company s future demand requirements, Resource options include both supply-side and
demand-side measures.
Avista s 2006 natural gas IRP addresses the following subject areas: natural gas demand
forecast, demand-side management (DSM), distribution planning, supply-side resources
integrated resource portfolio, avoided cost determination, and action plan.
IRP Requirements
In accordance with PURP A as amended by the 1992 Energy Policy Act, Commission
Order No. 25342 requires that the Company submit an Integrated Resource Plan (IRP) to the
Commission every two years, addressing the following elements:
Demand Forecasting
Assessment of Efficiency Improvements (DSM Actions) & Avoided Costs
Natural Gas Supply Options
Natural Gas Purchasing Options and Cost effectiveness
Integration of Demand and Resources
. Two Year Action Plan
Relationship Between the Plans (2003 Plan to 2005 Plan)
Rate Case Consideration
Public Participation
The Company s submittal complies with the Order for each element as follows:
Demand Forecasting
The Company s 2005 IRP satisfies the requirement for demand forecasting. Section 2
the IRP along with Appendix 2 provides a summary and the details of 20 years of annual demand
forecasts for natural gas for the Avista Gas Utility service area customers from 2006 through
2025. The forecasts are based on analysis of technologic, demographic and economic forecasts
and their effect on consumption of natural gas. The eastern Washington and northern Idaho
service territories are treated as a single economic area with the Idaho data broken out in
accordance with the number of Idaho customers.
STAFF COMMENTS JUNE 9, 2006
A vista used Global Insights, Inc. services for its economic forecasts at both the national
regional and county levels. In this plan, Global Insights was able to provide, for eight counties
county by county demographic and economic forecasting for use in A vista s demand forecast
procedure. In its next IRP, A vista intends to increase to thirteen the number of counties where
individual county data is used,
Forecast data is weather normalized and based on National Weather Service data for
heating degree-days, For the northern Idaho and eastern Washington service area, weather data
for the Spokane International Airport is used. A multiple regression analysis based on heating-
degree days is used to predict per customer consumption.
The Company used customer growth, natural gas pricing and customer price elasticity of
demand to define a matrix of nine possible demand scenarios (Table 2.3 of the IRP) so that a
range of possible forecast demand outcomes could be available for the IRP. From that matrix the
Technical Advisory Committee and the Company selected three scenarios as representative of
the range from high to low for demand forecasts used in the IRP,
Avista Utilities has used the same linear programming model since 1992 (updated several
times) to integrate the demand forecast and supply options when preparing the IRP. The gas
resource optimization model used by A vista Utilities is the SENDOUTCID Gas Planning System
from New Energy Associates, a subsidiary ofthe Siemens Westinghouse Power Corporation.
SENDOUTCID is a PC-based linear programming model used to solve natural gas supply and
transportation optimization questions. Linear programming is the technique used to solve
minimization/maximization problems. SENDOUTCID looks at the complete problem at one time
within the study horizon, taking into account physical limitations and contractual constraints.
The software looks at thousands of variables and evaluates thousands of possible solutions in
order to generate the least-cost solution.
Assessment of Efficiency Improvements (DSM Options) & Avoided Costs
Staff believes that the IRP meets the requirements for evaluation of Efficiency
Improvements (demand-side management or DSM) and avoided costs.
Avista has an active, existing DSM program that receives advice from an External
Energy Efficiency Board (EEE/Triple E) that meets twice annually, The Company s Idaho and
Washington natural gas DSM program is coordinated with its electricity utility DSM program.
STAFF COMMENTS JUNE 9, 2006
This adds a positive aspect to the program in that it eliminates a potential conflict of interest and
allows opportunities that may not be available to a single-fuel utility. A tariff rider applied to all
natural gas bills paid by Avista s non-transport gas customers funds the program.
At the center of the DSM program is a tiered rate incentive schedule that provides
payment to participants for their DSM efforts on the basis of first year therms saved and the
economic payback of the specific DSM action. This is shown in Table 3,7 of the IRP and Tariff
Schedule 190.
The results of the DSM program for the five years ending in 2005 are compared to the
annual goal of240 000 first-year therms in Figure 3.2 of the IRP. The Company has far
exceeded that goal by averaging 800 000 first-year therms per year during that period.
For the IRP, Avista is using a multiphase process to evaluate all possible DSM methods
that could be used in its territory. The phases of the program used to select potential resources
for the IRP consist of:
Characterization of the Measures
Preliminary Evaluation
Packaging and Optimization
Packaged Program Characterization
Identification of Technical and Acquirable Potential
All DSM programs that reach the final stage are input to the SENDOUTCID program as a
resource for the IRP, Appendix 3 to the IRP discusses the DSM programs and measures that
were evaluated and those deemed cost effective through use of this process. However, Avista
has committed to pursue all cost-effective programs regardless of findings and goals stated in the
IRP. Between IRP filings, Avista will continue to search for new DSM opportunities and to re-
evaluate cost-effectiveness of utility intervention, and it will make human and financial resources
available to achieve all cost-effective DSM identified. The IRP also states
, "
The delivery of
natural gas efficiency programs is anticipated to represent an increasing portion of the optimal
natural gas resource portfolio." (pp. 3-19)
Avoided costs of the natural gas saved by a DSM program are an input for determining
the economic viability or success of a given DSM measure and are used to calculate the Net
Present Value (NPV) of the marginal therm(s) not used due to the success of that measure or
program over its life cycle. The SENDOUTCID model analyses performed for the IRP produced
STAFF COMMENTS JUNE 9, 2006
two twenty-year avoided cost streams; one for full-year annual application (water heaters and
washing machines for example) and one for winter-only application (space heating).
These NPV s are used to evaluate DSM measures by determining the lifetime value of a
measure based on the annual therms saved in each year and comparing that value to the total cost
of the program over its life, The "annual" and "winter-only" avoided costs of the marginal therm
saved by DSM are shown in Appendix 7.1 of the IRP, The NPV s of those avoided cost streams
for the period ending in each year of the plan are shown below:
Net Present Value of Avoided Cost of One Dekatherm
per Year Through End of Each Plan Year
Gas Plan Annual DSM Winter Only DSM
Year Year Applications Applications
2006-2007 7.25
2007-2008 11.63 $ 13,
2008-2009 16,$ 18.
2009-2010 20.42 $ 22.
2010-2011 24,$ 26,
2011-2012 28.$ 30,
2012-2013 31.85 $ 34.
2013-2014 35.45 $ 38.
2014-2015 38.$ 42.49
2015-2016 $ 42.41 $ 46.
2016-2017 45.$ 49.
2017-2018 49.$ 53,
2018-2019 52.$ 57.
2019-2020 56.$ 61.00
2020-2021 59,$ 64,
2021-2022 62.$ 67.
2022-2023 65.$ 71.27
2023-2024 68.$ 74.46
2024-2025 71.68 $ 77.
2025-2026 74.$ 80.42
As an example, using the above table, a winter-only DSM measure that will save 100 dekatherms
per year for a life of ten (10) years would, in order to be considered economic, need to have a
ten-year life cycle cost in 2006 dollars less than $4 622.00 (100 X $46,22), This type of analysis
represents the avoided cost valuation from the Utility s perspective. A customer that is a DSM
STAFF COMMENTS JUNE 9, 2006
participant would see a similarly calculated, but different valuation based on the avoided costs of
the applicable retail tariff.
In addition to A vista s own administrated DSM programs, the IRP says that the Company
believes there is value in pursuing gas efficiency market transformation through a regional effort
(similar to that of the Northwest Energy Efficiency Alliance regarding electricity) and that it will
participate in discussions with other entities to pursue this opportunity,
Natural Gas Supply Options
In Staffs opinion the Company has adequately addressed supply-side options in the IRP.
The Company purchases 100 percent of the natural gas it sells from producers and/or marketers.
Avista s service territory is located where it can take advantage of several North American
natural gas supply basins. There are six interstate pipelines, two storage sources and supply from
two US gas producing basins and two Canadian basins available for physical delivery of natural
gas to the A vista service territory.
The Company uses the SENDOUTCID computer model to analyze and project the
adequacy of available supplies for the planning period. In this process the model considers all
supply options including Company-owned underground storage and LNG storage for needle-
peak shaving. The inputs and results of the SENDOUTCID analyses are in IRP Appendix 6.
Utilizing the Expected Case (Case #2 in the IRP) for demand, SENDOUTCID model output
indicates there are no shortfalls in supply to A vista s W A/ID service territory until the 2011
timeframe. This five-year lead time, the Company feels and Staff agrees, is adequate to plan for
and provide new supplies and transportation before the forecast shortage occurs.
Natural Gas Purchasing Options and Cost Effectiveness
The Company s procurement plan addressed in the IRP is a time diversified and
structured plan for natural gas purchases that does not try to guess market outcomes. The plan
calls for significant financial hedging with some use of spot market acquisitions and short-term
index purchases for both summer filling of storage and during the heating season, In recognition
of the volatility present in current markets, the Company is presently working to add longer-term
purchases and other measures to diversify its procurement portfolio with the aim of reducing that
volatility.
STAFF COMMENTS JUNE 9, 2006
The Company has several gas purchasing methods available. These include daily and
monthly spot market indices, short and long-term purchases, fixed price vs. indexed pricing,
price floors, ceilings and collars, physical price hedging and financial price hedging, The
Company recognizes that a diverse portfolio of supply will reduce price and volatility risks and
makes use of most of these purchasing tools.
In the past 18 months, the Company has developed its own procurement staff and no
longer relies on its parent company for those services, The purchasing expertise developed was
used to procure supplies that met all demand adequately during the 2005-2006 heating season.
This included active participation in natural gas markets on both the physical and the financial
sides. Prior to this change in 2004, A vista Utilities paid a fee to A vista Energy for procurement
of natural gas under the "Benchmark" methodology. The Company and Staff are currently
performing an evaluation ofthe first full year to compare the Company s direct purchasing
program to the benchmark mechanism used in prior years,
All of the elements ofthe Company s procurement options and plan, taken together
satisfy the requirements of PURP A and provide a cost effective supply for all classes
customers.
Integration of Demand and Resources
The Company met the integration requirements for the IRP through use of the
SENDOUTCID computer based gas-planning system obtained from New Energy Associates.
Using linear programming, this software, in each set of calculations, takes into account variables
from the demand forecast, DSM resource availability, supply side resource availability,
transportation and storage resources, weather assumptions, consumption parameters and the
A vista distribution system capabilities and requirements (as defined by the network load studies
performed in support of the IRP process using Advantica Stoner s SynerGEE software).
The outputs of the integration and analysis performed by SENDOUTCID are many and
include the following:
Evaluation of the DSM Programs proposed by the Company
Setting of goals for Each Accepted DSM Program
Analysis of the Nine Demand Scenarios and Resources Available to:
Determine Ability to Meet Peak Demand
Determine Where and When The Company Will Have Insufficient
Resources
ST AFF COMMENTS JUNE 9, 2006
Determine the Amounts of all Deficiencies
Determine Which New Resources Can Best Eliminate Deficiencies
Avista chose to use the mid-demand case (Case #2 in the IRP) as the most likely or
Expected Case for its planning activities." Based on the results ofthe SENDOUTCID analysis
that case, a total of27 cost effective DSM programs with a total first year therm acquisition level
of 1 062 000 therms were selected for inclusion in the plan for eastern Washington and northern
Idaho. These are listed in Table 6,7 of the IRP. Also, there are 7 least cost supply side resources
selected by SENDOUTCID for the Washington/Idaho service territory to satisfy demand during the
planning period, These are listed in Table 6.12 of the IRP and consist of 144 000 Dth/day of
transportation and 15 000 Dth/day of Satellite LNG,
Two-Year Plan
The Company s two-year action plan includes performance of action items in five broad
areas for the 2006 and 2007 time frame. In Summary these areas and action items are:
Sales Forecasting
Update forecasting models to improve information on price elasticity and
weather sensitivity.
0 Add detail information on 5 additional counties to the forecasting process
to improve the ability to identify consumption variation by locale.
Develop the ability to forecast by "City Gate" receipt points to facilitate
commodity delivery planning,
Supply/Capacity
Conduct regular meetings with the Commission Staff to better
communicate Company activities regarding the IRP,
Seek low cost peaking resources.
Investigate emerging LNG opportunities,
Seek to capture more economic value from storage assets.
Further develop its storage strategy
Demand Forecasting
Complete evaluation of VectorGas software for potential use in the
planning process.
Demand Side Management
Launch the new programs identified in the 2005 IRP process.
Seek new or enhanced DSM resource acquisition through cooperative
regional programs.
STAFF COMMENTS JUNE 9, 2006
Distribution Planning
Continue to use computer modeling to improve distribution planning
Determine the benefit and feasibility of using city gate forecasts to
improve distribution planning,
Relationship Between the Plans (2003 Plan to 2005 Plan)
Staff believes that the IRP satisfies this requirement. In Section 8
, "
Action Plan , the IRP
references the previous action plan and the results of following the pIan, Those results are
reflected in the new Action Plan for the 2005-2007 period. The IRP makes frequent reference
the previous plan and the subsequent actions that have affected the current IRP. These include
DSM, distribution, forecasting, supply side resources and use of the SENDOUTCID software with
plans for upgrades,
Rate Case Consideration
The Company currently has no rate case before the Commission. In the event that the
Company brings a rate case forward during the next two years, this IRP will be made a part of
Staff s considerations and comments,
Public Participation
The Company met the requirement for public participation in the IRP process. Public
involvement in the IRP process took place in three ways, First, there was a Tactical Advisory
Committee (TAC) consisting of the three states Commissions, several Non government
organizations (NGOs) and members of the public. There were six meetings of this group in
which IRP inputs were reviewed, discussed in detail and modified. Secondly, there was frequent
communication between the TAC and the company via e-mail, conference calls and individual
phone calls, Finally there was a draft copy of the IRP circulated for comment to all the
interested parties.
ADDITIONALCOMMENTS
Benchmark Mechanism
As of March 31 , 2006, A vista has, for a full twelve months, been purchasing 100 % of
the natural gas it sells directly rather than through a related company and has done so without use
of the Benchmark Mechanism. In Commission Order No, 29902 Avista was required to prepare
STAFF COMMENTS JUNE 9, 2006
a report using a back-cast methodology to evaluate the present acquisition results against the
prior benchmark program for the twelve-month period ending March 31 , 2006. A vista has
proposed to submit to Staff for review a proposed methodology for making the evaluation and to
have the report ready by the end of June of 2006.
Natural Gas Procurement
Working in cooperation with Staff, the Company is taking steps to diversify its natural
gas procurement and risk management activities with regard to the risk and volatility of natural
gas prices. Most notably, the Company has determined that it is currently practical to procure a
portion of its natural gas supply as much as three years in advance. This is a significant
departure from recent practices of most natural gas utilities to procure no more than one year in
advance and/or mostly at indexed pricing. The Company plans to purchase 33% of its supply on
this basis with rolling 3-year contracts that will require replacement of II % of its supply with
new three-year contracts every year. Staff believes that this and other changes to the
procurement plan provide better management of supply and price risks to protect customers from
some of the volatility in the natural gas markets.
RECOMMENDATION
Staff believes that Avista s 2005 Natural Gas IRP satisfies the requirements of
Commission Order No. 25342. Staff recommends that the Company s filing of their 2005 IRP
be acknowledged and accepted. This recommendation should not be interpreted as approval nor
as a judgment of any prudence that mayor may not have been demonstrated by the Company in
preparing the IRP or the prudence of following or not following the plan.
Dated at Boise, Idaho, this CI day of June 2006.
Technical Staff: Harry Hall
Lynn Anderson
i :/umisc/comments/avugO6,2swhhla
STAFF COMMENTS JUNE 9, 2006
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 9TH DAY OF JUNE 2006
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-06-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
KEVIN CHRISTIE
MGR - NATURAL GAS PLANNING
A VISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220-3727
~~ .
SECRETARY
CERTIFICATE OF SERVICE