20071025Comments.pdf

DONOV AN E. WALKER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5921
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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
A VISTA UTILITIES FOR AUTHORITY TO
CHANGE ITS NATURAL GAS RATES AND
CHARGES (2007 PURCHASED GAS COST ADJUSTMENT).
CASE NO. A VU-07-
COMMENTS OF THE
COMMISSION STAFF
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of Record
Donovan E. Walker, Deputy Attorney General, in response to the Notice of Application and
Notice of Modified Procedure, issued on September 27 2007, Order No. 30444, submits the
following comments.
BACKGROUND
On September 17 2007, Avista filed its annual Purchased Gas Cost Adjustment (PGA)
Application with the Commission requesting authority to place new rate schedules in effect as of
November 1 , 2007 that would decrease its annual natural gas revenues by approximately $4
million (4.6%). The PGA mechanism is used to adjust rates to reflect changes in the costs for the
purchase of gas from wholesale suppliers including transportation, storage, and other related costs
of acquiring natural gas. A vista s earnings will not be increased as a result of the proposed
changes in prices and revenues.
STAFF COMMENTS OCTOBER 24, 2007
The Company states that it purchases natural gas for customer usage and transports this
gas over various pipelines for delivery to customers. The Company defers the effect oftiming
differences due to implementation of rate changes and differences between the Company s actual
Weighted Average Cost of Gas (W ACOG) purchased and the W ACOG embedded in rates. The
Company states that it also defers the revenue received from the release of its storage capacity as
well as various pipeline refunds or charges and miscellaneous revenue received from gas-related
transactions.
Avista requests a decrease in the W ACOG from its present $0.76085/therm to
$0.75544/therm, a decrease of approximately $0.005 per thermo The Company states that
approximately 70% of its estimated annual load requirements for the PGA year will be hedged at a
fixed price comprised of: (1) approximately 41 % of volumes hedged for a term of one year or
less; (2) approximately 18% hedged for a three-year term; and (3) 11 % of volumes in Jackson
Prairie storage. This planned level of hedging is similar to the prior year. During 2006, the
Company began incorporating three-year fixed price hedges into its portfolio to provide additional
rate stability. Through the end of August, approximately 2/3 of planned hedge volumes for the
PGA year have been executed at a weighted average price of$7.94 per decatherm ($0.794 per
therm).
The demand costs included in the Company s Application primarily represent the costs of
pipeline transportation to the Company s system. Overall, total demand costs reflected in this
PGA filing were essentially flat, as compared to the total costs reflected in the 2006 PGA filing.
However, projected firm sales volumes are substantially lower in this filing as compared to the
projected volumes in the 2006 filing. Therefore, a similar level of dollars is recovered over lower
volume levels, thus resulting in a proposed increase per thermo The Company s proposed rates in
this filing include a decrease that reflects the settlement ofthe Northwest Pipeline s (NWP) FERC
rate case. However, this decrease is offset by the inclusion of higher rates for Gas Transmission
Northwest (GTN), whose FERC rate case is still pending, as well as increases in Canadian
pipeline charges. Additionally, during 2007 the Company terminated its agreement related to the
Plymouth LNG peaking facility, resulting in a savings of$124 000 per year in fixed demand costs.
The Company is also proposing a change in the present amortization rate that is used to
refund or surcharge customers the difference between actual gas costs and projected gas costs
from the last PGA filing over the past year. The present amortization rate for firm-sales customers
ST AFF COMMENTS OCTOBER 24, 2007
is approximately a 3.4 cents-per-therm surcharge. The proposed decrease in the amortization rate
results in a refund rate of approximately 2.4 cents-per-therm to pass back estimated over-collected
gas costs of approximately $1. 7 million as of November 1 , 2007.
The table below shows the changes to current rates proposed by the Company:
Proposed Estimated Proposed
Decrease Average Average Price
Customer Class Schedule $/Therm Increase/Decrease $/Therm
% Change
General 101 05615 63%1.10560
Large General 111 05615 5.17%08575*
Large General 112 00196 19%10966*
Commercial 121 05615 52%07395*
Commercial 122 00196 20%09786*
Interruptible 131 06352 86%86289
Interruptible 132 00541 61 %88680
Transportation 146 00000 00%10976
* Price per therm for the initial block of usage
ST AFF ANALYSIS AND REVIEW
Staff has reviewed the Company s Application and performed an audit to verify that the
Company s earnings will not change as a result of the filing. Staff reviewed the Company
hedging and risk management policies, gas purchases, and deferred accounts along with additional
information provided by the Company and third parties. In analyzing Avista s proposal, Staff
notes a few issues to be discussed further: The Company s hedging policies, W ACOG, and
transportation rate cases pending before the Federal Energy Regulatory Commission (FERC).
Schedule 150 - Purchased Gas Cost Adjustment
The purchased gas cost adjustment is a forward-looking cost adjustment that reflects the
anticipated changes in the variable costs to purchase and transport natural gas for customers.
A vista requests a Schedule 150 increase of 0.196 cents per therm for firm sales customers on rate
Schedules 101 , 111 , 112, 121 and 122. Interruptible customers on Schedules 131 and 13 2 will see
a rate decrease of 0.541 cents per thermo These rates are based on the decrease in the overall
Weighted Average Cost of Gas (W A COG) proposed by the Company and discussed in further
STAFF COMMENTS OCTOBER 24, 2007
detail later in Staffs comments. However, the decrease in the W ACOG is offset by increases in
transportation costs, which will also be discussed in further detail.
Scheduled 155 - Deferred Expenses
A vista uses an amortization rate set forth under Schedule 155 to refund or surcharge
customers the difference between the actual gas costs and the projected costs allowed in the
previous PGA filing. In this Application, the Company is proposing to decrease the present
Schedule 155 amortization rate by 5.811 cents per therm from the current surcharge of 3.42 cents
per thermo The proposed credit of2.391 cents per therm will allow the Company to refund to
customers the over-recovery of deferred costs of approximately $1.7 million in twelve months.
Any over-collection or under-collection will be trued up in next year s PGA filing and either
returned to customers via credit or paid to A vista via surcharge depending on the deferral balance
at that time. The deferral balance in this case consists ofthe following:
Amount
Deferred Account Item Accrued
Through
October 2007
Beginning Deferred Costs Balance 334 519
Wholesale Gas Costs Below W ACOG (1,880 392)
Fixed Pipeline Charges (366 950)
Off-System Capacity Release/Sales 010
Interest on Deferrals 033
Refunds to Industrial Customers/Transfer to Amortization Accounts 228,520
Over-Collections from Prior PGA Year 966 307)
Total Deferred Amount Credited to Customers 727 587)
Pipeline Transportation Rate Cases Pending Before FERC
On June 30, 2006, Northwest Pipeline Corporation (NPC) filed a general rate case with the
Federal Energy Regulatory Commission (FERC). The FERC suspended the effective date of
NPC's proposed rates until January 1 , 2007, subject to refund and the outcome of the final
FERC Order in the case. The transportation costs approved in last year s PGA filing, Case
STAFF COMMENTS OCTOBER 24, 2007
No. A VU-06-, were weighted to reflect the increase effective on January 1 2007. Subsequent
to Commission Order No. 30168 establishing rates for Avista, NPC and other interested parties
filed a settlement to resolve all outstanding issues in the NPC general rate case, resulting in a rate
reduction as compared to NPC's original filing. On March 30 2007, the FERC issued an Order
approving the settlement effective April 1 , 2007. In the current filing, A vista proposes to pass the
benefits from the NPC transportation rate reduction and refunds back to customers and incorporate
the benefits of these lower rates by including the annualized level oftransportation costs from
Northwest Pipeline Corporation. The benefits received by customers from the settlement are
approximately $430 000.
On the same day that Northwest Pipeline Corporation filed its general rate case with the
FERC, Gas Transmission Northwest (GTN) also applied for a transportation rate increase. The
FERC also suspended the effective date of the GTN increase, subject to refund and the outcome of
a hearing. Consistent with its treatment ofNPC rates, Avista used a weighting methodology that
would reflect the GTN rate increase as being in effect for only nine months of the PGA year. The
outcome of the GTN General Rate Case proceeding is still pending before the FERC. Avista is
proposing with this Application to incorporate the annualization, or 12-month application, of
GTN's filed case, which increases Avista s annual revenue by approximately $140 000. Staff
believes the Company s treatment of the pending GTN transportation rate increase is consistent
and reasonable given the uncertainty of the timing and amount of increase to be granted by FERC
Order. However, in the likely event that the FERC approves an increase less than that proposed
by GTN, Staff believes any and all refunds should be credited back to Avista s customers.
TransCanada s British Columbia, also known as Foothills Pipeline System (Foothills) and
its Alberta system, also known as Nova Gas Transmission (Nova) both implemented price
increases during 2007. The Foothills increase relates to the assignment of its former Alberta
Natural Gas assets to its parallel Foothills system while the Nova increase largely relates to the
expiration oftemporary credits passed back to customers during 2006. The effect ofthose
increases is an additional $416 350 required in revenue to transport gas on those systems.
STAFF COMMENTS OCTOBER 24, 2007
Weighted Average Cost of Gas
A vista has requested a W A COG of $0.75 544/therm for the coming PG A year. This is a
decrease of$0.00541/therm or approximately 0.7 percent from the present W ACOG, which was
approved in Order No. 30168 and became effective November 1 , 2006. The table below shows
the past and the proposed W ACOG along with the resulting effect on residential customers
(Schedule 101) and the percentage change in both the W ACOG and the Schedule 101 tariff for the
most recent five years.
APPROVED % CHANGE RESULTING % CHANGE
YEAR TARIFF WEIGHTED FROM TOTAL GENERAL FROM
WAS AVG. COST PREVIOUS SERVICE PREVIOUS
ESTABLISHED OF GAS,YEAR SCHEDULE 101 YEAR
$/THERM TARIFF, $/THERM
2002 34572 Base Year 75722 Base Year
2003 0.44989 30.13%77716 63%
2004 55739 23.89%95315 22.64%
2005 76786 37.76%1.18692 24.53%
2006 76085 91 %1.16175 12%
2007 75544 71 %1.10560 83%
(Proposed)
Last year s WACOG of $0.76085/therm was based on forward gas prices as of September 21 2006
and while gas prices varied through the year, the W ACOG was fairly reflective ofthe market rate.
The Company s proposed W ACOG of $0.75544/therm was reviewed by Staff against
other forecasts, including those published weekly by the U.S. Energy Information Administration.
Staff notes that this requested decrease, reflecting the Company s belief that the cost of gas will
decrease slightly, is consistent with the forecasted northwest cost of natural gas. The Company
proposed decrease in the W ACOG is not as significant as that ofIntermountain Gas Company, but
A vista is partially constrained by its location. Whereas Intermountain Gas can rely heavily on gas
coming out of the Rockies, which is priced artificially low due to transportation constraints, Avista
primarily purchases gas out of Canada. The weakening u.s. Dollar and unfavorable exchange rate
have caused an upward pressure on Avista s proposed WACOG. However, Avista s hedging
STAFF COMMENTS OCTOBER 24, 2007
practices, discussed below, have removed some ofthe price volatility and the proposed decrease
coupled with the decrease last year, will amount to meaningful savings to customers.
Hedging Policies
Avista continues to follow its price stabilization practice of systematically fixing portions
of gas costs using physical hedges and financial instruments in a purchasing program aimed at
achieving a diversified gas supply portfolio. For the forthcoming PGA year, Avista plans to hedge
approximately 70 percent of forecasted loads with a combination of fixed price gas
purchases/hedges executed throughout the year and scheduled withdrawals from available storage.
Additionally, with the recent drop in forward prices, Avista has established price targets to execute
hedges for an additional 5% of forecasted load, i., if forward prices fall to a certain level, A vista
would execute these additional hedges.
The Company continues to follow the revised natural gas procurement program that it
implemented approximately two years ago. While the program is fairly structured, it also allows
for flexibility based on changing market conditions and continuous review by the Company. Last
year, the Company implemented a change to provide additional rate stability for customers
whereby 11 % of supply is purchased each year at a three-year fixed price. By the end of 2008, the
Company will have approximately one-third of its gas supply purchased at staggered three-year
fixed prices. Each year thereafter, the Company will purchase an additional 11 % to replace the
11 % contract(s) that expire. The resulting 33% purchased with three-year fixed price terms will
result in more price stability than has been the case in recent years. Commission Staff continues
to work with the Company to evaluate the Company s procurement program and to develop other
hedging and purchasing practices with the intent of both stabilizing and reducing gas costs.
To quantify the impact ofthe Company s hedging practices for the previous PGA year, the
hedged price was compared to the First of Month (FOM) index price and the difference was
multiplied by the hedged volume. For the period from July 2006 through September 30, 2007
the Company hedges were $9.9 million more than the FOM index. Although this measurement
indicates that hedge prices were higher than the FOM index, the Company s hedging practices aim
to mitigate volatility rather than secure the lowest price possible. While spot prices may
occasionally be higher than hedge prices in the short term, Staff believes the benefits ofthe
STAFF COMMENTS OCTOBER 24, 2007
Company s procurement policies and hedging practices are price stability designed to protect
customers over the long term.
CONSUMER ISSUES
Customer Notice and Press Release
The Customer Notice and Press Release were included in Avista s Application. The
Application was received September 17, 2007. The Customer Notice was mailed with cyclical
billings beginning September 19, 2007 and ending October 17 , 2007. Staff reviewed the
Customer Notice and Press Release and determined they were in compliance with the
requirements of IDAP A 31.21.02.102.
Customer Comments
Customers were given until October 24 2007 to file comments. As of October 22 2007
no comments had been received.
Financial Assistance for Paying Heating Bills
If approved, A vista customers will see an approximate 4.5% decrease in their natural gas
rates. Because some customers still struggle to pay their gas bills, Staff would like to remind
qualified customers to take advantage of the energy assistance available through the federally-
funded Low Income Home Energy Assistance Program (LIHEAP) and non-profit fuel funds such
as Project Share. For more information on these programs, customers may call the nearest
Community Action Agency, Avista Utilities, the Idaho Public Utilities Commission, or the 2-
Idaho Care Telephone Line.
RECOMMENDATION
...
After a complete examination of the Company s Application and gas purchases for the
year, Staff recommends that the Commission accept the Company s Application and filed tariffs
reducing the Company s Schedule 155 tariff to 2.391 cents per therm, and accepting the
Company s proposed W ACOG of75.544 cents per therm, reducing the Company s annual
revenue by approximately $4 million. Additionally, Staff recommends that should rates be
STAFF COMMENTS OCTOBER 24, 2007
approved by FERC in the GTN rate case that are lower than those included in this case by A vista
that any and all refunds be credited back to Avista s customers.
Respectfully submitted tm day of October 2007.
~lliru/
Deputy Attorney General
Technical Staff: Donn English
Marilyn Parker
i: umisc: comments/avugO7 .2dwdemp
STAFF COMMENTS OCTOBER 24, 2007
CERTIFICATE OF SERVICE
HEREBY CERTIFY THAT I HAVE THIS 24TH DAY OF OCTOBER 2007,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF IN CASE
NO. A VU-07-, BY MAILING A COpy THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DA VID 1. MEYER
SR VP AND GENERAL COUNSEL
A VISTA CORPORATION
1411 EMISSION AVE, MSC-
SPOKANE W A 99220
KELLY NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
1411 EMISSION AVE, MSC-
SPOKANE W A 99220
-P.r:~
SECRETARY
CERTIFICATE OF SERVICE