20080314Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334--320
IDAHO BAR NO. 1895
i 1\",/
2ûfißMAR 14 . pt"1 2: 3 ï
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 AVISTA UTILITIES OF )
ITS 2007 NATURAL GAS INTEGRATED )
RESOURCE PLAN (IRP). .)
)
)
)
CASE NO. A VU-G-07-4
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilties Commission, by and through its
Attorney of record, Scott Woodbur, Deputy Attorney General, and in response to the Notice of
Filng and Notice of Comment Deadline issued on January 23,2008, submits the following
comments..
BACKGROUND
On December 28,2007, Avista Corporation dba Avista Utilties (Avista) fied its 2007
Natural Gas Integrated Resource Plan (lRP) with the Idaho Public Utilties Commission
(Commission). The Company's filing complies with the Commission's direction in Order No.
25342; Case No. GNR-G-93-2 (reference PURPA § 303(b)(3), Energy Policy Act of 1992).
Pursuant to the Commission's Order, the Company is required to fie every two years.
A vista notes that it has a statutory obligation to provide reliable natural gas service to
customers at rates, terms and conditions that are fair, just and reasonable and sufficient. Avista
STAFF COMMENTS 1 MARCH 14, 2008
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 2007 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.
To facilitate stakeholder involvement in the 2007 IRP, the Company sponsored four
Technical Advisory Committee (TAC) meetings. A broad spectru of people were invited to
each meeting. The meetings focused on specific planing topics, reviewed the status and
progress of planing activities and solicited ongoing input on the IRP development. Most of
Staffs questions and comments were addressed durng the TAC meetings, many of which were
incorporated into the final version of the IRP. Staff believes the resulting document comports to
the directives of the Commission, and that the assumptions incorporated into the analyses are
generally reasonable for planing puroses.
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 that addresses the following topics:
. Demand Forecasting for each customer class for one, five and twenty years
. Assessment of Effciency Improvements (DSM Actions) and 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 (2005 Plan to 2007 Plan)
. Rate Case Consideration
. Public Paricipation
Avista's 2007 Natual Gas IRP addresses the above topics and is separated into the following
sections:
. Demand Forecast
. Demand Side Management
. Distribution Planing
. Supply-Side Resources
. Integrated Resource Portfolio
. Avoided Costs
. Action Plan
STAFF COMMENTS 2 MARCH 14, 2008
The Company's submittal complies with the requirements of the Commission Order No. 25342
as fuer outlined in detail below.
Natural Gas Demand Forecasting
The Company's approach to demand forecasting focuses on customer growth and use per
customer as the base components of demand. The Company considers various factors that
influence these components, including population and employment trends, age and income
demographics, natural gas prices, price elasticity, and use per customer trends. For planing
purposes, Avista divides its service territory into five major regions: Washington/daho, Medford
(Or), Roseburg (Or), Klamath Falls (Or), and La Grande (Or). Each terrtory is fuher divided
between residential, commercial, and firm industrial customers prior to determining
region/customer class specific heating degree-day coefficients. Per customer coefficients are
estimated for four categories: base usage, shoulder months (April-June, September-October),
winter months (December-Februar), and for March/ovember (due to usage being more
sensitive to weather than in the shoulder months but less so than winter months). Peak demand
is calculated based on the coldest day of record for each of the five regions.
The Company evaluated three cases with respect to demand: Expected (assuming static
use per customer over the 20-year planing horizon), High Demand (50% increase in customer
growth and a price elasticity of -0.13), and Low Demand (50% decrease in demand growth and
price elasticity of -0.13). Staff believes it is appropriate to take price elasticity into
consideration when deviating from the Expected Case. In this instace, a 10% increase in the
price of natural gas would result in a reduction of consumption by 1.3%, and vice versa should
natural gas prices fall. The figure below represents the Expected Case for peak day demand and
existing resources for the Washington/Idaho region.
STAFF COMMENTS 3 MARCH 14, 2008
Figure 1.3. WAID Existing Resources VI. Peak Day Demand
(Net of DSM Savings) Expected Case- November throug Ocober
4O,oo
35,00
_e~G'l _~TF-l !....4~Tl.:i ..f/ak OiOed
In its Expected Case, A vista has suffcient natural gas resources in Washington and
Idaho until 2014-2015. Peak day resource deficits begin in these years and are driven primarly
by projected average demand growth of 2% per year and average natual gas customer growth of
2.4% in the residential sector. A vista faces capacity deficiencies in its Klamath Falls region as
early as 2011-2012, prompting the Company to take immediate action, such as acquiring the
Klamath Falls Lateral from Northwest Pipeline.
It should be noted that the above figure depicts peak day demand net of DSM savings.
This includes curent programs and programs either mandated or selected as cost effective during
the portfolio selection process. Should the Company not reach its targeted DSM savings,
capacity deficiencies for the Washington/daho area may occur prior to 2014-2015. Curently
the Company has implemented successful DSM programs in Washington/daho in recent years,
r
but myriad conditions may arise that would erode DSM savings. Staff points to this as a minor
flaw in the IRP process, and would prefer that DSM savings be included in a similar fashion to
supply side resources in future IRP fiings. Furher discussion of DSM valuation methodology
can be found below.
In response to an action item from the 2005 IRP, the Company has incorporated 119
subdivisions within its service territory to enhance customer forecasting and improve distribution
planing. These sub-areas (town codes) provide a more granular look at the Company's
STAFF COMMENTS 4 MARCH 14, 2008
distribution system and facilitate analyses to determine where improvements to the distribution
system may be necessary in the coming years. For Idaho, the analysis determined that two
capital reinforcement projects, one in Post Falls and one in Bonners Ferr, may be necessary
within the next 5 years. Staff recognizes that the Company has taen a step forward in
distribution planing by utilzing these smaller sub regions in the demand forecast.
Natural Gas Price Forecast
A vista utilizes a number of resources, including three consulting firms, to create its
natural gas price forecasts used for planing. Staff maintains that gas price forecasts should be
viewed with some skepticism, but acknowledges that the Company has put forth its best effort to
attain a reasonable outlook on future prices. The natural gas market, the Company contends, has
dramatically changed over the last several years as it has transitioned from a regional to a
national or perhaps global market. Regional and national natural gas supplies since 2005 have
experienced increased volatilty, much of which is due to the increased demand for natural gas
for electricity production. Staff contends that this phenomenon wil continue due to reliance on
natural gas for new generation capacity regionally and nationally in the near term. Should that
be the case, it is quite possible that the gas price forecasts used by the Company may grossly
understate the future cost of the commodity.
A second rationale for higher long-term gas prices is pipeline expansion projects that will
connect Western suppliers with Eastern markets. Traditionally, the Northwest has experienced
favorable price differentials when comparing regional hubs to national hubs. Interconnecting
pipelines have the potential of eroding these differentials as Western producers are exposed to
high demand Eastern markets. To date, liquefied natural gas imports have not stabilzed natural
gas prices as many predicted.
The elevated prices and increased volatility have influenced the way the Company plans
in the short term and in the long term. Staff appreciates the efforts by the Company to keep the
Commission abreast of its gas procurement strategies. The Company's natural gas procurement
plan seeks to competitively acquire natural gas supplies while reducing exposure to short-term
price volatilty, using a number of tools such as financial hedging and storage. The procurement
plan is reviewed, at a minimum, anually, with input from stakeholders throughout its service
territory. Two significant actions that will greatly increase Avista's storage capacity are the
STAFF COMMENTS 5 MARCH 14, 2008
expansion of its Jackson Prairie facilty (over 3 MDth) and the Terasen capacity recall effective
in April of2008.
Demand-Side Management
A vista actively promotes and offers energy-efficiency programs to its natural gas
customers. These demand-side management (DSM) programs are one component of a
comprehensive strategy to provide customers with a best cost/risk energy resource.
Demand-side management efforts include a review and implementation of customer
programs, including residential space and water heating efficiency; wall, floor and window
audits and replacement programs; and commercial and industrial gas effciency programs,
among others. A vista has implemented an energy efficiency initiative called the "Heritage
Project." It builds on the Company's long-time commitment to energy conservation and
efficiency, introducing new products and services to increase customers' energy savings.
Staff believes that the IRP meets the requirements for evaluation of Efficiency
Improvements (demand-side management or DSM) and avoided costs.
A vista has an active, existing DSM portfolio 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 portfolio is coordinated with its electricity utilty DSM program.
This adds a positive aspect to the program in that it eliminates a potential conflct of interest and
allows opportunities that may not be available to a natural gas only utility. A taiff rider applied
to all natural gas bils paid by Avista's non-transport gas customers fuds the program.
For the IRP, Avista is using a multiphase process to evaluate all possible DSM methods
that could be used in its territory. A list of the selected DSM programs is included in Appendix
6.9 of the IRP. The phases of the program used to select potential DSM resources consist of:
. Identification and Characterization of the Measures
. Preliminar Evaluation
. SENDOUTlI Testing
. Acquisition Goal Development
The SENDOUTlI program identifies the cost-effectiveness of each DSM measure to be
used in tandem with other supply-side options and the program treats each DSM measure as an
optional resource necessary to meet forecasted loads. The forecasted savings achieved from the
selected DSM programs are listed in Appendix 6.8 of the fiing. Staff believes there is a great
STAFF COMMENTS 6 MARCH 14, 2008
potential for reduced natural gas use if a greater number of high efficiency furnaces were
installed. Staff encourages the Company to continue to develop a cost effective program to
transform the market and increase the availabilty of and the demand for high efficiency fuaces
which will ultimately reduce the Company's peak load. Avista states that it is committed to
pursuing all cost-effective programs regardless of findings and goals stated in the IRP. Between
IRP filings, A vista will continue to search for new DSM opportities and to re-evaluate cost-
effectiveness of utility intervention, and it will make human and financial resources available to
achieve all cost-effective DSM programs identified. The IRP states that "the delivery of natural
gas effciency programs is anticipated to represent an increasing portion of the optimal natural
gas portfolio." (pp. 3-18) This acknowledgement recognizes the growing concerns of limits to
our natural resources and complies with the intent of the 2007 Idaho Energy Plan.
Avoided costs of the natural gas saved by the DSM programs 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 the measure
or program over its life cycle. The SENDOUTlI model analyses performed for the IRP
produced two twenty-year avoided cost streams; one for full-year anual application (water
heaters, clothes dryers and stoves 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 comparng that value to the tota cost
of the program over its life. The "anual" and "winter-only" avoided costs of the marginal
therm saved by DSM are shown in Appendix 7.1 of the IRP.
In addition to its own administrated DSM programs, A vista believes that there is value in
pursuing gas effciency market transformation through a regional effort (similar to that of the
Northwest Energy Efficiency Allance) and that it will paricipate in discussions with other
entities to pursue this opportnity.
Supply-Side Resources
A vista has a diversified portfolio of natural gas supply resources, including owned and
contracted storage, firm capacity rights on five pipelines and commodity purchase contracts from
several different supply basins. The Company's philosophy is to reliably provide natural gas to
customers with an appropriate balance of price stabilty and prudent costs, while building a
STAFF COMMENTS 7 MARCH 14, 2008
diversified supply portfolio to manage risk and achieve cost-effectiveness. Avista plans to meet
the identified resource deficits with demand-side management measures and firm resources,
including distribution, system enhancements and pipeline transportation capacity.
A vista is in the process of increasing its storage capacity and deliverability. Storage is a
strategic resource for gas utilities because of the numerous benefits including the following:
. Invaluable peaking capability;
. Reduces the need for higher cost anual firm transporttion;
. Storage injections increase the load factor of the existing firm transportation; and
. Provides access to normally lower-cost sumer supplies.
In Comments fied for the Company's previous Purchased Gas Adjustment (PGA) cases, Staff
has lauded natural gas storage as a substantial benefit to customers and has encouraged the
increase of storage capacity for gas utilities.
The Company is one-third owner, with NWP and Puget Sound Energy (PSE), in the
Jackson Prairie Storage Project (Jackson Prairie), which benefits Avista's customers in all three
states. Jackson Prairie is an underground reservoir located near Chehalis, Washington with easy
access to NWP's main line.
A vista had previously contracted with BC Hydro (now Terasen) to release one half of its
capacity and deliverabilty. In April 2006, Avista notified Terasen of its intent to recall its
capacity releases and terminate the contract effective April 30, 2008.
Earlier this decade, Avista paricipated in the expansion of Jackson Prairie with PSE and
NWP. At the time, A vista determined that the additional capacity was not needed to meet
requirements of its core utility customers and the expansion went under the management of
Avista Energy, a non-regulated energy marketing and trading affiliate of Avista Utilties. In
June 2007, Avista Energy sold all of its energy contracts to Shell Energy North America. The
sale included Avista Energy's contractul rights to Jackson Prairie through April 30, 2011.
A vista anticipates recallng the storage rights from Shell Energy after that date to serve its core
customers. The expansion and recall of the storage rights has been included in the SENDOUTlI
model as an incremental storage resource at that time. To ilustrate the effects of the Jackson
Prairie expansions and recalls, the Company included the following char in the IRP:
STAFF COMMENTS 8 MARCH 14, 2008
Figure 5.2 -Jackson Prairie Storage Capacit and Dellverability
Exsting and Future Vdumes
Capacit
11Ul
U
$.0
1.0
lL
I S.LL
4.0
3.0
:2
tl
llll E~JP~Fuí JP Cli:
I.CuAvlO~EiaM_lIll~ Rioal OTlI_n ~.,vl E1'!9 Qr¡l
DdWtbllit
45
40
35
30
i:
15
10
50
II ~JPO~FiJP~~
.OJim.. Avl 0Q~.R\CT_ R\ cilib1ll.~.Avi ~ Diti~
The Company's procurement plan addressed in the IRP is a diversified and strctured
plan for natural gas purchases that does not attempt to predict the market outcomes. The plan
calls for significant financial hedging over periods of time with windows and targets used to
initiate transactions. The Company also uses spot market acquisitions and short-term index
purchases for both summer fillng of storage and durng the heating season. In recognition of the
volatilty present in current markets, the Company is presently working to add longer-term
purchases and other measures to diversify its procurement portfolio with the aim of reducing that
volatilty while also securing low cost supplies.
The Company has several gas purchasing methods available. These include daily and
monthly spot market indices, short and long-term purchases, fixed price vs. indexed pricing,
price floors, ceilngs and other collars, physical price hedging and financial price hedging. The
Company recognized that a diverse portfolio of supply options wil reduce price and volatilty
risks and utilzes most of these purchasing tools.
In the Expected Case for Washington and Idaho, the first deficiency is in 2014-2015.
Given this timing, the Company contends that it has suffcient time to carefully monitor, plan
and take action on potential resource additions. The Company also plans to define and analyze
sub-regions within this broad region for potential resource needs that may materialize earlier
STAFF COMMENTS 9 MARCH 14, 2008
than 2014-2015. The chart below depicts the result of the Company's extensive planing and
modeling efforts.
Figure 1.5 . WAl Existing 8. Best Costlsk Resources vs. Peak Day Demand
(Net of DSM Savings) Expetd Case. Nomber throug Qeober
40,000
o A #' s: ,,'" ~(\:$ 1l'l;F § ~.t . "l-#gi '¥¿¡ " ~'" '¥e;.. ~~~=Gil.._11
__""" D8 Oo""rd
~=i~2&0' Öl P,,1è2
35.00
30,00
25.00
~ 20,00
150,00
100,000
50,00
All of the elements of the Company's supply portfolio, procurement options and
planing, taken together, satisfy the requirements ofPURPA and provide a cost effective supply
for all classes of customers.
Integration of Demand and Resources
The Company applied its SENDOUTlI model (a linear programming model widely used
to solve natural gas supply and transportation optimization questions) to develop the least-cost
resource mix for the 20-year planing period. The model performs least-cost optimization based
on daily, monthly, seasonal and anual assumptions related to:
. Customer growth and customer natual gas usage to form demand
forecasts;
. Existing and potential transportation and storage options;
. Existing and potential natural gas supply availabilty and pricing;
. Revenue requirements on all new asset additions;
. Weather assumptions; and
. Demand-side management.
As mentioned above, DSM programs go through an initial screening process prior to being
inputted into the SENDOUTlI modeL. Through the process, the Company identifies mandated
and clearly cost effective measures ("green" measures) that were loaded into SENDOUTlI as
must take options. Conversely, options that are clearly non-cost-effective ("red" measures) are
STAFF COMMENTS 10 MARCH 14, 2008
excluded from the selection process. The remaining options ("yellow" measures) are included in
the SENDOUTlI model for comparison against supply side resources.
Additionally, the Company is in the midst of incorporating VectorGas TM, a module
within SENDOUTlI, to simulate weather and price uncertainty via Monte Carlo analysis of these
variables. Some examples of the analyses VectorGas™ provides include:
. Probabilty distributions of price and weather;
. Probabilty distributions of costs (i.e., system costs, storage costs, and
commodity costs);
. Resource mix (optimally sizing a contract or asset level for various and
competing resources); and
. Hedging percentages.
The Company was limited in its ability to incorporate VectorGas™ into its 2007 IRP due
to delays in receiving the software. It is anticipated that future IRPs will utilze
VectorGas™ in a maner that wil provide an aray of potential portfolios under varing
price and weather conditions.
2008-2009 Action Plan
The Company's IRP identifies and establishes an action plan that will steer the Company
toward the risk-adjusted, least-cost method of providing service to its natual gas customers.
Included in this Action Plan are efforts to improve modeling, evaluation of its planing standard,
further research into supply-side resource options and goals for demand-side management. The
action plan includes efforts to:
. Refine specific resource acquisition action plans for Klamath Falls and
Medford service areas.
. Research and refine the evaluation of resource alternatives, including
implementation risk factors and time lines, updated cost estimates, and
feasibility assessments, targeting options of the service territories with
nearer term unserved demand exposure.
. Explore non-traditional resources to address the Company's needle-
peaking requirements. This review will emphasize potential structured
transactions with neighboring utilities and other market paricipants that
leverage existing regional infrastructure as an alternative to incremental
infrastructure additions.
. Reevaluate the Company's peak day weather planing standard to
ascertain if it stil provides the best risk-adjusted methodology for
resource planning.
STAFF COMMENTS 11 MARCH 14, 2008
. Continue pursuit of cost-effective demand-side solutions to reduce
demand. In Oregon demand-side measures are targeted to reduce
demand by 350,000 therms in the first year. In Washington and Idaho,
demand-side measures are tageted to reduce demand by more than
1,425,000 therms in the first year.
. Define and analyze sub-regions within the Washington/daho region for
potential resource needs that may materialize earlier than the broader
region indicates.
. Integrate the VectorGas™ module in the Company's SENDOUTlI
modeling softare to strengthen its abilty to analyze demand impacts
under varing weather and price scenarios as well as conduct sensitivity
analysis to identify, quantify and manage risk around these demand
influencing components.
. Continue to assess methods for capturng additional value related to
existing storage assets, including methods of optimizing recently recalled
capacity.
Staff generally supports the actions identified in the Company's Action Plan; however this
support should not be interpreted by the Company as approval or judgment on any of the actions.
As additional steps are taken in the Company's Action Plan, the Company will need to evaluate
all facts and circumstaces available at that time to determine if the action is stil necessar,
reasonable and prudent.
ADDITIONAL COMMENTS
Relationship between the Plans (2005 Plan to 2007 Plan)
Commission Order No. 25342 states that "all plans following the initial integrated
resource plan shall include a progress report that relates the new plan to the previously filed
plan." Staff believes that the IRP satisfies ths requirement. In Section 8, "Action Plan", the IRP
references the previous Action Plan and the results of following the plan. Those results are
reflected in the new Action Plan for the 2007-2009 period. The IRP makes frequent references
to the previous plan and the subsequent actions that have affected the curent IRP. These include
DSM, distrbution, forecasting, supply side resources and the use of SENDOUTlI software
which was substantially upgraded and relied upon for the curent IRP.
STAFF COMMENTS 12 MARCH 14, 2008
Rate Case Consideration
On January 17, 2008, A vista filed with the Commission a Letter of Intent to file a general
rate case on or around April 1, 2008. This IRP along with other available information wil be
par of Staff s considerations and testimony in the upcoming rate proceeding.
Public Participation
The Company is required by Order to provide an opportunity for public paricipation and
comment while formulating its plan. Furhermore it must provide methods that wil be available
to the public of validating predicted performance. The Company met the requirement for public
participation during the IRP process. Public involvement in the IRP process took place in three
ways. First, there was the Technical Advisory Committee (TAC) consisting of staff from the
three states' Commissions, several Non-governent Organizations (NGOs) and members of the
public. There were several 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 and meetings. Finally, there
was a draft copy of the IRP circulated for comment to all the interested paries.
STAFF RECOMMENDATION
Staff believes that Avista's 2007 Natual Gas IRP satisfies the requirements of
Commission Order No. 25342. Staff recommends that the Company's filing of its 2007 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
preparng the IRP or the prudence of not following the plan.
Dated at Boise, Idaho, this JI
/ Y day of March 2008.
~:$Wt?~7
Scott Woodbur
Deputy Attorney General
Technical Staff: Bryan Lanspery
Donn English
i:/umisclcomments/avug07.4swdebltc.doc
STAFF COMMENTS 13 MARCH 14, 2008
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 14TH DAY OF MARCH 2008,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-G-07-4, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
LINDA GERVAIS
REGULATORY COMPLIANCE
AVISTA CORPORATION
1411 E MISSION AVE
SPOKANE WA 99220
GREGRA
AVISTA CORPORATION
1411 E MISSION AVE
SPOKANE WA 99220
greg.rah~avistacorp.com
~.t~
SECRETARY
CERTIFICATE OF SERVICE