20080822Norwood Di Support Stipulation.pdf

~~~'V'ST4.
Corp.
. Jewell
mmission Secretary
daho Public Utilities Commission
472 W. Washington Street
Boise, il 83702
Re: Case Nos. A VU-E-08-01 and A VU-G-08-01
Avista's Motion for Approval of Stipulation
Dear Ms. Jewell:
Enclosed for filing with the Commission in the above-referenced docket are the original and nine
(9) copies (one (1) copy designated as reporter's copy) plus a computer disk as required by Rule
231.05. of Kelly Norwood's Direct Testimony in Support of the Stipulation.
Sincerely,
Lin a Gervais
Manager, Regulatory Policy
Enclosures
c: Service List
CERTIFICATE OF SERVICE
I HEREBY CERTIFY that I have this 21 st day of August, 2008, served Kelly
Norwood's testimony if support of the Stipulation in Docket No. AVU-E-08-01 and
AVU..G-08-01 upon the following parties, by mailing a copy thereof, property
addressed with postage prepaid to:
Jean 0 Jewell, Secretary
Idaho Public Utilities Commission
Statehouse
Boise, 10 83720-5983
Scott Woodbury
Deputy Attorney
Idaho Public Utilities Commission
472 W. Washington
Boise, 10 83702-0659
Brad M. Purdy
Attorney at Law
2019 N 1 yth Street
Boise, 10 83720
Conley E. Ward
Givens Pursley LLP
602 W. Bannock Street
Boise, 10 83702-2720
~Patrick Ehrbar
Regulatory Analyst
DAVID J. MEYER
VICE PRESIDENT, CHIEF COUNSEL FOR REGULATORY &
GOVERNENTAL AFFAIRS
AVISTA CORPORATION
P . O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727TELEPHONE: [phone]FACSIMILE: [phone]
10: 3:5
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION FOR THE
AUTHORITY TO INCREASE ITS RATES
AND CHARGES FOR ELECTRIC AND
NATURAL GAS SERVICE TO ELECTRIC
AND NATURAL GAS CUSTOMERS IN THE
STATE OF IDAHO
CASE NO. AVU-E-08-01
CASE NO. AVU-G-08-01
DIRECT TESTIMONY
OF KELLY O. NORWOOD
IN SUPPORT OF THE
STIPULATION
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
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I. INTRODUCTION
Q.Please state your name, employer and business
3 address.
4 A.My name is Kelly O. Norwood and I am employed as
5 the Vice-President of State and Federal Regulation for
6 Avista Utili ties ("Company" or "Avista"), at 1411 East
7 Mission Avenue, Spokane, Washington.
8 Q.Would you briefly describe your educational
9 background and professional experience?
10 A.Yes.I am a graduate of Eastern WaShington
11 University with a Bachelor of Arts Degree in Business
12 Administration, maj oring in Accounting.I joined the
13 Company in June of 1981.Over the past 27 years, I have
14 spent approximately 16 years in the Rates Department with
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involvement in cost of service,rate design, revenue
requirements and other aspects of ratemaking.I spent
17 approximately 11 years in the Energy Resources Department
18 (power supply and natural gas supply) in a variety of roles,
19 with involvement in resource planning, system operations,
20 resource analysis, negotiation of power contracts, and risk
21 managemen t .I was appointed Vice-President of State &
22 Federal Regulation in March 2002.
23 \ Q.What is the scope of your pre-filed testimony in
24 this proceeding?
Norwood, Di 1
Avista Corporation
1 A.The. purpose of my testimony is to describe and
2 support the Stipulation, filed on August 7, 2008 between the
3 Staff of the Idaho Public Utili ties Commission (" Staff") ,
4 Potlatch Corporation (" Potlatch") ,Community Action
5 Partnership Association of Idaho ("CAPAI"), and the Company,
6 which, if approved by the Commission, would resolve all
7 issues in the Company's filing.These entities are
8 collectively referred to as the "Parties," and represent all
9 parties in the above-referenced cases.
10 The Stipulation is the product of settlement
11 discussions held in the Commission offices on July 31, 2008,
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which was attended by representatives of all Parties.The
. Stipulation between the Parties resolved all issues
14 associated with the calculation of the Company's requested
15 cost of capital, including capital structure and cost
16 components, and resolved all revenue requirement, rate
17 spread and rate design issues.
18 The Stipulation represents a compromise among differing
19 points of view.Concessions were made by all Parties to
20 reach a balancing of interests. As will be explained in the
21 following testimony, the Stipulation represents a fair, just
22 and reasonable compromise of the issues and is in the public
23 interest.
24 Q.Please explain how the Parties arrived at the
25 Stipulation in this proceeding.
Norwood, Di 2
Avista Corporation
1 A.The Stipulation is the end result of extensive
2 audi t work conducted through the discovery process and hard
3 bargaining by all Parties in this proceeding. I would like
4 to express my appreciation to all Parties involved in this
5 proceeding for their efforts in arriving at this
6 Stipulation and to this Commission for your willingness to
7 hear this matter promptly, in light of the proposed October 1
8 effective date.
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Q.Would you briefly sumarize the Stipulation?
A.Yes.As part of the Stipulation, Avista will be
11 allowed to implement revised tariff schedules designed to
12 recover $23,163,000 in additional annual electric revenue
13 and $3,878,000 in additional annual natural gas revenue,
14 which represent an 11.98% and 4.7% increase in electric and
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natural gas annual base tariff revenues , respectively.In
determining these revenue increases,the Parties have
17 agreed to various adjustments to the Company's filing,
18 which are summarized in the Stipulation.
19 The Stipulation calls for an overall rate of return of
20 8.45%, determined using a capital structure consisting of
21 47.94% common stock equity and 52.06% long-term debt, an
22 authorized return on equity of 10.20% and the cost of debt
23 of 6.84%.
24 The Stipulation also addresses accounting treatment of
25 certain costs, including the Spokane River Relicensing
Norwood, Di 3
Avista Corporation
1 costs, Confidential Litigation costs, Montana Riverbed
2 Litigation costs and revenues associated with the sale of
3 Carbon Financial Instruments.The accounting treatment of
4 these items will be discussed in more detail later in my
5 testimony.
6 As part of the Stipulation, the funding level of the
7 existing low-income Demand Side Management programs would
8 be increased, and funding would be provided to assist in
9 low-income outreach and education concerning conservation.
10 II. HISTORY OF FILING
11 Q.Please describe the Company's general rate case
12 request, as filed.
13 A.On April 3, 2008, Avista filed an Application with
14 the Commission for authority to increase revenue from
15 electric and natural gas service in Idaho by 16.7% and 5.8%,
16 respectively.If approved, the Company's revenues for
17 electric base retail rates would have increased by $32.3
18 million annually; Company revenues for natural gas service
19 would have increased by $4. 7 million annually.
20 The Company proposed to spread the electric revenue
21 increase based on an equal percentage to each service (rate)
22 schedule and proposed to raise the monthly electric
23 residential basic charge to $4.60 from the current $4.00
24 charge.The Company proposed to move natural gas customer
25 class rates of return approximately one-half way to unity
Norwood, Di 4
Avista Corporation
1 and proposed to raise the natural gas residential basic
2 charge to $4.00 from the current $3.28.The Company also
3 proposed to discontinue Schedules 121 and 122, High Annual
4 Load Factor Large General Service.
5 Q.What are the primary factors causing the Company's
6 request for an electric rate increase in this filing?
7 A.The Company's last general rate case in Idaho was
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based on 2002 test year data.The current filing is based
on a 2007 test year.The Company's electric request is
10 driven by changes in various operating cost components, but
11 primarily power supply costs, plant investment or rate base
12 growth associated with generation,transmission and
13 distribution plant and by various hydro relicensing efforts
14 impacting the Utility.
15 The level of Idaho's share of power supply expense has
16 increased by approximately $33.4 million ($94.3 million on
17 a system basis) from the level currently in base rates.
18 This significant increase in power supply expense over the
19 expense currently reflected in base rates is based on
20 numerous factors, including higher retail loads, reduced
21 hydro generation, increased fuel costs, increased Mid-
22 Columbia purchases, and increased transmission expense.
23 Gross plant additions of approximately $236.5 million
24 (Idaho allocation) are driven primarily by increases in
25 investments in distribution plant which was $107.2 million
Norwood, Di 5
Avista Corporation
1 from 2002 to 2007, mainly due to customer growth and the
2 inc 1 us ion 0 f the AMR pro j ec t inves tmen t .Intangible and
3 production plant increased by $27.6 million in that same
4 time period, related to the hydro relicensing and compliance
5 efforts by the Company.In addi tion to the hydro
6 relicensing and compliance efforts, increases of $82.6
7 million for additional production and transmission
8 investment and $19.1 million for general plant have
9 increased overall gross plant.
10 Q.What are the primary factors driving the Company's
11 request for a natural gas rate increase?
12 A.The Company's natural gas request is driven by
13 changes in various operating cost components, but primarily
14 the addition of the Jackson Prairie expansion and the
15 completion of the Advanced Meter Reading proj ects, both
16 planned for completion in the fourth quarter of 2008. This
17 causes an increase in the fixed costs of providing natural
18 gas service to customers.
19 III. ELEMNTS OF THE STIPULATION
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Q.Please explain the derivation of the Electric and
Natural Gas Revenue Requirements outlined in the
22 Stipulation.
23 A.The Parties agreed that Avista will reduce its
24 electric revenue increase request to reflect the adjustments
25 shown on the Table on Page 4 to the Stipulation.While
Norwood, Di 6
Avista Corporation
1 Avista' s filing requested an electric revenue requirement
2 increase of $32.3 million, the adjustments, including the
3 agreed -upon rate of return,reduce this amount by
4 approximately $9.2 million, resulting in a recommended
5 electric revenue requirement increase of $23.1 million.
6 Similarly, as shown on the table on Page 5 to the
7 Stipulation, while the Company requested a natural gas
8 revenue requirement increase of $4. 7 million, the agreed-
9 upon adjustments serve to reduce this amount by $0.8
10 million, resulting in a recommended gas revenue requirement
11 increase of $3.9 million.
12 As can be seen by a quick review of the individual line
13 descriptions,the adj ustments accepted for settlement
14 purposes cover a broad range of revenue and cost categories,
15 including the authorized rate of return.The individual
16 adjustments should not be viewed in isolation; rather, they
17 should be viewed in total as part of the entire Stipulation,
18 and are the result of hard bargaining and compromise.
19 Q.Please explain the Parties' agreement in regards
20 to an Authorized Rate of Return, including the Return on
21 Equity.
22 A.The Parties have agreed to a revenue requirement
23 which produces an overall rate of return of 8.45%, based on
24 a return on equity of 10.2% and an equity component at
25 47.94% .By comparison, the Company's original filing
Norwood, Di 7
Avista Corporation
1 requested an overall rate of return of 8. 74%, a return on
2 equity of 10.8% and an equity component of 47.94%. The cost
3 of debt of 6.84% and long-term debt component of 52.06%
4 included in the original filing was agreed to in the
5 Stipulation.
6 Q.What is the proposed effective date of the
7 Stipulation?
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A.The Parties have requested implementation of the
Stipulation on October 1, 2008.This proposed effective
10 date is an integral part of the Stipulation that was part of
11 the negotiated resolution of all of the issues.
12 Q.Please explain the accounting treatment related to
13 the Spokane River Relicensing costs.
14 A.The Company included the processing costs
15 associated with its Spokane River relicensing efforts, which
16 expenditures included actual life-to-date costs from April
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2001 through December 31,2007,and 2008 pro forma
expendi tures through December 31, 2008.( See Company
19 witness Andrews' Direct Testimony at page 32.) Although the
20 Company anticipates receiving a final license from the
21 Federal Energy Regulatory Commission ("FERC") in the near
22 future, that has yet to occur.The relicensing costs will
23 remain in CWIP (Construction Work in Progress) and the
24 Company will continue to accrue AFUDC until issuance of the
25 license, at which time the relicensing costs will be
Norwood, Di 8
Avista Corporation
1 transferred to plant in service and depreciation will begin
to be recorded.The Parties have agreed to defer as a2
3 regulatory expense item (in Account 186 Miscellaneous
4 Deferred Debits) on the Company's balance sheet depreciation
5 associated with Idaho's share of the aforementioned
6 relicensing costs and related protection, mitigation, or
7 enhancement expenditures, until the earlier of twelve (12)
8 months from the date of the issuance of the license or the
9 conclusion of Avista' s next general rate case ("GRC"),
10 together with a carrying charge on the deferral, as well as
11 a carrying charge on the amount of relicensing costs not yet
12 included in rate base.The carrying charge for deferrals
13 and rate base not yet included in establishing rates would
14 be the customer deposit rate at that time (presently 5%) .
15 Q.Please explain the accounting treatment related to
16 the Confidential Litigation costs.
17 A.Company witness Andrews describes the confidential
18 litigation at pages 32 and 33 of her pre-filed direct
19 testimony (unredacted).Inasmuch as that matter is still
20 pending and has yet to be finally resolved, but is expected
21 to reach resolution in the near future, the Parties have
22 agreed to defer as a regulatory expense item (in Account 186
23 - Miscellaneous Deferred Debits) on the Company's balance
24 sheet depreciation associated with Idaho's share of the
25 aforementioned costs with a carrying charge on the deferral
Norwood, Di 9
Avista Corporation
1 as well as a carrying charge on the amount of costs not yet
2 included in rate base for subsequent recovery in rates. The
3 carrying charge will be the customer deposit rate (presently
4 5%) .This deferral, together with a carrying charge, will
5 continue until the earlier of twelve (12) months from the
6 date of resolution of the litigation or until the conclusion
7 of Avista' s next general rate case (GRC).
8 Q.Please explain the treatment of the Montana
9 Riverbed Litigation costs.
10 A.On November 1, 2007, Avista filed an Application
11 with the Commission (Case No. AVU-E-07-10) requesting an
12 accounting order authorizing deferral of settlement lease
13 payments and interest accruals relating to the recent
14 settlement of a lawsuit in the State of Montana over the use
15 of the riverbed related to the Company's ownership of the
16 Noxon Rapids and Cabinet Gorge hydroelectric proj ects
17 located on the Clark Fork River.The Commission, in its
18 Order No. 30492, authorized the deferral of settlement lease
19 payments and delayed a decision on interest, until the
20 matter was addressed in this general rate filing.The
21 parties have agreed to the Company's requested amortization
22 of costs, together with recovery of accrued interest on the
23 Idaho share of deferrals at the customer deposit rate
24 (presently 5%) .
Norwood, Di 10
Avista Corporation
1 Q.Please explain the accounting treatment related to
2 the revenues associated with the sale of Carbon Financial
3 Instruents (CFIS).
4 A.On May 22, 2008 Avista filed a request with the
5 Commission (Case No. AVU-E-08~2) to defer the revenues
6 associated with the sale of Carbon Financial Instruments
7 (CFIs) on the Chicago Climate Exchange.The Company's
8 Application was approved on August 5, 2008 in Order No.
9 30610. Idaho's share of the revenues, net of expenses, from
10 the CFI sales is $850,571. These dollars will be amortized
11 over a two-year period beginning in the calendar month of
12 the effective date of new retail rates resulting from this
13 Stipulation, with a carrying charge on the unamortized
14 balance at the customer deposit rate.The revenue
15 requirement included in this Stipulation has been reduced
16 for the CFI revenues, in order to flow these benefits
17 through to cus tomers .
18 Q.Please describe the low-income portion of the
19 Stipulation.
20 A.There are three areas the Company addressed in the
21 Stipulation, as follows:
22 (a.) Low-Income DSM Funding - At present, $350,000 per
23 year is provided to idaho service (CAP) agencies for
24 proposed funding of low-income Demand-Side Management (DSM).
25 The Parties agree to increase the annual level of funding to
Norwood, Di 11
Avista Corporation
1 $465,000 for such programs (which includes administrative
2 overhead) .The continuation and level of such funding will
3 be revisited in the Company's next general rate filing.
4 (b.) Funding for Outreach for Low-Income Conservation -
5 The Parties agree that annual funding in the amount of
6 $25,000 will be provided to Idaho (CAP) agencies for the
7 purpose of underwriting the dedication of agency personnel
8 to assist in low-income outreach and education concerning
9 conservation.The dollars will be funded through the DSM
10 Tariff Rider (Schedules 91 and 191), and will be in addition
11 to the $465,000 of Low-Income DSM Funding. The continuation
12 and level of such funding will be revisited in the Company's
13 next general rate filing.
14 (c.) Establishment of Generic Workshops - Avista agrees
15 to support and actively participate in any Commission-
16 established workshops for the purpose of examining issues
17 surrounding energy affordabili ty and customers' ability to
18 pay energy bills with respect to all jurisdictional
19 utilities.As part of this process, Avista agrees to
20 explore the feasibility of establishing a Low-Income Rate
21 Assistance Program (LIRAP), or similar program, to assist
22 low-income residential customers in Idaho.
23 Q.Does the Company have other programs in place to
24 mitigate the impacts on customers of the proposed rate
25 increase?
Norwood, Di 12
Avista Corporation
1 A.Yes. Avista Utilities offers a range of programs
2 to help customers who have difficulty paying their energy
3 bills.Some programs are in cooperation with local Idaho
4 community action agencies,who are specialized in
5 targeting assistance where it is most needed. We are very
6 aware of the impacts energy costs have on our customers.
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8 Programs designed to assist customers include:
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. Energy efficiency oroqrams. Avista Utilitiesoffers energy efficiency services to electric
and natural gas residential, commercial, and
industrial customers.
. Proj ect Share. Proj ect Share is a voluntary
program allowing customers to donate funds that
are distributed through community action
agencies to customers in need. In addition tothe customer and employee contributions of
$88,910 in Idaho, Avista shareholders
contributed $50,000 to the program in 2007.
. Comfort Level Billing. The Company offers the
option for customers to pay the same bill amount
each month of the year by averaging their annual
usage.
. Payment arrangements. The Company's Contact
Center Representatives work with customers to
set up payment arrangements to pay energy bills.
. CARES oroqram. Customer Assistance Referral andEvaluation Services provides assistance to
special-needs customers through access to
specially trained (CARES) representatives who
provide referrals to area agencies and churches
for help with housing, utilities, medicalassistance, etc.
. Customer service automation. Customers are able
to access Avista' s Interactive Voice Response
system (IVR) for automated transactions to enter
their own payment arrangements, listen to outage
Norwood, Di 13
Avista Corporation
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messages and conduct other
obtaining account balances
duplicate bill.
business such asand reques t ing a
5 iv. RATE SPREAD & RATE DESIGN
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Q.How did the Stipulation address rate spread?
A.Appendix 2 of the Stipulation shows the impact on
8 each service schedule of the agreed-upon electric and
9 natural gas increases.The proposed electric revenue
10 increase of $23,163,000 represents an overall increase of
11 11.98% in base rates, and with one exception, is spread on
12 a uniform percentage basis to all schedules. Schedule 25P
13 (for Potlatch's Lewiston plant), however, will receive an
14 increase of 10.36%, in order to reflect a Schedule 25P rate
15 that is no higher than the tailblock rate of Schedule 25.
16 with this change, the relative rate of return for Schedule
17 25P would move approximately one-half way toward unity,
18 more consistent with the movement of other service
19 schedules.All other schedules will receive a 12.33%
20 increase.
21 The spread of the increased natural gas revenue
22 requirement of $3,878,000 is set forth in Appendix 2 of the
23 Stipulation, and represents an overall increase of 4.7% in
24 base rates. It reflects a reduction to what the Company
25 had proposed by way of an increase for each of the gas
Norwood, Di 14
Avista Corporation
1 service schedules proportional to the reduction in the
2 overall increase.
3 Q.What is the basis of the Stipulation relating to
4 the rate design?
5 A.The Parties agree to changes in the electric
6 customer and demand charges as set forth in the Company
i s
7 filing, and summarized in Appendix 2 of the Stipulation.
8 This includes an increase in the residential monthly basic
9 charge from $4.00 to $4.60.The energy rates wi thin each
10 electric service schedule are increased by a uniform
11 percentage.
12 Wi th respect to natural gas rate design, the Parties
13 agree to apply the increase in rates wi thin each service
14 schedule in the same manner as proposed by the Company.
15 The monthly basic charge for the residential schedule will
16 increase from $3.28 to $4.00, as proposed by the Company.
17 V. CONCLUSION
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Q.What is the effect of the Stipulation?
A.The Stipulation represents a negotiated
20 compromise on a variety of issues among the Parties. Thus,
21 the Parties have agreed that no particular party shall be
22 deemed to have approved the facts, principles, methods, or
23 theories employed by any other in arri ving at these
24 stipulated provisions, and that the terms incorporated
Norwood, Di 15
Avista corporation
1 should not be viewed as precedent setting in subsequent
2 proceedings except as expressly provided.
3 Q. In conclusion, why is this Stipulation in the
4 public interest?
5 A.This Stipulation strikes a reasonable balance
6 between the interests of the Company and its customers,
7 including its low-income customers. As such, it represents
8 a reasonable compromise among differing interests and
9 points of view.
10 The Parties have agreed tha t the Company has
11 demonstrated need for a revenue requirement increase for
12 both its electric and natural gas customers.The
13 Stipulation provides for recovery of these costs. In the
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final analysis,however,any settlement reflects a
compromise in the give-and~take of negotiations.The
16 Commission, therefore, has before it a Stipulation that is
17 supported by sound analysis and supporting evidence, the
18 approval of which is in the public interest.
19 Q.Does this conclude your pre-filed direct
20 testimony?
21 A.Yes, it does.
Norwood, Di 16
Avista Corporation