20080725Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER REDFORD
COMMISSIONER SMITH
CO MMISSI 0 NER KEMPTON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DON HOWELL
DEPUTY ATTORNEY GENERAL
DATE:JUL Y 24, 2008
SUBJECT:A VISTA'S APPLICATION FOR AN ACCOUNTING ORDER
REGARDING TERMINATION OF ITS GAS STORAGE AGREEMENT
WITH TERASEN GAS, CASE NO. A VU-08-
On June 13 , 2008, A vista Corporation filed an Application requesting an accounting
order related to the termination of a Gas Storage Agreement between the Company and Terasen
Gas, Inc. In 1982, Avista and Terasen (formerly known as BC Gas) entered into an agreement
for the storage and subsequent release of natural gas at Avista s Jackson Prairie underground
storage facility. The Agreement with Terasen was terminated May 1 2008. On May 1 , Avista
began using the former Terasen storage capacity to serve its own customers.
On July 2, 2008, the Commission issued a Notice of Application and Notice of
Modified Procedure requesting comments on Avista s request for an accounting order. The only
comments filed in response to the Commission s Notice were those of the Commission Staff.
THE APPLICATION
Under the terminated Agreement, Terasen paid Avista $191 121 per month for the
storage and eventual delivery of gas to Terasen. The Idaho jurisdictional revenue from the
contract was $54 388 per month and embedded in the current rates paid by Idaho customers. The
termination of the Terasen Agreement is incorporated in the Company s current general rate case
(A VU-08-0 1). However, until the new general rates become effective, Idaho customers are
currently receiving a "credit" of $54 388 each month although the revenue is no longer being
received from Terasen. Consequently, the Company requested that the Commission approve an
accounting order for the Company to record the additional deferred gas costs to Account 191 in
the amount of $54 388 each month beginning May 1 2008 , and ending on the date in which its
DECISION MEMORANDUM
new gas rates become effective. The deferred costs associated with any partial month "would be
prorated accordingly." Application at 3. This deferred amount would be included with all other
deferred gas costs and be recovered through rates as part of the Company s annual PGA filing.
STAFF COMMENTS
The Commission Staff supported the Company s request to record the revenue lost
from the recall of the capacity released to Terasen Gas as deferred gas costs in Account 191.
The Staff agreed with the Company that Idaho customers are currently receiving a monthly
benefit of $54 388 until new rates go into effect. The Staff also noted that the Company is "not
requesting a rate increase or additional monies beyond what it has been previously authorized to
receive, but rather is requesting the ability to recover revenues that were embedded in base rates
that is no longer receiving." Staff Comments at 2.
Staff disclosed that it has known for some time that A vista intended to terminate its
Terasen storage agreement this year. Staff asserted that the extra capacity formerly provided to
Terasen will allow A vista to better meet the needs of its customers during the winter months.
Staff calculated that the $2.3 million annual revenue formerly received from Terasen will be
offset by approximately $3.8 million the Company can achieve by taking advantage of a
summer/winter price differential in natural gas. Based upon a conservative $1.65/dekatherms
differential between winter prices and summer prices, Staff calculated that the net benefit to
Idaho customers is approximately $500 000 annually. Id. at 3.
Staff s only concern with the requested accounting treatment was that it will
contribute to a substantial rate increase in the Company s September 2008 PGA filing.
Typically, gas utilities use the summer months to fill underground storage facilities. The stored
gas is then used to serve customers in the winter when gas prices have been traditionally higher.
Staff reported that NYMEX and Sumas gas futures indicate that natural gas prices may be over
$14/dekatherms this winter, or approximately $2/dekatherms more than current prices. Staff
estimated that Avista s Idaho gas customers are facing an increase of 20-25% in retail rates this
fall from the annual PGA filing. This increase would be in addition to any increase in base rates
as a result of the Company s general rate case currently before the Commission. Id.
Staff estimated that the requested accounting deferral will result in an additional
balance of approximately $330 000 for six months before new base rates become effective on or
about November 1 2008. Although this will put upward pressure on PGA rates, any increase in
DECISION MEMORANDUM
rates going forward will be less than what they would have otherwise without the termination of
the storage agreement. In addition, Avista s gas customers benefit by having the additional
capacity available for their use. Consequently, the Staff recommends the Commission approve
the Company s Application for a deferred accounting order.
COMMISSION DECISION
1. Does the Commission approve an accounting order for A vista to record the
additional deferred gas costs to Account 191 in the amount of $54 388 each month beginning
May 1 , 2008?
2. If new gas rates are effective after the first of the month, does the Commission
find that the deferral should be prorated accordingly?
3. Anything else?
Don Howell
Deputy Attorney General
bls/M:A VU-O8-02 dh2
DECISION MEMORANDUM