20080923Comments.pdf

SCOTT WOODBURY
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
POBOX 83720
BOISE, IDAHO 83720-0074
[phone]
BARNO. 1895
RECEIVED
2008SEP 23 PH l: 41
IQAHO PUBLIC .
UTILITiES COMMISSiON
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 (2008 PURCHASED GAS COST )ADJUSTMENT) )
)
)
CASE NO. A VU-G-08-3
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
Application, Notice of Modified Procedure and Notice ofCommentIrotest Deadline issued on
August 28, 2008 in Case No. A VE-G-08-3, submits the following comments.
BACKGROUND
On August 18, 2008, A vista Corporation dba Avista Utilities (Avista; Company) fied its
annual Purchased Gas Cost Adjustment (PGA) Application with the Commission requesting
authority to place new rate schedules in effect as of October 1, 2008 that would increase its annual
natural gas revenues by approximately $11.6 milion or about 14.2%. On September 15,2008
A vista fied a revised Application reducing the original request from an $11.6 milion increase to a
$3.3 milion increase, or roughly 4.0%. Avista states that the only change in the revised filing is a
reduction to the proposed Weighted Average Cost of Gas (WACOG) to reflect the current decrease
STAFF COMMENTS 1 SEPTEMBER 23,2008
in wholesale natural gas prices. All other components of the original fiing remain unchanged. The
PGA mechanism is used to adjust rates for the purchase of gas from wholesale suppliers including
transportation, storage, and other related costs of acquiring natural gas. Avista's earings wil not
be increased as a result of the proposed changes in prices and revenues.
A vista states that if the proposed changes in its revised PGA Application are approved its
anual revenue wil increase by approximately $3.3 milion or about 4.0%. The average residential
or small commercial customer using 65 therms per month will see an estimated increase of $2.96,
or approximately 3.9%. The present bil for 65 therms is $75.14, while the proposed bil is $78.10,
down from $85.58 in the original filing. The actual increase wil var based on customer usage.
The proposed effective date of October 1, 2008 for the PGA rates is simultaneous with the
proposed effective date of the rates contained in the Stipulation and Proposed Settlement fied with
the Commission on August 8, 2008 in Avista Case Nos. AVU-E/G-08-01.
Evaluations of the documentation, circumstances and conditions have been completed for
the review of the Company's proposed revision in rates. Avista purchases natural gas for customer
usage and transports it over Wiliams Pipeline West (dba Northwest Pipeline Corporation), Gas
Transmission Northwest (GTN), TransCanada (Alberta), TransCanada (BC), and West Coast
Pipeline Systems and defers the effective timing differences due to implementation of rate changes
and differences between Avista's actual weighted average cost of gas (WACOG) purchased and
WACOG embedded in rates. Avistaalso defers various pipeline refuds or charges and
miscellaneous revenue received from gas-related transactions including pipeline capacity releases.
As reflected in attchments to the Company's filing, many factors have contributed to the
volatility of natural gas prices, making this an especially challenging year for A vista as it purchases
the commodity to serve its customers during the 2008-2009 heating season. The 2008 spring and
summer natural gas prices, it states, soared to levels not seen since Hurricanes Rita and Katrina.
Although natural gas prices decreased about 30% in August, prices remain above levels of a year
ago.
The Company's Director of Natural Gas Supply, Kevin Christie, notes that an unusually
long, cold spring depleted storage reserves across the country, that natural gas imports from Canada
to the United States are declining, and that international demand has lured liquefied natural gas
(LNG) away from the U.S., putting pressure on natural gas prices. Higher crude oil prices, he
states, have also put upward pressure on natural gas prices. Pricing for both of those energy
commodities, he states, tends to be correlated.
STAFF COMMENTS 2 SEPTEMBER 23, 2008
A vista follows a structured natural gas purchasing plan that allows for flexibilty based on
market prices and conditions. Curently, about 67% of estimated customer demand for the
upcoming year is either pre-purchased or placed in storage. This year A vista has increased its
underground Jackson Prairie storage capacity from 11 % to 21 % of expected anual demand
requirements. Storage is a valuable asset that allows the Company to purchase lower cost gas
during the spring and summer months and store it for use during the heating season when
wholesale gas prices are typically highest. However, prices for natural gas during this year's spring
and summer time period were higher than in prior years.
The Company in its revised PGA filing proposes to (1) pass through changes in the
estimated cost of natural gas for the forthcoming year (Schedule 150), and (2) revise the
amortization rate(s) to refud or collect the balance of deferred gas costs (Schedule 155). Below is
a table summarizing the proposed changes reflected in the revised fiing:
Commodity Demand Total Sch.155 Total Rate
Schedule Change Change Sch.150 Amort.Change Percent
Service No.Per Therm Per Therm Chane:e Per Therm Per Therm Chane:e
General 101 $0.03102 $0.00777 $0.03879 $0.00664 $0.04543 3.9%
Lg. General 111 $0.03102 $0.00777 $0.03879 $0.00664 $0.04543 4.4%
Interrptible 131 $0.03102 --$0.03102 $0.00664 $0.03766 3.5%
Transport 146 --------$0.00000 0.0%
STAFF ANALYSIS
Staff has reviewed the Company's original and revised Applications and performed an audit
to verify that the Company's earings wil not change as a result of the filing. Staff reviewed the
Company's hedging and risk management policies, gas purchases, and deferred accounts along
with additional information provided by the Company and third paries, all of which are discussed
in greater detail below.
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.
Avista originally proposed a Schedule 150 increase of 15.4 cents per therm for firm sales customers
on rate Schedules 101, 111 and 112. Interruptible customers on Schedules 131 and 132 would have
seen a Schedule 150 increase of 14.623 cents per thermo These rates were based on an increase in
STAFF COMMENTS 3 SEPTEMBER 23, 2008
the overall Weighted Average Cost of Gas (WACOG) as calculated by the Company on August 5,
2008. The original proposal for Schedule 150 by the Company made up approximately 96% of the
requested overall increase of $1 1.6 milion.
The Company's revised fiing reduces the proposed Schedule 150 increase by 11.321 cents
per therm for an increase of3.879 cents per therm for customers on Schedules 101, 111 and 112.
The proposed increase for interrptible customers on Schedules 131 and 132 is now 3.102 cents per
thermo These revised rates are based on updating the proposed W ACOG calculation using curent
prices on September 12,2008. The revised Schedule 150 increase provides the Company with an
additional $2.8 milion in anual revenue for upcoming purchased gas costs, which is
approximately 86% of the overall requested anual increase of$3.3 milion.
Weighted Average Cost orGas (WACO G)
Avista originally requested a WACOG of$0.90167/therm for the coming PGA year. This
W ACOG was calculated in early August based on the amount of gas the Company had already
hedged, curent storage levels, and an estimate of spot prices as additional gas is delivered
throughout the year. Recent sharp declines in the wholesale cost of natual gas have allowed
A vista to purchase additional gas for the coming year and complete its storage injections at a more
favorable rate than original anticipated. The revised W ACOG of $0. 78646/therm wil lessen the
increase in customer rates and is comparable to the $0.75544 WACOG currently included in rates
which became effective November 1,2007. The table below shows the past and proposed
W ACOG along with the resulting effect on residential customers (Schedule 101) and the
percentage change in both the WACOG and the Schedule 101 taiff since 2002.
STAFF COMMENTS 4 SEPTEMBER 23,2008
Approved % Change Resulting Total
Weighted From General Service % Change
Year TarirrWas Avg. Cost or Previous Schedule 101 Tarirr,From
Established Gas $/Therm Year $/Therm Previous Year
2002 0.34572 Base Year 0.75722 Base Year
2003 0.44989 30.13%0.77716 2.63%
2004 0.55739 23.89%0.95315 22.64%
2005 0.76786 37.76%1.18692 24.53%
2006 0.76085 -0.91%1.16175 -2.12%
2007 0.75544 -0.71%1.10560 -4.83%
2008 0.78646 4.11%1.15103 4.11%
(Proposed)
Last year's WACOG of $0.75544/therm was based on storage volumes, hedged volumes and
forward gas prices as of late September 2007, and while gas prices varied significantly throughout
the year, the WACOG was fairly reflective of the wholesale rates paid for natural gas by the
Company.
The Company's revised WACOG of $0. 78646/therm was reviewed by Staff against other
forecasts, including NYMEX futures and those published weekly by the U.S. Energy Information
Administration. Staff notes that the requested increase, reflecting the Company's belief that the
cost of gas wil be more expensive this winter, is consistent with the forecasted northwest cost of
gas and the beliefs of other natural gas utilties serving the northwestern United States. The
Company's proposed WACOG is slightly higher than the $0.78484/therm proposed by
Intermountain Gas Company in Case No. INT-G-08-03. Historically, Avista has always had a
higher W ACOG than Intermountain Gas Company. Whereas Intermountain Gas can rely heavily
on natural gas coming out of the Rockies, where prices have been arificially low due to
transportation constraints, A vista relies primarily on gas coming out of Canada. The weakening
U.S. Dollar and an unfavorable exchange rate continue to cause upward pressure on Avista's cost
of gas. However, Avista's hedging policies, discussed below, have removed much of the price
volatilty and have helped keep customer rates relatively stable over the past three years.
STAFF COMMENTS 5 SEPTEMBER 23, 2008
Schedule 155 - Deferred Expenses
A vista uses an amortization rate set fort under Schedule 155 to refund or surcharge
customers the difference between the actual gas costs and the projected gas costs allowed in the
previous PGA filing. In this Application, the Company is proposing to increase the present
Schedule 155 amortization rate by 0.664 cents per therm from the current customer credit of2.391
cents per thermo The proposed credit of 1.727 cents per therm wil allow the Company to refund to
customers the over-recovery of deferred costs of approximately 1.3 milion in the coming PGA
year. Any over-collection or under-collection wil be trued up in next year's PGA fiing and either
returned to customers via credit or paid to A vista via surcharge depending on the deferral balance
at that time. The table below lists the components that make up the deferral balance in this case:
Amount
Accrued
Through
Dererred Account Item September 2008
Beginning Deferred Cost Balance ($ 1,727,597)
Wholesale Gas Costs Below W ACOG (280,750)
Fixed Pipeline Charges (994,576)
Recalled Storage Release 274,282
Interest on Deferrals (141,282)
Refunds to Industrial Customers/Transfer to Amortization Accounts 2,869
Refunds from GTN Pipeline (240,733)
Under-Collections from Prior PGA Year 1,779,063
Total Deferred Amount Credited to Customers ($ 1 ,328,725)
Hedging Policies
A vista continues to follow its price stabilzation practice of systematically fixing portions of
gas costs using physical hedges and financial instruments in a purchasing program aimed at
achieving a diversified gas portfolio. For the forthcoming PGA year, Avista wil 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.
At the time of the original filing, Avista had executed only 82% of its planed short-term hedge
volumes for the upcoming PGA year. The recent decline in natural gas prices has allowed Avista
to complete the remaining hedges at favorable prices and contributed to the decreased WACOG.
STAFF COMMENTS 6 SEPTEMBER 23, 2008
The Company's revised natural gas procurement program was established approximately
three years ago, and as ilustrated on the table in the previous section, has accomplished its goal of
providing rate stability for customers while procuring gas at low cost. While the program is fairly
structured and mechanical, it also allows for flexibilty based on changing market conditions and
continuous review by the Company. Hedge windows are created for gas purchases where a price
ceiling and floor are established at 10% above and below the current price. If the price of gas hits
the price ceiling, the hedge is automatically executed. If the price of gas falls below the established
floor, a new "hard" floor is established at 5% below the original floor. If the price of gas hits either
the "hard" floor or the original floor, the hedge wil then be executed. This practice is a dollar-
cost-averaging result which protects A vista and its customers from sudden spikes in the cost of
natural gas while capturing the benefit of lower prices when market prices decline.
The Company also established another rate mitigating component of its hedging practices
whereby 11% of supply is purchased each year at a three-year fixed price. At any given time, the
Company wil have approximately one-third of its gas supply purchased at staggered three-year
fixed prices. As the first three-year contract expires, the Company wil purchase an additional 11 %
to replace the 11 % contracts that are expiring. The resulting 33% purchased with staggered three-
year fixed price terms has resulted in more price stabilty than we have seen prior to the
implementation of the procurement plan. Commission Staff continues to work with the Company
to evaluate the Company's procurement policies and to develop other hedging and purchasing
practices with the intent of reducing gas costs and mitigating price volatility.
CONSUMER ISSUES
The Customer Notice and Press Release were included in Avista's original Application.
The Application was received August 18,2008. Staff reviewed the original customer notice and
press release and determined they were in compliance with the requirements ofIDAPA
31.21.02.1 02.
Customer Comments
Customers were given until September 23, 2008 to fie comments. As of September 22,
2008, fifteen customers, many on fixed incomes had commented, all opposing an increase to rates
citing hardship, the reported huge profits of the Company and the high salaries of its executives.
STAFF COMMENTS 7 SEPTEMBER 23,2008
Financial Assistance ror Paying Heating Bils
Staff encourages customers who qualify for energy assistance to apply for the federally..
fuded Low Income Home Energy Assistance Program (LIHEAP) and other non-profit fuel funds
such as Project Share. For more information regarding assistace programs, customers may
contact the local Community Action Agency, Avista Utilties, the Idaho Public Utilties
Commission, or the 2-1-1 Idaho Care Telephone Line.
RECOMMENDATION
After a complete examination of the Company's original and revised Applications and gas
purchases for the year, Staff recommends that the Commission accept the Company's revised
Application and fied tariffs. In doing so, Staff recommends that the Commission accept the
proposed Schedule 155 credit of 1.727 cents per therm and a W ACOG of 78.646 cents pertherm
which results in a Schedule 150 surcharge 3.879 cents per therm for customers on tariff Schedules
101, 111 and 1 12 and a surcharge of 3.102 cents per therm for interrptible customers on Schedules
131 and 132. These recommendations wil allow the Company to receive an additional $3,275,047
in anual revenue based on normal usage, which is an increase of3.99%.
Staff also recommends that the Commission reserve the right to reopen this case and
reevaluate any approved tariffs if the W ACOG materially changes below that included in this
Application.
vtPRespectfully submitted this 0 3 day of September 2008.
'S1tl~1
Scott Woodbur
Deputy Attorney General
Technical Staff: Matt Elam
Donn English
Marilyn Parker
i:umisc:commentsiaveg08.3swmedemp comment
STAFF COMMENTS 8 SEPTEMBER 23, 2008
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 23RD DAY OF SEPTEMBER 2008,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-G-08-03, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE
FOLLOWING:
DAVIDJ. MEYER
VICE PRESIDENT AND CHIEF COUNSEL
AVISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220
E-MAIL: david.meyeraYavistacorp.com
KELL Y NORWOOD
VICE PRESIDENT - STATE & FED. REG.
A VISTA UTILITIES
PO BOX 3727
SPOKANE WA 99220
E-MAIL: kelly.norwoodaYavistacorp.com
JoiÎfÅSECRETA~ ~
CERTIFICATE OF SERVICE