20100122Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

TO: COMMISSIONER KEMPTON
COMMISSIONER SMITH
COMMISSIONER REDFORD
COMMISSION SECRETARY
COMMISSION STAFF
LEGAL

FROM: DON HOWELL
DEPUTY ATTORNEY GENERAL

DATE: JANUARY 21, 2010

SUBJECT: AVISTA’S 2009 INTEGRATED RESOURCE PLAN (IRP),
CASE NO. AVU-G-09-06

On December 30, 2009, Avista Corporation dba Avista Utilities filed its 2009
Integrated Resource Plan (IRP) with the Commission. In Order No. 22290 issued in January
1989, the Commission required electric and natural gas utilities to file a biennial IRP describing
the utility’s plans to meet the future energy needs of its customers. Typically, an IRP analyzes
an energy company’s changes in customer base, load growth, supply-side resources, demand-
side management (DSM) and various risks facing the Company. Additionally, Avista’s IRP and
its related appendices contain information regarding available resource options, planning
forecasts, potential portfolios, a 10-year resource plan, and a near-term (2010-2011) action plan.
Avista serves approximately 315,000 natural gas customers in three states including
about 73,000 natural gas customers in northern Idaho. In Avista’s northern operating division
(eastern Washington and northern Idaho), it serves roughly 218,000 natural gas customers. The
Company’s customer base is generally comprised of 94% residential customers, 5% commercial
customers, and 1% industrial customers. IRP at p. 2.3.
IRP FILING
Avista’s 2009 IRP was developed with the participation of its Technical Advisory
Committee (TAC). Members of the TAC include customers, Commission Staff, consumer
advocates, academics, utility peers, governmental agencies, and other interested parties. Avista
sponsored four TAC meetings to assist in the preparation of the IRP. The Company states that
this IRP was developed during the last two years when the United States and other countries
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were experiencing a financial and credit crisis. These financial uncertainties prompted the
Company to “consider a wider range of scenarios to evaluate and prepare for a broad spectrum of
potential outcome” in this IRP. IRP at p. 1.1.
The IRP is a comprehensive long-range planning tool designed to identify and
evaluate forecasted natural gas requirements. The purpose of the IRP is to plan for the
acquisition of the most cost-effective, risk-adjusted portfolio of existing and future resources,
and to meet the daily and peak-day demand and delivery requirements over the next 20-year
period. IRP at p. 2.4. Avista’s IRP has five parts: demand forecast; natural gas price forecast;
supply resources; demand-side management; resource needs; and the 2010-2011 near-term action
plan.
A. Demand
The Company’s approach to demand forecasting focuses on customer growth and
consumption per customer as the basic components of demand. The Company considers various
factors that influence these components including population, employment trends, age and
income demographics, construction trends, conservation technologies, new uses (e.g., natural gas
vehicles), and consumption per customer. In the demand forecast, Avista lays out six different
scenarios including its “expected case” scenario. In the expected case, Avista anticipates an
average growth in daily demand of 1.1% during the period 2010 to 2028-2029 (net of projected
conservation savings from DSM programs). IRP at p. 1.3. During the same timeframe, the
Company estimates that its peak-day demand will increase by a compound rate of 1.3%. Id.
B. Gas Prices
The Company maintains that natural gas prices are a fundamental component of
Integrated Resource Planning. Although the Company does not believe that it can accurately
predict future prices over the 20-year horizon, it has developed a high, medium and low price
forecast prices for natural gas. Avista anticipates that issues of economic recovery, expectations
of prolific shale gas production, and increased natural gas-fired power generation make pricing
forecast difficult.
C. Supply Resources
Avista has a diverse portfolio of natural gas supply resources, including owned and
contract storage, firm capacity rights on six pipelines and commodity purchase contracts from
several different supply basins. The Company also evaluated resource additions from
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incremental pipeline transportation, storage options, distribution enhancements, and various
forms of liquefied natural gas storage or service. Matching its resource supply scenario with its
expected case demand scenario, the Company forecasts that its Idaho/Washington service
territory would experience a supply deficiency in 2023. IRP at p. 1.6. The graph of the
estimated shortages is almost flat which leads the Company to conclude that its existing
resources will be sufficient for quite some time to meet demand. “However, if demand growth
accelerates, the steep demand curve could quickly accelerate resource shortages by several
years.” Id. at 1.8. Given the estimated deficiency in 2023, the Company plans to meet the
projected shortages through DSM conservation, incremental transportation resources from
existing pipeline and supply basin to address the shortages.
D. 2010-2011 Action Plan
The Company’s IRP identifies and establishes a near-term action plan that will steer
the Company toward the risk-adjusted, least-cost method of providing service to its natural gas
customers. Included in this action plan are efforts to improve computer modeling, evaluate
planning standards, and uses various risk analyses. Key components of the action plan include:
● Monitor actual demand and respond aggressively when growth exceeds
the Company’s forecast demand.

● Research and refine the evaluation of resource alternatives including:
implementation risk factors and timelines, updated cost estimates,
feasibility assessments, and target options of the service territory with
near-term unserved demand exposure.

● Analyze per customer data and DSM program results for indications of
price elasticity response trends that may be influenced by evolving
economic conditions. Determine if the American Gas Association will
update its analytical work or consider hiring outside experts in price
elasticity on a regional basis.

● Continue pursuit of cost-effective demand-side solutions to reduce
demand. In Washington and Idaho, conservation measures are targeted to
reduce demand by 2.193 million therms in 2010. This goal represents an
increase of 25% in Washington/Idaho from the 2007 IRP.

● Perform an updated assessment of technical and achievable potential for
conservation in the Company’s service territory prior to the 2011 IRP.

DECISION MEMORANDUM 4
● Continue to monitor issues of diminishing Canadian natural gas import
and look for signals that indicate increased risk of disrupted or dwindling
supply from Canada.

● Explore and evaluate alternatives and additional forecasting
methodologies for potential inclusion in the next IRP.

STAFF RECOMMENDATION
Staff recommends that the Commission issue a Notice of Filing and request public
comment on the IRP. Staff recommends that public comments on Avista’s IRP be due after a 45
to 60-day comment period.
COMMISSION DECISION
Does the Commission wish to issue a Notice of Filing and process this matter under
Modified Procedure? Does the Commission wish to use a 45/60-day comment period?

bls/M:AVU-G-09-06_dh