20100402Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

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

FROM: DON HOWELL AND KRISTINE SASSER
DEPUTY ATTORNEYS GENERAL

DATE: APRIL 1, 2010

SUBJECT: CASE NOS. AVU-E-10-01 AND AVU-G-10-01
GENERAL RATE CASE – ELECTRIC AND GAS

On March 23, 2010, Avista Corporation dba Avista Utilities filed an Application
seeking authority to increase the Company’s general rates for electric and natural gas service in
Idaho by averages of 14% and 3.6%, respectively. If approved, the Company’s revenues for
electric base rates would increase by $32.1 million annually. Company revenues for natural gas
would increase by $2.6 million annually. The Company requests an effective date of April 23,
2010, for its proposed electric and natural gas rate increases.
THE APPLICATION
Avista is a public utility primarily engaged in the generation, transmission and
distribution of electric power and the distribution of natural gas in portions of eastern and central
Washington, northern Idaho, as well as distribution of natural gas in northeast and southwest
Oregon. The Company’s existing Idaho rates and charges for electric and gas service were
approved by the Commission on July 17, 2009, and became effective on August 1, 2009. Order
No. 30856.
The Company’s Application maintains that its proposed revenue increases are driven
primarily by increased power supply costs, increased costs to meet additional compliance
requirements, the need to replace aging infrastructure, and changes in other various costs of
providing electric and natural gas services to its customers. Application at 3. The Company
anticipates capital expenditures of approximately $420 million over the next two years to assure
reliability in serving its current customers and meeting customer growth. Id. at 6. The Company
DECISION MEMORANDUM 2
asserts that it has taken measures to cut costs and increase operating efficiencies in an effort to
mitigate a portion of its cost increases. Id. at 5.
Evidence in support of the Company’s need for a rate increase for electric and natural
gas is based on a 12-month test year ending December 31, 2009. Id. at 4. The Company is
requesting an overall rate of return of 8.55% with a proposed 10.9% return on equity. Id. at 6.
Avista asserts that it will notify each customer of the proposed rate increases through a bill
stuffer during a billing cycle and by issuing a news release.
A. Electric Service
The Company contends that its proposed increase in electric rates is primarily driven
by an increase in production and transmission expenses. The Company maintains that 80% of its
overall request for an increase is due to the additional costs of the Lancaster plant Power
Purchase Agreement, the termination of some low-cost power purchases, reduced hydro
generation, and increased fuel costs and higher retail loads. Morris Direct at 9.
The proposed increase for a residential customer using an average of 964 kWh’s per
month is $11.40 per month, or a 14.6% increase in their electric bill. This includes a Company-
proposed increase in the basic/customer charge from $4.60 to $6.75 per month. Ehrbar Direct at
4. The Company is not proposing any changes to the present rate structures within its electric
schedules. Id. at 5.
B. Gas Service
The Company asserts that its proposed increase in natural gas rates is primarily driven
by the inclusion in this case of the increased plant investment and inventory associated with the
transfer of additional capacity and deliverability in the Jackson Prairie Storage facility from
Avista Energy to Avista Utilities, effective May 1, 2011. Morris Direct at 10. The proposed
increase for a residential customer using an average of 63 therms of gas per month would be
$2.77 per month, or a 4.9% increase in their gas bill. As part of this increase, the Company is
proposing an increase in the monthly customer charge from $4.00 to $6.75 per month, to recover
a more reasonable level of fixed costs. Ehrbar Direct at 6. The Company is not proposing any
changes to the present rate structures within its gas service schedules. Id. at 29.

DECISION MEMORANDUM 3
STAFF RECOMMENDATION
Staff recommends that the Commission suspend the rates which are the subject of
this Application for a period of 30 days plus 5 months from the proposed April 23, 2010,
effective date. Staff further recommends that the Commission issue a Notice of Application
establishing a 14-day deadline for intervention. Staff will recommend further procedure as the
case develops.
COMMISSION DECISION
1. Does the Commission wish to suspend the Company’s proposed effective date of
April 23, 2010, for a period of 30 days plus 5 months pursuant to Idaho Code §§ 61-622 and 61-
623?
2. Does the Commission wish to issue a Notice of Application and establish a 14-
day deadline for intervention?

Don Howell
Kristine A. Sasser
Deputy Attorneys General

M:AVU-E-10-01_AVU-G-10-01_ks