20101027final_order_no_32102.pdf

Office of the Secretary
Service Date
October 27, 2010
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 (2010 PURCHASED GAS
COST ADJUSTMENT).ORDER NO. 32102
CASE NO. A VU-I0-
On September 15, 2010, Avista filed its annual Purchased Gas Cost Adjustment
(PGA) Application requesting authority to increase its annualized revenues by approximately
$3.1 million, or about 4.3%. Application at 1. The PGA mechanism is used to adjust rates to
reflect annual changes in A vista s costs for the purchase of natural gas from suppliers -
including transportation, storage, and other related costs. A vista s earnings will not be increased
as a result of the proposed changes in prices and revenues. The Company requested that its
Application be processed by Modified Procedure with its rates to become effective on November
2010.
On September 30, 2010, the Commission issued a Notice of Application and Notice
of Modified Procedure and set an October 21 , 2010, comment deadline. In addition to comments
filed by Commission Staff, one public comment opposing a rate increase was filed by a
residential customer. After reviewing the Application, comments, and record established in this
case, the Commission approves the Company s Application, incorporating Staffs revised
calculations, as more fully set forth below.
THE APPLICATION
The Company states that it purchases natural gas for customer usage and transports
this gas over various pipelines for delivery to customers. The Company defers the effect of
timing differences due to implementation of rate changes and differences between the
Company s actual weighted average cost of gas (W ACOG) purchased and the W ACOG
embedded in rates. The Company states that it also defers various pipeline refunds or charges
and miscellaneous revenue received from gas-related transactions, including pipeline capacity
releases. Application at 2.
Avista s filing utilizes a W ACOG of $0.458 per therm, or $0.461 per therm once the
gross revenue factor (GRP) is included to reflect an allowance for uncollectibles and
Commission fees. This is lower than the currently approved W ACOG of $0.491 per thermo The
ORDER NO. 32102
Application asserts that daily wholesale natural gas prices have been higher this year than last
year, thus impacting the cost of purchased natural gas for storage pricing. However, prices in the
forward market have been lower this year than what is currently embedded in rates. The
decrease in forward market prices offsets the increase in storage prices, leading to a drop in the
proposed WACOG.
The Company has been hedging gas on a periodic basis throughout 2010 for the
coming PGA year. The Company states that approximately 70% of its estimated annual load
requirements for the PGA year will be hedged at a fixed price comprised of: (1) 41 % of volumes
hedged for a term of one year or less; (2) 19% of prior multi-year hedges; and (3) 10% from
underground storage. The Company states that through August 2010, the planned hedge
volumes for the PGA year have been executed at a weighted average price of $0.542 per thermo
The demand costs included in the Company s Application primarily represent the
costs of pipeline transportation to the Company s system. Application at 3. Avista proposes a
slight increase in demand charges due to a change in tariffs on the TransCanada (Alberta) and
TransCanada (BC) pipelines. Id.
The Company is also proposing an amortization rate change of $0.035 per therm for
interruptible service customers and an amortization rate change of $0.062 per therm for general
and large general service customers. The expiration of the large 2009 amortization refund is the
main change in the proposed amortization rate. Included in the proposed refund rate is a
substantial deferral balance that the Company was refunding over the past year through Schedule
155 that was not fully refunded to customers as natural gas loads for the winter 2009/2010 were
softer than projected. As a result, the proposed amortization rate still reflects some level of
previous deferrals, allowing for a lower proposed rate for customers.
A vista asserts that it notified customers of its proposed increase in rates by posting a
notice at each of the Company s district offices in Idaho, by means of a press release distributed
to various informational agencies, and by separate notice to each of its Idaho gas customers via a
bill insert.
THE COMMENTS
Staff reviewed the Company s Application to determine whether its adjustments to
Schedule 150 and 156 reasonably capture its fixed (demand) and variable (commodity) costs.
More specifically, Staff reviewed the Company s pipeline transportation and storage costs, fixed
ORDER NO. 32102
price hedges, estimates of future commodity prices, and its risk management policies. Staff also
reviewed the appropriateness of the Schedule 155 change in amortization rates that "true up" the
expenses from the 2009 PGA.
The Company filed proposed rate changes that would result in an increase of
approximately $3.1 million, or about 4.3%. Subsequent to the filing, the Company notified Staff
that its filing contained a calculation error and omitted a deferred credit of approximately $2 000.
In addition, the gross revenue factor (GRP) for uncollectibles and Commission fees should be
applied only to the rate change instead of to the entire rate. The revised rates result in a revenue
increase of approximately $2.9 million (as opposed to $3.1 million), or about 3.9%. Under the
revised rates, a residential or small business customer served under Schedule 101 using an
average of 63 therms per month can expect to see an average increase of approximately $2.
per month, or about 4.5%.
The Company proposes a W ACOG of $0.45817 per thermo This is lower than the
currently approved W ACOG of $0.491 per thermo The primary reason for the decline in the
W ACOG is the continuing decline in natural gas prices due to the weakness in our regional and
national economy that has reduced the weather adjusted demand for natural gas during a period
of time when natural gas supplies have been plentiful. Staff reviewed the Company s proposed
W ACOG of $0.458 per therm and its forecasted natural gas prices through October 2011. Staff
believes the Company s forecasted natural gas prices are reasonable.
The Schedule 155 portion of the PGA is the amortization component of the
Company s deferral account. Although gas prices have been lower than the W ACOG anticipated
in the Company s 2009 filing, the current refund rate required to amortize the current deferral is
less than the refund rate approved in the 2009 PGA filing. The net effect of the adjustments is an
increase of $4.5 million. Combining the two rate schedules (the reduction of the W ACOG in
Schedule 156 of $1.6 million and the increase in Schedule 155 of$4.5 million) results in a total
revenue increase of $2.9 million.
Staff recommended approval of a W ACOG of $0.45817 per thermo Staff also
recommended the Commission accept the Schedule 155 (Gas Rate Adjustment) amortization for
deferral balances. The combination of the first two recommendations results in an increase of
$2.9 million, or about 3.9%. Staff also recommended the Commission reserve the right to
ORDER NO. 32102
reopen this case and re-evaluate any approved tariffs if the W ACOG materially changes below
that included in this Application.
One residential customer filed a comment OppOSIng any rate Increase until the
economy recovers.
DISCUSSION AND FINDINGS
We have reviewed the record for this case, including the Application and comments.
The Commission has jurisdiction over A vista Corporation, a public utility, its Application for
authority to change rates and prices, and the issues involved in this case pursuant to Title 61 of
the Idaho Code, and more specifically, Idaho Code 99 61-117 61-129 61-307 61-501 , and 61-
502, along with the Commission s Rules of Procedure, IDAP A 31.01.01.000 et seq.
The Commission is required to establish just, reasonable, and sufficient rates for
utilities subject to our jurisdiction. Idaho Code 9 61-502. The PGA mechanism is used to adjust
rates to reflect changes in the costs for the purchase of gas from suppliers, including
transportation, storage and other related costs of acquiring and delivering natural gas. The
Company s earnings are not increased from changes in prices and revenues resulting from the
annual PGA. The PGA mechanism is designed to pass through prudently incurred commodity
costs in a timely fashion.
A vista follows a flexible, diversified natural gas purchasing plan and effectively
manages its underground natural gas storage facility. This allows A vista to provide more stable
and lower prices to its customers. However, the natural gas market continues to be volatile.
Prices in the forward market have been lower than what is currently embedded in rates.
Consequently, we find it reasonable to decrease the approved W ACOG from $0.49093 per therm
to $0.45817 per thermo The Company s proposed W ACOG was compared to other forecasts and
is consistent with the forecasted northwest regional cost of natural gas.
Despite approval of a decrease in the W ACOG, the current refund rate required to
amortize the current deferral is less than the significant refund rate approved in the 2009 PGA
filing. The net effect is an increase in Schedule 155 of $4.5 million. When offset by the
decrease in the W ACOG, the result is a total revenue increase of $2.9 million. We find it
reasonable to decrease the W ACOG to $0.45817 per thermo We further approve the proposed
12-month amortization of deferred expenses.
ORDER NO. 32102
Finally, the Commission directs the Company to promptly file an application
amending its W ACOG should gas prices materially deviate from the presently approved
$0.45817 per thermo
ORDER
IT IS HEREBY ORDERED that Avista s Purchased Gas Cost Adjustment (PGA)
Application is approved. The Company shall increase its annualized revenues by $2.9 million
and establish a weighted average cost of gas of $0.45817 per thermo The Company is directed to
file conforming tariffs to be effective November 1 2010.
IT IS FURTHER ORDERED that Avista promptly file an application to amend its
W ACOG should gas prices materially deviate from the presently approved $0.45817 per thermo
IT IS FURTHER ORDERED that Avista Utilities continue to file quarterly WACOG
projections and monthly deferred cost reports with the Commission.
THIS IS A FINAL ORDER. Any person interested in this Order (or in issues finally
decided by this Order) may petition for reconsideration within twenty-one (21) days of the
service date of this Order. Within seven (7) days after any person has petitioned for
reconsideration, any other person may cross-petition for reconsideration. See Idaho Code 9 61-
626.
ORDER NO. 32102
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this
;;;
fJfA
day of October 2010.
ATTEST:
LJ
4" " D. Jew
Commission Secretary
O:A VU-10-ks2
ORDER NO. 32102
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JIM . KEMPTON, PRES ENT
MARSHA H. SMITH, COMMISSIONER
IONER