20100924Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

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

FROM: KRISTINE SASSER
DEPUTY ATTORNEY GENERAL

DATE: SEPTEMBER 23, 2010

SUBJECT: IN THE MATTER OF AVISTA’S 2010 PGA, CASE NO. AVU-G-10-03

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 Avista’s costs for the purchase of natural gas from suppliers –
including transportation, storage, and other related costs. Avista’s earnings will not be increased
as a result of the proposed changes in prices and revenues. The Company requests that its
Application be processed by Modified Procedure and that its rates become effective on
November 1, 2010.
THE APPLICATION
The Company states that if the proposed changes are approved its annual revenue will
increase by approximately $3.1 million, or 4.3%. The average residential or small commercial
customer using 63 therms per month will see an increase of $2.75 per month.
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 (WACOG) purchased and the WACOG
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 proposes decreasing the WACOG from the currently approved $0.491 per
therm to $0.461 per therm. The Application asserts that daily wholesale natural gas prices have
DECISION MEMORANDUM 2
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 offset 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 therm.
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 of $0.035 per therm for
interruptible service customers and a rate of $0.062 per therm for general and large general
service customers. The change in amortization rates is a result of the large 2009 refund
amortization rate. Included in the proposed refund rate is a substantial deferral balance that the
Company was recovering 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.
Avista asserts that it has 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 Company requests that this matter be handled under Modified
Procedure pursuant to Rules 201-210 of the Commission’s Rules of Procedure.
STAFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure with comments
due no later than October 21, 2010.
DECISION MEMORANDUM 3
COMMISSION DECISION
Does the Commission wish to process this case under Modified Procedure with
comments due no later than October 21, 2010?

M:AVU-G-10-03_ks