20110930final_order_no_32370.pdf

Office ofthe Secretary
Service Date
September 30,2011
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION )
OF AVISTA CORPORATION FOR )CASE NO.AVU-G-11-04
AUTHORITY TO CHANGE ITS RATES AND )CHARGES (2011 PURCHASED GAS COST )
ADJUSTMENT).)ORDER NO.32370
________________________________________________________________________________________
)
On August 15,2011,Avista Corporation filed its annual Purchased Gas Cost
Adjustment (PGA)Application.The Company initially requested authority to increase its
annualized revenue by about $1.1 million (1.53%).Application at 1.The Company then
amended its Application to request a lesser,$0.7 million (.98%)annualized revenue increase.
See Amended Application.The Company asked that its Application be processed by Modified
Procedure,and that the new rates take effect October 1,2011.
On August 25,2011,the Commission issued a Notice of Application,Notice of
Modified Procedure,and Order setting a September 21,2011 comment deadline.See Order No.
32335 and subsequent Errata.The Commission Staff filed comments recommending that the
Commission approve the Company’s proposed changes.Staffs comments were the only
comments filed in the case.
Having reviewed the Application as amended,the comments,and other filings of
record in this case,the Commission makes the following findings and conclusions and enters its
Order approving Avista’s proposed changes to its natural gas rates and charges.
THE APPLICATION
Avista states that if the proposed changes are approved,its annual revenue will
increase by $0.7 million (about 0.98%)but its earnings will not increase.The Company further
states that an average residential or small business customer will see an increase of $0.67 per
month (about 1.10%).
Avista says it buys natural gas for customer usage and then transports the gas through
pipelines for delivery to customers.The Company says it 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
ORDER NO.32370
also defers various pipeline refunds or charges and miscellaneous revenue received from natural
gas-related transactions,including pipeline capacity releases.Application at 2.
Avista proposes decreasing the commodity cost (i.e.,the WACOG)from the
currently approved $0461 per therm to $0.418 per therm,for a $0.043 per therm decrease.
Amended Application at 1.
Avista says it has periodically hedged gas throughout 201 1 for the coming PGA year
(13 months).The Company says it will hedge approximately 70%of its estimated annual load
requirements for the PGA year (October 2011 —October 2012)at a fixed price comprised of:(1)
32%of volumes hedged for a term of one-year or less;(2)18%of prior multi-year hedges;and
(3)20%from underground storage.Id.Through July,the planned hedge volumes for the PGA
year have been executed at a weighted average price of $0.476 per therm.Amended Application
at 1-2.
Avista says that average daily wholesale prices of natural gas have stayed at levels
similar to 2010;however,the prices of natural gas during the storage injection season (April -
September)have been slightly higher than in 2010.See Application at 3.These higher prices
have raised the storage WACOG above what is currently in embedded rates.The Company
notes,though,that while gas prices are currently higher than levels experienced a year ago,the
forward prices for the upcoming PGA year have continued to drop.The Company contends this
decline has provided the opportunity to hedge natural gas at a cost below what is embedded in
rates,and that this decreased hedge cost more than offsets the storage WACOG increase.Id.
Avista maintains that the demand costs in its Application primarily represent the costs
of pipeline transportation to the Company’s system.The Company proposes a slight increase in
demand charges due,in part,to a proposed rate case settlement between Gas Transmission
Northwest and gas shippers (including Avista).The Company states the proposed settlement is
to be filed with FERC in the near future,and that the Company expects it to be approved.Id.at
4.
Avista proposes to increase the amortization rate to about $0.047 per therm.This
increase results from the large,one-year 2010 refund amortization rate being replaced by a
smaller rate.The Company states the larger refund balance from the prior PGA was almost
totally amortized in the current PGA year,resulting in a reduction in the refund amortization rate
ORDER NO.32370
in this PGA.The Company states this reduction,coupled with current refund balances of $1.6
million,results in a $0.047 per therm increase in Schedule 155.Id.
Avista asserts it has notified customers of its proposed increase in gas 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 individual notice to each of its Idaho gas
customers via a bill insert.Id.at 2.
THE COMMENTS
Staff has reviewed the Company’s Amended Application to determine whether the
Company’s adjustments to Schedule 150 and 155 reasonably capture its fixed (demand)and
variable (commodity)costs.More specifically,Staff has reviewed the Company’s pipeline
transportation and storage costs,fixed price hedges,estimates of future commodity prices,and its
risk management policies.Staff has also reviewed the appropriateness of the Schedule 155
change in amortization rates that “true up”the expenses from the 2010 PGA.
The Company filed proposed rate changes that would increase annual revenue by
approximately $0.7 million,or about .98%.Under the proposed rates,a Schedule 101 residential
or small business customer using an average of 62 therms per month will see an average increase
of $0.67 per month,or about 1.10%.
The Company proposes a WACOG of $0.4 1797 per therm.This is lower than the
currently approved WACOG of $0.45817 per therm.The WACOG decline primarily has
occurred because natural gas prices have continued declining due to regional and national
economic weakness that has reduced the weather-adjusted natural gas demand when natural gas
supplies have been plentiful.Staff has reviewed the Company’s proposed WACOG and its
forecasted natural gas prices through October 2012.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.When the Company pays more for gas than what is estimated in
the preceding WACOG,a surcharge is assessed to customers.If the Company pays less for gas
than what is estimated in the preceding WACOG,a credit is issued to customers.The proposed
change in the amortization rates are an increase of approximately 4.7 cents per therm.This
increase is a result of the large,one-year refund amortization rate from the 2010 PGA being
replaced by a smaller,one-year (13-month)amortization rate proposed in this filing.The large
ORDER NO.32370 3
refund balance from the 2010 PGA was almost completely amortized during the current PGA
year resulting in a reduction in the refund amortization rate in this current PGA application.This
reduction,coupled with the current refund balances of approximately $1.6 million,results in the
increase of approximately 4.7 cents per therm.
Based on its analysis,Staff recommended that the Commission approve the change in
natural gas rates and prices proposed in the Company’s Amended Application.
FINDINGS AND DISCUSSION
The Commission has reviewed the case record,including the Application and
comments.The Commission has jurisdiction over Avista 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 §61-117,61-129,61-307,61-
501,and 61-502,along with the Commission’s Rules of Procedure,IDAPA 3 1.01.01.000,ci seq.
The Commission must establish just,reasonable,and sufficient rates for utilities
subject to its jurisdiction.Idaho Code §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.
Avista follows a flexible,diversified natural gas purchasing plan and effectively
manages its underground natural gas storage facility.This allows Avista to provide more stable
and lower prices to its customers.However,the natural gas market continues to be volatile.
Natural gas prices over the storage injection season have slightly increased,resulting in a storage
WACOG that is higher than what is currently in rates.However,natural gas prices in the
forward market have continued to drop,allowing the Company to hedge natural gas at a lower
cost than what is currently embedded in rates.The decreased hedge cost more than offsets the
storage WACOG increase.Consequently,the Commission finds it reasonable to decrease the
approved WACOG from $0.45817 per therm to $0.41797 per therm.The Company’s proposed
WACOG was compared to other forecasts and is consistent with the forecasted northwest
regional cost of natural gas.
Despite a decrease in the WACOG,the Schedule 155 refund rate required to amortize
the current deferral is less than the large amortization rate approved in the 2010 PGA filing.The
ORDER NO.32370 4
reduction coupled with the current refund balances (approximately $1.6 million)result in a
Schedule 155 rate increase of approximately 4.7 cents per therm.The Commission approves this
increase and the proposed one-year (13-month)amortization of deferred expenses.
Finally,the Commission directs the Company to promptly file an application
amending its WACOG should gas prices materially deviate from the presently approved
$0.41797 per therm.
ORDER
IT IS HEREBY ORDERED that Avista Corporation’s Purchased Gas Cost
Adjustment (PGA)Application is approved.The Company shall increase its annualized
revenues by $0.7 million and establish a WACOG of $0.41797 per therm.The Company is
directed to file conforming tariffs to be effective for service rendered on and after October 1,
2011.
IT IS FURTHER ORDERED that Avista promptly file an application to amend its
WACOG should gas prices materially deviate from the presently approved $0.4 1797 per therm.
IT IS FURTHER ORDERED that Avista continue to file quarterly WACOG
projections and monthly deferred cost reports with the Commission.
THIS IS A FfNAL 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 §61-
626.
ORDER NO.32370 5
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this ?d
day of September,2011
MACK A.REDFORD,COMSSIONER
ATTEST:
71//14k_t/J 7
JenD.Jewell ‘7
Cdmmission Secretary
O:AVU-G-1 I-04kk2
i/h4
MARSHA Fl.SMITH,COMMISSIONER
ORDER NO.32370 6