20110819Decision Memo.pdf

DECISION MEMORANDUM 1
DECISION MEMORANDUM

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

FROM: KARL KLEIN
DEPUTY ATTORNEY GENERAL

DATE: AUGUST 17, 2011

SUBJECT: AVISTA’S 2011 ANNUAL PGA FILING, CASE NO. AVU-G-11-04

On August 15, 2011, Avista Corporation dba Avista Utilities filed its annual
Purchased Gas Cost Adjustment (PGA) Application requesting authority to increase its
annualized revenues by $1.1 million, or about 1.53%. Application at 1.1 The Company says the
changes will not affect its earnings. If the Application is approved, Avista calculates that the
average residential or small commercial customer using 62 therms of gas per month will
experience a monthly increase of $0.99 per month (1.63%). Id. at 4. The Company asks that its
Application be processed by Modified Procedure, and requests that the new rates take effect
October 1, 2011. Id.
THE APPLICATION
Avista buys natural gas for customer usage and then transports the gas through
pipelines for delivery to customers. Id. at 2. 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. Id.
The Company also defers various pipeline refunds or charges and miscellaneous revenue
received from natural gas-related transactions, including pipeline capacity releases. Id.
1 The PGA mechanism is used to adjust rates to reflect annual changes in the Company’s costs for the purchase of
natural gas from suppliers – including transportation, storage, and other related costs.
DECISION MEMORANDUM 2
1. Commodity Costs. Avista proposes decreasing the commodity cost (i.e., the
WACOG) from the currently approved $0.461 per therm to $0.423 per therm, for a $0.038 per
therm decrease. Id. at 3.
2. Hedging. Avista says it has periodically hedged gas throughout 2011 for the
coming PGA year (thirteen months). Id. 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 $0.479 per
therm. Id.
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. Id. 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. Id. 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.
3. Demand Costs. Avista maintains that the demand costs in its Application
primarily represent the costs of pipeline transportation to the Company’s system. Id. 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). Id. 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.
4. Amortization Costs. Avista also proposes to increase the amortization rate to
about $0.047 per therm. Id. This increase results from the large, one-year 2010 refund
amortization rate being replaced by a smaller rate. Id. The Company says 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 in this PGA. The Company says this reduction, coupled
with current refund balances of $1.6 million, results in a $0.047 per therm increase in Schedule
155. Id.
DECISION MEMORANDUM 3
5. Customer Notice. Avista asserts that 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 Company asks that the
Commission process this matter through Modified Procedure pursuant to Rules 201-210 of the
Commission’s Rules of Procedure.
STAFF RECOMMENDATION
Staff recommends that the case be processed through Modified Procedure, with
comments due by September 21, 2011.
COMMISSION DECISION
Does the Commission wish to process this case through Modified Procedure, with
comments due by September 21, 2011?

M:AVU-G-11-04_kk