20120810Decision 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 8, 2012

SUBJECT: AVISTA’S 2012 ANNUAL PGA FILING, CASE NO. AVU-G-12-05

On July 31, 2012, Avista Corporation dba Avista Utilities filed its annual Purchased
Gas Cost Adjustment (PGA) Application asking to decrease its annualized revenues by about
$3.6 million (5.4%). Application at 1.1 The Company says its proposal will not affect its
earnings and will decrease the average, residential or small commercial customer’s rates by
$4.42 per month (7.9%). Id. at 4. The Company asks that its Application be processed by
Modified Procedure, and that the new rates take effect October 1, 2012. Id. at 5.
THE APPLICATION
Avista distributes natural gas in northern Idaho, eastern and central Washington, and
southwestern and northeastern Oregon. Id. at 2.2 The Company buys natural gas and then
transports it 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. In its annual PGA filing, the Company proposes to (1) pass any change in the
estimated cost of natural gas for the next 13 months to customers (Schedule 150), and (2) revise
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.
2 The Company also generates, transmits, and distributes electricity in northern Idaho and eastern Washington. Id.
DECISION MEMORANDUM 2
the amortization rates to refund or collect the balance of deferred gas costs (Schedule 155). Id. at
2, 4.
The Company’s present PGA filing would impact customers as follows:

Service

Schedule
No.
Commodity
Change
per Therm
Demand
Change
per Therm
Total
Sch. 150
Change
Amortization
Change
per Therm
Total Rate
Change
per Therm
Overall
Percent
Change
General 101 ($0.02931) ($0.00849) ($0.03780) ($0.00890) ($0.04670) (5.02%)
Lg. General 111 ($0.02931) ($0.00849) ($0.03780) ($0.00890) ($0.04670) (6.31%)
Interruptible 131 ($0.02931) $0.00000 ($0.02931) ($0.00203) ($0.03134) (6.06%)

Commodity Costs. Avista proposes decreasing the commodity cost (i.e., the
WACOG) from the currently approved $0.362 per therm to $0.333 per therm, for a $0.029 per
therm decrease. Id. at 3.
2. Hedging. Avista says it periodically hedged gas throughout 2012 for the coming
PGA year (13 months), and that it will hedge about 60% of its estimated annual load
requirements for the PGA year (October 2012 – October 2013) at a fixed price comprised of: (1)
11% of volumes hedged for a term of one-year or less; (2) 29% of volumes from prior multi-year
hedges; and (3) 20% of volumes from underground storage. Id. Through June, the planned
hedge volumes for the PGA year have been executed at a weighted average price of $0.309 per
therm. Id.
Avista says overall prices today are lower than they were in 2011. The Company
notes it filed an out-of-cycle PGA in February 2012 to reflect lower spot prices, and that since
then natural gas prices have stabilized at a much lower level than this time last year. Further,
natural gas prices during the storage injection season (April - September) have been lower than
they were in 2011. See Application at 4. These decreased prices have lowered the storage
WACOG below what is currently in embedded rates. Id. The lower cash prices and forward
prices for the upcoming PGA year have provided the opportunity to hedge natural gas at a cost
below what is embedded in rates. Id.
3. Demand Costs. Avista’s demand costs account for pipeline capacity releases and
represent the costs to transport gas through pipelines to the Company’s system. The Company
proposes decreasing demand costs because increasing estimated pipeline capacity releases and
decreasing costs from the Canadian pipelines more than offset increased demand costs arising
from the recent Northwest Pipeline rate case approved by FERC. Id.
DECISION MEMORANDUM 3
4. Amortization Rate Change. Avista proposes to increase the amortization refund
rate by $0.00890 per therm (from $0.02885 per therm to $0.03775 per therm). Id. This increase
is driven by the recent decline in the wholesale cost of natural gas, which has resulted in a net
refund deferral balance of about $3.1 million. The Company proposes to refund this balance to
customers over the next 13 months, assuming normal weather. Id.
5. Customer Notice. Avista asserts that it has notified customers of its proposed
tariffs by posting notice at each of its Idaho district offices, through a press release. Further, the
Company says it will send notice to each customer in a bill insert before the changes take effect.
Id. at 2.
STAFF RECOMMENDATION
Staff recommends that the case be processed through Modified Procedure, with
comments due by September 17, 2012.
COMMISSION DECISION
Does the Commission wish to process this case through Modified Procedure, with
comments due by September 17, 2012?

M:AVU-G-12-05_kk