20130809Decision 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 7, 2013

SUBJECT: AVISTA’S 2013 ANNUAL PGA FILING, CASE NO. AVU-G-13-01

On July 31, 2013, Avista Corporation dba Avista Utilities filed its annual Purchased
Gas Cost Adjustment (PGA) Application asking to increase its annualized revenues by about
$4.9 million (7.5%). Application at 1.1 The Company says its proposal will not affect its
earnings and will increase the average, residential or small commercial customers’ rates by $3.80
per month (6.8%). Id. at 4. The Company asks that its Application be processed by Modified
Procedure, and that the new rates take effect October 1, 2013. Id. at 4-5.
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 to customers any
change in the estimated cost of natural gas for the next 13 months (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 $0.04066 $0.00471 $0.04537 $0.01800 $0.06337 6.8%
Lg. General 111 $0.04066 $0.00471 $0.04537 $0.01800 $0.06337 9.7%
Interruptible 131 $0.04066 $0.00000 $0.04066 $0.00621 $0.04687 8.3%

1. Commodity Costs. Avista estimates that the commodity cost (i.e., the WACOG)
will increase by $0.041 per therm, from the currently approved $0.333 per therm to $.374 per
therm. Id. at 3.
2. Hedging. Avista says it periodically hedged gas throughout 2013 for the coming
PGA year (13 months), and that it will hedge about 38% of its estimated annual load
requirements for the PGA year (October 2013 – October 2014) at a fixed price comprised of: (1)
12% of volumes hedged for a term of one-year or less; and (2) 26% of volumes from prior multi-
year hedges. Id. Through June, the planned hedge volumes for the PGA year have been
executed at a weighted average price of $0.452 per therm. Id. Avista says underground storage
capacity represents about 19% of its annual load requirements, with the estimated weighted
average cost for all storage volumes being $0.325 per therm. Id.
Avista says lower overall demand, increased production, and record high storage
impacted the 2012 natural gas market and drove natural gas prices to 10-year lows. But these
prices trended upward for most of 2013. According to the Company, the late, colder than normal
winter increased demand, reduced excess supply, and decreased storage balances to levels below
the five-year average. The Company explains that this return to a more balanced market added
to the uplift of natural gas prices and increased the WACOG components (hedges, index, and
storage) for the upcoming PGA year above the prior year and what is currently included in rates.
Id. at 4-5.
3. Demand Costs. Avista’s demand costs primarily represent the cost to transport gas
through interstate pipelines to the Company’s distribution system. The Company proposes
increasing demand costs principally to account for the inclusion of the new Northwest Pipeline
transportation rates. Id. at 5.
DECISION MEMORANDUM 3
4. Amortization Rate Change. Avista proposes increasing the amortization rate by
$0.01800 per therm (from $0.01785 per therm in the rebate direction to $0.03775 per therm in
the surcharge direction). This increase is the result of fully amortizing the $1.6 million rebate
deferral balance approved in the 2012 PGA (the Company says the amortization balance actually
was over-amortized by about $0.1 million). The Company says this surcharge balance was
mostly offset by current 2012-2013 deferrals, resulting in a deferral balance, in the surcharge
direction, of about $12,000. 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 and issuing 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 11, 2013.
COMMISSION DECISION
Does the Commission wish to process this case through Modified Procedure, with
comments due by September 11, 2013?

M:AVU-G-13-01_kk