20130911Comments.pdf

KARL T. KLEIN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5156
Street Address for Express Mail:
472W, WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA )
CORPORATION'S APPLICATION TO ) CASE NO. AVU-G-13-01
CHANGE rTS RATES AND CHARGES (2013 )
PURCHASED GAS COST ADJUSTMENT). ) COMMENTS OF THE
) COMMISSION STAFF
)
The Staff of the Idaho Public Utilities Commission comments as follows on Avista
Corporation's Application for its 2013 Purchased Gas Cost Adjustment (PGA).
BACKGROUND
On July 31,2073, Avista Corporation dba Avista Utilities ("Company" or "Avista") filed
its annual 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 customer's 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 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.
STAFF COMMENTS SEPTEMBER I1, 2013
Avista distributes natural gas in northern Idaho, eastern and central Washington, and
southwestern and northeastern Oregon. Id. at2.2 The Company buys natural gas and then
transports it through pipelines for delivery to customers. Id. at2. 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. ln 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
the amortization rates to refund or collect the balance of defened gas costs (Schedule 155). Id. at
2,4.
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 $0.37350 per therm. Id. at3.
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: (l) 12% of volumes hedged
for a term of one-year or less; and (2) 26%o 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 l9% of its annual load requirements, with the estimated weighted average cost for all
storage volumes being $0.325 per therm. 1d
Avista says lower overall demand, increased production, and record high storage
impacted the2012 natural gas market and drove natural gas prices to l0-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.
2 The Company also generates, transmits, and distributes electricity in northern Idaho and eastern Washington. 1d.
STAFF COMMENTS SEPTEMBER 11, 2013
Avista's demand costs primarily represent its costs to transport gas through interstate
pipelines to its distribution system. The Company proposes increasing its demand costs to
principally account for the inclusion of the new Northwest Pipeline transportation rates. Id. at 5.
Avista proposes inueasing the amortization rate by $0.01800 per therm (from $0.01785
per therm in the rebate direction to $0.00015 per therm in the surcharge direction). This increase
is the result of fully amortizing the $1.6 million rebate deferral balance approved inthe2012
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.
STAFF REVIEW
Staff reviewed the Company's Application to determine whether the Company's
proposed adjustments to Schedules 150 and 155 reasonably capture its fixed (demand) and
variable (commodity) costs. More specifically, Staff reviewed the Company's pipeline
transportation and storage costs, fixed price hedges, and estimates of future commodity prices.
Staff also reviewed the appropriateness of the Schedule 155 change in amortization rates that
'otrue up" the expenses from the2012 PGA. Each component of the rate changes will be
discussed in greater detail below.
If the Company's Application is approved, the following rate changes would result in
about a $4.6 million increase in annual revenue, or approximately 7.50Yo:
Table 1: Rate Changes by Class
Staff has confirmed that the requested change will not affect the Company's overall earnings and
will only provide revenues sufficient to fund the coming year's forecasted gas purchases and a
true up of the expenses from the previous year. Any over or under collection by the Company
will be credited or surcharged to customers next year.
Service
Schedule
No.
Commodity
Change
per Therm
Demand
Change
per Therm
Total
Sch.150
Chanee
Amortization
Change
per Therm
Total Rate
Change
per Therm
Overall
Percent
Chanse
General 101 $0.04066 $0.00471 $0.04s37 $0.01800 s0.06337 6.8"h
Ls. General lll $0.04066 $0.0047 r $0.04537 $0.01800 $0.06337 9.7"/.
Interruptible 131 $0.04066 $0.00000 $0.04066 $0.00621 $0.04687 8.3V"
STAFF COMMENTS SEPTEMBER I I ,2013
Schedule 150 - Purchased Gas Cost Adjustment
The Schedule 150 portion of the PGA consists of commodity costs (WACOG) and
demand costs. The WACOG consists of costs from:
o Forecasted index purchases;
o Withdrawals from storage;
o The deferred exchange credit; and
o Executed and unexecuted hedged purchases.
With this Application, the Company proposes a WACOG of $0.37350 per therm. This is a l2Yo
increase from the present $0.333 per therm WACOG established by Order No. 32651. Even
with this increase, the WACOG is still near historical lows. Figure 1 shows the WACOG since
2002. Only 2002 and20l2 had WACOGs lower than the current proposed level.
Figure l: Historical WACOG,2002-2013
0.90000
0.80000
0.70000
E 0.50000
3 o.soooo
b 0.40000
EL<a 0.30000
0.20000
0.10000
0.00000
""&".&C".s+""""s"d9..e"."""*""d)"di.,-f "S
The WACOG increase reflects, in part, an increase in the price of natural gas. From
January through July of this year, the Henry Hub spot price averaged 56% higher than it did for
the same period last year. For this year's remaining months, the Henry Hub spot price is
forecasted to average l6o/ohigher than the actual price for the same months last year. Last year's
forecast did not totally incorporate this increase in prices. For example, in August of 2012, the
Henry Hub spot price was forecasted to be $3.22 per 1 million BTUs (MMBTU) in April of
2013. But the actual price in April of 2013 was $4.17 per MMBTU. In August of 2072,the
prices for the 4th quarter of 2013 were forecasted to be about 80% lower than they were forecasted
to be in August of 2013. This increase in natural gas prices reflects anticipation of a return to a
normal winter (as opposed to last year's unusually warm winter), storage levels below last year's
I
I.1..--..._-.-"..I
STAFF COMMENTS SEPTEMBER I I, 2OI3
levels, and a slowdown in the growth of production. Staff has analyzed the Company's price
forecast for the AECO, Sumas, and Rockies market hubs and found them to be reasonable
compared to forecasts from the Energy Information Administration (EIA)3 and market futures
from the New York Mercantile Exchange (NYMEX) and the lntercontinentalExchange (ICE).
The increase in natural gas prices also affects the price of gas held in storage. The
Company owns and leases rights to the Jackson Prairie storage project. Gas held here is priced
55% higher this year than last year. But this storage gives the Company peak-month access to
natural gas bought at off-peak prices. While stored natural gas costs more this year than last
year, it is still forecasted to be 9Yo cheaper than the index price during the upcoming winter
season.
Coupled with the increase in natural gas prices is the expiration of a deferred exchange
contract in which the Company may purchase gas in the summer from another party and sell it
back to that party in the winter at the same price for a fixed monthly fee. The loss of that fixed
monthly fee due to the expiration of the contract accounts for 35Yo of the increase in the
WACOG.
In order to mitigate price volatility, the Company employs both long and short term
hedges as part of its Procurement Plan. With the market conditions seen in recent years, there
has been a premium paid for locking in prices. For the upcoming winter months, gas procured in
executed hedges is priced 30% higher, on average, than the forecasted index price. In
comparison, last year's PGA saw executed hedges priced, on average, S)yo above the forecasted
index price for the winter months. The hedged prices and index prices are converging because
the costs associated with executed hedges are decreasing as older contracts are replaced with
newer, cheaper contracts and index prices are increasing as discussed above. If market prices
stay flat, as the Company believes, then this convergence will continue. If market prices
increase, then it is possible that the hedged gas will be cheaper than the index gas in the future.
Avista annually reviews and revises its Procurement Plan. Recent changes have included
decreasing short-term hedging and increasing purchases made at index. The Company believes
the market will remain flat and that moving away from hedges will allow the Company to
decrease the overall cost of natural gas by avoiding the premium associated with buying gas on
the futures market. The Company has also adopted more aggressive targets for its long-term
3 Specifically, Staff examined forecasts published in EIA's Short-Term Energy Outlook (STEO) report.
STAFF COMMENTS SEPTEMBER 1I, 2013
hedges and moved away from hedging for April and October. The Company believes these
changes will decrease its procurement costs. The Company meets twice ayear with the
Commission and Staff to discuss changes to its Procurement Plan. The next meeting is planned
for October 4,2013.
The demand costs represent the Company's cost to transport gas through pipelines to its
distribution system. The Company proposes a $0.00471 per therm demand cost increase. The
Company attributes this demand cost increase to higher Northwest Pipeline transportation rates.
Because these rates were effective January 1,2013, the 2012 PGA filing only included 10
months of the increased rate. This PGA filing includes these higher rates for all 13 months. The
Company also notes there were rate increases for several Canadian pipelines.
Based on its review, Staff believes that the Company's hedges were prudent and its
approach for estimating the forward prices and demand costs is reasonable. Staff recommends
the Commission accept both the Company's proposed WACOG of $0.37350 and its proposed
demand costs of $0.10798 per therm.
Schedule 155 - Deferred Expenses
The Schedule 155 portion of the PGA is the amortization of the Company's deferral
account. When the Company pays less for gas than what is estimated in the preceding WACOG,
a credit is issued to customers. However, if the Company pays more for gas than what is
estimated in the preceding WACOG, a surcharge is added. Gas prices rebounded throughout the
year causing the Company to pay more for gas than what it had anticipated in last year's filing.
In this Application, the Company proposes to increase the Schedule 155 amortization rate by
$0.01800 per therm (from a $0.01785 per therm credit to a $0.00015 per therm surcharge. This
change in Schedule 155 will allow the Company to collect the deferral balance of $11,837 during
the next 12 months based on the Company's weather normalized load forecasts.
A reconciliation of the Schedule 155 deferral balance follows:
STAFF COMMENTS SEPTEMBER I I ,2013
Balance as of September 30r2012
Reduction for GRC Offset
Total Amo rtization B alance
Amortization Activity
Total Unamortized Balance
Current Year Deferral Activity
Balance to be Amortized
s (2,724,957)
1.551.292
$ (1,153,735)
1.056.913
$ (96,822)
108.659$ 11.837
The current year deferral activity consists of the difference in the price Avista paid for
natural gas and the WACOG established in the previous PGA, interest charges on the deferred
amount, and capacity releases for the benefit of customers. When Avista has unused capacity, it
routinely releases that capacity to other pipeline users. During the 2013 PGA year, Avista's
Idaho gas customers benefitted by approximately $3 million. Without those releases, the
Schedule 155 surcharge would be much greater.
Other Considerations
In the 2012 PGA case, Order No. 32651, the Commission held back about $ I .55 million
to be refunded to customers to use as an offset in the anticipated general rate case that Avista
filed on October 11,2012. (Case No. AVU-G-12-07). The parties to that case reached a
settlement that was approved in Commission Order No. 32769. The settlement called for a two-
step increase to Avista's natural gas base rates in Idaho. The first step increased base rates by
5o/o onApril I ,2013. A second base rate increase of 2o/o was approved for October 1,2013.
With the $1.55 million hold back from the 20L2PGA used to offset the October 1,2013
increase, the base rate increase to customers will be 0.3Yo. The following chart illustrates the
magnitude and impact of all rate adjustments on Customer Classes on October 1,2013:
STAFF COMMENTS SEPTEMBER 11,20I3
Table 2: October 1,2013 Rate Impacts
TOTAL
Gen Service
Sched 101
Large Gen
Service lnterruptible
Sched 111 & Sched 131 &
1,12 L32
Transport
Sched 146
Total Billed Revenue
Revenue Chanees 10/1/2013
General Rate Case lncrease
2072PGA Offset (15 Mo. Amort.)
2013 PGA lncrease
Total Revenue Change
Percentage Changes
General Rate Case lncrease
2012 PGA Offset (15 Mo. Amort.)
2013 PGA lncrease
Tota! Billed Percentage Change
Customer Relations
65,204,740
1,330,000
(1,131,000)
4,858,300
49,4O8,740
1,073,000
(799,000)
3,353,939
L5,L76,OOO
243,OOO
209,000
3,000
314,000
11,000
(326,000) (6,000)
!,476,965 17,397
5,057,300 3,537,939 1,393,955 L4,397 11,000
2.O%
-1.7%
7.5%
2.2o/o
-r.6%
6.8o/o
1.6%
-21%
9.7%
L.4%
-2.9%
8.3%
3.5%
0.0%
o.o%
7.8%7.4%9.2%6.9%3s%
The press release and customer notice included in Avista's Application met the
requirements of the Commission's Rules of Procedure 125.04 and 125.05. IDAPA 31.01.01.125.
The customer notice was mailed with cyclical billings beginning August 8, 2013 and ending
September 7,2013.
Avista filed this PGA case on July 31,2013. The press release and customer notice
covered three separate cases: the PCA (AVU-E-13-04), the PGA, and the electric Energy
Efficiency Tariff Rider Adjustment (AVU-E-13-05). Changes proposed for the PCA and Tariff
Rider apply only to electric rates.
As noted above, if approved, on October 1,2013, the Company's Application is the
average residential or small commercial customer using 60 therms per months will see a 6.8Yo
increase.
Many customers struggle to pay utility bills. Staff recommends that the Commission
advise all customers struggling to pay utility bills that they may qualifr for financial assistance.
Information regarding the federally funded Low Income Energy Assistance Program (LIHEAP)
STAFF COMMENTS SEPTEMBER I1, 2OI3
and local non-profit and other fuel funds such as Project Share in Avista's northern Idaho service
territory, can be obtained by calling the nearest Community Action Agency, Avista Utilities, the
Idaho Public Utilities Commission, or the 2-1-1 Idaho Care Line.
Customers had until September ll,2013 to file comments. As of September 10,2013,
three customers had commented; all were opposed to an increase. One customer stated that
"many customers are just barely making do" and that "Raising rates won't do anyone a bit of
good if they can't afford to pay for it."
STAFF RECOMMENDATION
After thoroughly examining the Company's Application and gas purchases for the year,
Staff recommends that the Commission:
l. Approve the Company's proposed Schedule 150, including the proposed WACOG of
$0.37350 per therm; and
2. Approve the Company's proposed Schedule 155 amortization rate of $0.00015 per therm
to allow the Company to recover its deferral balance. The combination of Staff s
recommendations results in an increase to customers of approximately $4.8 million, or
7.5o/o of awrual revenues.
Respectfully submitted this rltu day of September 2013.
Technical Staff: Donn English
Cathleen McHugh
Marilyn Parker
i:umisc/comments/avugl3. lkkdecmmp comments
lL? 4 b-
Karl T. Klein
Deputy Attorney General
STAFF COMMENTS SEPTEMBER 11, 2OI3
CERTIFICATE OF' SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 11T, DAY oF SEPTEMBER 2013,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-I3-01, BY E-MAILING ANDMAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWNG:
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
KELLY O NORWOOD
VP STATE & FED REG
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE