20140815Comments.pdf

DONALDL.HOWELL,I fig6[ii,';:i:
DEPUTY ATTORNEY GENERAL
IDAHO PUBLTC UTTLTTIES COMMTSSTON ?iliL AUG 15 pi.l 3: l5
PO BOX 83720
BolsE' IDAH. 83720-0074 iir '' !-r:'' -ri | ' l' '
(2os) 334_0312 ' tLv-vv t't iriil-.riii.s-cul,ir,irisitr',i
IDAHO BAR NO. 3366
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION OF )
AVISTA CORPORATTON TO TNTTTATE ) CASE NO. AVU-E-14-05
DISCUSSIONS WITH INTERESTED PARTIES ) .IVU.G-I4.OI
ON AN EXTENSION OF THE EXISTING RATE )
PLAN AND AVOID A GENERAL RATE CASE. ) COVTMENTS OF THE) covrMrssroN srAFF
)
The Staff of the Idaho Public Utilities Commission, by and through its Attorney of Record,
Donald L. Howell II, Deputy Attorney General, submits the following comments in the above
referenced case.
BACKGROUND
On May 30,2014, Avista Corporation dba Avista Utilities filed an Application requesting
that the Commission open a case to allow interested parties to participate in settlement discussions
regarding alternatives to the utility filing a general rate case this year. In its Application, Avista
expressed an interest in extending its existing settlement rate plan adopted in Order No. 32769 for
another year as an alternative to filing a general rate case. The Company indicated it had informal
discussions with several customers and interest groups (the partiesl).
I The parties include: Clearwater Paper; Idaho Forest Group; Community Action Partnership of Idaho (CAPAI);
Idaho Conservation League (lCL); Snake River Alliance (SRA); and Commission Staff.
STAFF COMMENTS 1 AUGUST I5,2OI4
On June 11,2014, the Commission issued Order No. 33051 opening a case and scheduled
a settlement conference for June 25,2014. The Order granted intervention to the listed parties2
and otherwise set a deadline for intervention of June 20,2014. All the parties attended the
settlement conference.
On July 15,2014, Avista (on behalf of all the parties) submitted a Joint Motion requesting
that the Commission accept a proposed "Stipulation and Settlement" (the "Settlement") in lieu of
Avista filing a general rate case to increase its rates for electric and natural gas services in Idaho.
The parties requested that the Commission process the proposed Settlement under Modified
Procedure. Rule 201 , et seq.
A, The Cunent Rate Plun
In March 2013, the Commission issued Order No. 32769 approving a settlement in
Avista's last general rate case in AVU-E-12-08/AVU-G-12-07. The approved settlement in the
prior rate case contained the following elements:
A. Rate Freeze - No new electric or natural gas base rate increases to become
effective prior to January 1,2015.
B. BPA Credit - Avista's electric customers currently receive a rate rebate
totaling $3.865 million related to a prior settlement with the Bonneville
Power Administration (BPA). The l5-month rate credit expires January 1,
2015. All other things being equal, expiration of the BPA credit would
result in an increase in retail electric rates of l.3o/o effective January 1,
20t5.
C.PGA Deferral Credit - Avista's natural gas customers are currently
receiving a rebate of $1.55 million related to its purchased gas cost
adjustment (PGA) scheduled to expire on December 31,2014. All other
things being equal, expiration of the PGA defenal credit would result in a
L7Yo increase in retail natural gas rates effective January l, 2015.
2013 Earnings Test - If Avista's earnings exceed a 9.8Yo return on equity
(ROE) on a consolidated basis, then the Company refunds one half of the
excess to customers. For the 2013 earning test, Avista deferred a benefit of
$3.914 million for electric customers and $444,000 for natural gas
customers.
E. Natural Gas Energy Efficiency Balance - Avista currently has a balance of
$653,000 in its Schedule 191 Natural Gas Energy Efficiency account. This
balance represents a benefit to customers.
2 See Footnote No. L
STAFF COMMENTS
D.
AUGUST 15,2014
NOTICE OF PROPOSED SETTLEMENT
The parties in this case agreed to continue the "freeze" on base rates for electric and natural
gas service. On July 14,2014, the parties agreed to fully resolve this case by entering into a
Stipulation and Settlement. The proposed Settlement contains the following terms:
A. Rate Freeze Continuation - Avista would not increase its electric or natural
gas base rates prior to January 1,2016. The Company could file a rate case
after May 31, 2015, but the effective date for any change to base rates
would not be earlier than January 1,2016.
B. The BPA Credit and PGA Deferral Credit would be replaced with other
deferral balances so that customers would not experience base rate increases
in January 1,2015.
1. The $653,000 balance in the natural gas Energy Efficiency account
plus the $444,000 deferral from the 2013 natural gas earnings test
would be used to replace the projected L7oh increase in retail natural
gas rates that would otherwise be effective January 1,2015.
2. A portion of the 2013 electric Earnings Test deferral ($3.201
million) would be used to replace the l.3o/o increase in retail electric
rates to be effective January 1, 2015. The remaining $713,000 of
the 2013 electric Earnings Test deferral would be credited to
customers over 12 months through the Company's next PCA case
beginning October l, 2014.
3. Any difference between the estimated 2015 electric and natural gas
credits and the actual amount rebated to customers through
December 31,2015, would be added or subtracted to the PCA and
PGA deferral balances, respectively.
C. Project Compass - Project Compass is the replacement of Avista's out-
dated customer information system. Eighty percent of the revenue
requirement associated with Project Compass during 2015 would be
deferred for recovery in a future proceeding. The defenal is due in part to
the uncertainty of the timing of the in-service date for Project Compass.
D. Coyote Springs lllColstrip O&M - The three-year amortization of the 2013
Coyote Springs II and Colstrip O&M deferral balance of $1.253 million
($418,000 per year) would begin January 1,2016, instead of January l,
2015.
E. 2014 Earnings Test - Any earnings test deferral for 2014 would be used to
support the one-year extension of the existing rate plan as set out below:
1. An ROE "deadband" would be established for 2015 between the
authorized ROE of 9.8o/o and9.5%.
STAFF COMMENTS AUGUST T5,2OI4
2. During calendar year 2015, if Avista earns less than9.5o/o ROE (on
an actual consolidated basis for electric and natural gas), any
earnings test deferral balance from 2014 would be used to move
Avista's earnings up to 9.5oh ROE on an actual consolidated basis.
3. Any 2014 earnings test balance not needed to achieve a 9.5% ROE
for 2015 (i.e., Avista earns more than 9.5% ROE during 2015),
would continue to be held as a deferral for future credit to
customers.
4. During calendar year 2015, if Avista earns more than a 9.8% ROE
(on an actual consolidated basis), Avista would defer for future
credit to customers half of any earnings above 9.8%.
F. Low-income Issues - On or before October 1,2014, the parties will meet to
review the following issues:
l.The cost-effectiveness and appropriate funding of natural gas and
electric demand-side management (DSM) programs for low-income
residential customers. Avista will provide the parties with data and
its analysis of when and under what conditions natural gas DSM
programs will become cost-effective and funding for these programs
may resume.
Electric and natural gas usage by low-income customers in the Idaho
service territory. Avista will provide usage data and consult with
parties to identiff their specific data requirements.
3. No later than December l, 2014, the parties will determine if a
formal filing with the Commission is warranted based upon review
of the information set out above.
The parties assert that the terms of the settlement are in the public they urge
the Commission to adopt the Settlement. The parties recognize that the Settlement is subject to
the Commission's approval. Rule 276. As set out in the parties' Joint Motion, they reciuest that
the proposed settlement be processed under Modified Procedure and that written comments in
support or opposition to the proposed settlement be filed no later than August 15,2014.
STAFF ANALYSIS
Staff s evaluation of the proposed rate Settlement was based upon a customer rate impact
assessment through December 31,2015 comparing the rate impact of the agreement versus the
rate impact that might otherwise occur without the agreement. In simple terms, under the
2.
STAFF COMMENTS AUGUST I5,2OI4
Settlement proposal, customers will see no base rate increase prior to January I,2016. Electric
and natural gas rate credits scheduled to expire on January L,2015 will continue for an additional
year and a portion of the 2013 sharing revenue under the existing rate plan will be used to offset
potential increases in2014 power supply expenses.
In exchange for base rate stability, the Company will benefit in three primary ways: (l)
the Company will be allowed to defer 80% of the 2015 revenue requirement associated with its
new customer information system (Project Compass) and request rate treatment in a subsequent
rate case; (2) the Company will be allowed to delay amortization of deferred 2013 Colstrip/Coyote
Springs II maintenance expenses until January 1,2016; and (3) the Company will be allowed to
use any 2014 customer sharing revenue to bolster ROE in 2015.
Staff believes it likely that Avista could justifr electric and natural gas base rate increases
in 2015 with a general rate case filing in2014. Staff also believes that the tradeoffs for obtaining
rate stability in this case still allows the Commission to evaluate Company expenditures in future
rate cases. Consequently, Staff supports the proposed Settlement and recommends that it be
approved by the Commission.
Rate Stability
Specific Settlement terms were negotiated by all parties at a workshop held on June 25,
2014. The Participating parties generally agreed that the rate settlement approved by the
Commission in Case No. AVU-E-13-01/AVU-G-13-01 had benefited customers through revenue
sharing and thus justified consideration of an extended rate plan. The Staff objectives in
negotiations were to achieve base rate stability while minimizing additional Company expense
recovery outside a general rate case review.
The Settlement terms extending the base rate freeze through January 1,2016 call for using
available customer credits to offset existing credits as they expire. For example, the Company
currently maintains several accounts where the account balances are to be refunded to customers.
They are: (l) $:.q million in electric customer revenue sharing from the 2013 electric Earnings
Test; (2) $444,000 in gas customer revenue sharing from the 2013 natural gas Earnings Test; and
(3) $653,000 in a natural gas energy efficiency account. Customers are entitled to receive the
money in these three accounts regardless of the Settlement in this case. The Settlement simply
specifies the timing of the refunds to offset, for an additional year, a $3.2 million BPA electric
credit and a $1.5 million gas PGA credit both scheduled to expire on January 1,2015. Excess
STAFF COMMENTS AUGUST I5,2OI4
electric credits totaling approximately $713,000 will be available to help offset any Power Cost
Adjustment (PCA) increase in October 2014. Staff believes timing the return of these refund
credits to coincide with expiration of existing customer credits provides valuable base rate stability
for both electric and natural gas customers.
Beyond the timing of customer refunds to provide rate stability, the Settlement provides
that no base rate increases can occur prior to January 1,2016. This assures that the Company will
not file a general rate case in20l4 and any proposed increases from a filing in 2015 cannot
become effective until 2016. The Settlement also provides for continued customer revenue
sharing through 2015 if the Company's earnings exceed a9.8Yo return on equity. While some
2013 electric revenue sharing credits will be available to offset a portion of any 2014 PCA
increase, overall gas and electric rates can increase during the term of the agreement due to the
annual PCA/PGA tracker mechanisms.
Stability Tradeoffs
The Company's willingness to provide base rate stability through 2015 required agreement
by the parties to allow it the opportunity to recovery costs that would otherwise be unrecoverable
without arate case. The Company also desired the opportunity to use customer sharing revenue
from 2013 and2014 to bolster earnings deficiency in 2015.
Settlement terms originally proposed by the Company and discussed at the workshop
included: (1) 100% treatment of the Palouse Wind project costs in the PCA (currently at90%); (2)
retain $713,000 in 2013 customer sharing revenue to bolster ROE in 2015 up to 9.8Yo; (3) retain
any 2014 customer revenue sharing to further bolster 2015 returns up to 9.8% ROE and; (4) allow
deferral of Project Compass depreciation and debt in 2015, $1.916 million electric and $459,000
gas, for recovery with a demonstration of prudency in a subsequent rate case.
At the workshop, the parties agreed that costs associated with the Palouse Wind project
would continue to be treated in the PCA at 90%. As an alternative, the Company proposed that
amortization of deferred Coyote Springs IllColstrip O&M cost would begin on January 1,2016
rather than January 1,2015 as currently scheduled. The parties also discussed returningall2013
customer revenue sharing to customers rather than used by the Company to bolster 2015 earnings.
As an alternative, the Company would only use customer sharing revenue from2014 to bolster
2015 earnings. Although the Company had originally proposed boosting earnings in 2015 up to
the currently authorized ROE of 9.8Yo, the parties agreed to limit earnings augmentation up to a
STAFF COMMENTS AUGUST I5,2OI4
9.5% ROE. No earnings augmentation or revenue sharing would occur if earnings fell within the
9.5Yo to 9.8oh dead band. Earnings above 9.8% would be shared equally between customers and
the Company.
In negotiations, the Company proposed and the parties accepted a modification to the
deferral of project Compass depreciation and debt expense. The Settlement specifies that 80% of
Project Compass 2015 revenue requirement, including debt, depreciation and return on equity, will
be deferred for recovery in a subsequent rate case with a demonstration of prudency.
The cost to customers and the value of these settlement terms to the Company is difficult
to determine because the level of 2014 customer revenue sharing, if any, is not known at this time.
In addition, the 2015 revenue requirement associated with Project Compass that is subject to
deferral will ultimately depend on the project's actual cost and when it comes online sometime in
2015. While these costs will be subject to deferral, they cannot be included in base rates until they
are found to be prudently incurred as part of a general rate case. The cost/value of delaying
amortization of the Coyote Springs IllColstrip O&M defenal balance has a one-time value of
$413,000. Deferral of these expenses was previously approved by the Commission and will be
subject to prudency review if and when they are requested for cost recovery. Again, base rates
cannot increase prior to January 1,2016. On that date, the temporary credits for gas and electric
customers are scheduled to expire and base rates may be subject to change.
The Rate Case Alternative
Avista provided its 60-day notice of intent to file a general rate case in April 2014. As part
of its settlement evaluation, Staff analyzed the Company's 2013 result of operations that Avista
planned to use in its Idaho rate filing. The results showed that the Company would likely propose
an electric base rate increase of $17.8 million (7.5%), and a natural gas base rate increase of $1.4
million (19%) to become effective on January 1,2015.
Staff determined that approximately half of the potential electric increase ($8.9 million)
was due to increased power supply expense. This increase in power supply variable cost is largely
outside the control of the Company and will normally be recovered through the PCA at90%ountil
it is included in base rates. Staff then adjusted the remaining $8.9 million to reflect a9.8%o ROE, a
50/50 capital structure, removal of "Average of Monthly Average" proforma rate base for 2015
and adjustments in proforma employee salaries. Few other significant adjustments were
identified. Based on the analysis, Staff believes the Company could probably justiff an
STAFF COMMENTS AUGUST 15,2OI4
inuemental electric revenue requirement increase in the $3.5 million range and a natural gas
revenue requirement in the $200,000 range.
While it is difficult to specifically compare the effect on customers of the two alternative
base rate approaches (rate case filings or the base rate Settlement) over time, Staff believes the
base rate Settlement is superior for both electric and gas customers in the near term. Simply
moving increased power supply costs from recovery at90%o in the PCA to recovery at 100% in
base rates as a result of a rate case filing would increase overall customer electric rates by
$890,000.
Low-Income Issues
Although supportive of the rate aspects of the Settlement, several of the parties expressed
concern regarding the lack of opportunity to address low-income weatheization and rate design
issues in the context of a general rate case. Consequently, the Settlement includes a provision
whereby Commission Staff and Avista representatives will meet with interested parties on or
before October 1,2014 to discuss cost-effectiveness and appropriate funding of natural gas and
electric demand-side management (DSM) programs for low-income residential customers. The
discussion will include when and under what conditions natural gas DSM programs will become
cost effective for low-income customers and when funding for these programs may resume.
Other areas of discussion will include collection and dissemination of electric consumption
data for Idaho low-income customers in Avista's Idaho service territory. At the conclusion of
discussions and no later than December 1,2014, the parties will determine if a formal filing with
the Commission is warranted,
Staff welcomes a discussion of these issues to gather information on the status of low-
income DSM programs and energy consumption in Avista's Idaho service territory and then
determine the next steps to better serve this customer segment. While Staff was hesitant to
commit to a formal case filing at the conclusion of discussions, Staff fully supports a date-certain
schedule for parties to determine how best to proceed on these low-income issues based on data
review.
Summary
Since April of 2014 when Avista submitted its 60-day notice of intent to file a general rate
case, the Company has been working with Staff and other interested parties on a way to avoid the
STAFF COMMENTS AUGUST I5,2OI4
rate filing. Staffls objective throughout the discussion was to obtain the most reasonable outcome
for customers by effectively processing the general rate filing (if necessary) or reaching a
Settlement that provides base rate stability through 2015 with limited additional expense recovery.
Staff believes the Settlement achieves that objective.
The Settlement terms dealing with Project Compass revenue requirement and amortizing
delay of deferred O&M expenses associated with Coyote Springs IllColstrip still requires the
Company to show prudency in a subsequent rate case before these expenses are included in rates.
The only other concession required to freeze base rates through 2015 is use by the Company of
2014 customer revenue sharing if it is available to bolster 2015 earnings. Even then, the use of
that revenue is tightly constrained depending upon 2015 earned ROE.
STAFF RECOMMENDATION
Staff believes the proposed Settlement agreed to by all parties is a fair and reasonable
alternative to a general rate case and recommends that it be approved by the Commission without
change.
Respecttully submitted this /5*t day of August 2014.
Technical Staff: Randy Lobb
i:umisc/comments/avue I 4.s_avugl 4. I dhrl comments
Donald L. HMell, II
Deputy Attorney General
STAFF COMMENTS AUGUST I5,2OI4
CERTTFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 15TH DAY oF AUGUST 2014,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NOS. AVU-E-14-05/AVU-G-14-01, BY MAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
KELLY NORWOOD
VP _ STATE & FED REG
AVISTA CORPORATION
PO BO){ 3727
SPOKANE WA99220-3727
E-mail : kelly. [e-mail]
DEAN J MILLER
McDEVITT & MILLER LLP
PO BOX 2564
BOISE ID 83702
E-mail : j [e-mail]
PETER J RICHARDSON
GREGORY M ADAMS
RICHARDSON ADAMS PLLC
515 N 27TH STREET
BOISE ID 83702
E-mail : peter@richardsonadams. com
sr e p(d.ri chard so n adam s. com
E.MAIL ONLY:
MARV LEWALLEN
CLEARWATER PAPER CORP
marv. lewal len@ clearwaterpaper. com
E-MAIL ONLY:
CHRISTINA ZAMORA
C.A.P.I.
[e-mail]
DAVID J MEYER
VP & CHIEF COT]NSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail : [e-mail]
LARRY A CROWLEY
THE ENERGY STRATEGIES
INSTITUTE INC
5549 S CLIFFSEDGE AVE
BOISE ID 837I6
E-mail : crowle)rla@aol. com
DR DON READING
6070 HILL ROAD
BOISE ID 83703
E-mail: [e-mail]
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710 N 6TH ST
BOISE TD 83702
E-mail : [e-mail]
E-MAIL ONLY:
BRAD M PURDY
ATTORNEY AT LAW
[e-mail]
CERTIFICATE OF SERVICE
KEN MILLER
SNAKE RIVER ATLIANCE
PO BOX 1731
BOISE ID 8370I
E-mail: kr4i[[e-mail]
CERTIFICATE OF SERVICE