20141216Comments.pdf

KARL T. KLErN i;l.l i; l, i,,, , ,,:
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION Tf ir ni:i lrI PF"f 12: l0
PO BOX 83720 ,. !,,.. .
BOISE,IDAHO 83720-0074 iT:l_'iiit :ti-i;[,r.t , ,,,,,,,.,[phone]
IDAHO BAR NO. 5156
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 AVISTA CORPORATION )
DBA AVTSTA UTTLITIES' 2014 NATURAL GAS ) CASE NO. AVU-G-14-03
INTEGRATED RESOURCE PLAN. )) COMMENTS OF THE
) COMMISSION STAFF
)
The Staff of the Idaho Public Utilities Commission comments as follows on Avista
Corporation's 2014 Natural Gas Integrated Resource Plan.
BACKGROUND
On September 2,2014, Avista Corporation dba Avista Utilities ("Avista," or the
"Company") filed its 2014 Natural Gas Integrated Resource Plan ("IRI"';. The Company files a
natural gas IRP every two years. The IRP describes the Company's plans to meet its customers'
future natural gas needs. It must discuss the subjects required by Commission Order Nos. 25342,
27024,27098, and32698, and Section 303(bX3) of the Public Utility Regulatory Policies Act
(PURPA), 15 USC $ 3202.1
The IRP contains an Executive Summary, and chapters on Demand Forecasts; Demand-
Side Resources; Supply-Side Resources; the Company's Integrated Resource Portfolio; Alternate
I Per Commission Order No. 32233, Avista must file its IRP by August 3l of every even-numbered year.
STAFF COMMENTS DECEMBER 16,2014
Scenarios, Portfolios, and Stochastic Analysis; Distribution Planningl and the Company's Action
Plan.
IRP REQUIREMENTS
Commission Order No. 25342 adopted IRP requirements for local gas distribution
companies under amended Section 303 of PURPA. Order No.27024 shortened the required
planning horizon from 20 years to 5 years. Order No. 27098 removed the requirement that IRPs
fairly evaluate potential demand side management ("DSM") programs, and instead directed the
companies to explain whether cost-effective DSM opportunities exist. Order No. 32698 required
the Company's IRP to include a more reader-friendly progress report, and that a geographically-
convenient Technical Advisory Committee ("TAC") or other public outreach meeting be made
available to Idaho customers. Order No. 32698 also encouraged Avista to work with Staff to
address statistical modeling inconsistencies. In summary, the Commission orders direct gas
utilities to file biennial IRPs that include:
1. A forecast of future gas demand for each customer class, which includes the number,
type, and efficiency of gas end-users as well as effects from economic forces on gas
consumption;
2. An analysis of gas supply options for each customer class, which includes a projection of
spot market versus long-term purchases for both firm and intemrptible markets, an
evaluation of the opportunities for using Company-owned or contracted storage or
production, an analysis of prospects for Company participation in a gas futures market,
and an assessment of opportunities for access to multiple pipeline suppliers or direct
purchases from producers;
An explanation of whether or not there are cost-effective DSM opportunities;
The integration of the demand forecast and resource evaluations into at least a five-year
integrated resource plan describing the strategies designed to meet current and future
needs at the lowest cost to the utility and its ratepayers;
A short-term action plan;
A progress report that relates the new plan to the previously filed plan; and
Public participation.
J.
4.
5.
6.
7.
STAFF COMMENTS DECEMBER 16, 2014
STAFF REVIEW
Staff reviewed the Company's 2014 gas IRP to ensure that it contains the information
required by the Commission's orders. Based on its review, Staff believes that the IRP contains
the required information. Avista's IRP discusses four distinct service territories:
Washington/Idaho ("WA/ID"), Medford/Roseburg OR, Klamath Falls OR, and La Grande OR.
For each service territory, Avista compares the existing resources to the expected demand
estimates. The Company foresees that the existing resources can meet peak-day demand over
the IRP's 2}-year planning horizon. However, Avista acknowledges that if demand growth
accelerates, then resource shortages may occur. See IRP at 10.
Staff reviewed the Company's natural gas demand forecasts, supply-side resources,
demand-side management ("DSM"), computer-modeling tools and distribution planning. Each
of these subjects is discussed in a separate section below. Avista's expected-case scenario
forecasts sufficient resources to meet peak demand through the planning horizon. The Company
uses four alternate demand scenarios - average case, high growth/low price, low growthlhigh
price, and alternate weather standard - to account for various customer growth, usage and
weather assumptions. According to the Company, existing resources meet peak demand in all
scenarios within the WAflD and Medford service tenitories in2029, except for the high
growh/low price scenario. Based on its analysis, Staff believes the Company's estimates are
reasonable and cover a range ofpossible future scenarios.
Natural Gas Demand
Avista developed two primary types of demand forecasts over the 2}-year planning
horizon: annual average daily and peak day (coincident and non-coincident). The expected
average day, system-wide demand forecast will increase from 91,352 dekatherms per day
(Dth/day) in2014 to 102,937 Dth/day in2033, representing an annual average growth rate of
0.7%. The coincidental peak day, system-wide demand forecast will increase from a peak of
358,736 Dth/day in20l4 to 404,122 Dth/day in2033. Forecasted non-coincidental peak day
demand peaks at 333 ,129 Dth/day in 2014 and increas es to 37 5 ,7 47 DtW day in 2033 for a 0 .6Yo
compounded growth rate in peak day requirements.
Avista modeled customer demand as a function of the number of customers and per
customer use. First, Avista forecasts the number of customers for each customer class
(residential, commercial, and industrial) in each service territory. Avista also includes high and
STAFF COMMENTS DECEMBER 16,2014
low population forecasts to develop high and low customer growth scenarios. The number of
customers for the expected case in the 2014 IRP is lower than in the 2012IRP due to the way it
forecasts customer growth (decreased from L9oh in20l2 to 1.loh in20l4). Avista applies these
growth factor ratios to its expected case to obtain high and low cases for customer growth.
Second, Avista forecasts per-customer use. Avista separates usage per-customer into
daily base usage and weather-sensitive usage. Weather-sensitive usage is any usage above base
usage, and is measured as a function of heating degree days. Avista modified its future weather
pattern modeling by using daily weather data from the National Oceanic Atmospheric
Administration. It also went from using a rolling 30-year average with global warming
adjustments to using a rolling 2}-year average without any adjustments for global warming.
While this model captures the average effect of weather patterns on usage, it does not
necessarily capture how peak-weather days (extremely cold days) affect usage. Thus, Avista
also models usage during a peak-weather event (defined as two extremely cold days followed by
the coldest day on record followed by another two extremely cold days). Avista calls this
forecast the "peak day demand forecast." One of its uses is to determine whether existing
resources can meet customer demand in extreme weather. Avista notes that if resources can
meet peak-day demand, they generally can meet annual average demand. Avista tests the
sensitivity of its demand forecasts by considering several alternative outcomes. Included in these
alternative outcomes are scenarios to account for the average case, expected case, high customer
growth/low gas prices, low customer growth,/high gas prices, and an altemate cold weather
standard. Peak demand is met with existing resources in the WA/ID demand area, with the
exception of the high growth/low prices scenario in2029.
Avista's demand forecast meets the criteria outlined in Order No. 25342. Specifically,
the forecast includes the number and type of gas customers in the customer-demand forecast. It
includes the efficiency of gas end-users by only including three years of historical data to
calibrate the model. Using only very recent data to capture usage and how it relates to weather
means that changes in efficiency are incorporated into the forecast.
Commission Order No. 32698 directed the Company to work with Staff to address
statistical modeling inconsistencies. Staff believes the Company has met this requirement.
Furthermore, Staff has reviewed the Company's modeling methods and believes the Company
reasonably modified its demand forecast. The table below summarizes the differences between
Avista's forecasted demand for natural gas between the 2014 IRP and the 2012 IRP.
STAFF COMMENTS DECEMBER 16,2014
Issue 2014 Natural Gas IRP 2012 Natural Gas IRP
Expected
Customer
Growth
High/Low
Growth
Price
Elasticity
Weather
Expected Case customer growth is lYo
compounded annually.
High and low growth scenarios are
based on forecasted long run
employment groMh.
Utilized a -0.15 response based on
multiple historic analysis.
Incorporated mechanism to represent
existing rate mechanisms that shield
customers from timely price signals
(i.e. comfort level billing, PGA
mechanisms, deferrals, etc.)
Rolling 2}-year average with no
adiustment for slobal warmins.
Expected Case customer growth is
1 .8% compounded annually.
Based on Washington State Office of
Financial Management. Low growth
4}%obelow the expected case. High
growth is 60% above expected case.
Utilized a -0.13 response based on an
AGA survey. Applied to year-over-
year commodity price.
Rolling 30-year average with an
adjustment for global warming.
Table
The Company discusses existing and potential natural gas supply resources. The
Company has a diversified existing portfolio of gas supply resources, including contracts to buy
gas from several supply basins, stored gas, and firm capacity rights on six pipelines. Potential
resources include incremental pipeline transportation, storage options, distribution enhancement,
and various forms of liquefied natural gas ("LNG") storage or service.
Avista's Idaho and Washington customers are served by two different pipelines: the
Williams-Northwest Pipeline ("NWP") and the TransCanada Gas Transmission Northwest
("GTN") pipeline. This provides Avista some flexibility in serving its customers. While the
NWP is fully subscribed, the GTN pipeline has unsubscribed capacity. This is important because
Avista's WA/ID service areas lie at the end of NWP laterals, which means that Avista would
bear the cost of any capacity expansions. Avista is a one-third owner at Jackson Prairie, which
provides Avista more flexibility to meet peak-demand needs and reduces exposure to price
volatility. Avista also employs a hedging strategy using financial and physical delivery contracts
to reduce exposure to price volatility.
Natural Gas Supply Options (Supply Side Resources)
STAFF COMMENTS DECEMBER 16, 2014
The table below summarizes the differences between Avista's analysis of supply-side
resources in the 2014 IRP and the 2012 IRP. Based upon Staff s evaluation of the Company's
IRP, Staff believes the Company reasonably evaluated its supply-side resource options.
Table 2
Demand-Side Management (DSM)
The Comparry's2012 Natural Gas IRP concludes that natural gas DSM is not cost-
effective due to low avoided costs that are primarily caused by low wholesale market prices.
Consequently, the Company applied for, and was authorizedby the Commission to, suspend its
natural gas DSM programs on September 25,2012. See Case No. AVU-G-12-03, Order No.
32650. The Commission ordered the Company to "re-implement its gas DSM programs when
avoided costs sufficiently increase to make such programs cost-effective." Id. at 6. The
Company has used its WACOG (weighted average cost of gas) to indicate when natural gas
avoided costs may be cost-effective in between IRPs.2 The2014IRP included an independent
natural gas Conservation Potential Assessment (CPA) that assesses energy efficiency potential
'The WACOG includes fuel charges to move gas at the city gate, plus some variable transport costs, and Gas
Research Institute funding. It does not include third party gas management fees. See Avista's Purchased Gas Cost
Adjustment, Case No. AVU-G-14-04.
Issue 2014 Natural Gas IRP 2012 Natural Gas IRP
Spokane
Supply
Resource
Deficiency
Supply
Side
Scenarios
Increased the amount of supply
available to take from GTN onto NWP
to serve WA/ID that was not included in
the 2012IRP.
Not resource deficient in the Expected
Case.
The only case that identifies a resource
deficiency is the High Growth/Low
Price scenario. Avista utilized only the
existing plus expected available resource
scenario for modeling purposes.
Resource not included in this IRP.
Resource deficient in2029 in Oregon
and 2030 in WA/ID in the Expected
Case.
Evaluated three supply side scenarios
on cases with resource deficiencies.
Existing resources, existing plus
expected available, and GTN fully
subscribed.
STAFF COMMENTS DECEMBER 16, 2014
and characterizes it as technical, economic, or achievable potential.3 Using the Company's
avoided-cost streams, the CPA concluded that Idaho's cumulative achievable potential will be
228,000 therms in 2015 and3,629,000 therms by 2034. In other words, besides fuel
conversions, cost effective potential exists with the Company's current avoided costs.
According to the Company, "the high level assumptions made as part of the CPA may be
overly optimistic when applied to individual programs." See IRP at 57. Yet the Company did
not provide a thorough analysis that countered the CPA results, and instead provided an overly-
simplistic and generalized rational on the broad assumptions made in the CPA. According to the
Company, "These challenges [high level CPA assumptions] are more appropriately left to the
operation business planning processes." Id. Avrsta funher states that it is already developing the
2015 DSM Business Plan, and that it would "review the electric and natural gas DSM portfolios
and perform the optimizations noted above." Id. at 58. Staff recognizes the Company
historically refines CPA results in its annual DSM Business Plan. However, the Company
submitted its 2015 DSM Business Plan on November 3,2014 and did not include an analysis of
gas DSM in Idaho.
Staff understands that lower natural gas prices directly impact avoided costs and may
contribute to gas programs not being cost-effective, and that it may be difficult to fully and
accurately quantify all avoided costs. Yet, according to the Company's third party CPA, cost-
effective natural gas DSM is achievable. The Company's IRP and 2015 DSM Business Plan did
not, however, further analyze or comment on offering gas DSM. Further, the Company's
avoided-cost calculation includes some avoided supply-side resource costs, but omits avoided
costs related to delayed or avoided distribution enhancements. Distribution enhancements are
considered as potential supply-side resources. For example, the IRP includes about $15 million
in distribution capacity upgrades in Idaho over the next three-to-four years.
Staff is concerned the Company may not know when avoided costs increase to the point
where gas DSM programs should be re-implemented. Staff thus recommends that the Company
submit an addendum to its 2015 DSM Business Plan that fully analyzes the CPA results to
determine when it might be cost-effective to re-implement natural gas DSM in Idaho.
3 "Technical potential" is the theoretical upper limit and assumes all customers replace equipment with the most
efficient option available regardless ofcost-effectiveness. "Economic potential" incorporates cost-effective
measures under the Total Resource Cost test. "Achievable potential" is the theoretical lower limit and applies ramp
rates to establish an acquisition savings target that is perceived to be more realistic.
STAFF COMMENTS DECEMBER 16,2OI4
Distribution Planning
Avista studies network loads to determine distribution growth and resource needs. The
Company's distribution system planning-and-upgrades analysis forecasts the near term need for
several significant distribution capital projects in the Company's Idaho service territory. First, a
$5.4 million project at Chase Road Gate Station in Rathdrum is expected in20l4. This project
would split the large load at the Rathdrum Gate Station by building about 18,000 feet of high
pressure line. The Company believes it needs this gate station so it can increase the resource
capacity to the growing load in the Post Falls/Coeur d'Alene areas. Second, the Company plans
a $10 million high pressure gas reinforcement upgrade in 2016 and2017. The Company has
identified this project for remediation because current winter or peak demand exceeds
contractual and physical capacity of the existing station. Finally, the IRP identifies two more
upgrade projects that are expected after 2019 because current winter demand or peak demand
exceed the existing section's contractual and physical capacity. The estimated project costs were
not provided.
Staff believes the IRP adequately evaluates the distribution resources required to serve
customers.
Short-Term Action Plan
The 2014IRP was prepared during a period of lower-to-moderate natural gas prices and
economic growth. Avista's consideration of a broad range of demand scenarios accords with
Staff s belief that resource needs can change quickly due to demand increases. While Avista
does not anticipate much growth in demand from traditional residential and commercial
customers, the Company acknowledges that natural gas usage may increase in other markets,
such as transportation fuel, power generation, or as an industrial feedstock. See IRP at 1 1.
Avista acknowledges the need to closely monitor these markets for significant demand increases
due to the impacts to regional gas infrastructure and possibly higher natural gas prices.
Avista's short-term action plan is summarized in the IRP's Executive Summary, with a
more detailed description provided in Chapter 8. Key ongoing components of the Action Plan
listed in the Executive Summary include:
l. Monitor actual demand for growth exceeding the forecast to aggressively address
potential accelerated resource deficiencies arising from exposure to "flat demand" risk.
This will include providing Commission Staff with IRP demand forecast-to-actual
STAFF COMMENTS DECEMBER 16, 2014
variance analysis on customer growth and use per customer. Avista will provide these
updates to Commission Staff at least bi-annually.
Continue to monitor supply resource trends including the availability and price of natural
gas to the region, LNG exports, Canadian natural gas supply availability and
interprovincial consumption, and pipeline and storage infrastructure availability.
Monitor availability of current resource options, and assess new resource lead-time
requirements relative to the resources needed to preserve flexibility.
Meet regularly with Commission Staff to provide information on market activities and
significant changes in assumptions or status of Avista activities related to the IRP or
natural gas procurement practices.
Progress Report
Order No. 32698 directs the Company to include a more reader-friendly progress report
in its IRPs. Avista addresses this expectation with a table entitled: o'Summary of changes from
the2012IRP." See IRP at2l. The Company also meets twice ayear with Staff or
Commissioners to discuss the state of the market, procurement planning practices, and any other
issues that may impact resource needs or other analysis within the IRP. See IRP Appendix L2 at
14. Staff believes Avista's 2014 IRP satisfies the requirements in Order No. 32698. Staff
encourages the Company to continue to developing a progress report and summaries of changes
from previous IRPs.
Public Participation
Avista held four Technical Advisory Committee (TAC) meetings focused on specific
planning topics. The Company reported on the progress of planning activities, and solicited
input from stakeholders on the IRP as it was developed. Topics discussed with the TAC
included natural gas demand forecasts, DSM, supply-side resources, computer modeling tools
and distribution planning. Commission Staff, peer utilities, customers and other stakeholders
attended and provided input. Consistent with Order No. 32698, these TAC meetings occurred in
a variety of locations, making it more convenient for Idaho stakeholders to attend. One meeting
was recorded and made electronically available for those unable to attend in person. Staff
appreciates the Company's outreach efforts and encourages the Company to continue selecting
locations convenient for Idaho customers as future TAC meetings are scheduled.
2.
3.
4.
STAFF COMMENTS DECEMBER 16, 2OI4
STAFF' RECOMMENDATION
Staff believes that Avista's 2014 natural gas IRP fulfills the requirements for a natural
gas IRP set forth in Commission Order Nos. 25342,27024,27098, and 32698. Staff
recommends that the Company's2014IRP be acknowledged and accepted for filing. Staff
further recommends the Company submit an addendum to the 2015 DSM Business Plan that
analyzes the CPA's cost-effective natural gas energy efficiency potential. This recommendation
for acknowledgement should not be interpreted as approval or as a judgment of prudence
regarding any actions contained in the plan or the prudence of not following the plan.
Respectfully submitted this IL{t'day of December 201,4.
Karl T. Klein
Deputy Attorney General
Technical Staff: Nikki Karpavich
Johanna Bell
i :umisc/comments/avug I 4.3kknkjb comments
STAFF COMMENTS 10 DECEMBER 16, 2014
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS I6TH DAY oF DECEMBER 2014,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-14.03, BY E-MAILING AND MAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
LINDA GERVAIS
MGR REGULATORY POLICY
AVISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
E-MAIL: linda. [e-mail]
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE