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HomeMy WebLinkAbout20151113Lobb Direct in Support of Stipulation.pdfrDAHo puBLrc urrLrnEQ*g$$&lsffiS$,cn IN THE MATTER OF THE APPLICATION OF AVISTA CORPORATION DBA AVISTA UTILITIES FOR AUTHORITY TO INCREASE ITS RATES AND CHARGES FOR ELECTRIC AND NATURAL GAS SERVICE IN IDAHO. BEF.RE THE f;rc*YEn ?frtl t{CV tI pH t: l t CASE NO. AVU-E-I5.05 AVU-G-I5-01 DIRECT TESTIMONY OF RANDY LOBB IN SUPPORT OF THE STIPULATION AND SETTLEMENT IDAHO PUBLIC UTILITIES COMMISSION NOVEMBER 13,2015 t- 2 3 4 5 6 7 I 9 l_0 l-1 t2 13 L4 15 1,6 1,7 18 19 20 2t 22 23 24 25 O. Please state your name and business address for the record. A. My name is Randy Lobb and my business address is 472 West Washington Street, Boise, Idaho. O. By whom are you employed? A. I am employed by the Idaho Public Utilities Commissi-on as Utilities Division Administrator. O. What is your educational and professional background? A. I received a Bachelor of Science Degree in Agricultural Engj-neering from the University of ldaho in L980 and worked for the Idaho Department of Water Resources from ,June of l-980 to November of 1"987. I received my fdaho license as a registered professional Civil Engineer in l-985 and began work at the Idaho Public Utilities Commission in December of L987. I have analyzed utility rate applications, rate design, tariff filings and customer petitions. I have testified in numerous proceedings before the Commission including cases dealing with rate strucLure, cost of service, power supply, line extensions, regulatory policy and facility acquisitions. My duties at the Commj-ssion include case managrement and oversight of all technical Staff assigned to Commission filings. O. What is the purpose of your testimony in this case? A. The purpose of my test,imony is to describe the CASE NOS. AVLr-E-l-5-05/AW-G-15-01 LL/L3 /L5 LOBB, R. (Di) 1 STAFF 1 2 3 4 5 6 7 8 9 10 11 L2 13 L4 15 16 17 18 t9 20 2L 22 23 24 25 proposed comprehensive settlement in this case and explain Staff's support. O. Please summarize your testimony. A. The proposed Stipulation and Settlement (the "SettlemenL" ) provides an electric rate increase on ,.Tanuary A, 201"6 of $1.7 mil-lion (0.59?) and a natural gas rate increase of $2.5 million (3.492). It also provides for a Fixed Cost Adjustment (fCa; mechanism for both electric and gas servj-ce t,o track recovery of Commission authorized fixed costs and either surcharge for shortfalls or credit for over coll-ection on an annual basis. Af ter comprehensive review of t,he Company's Application, thorough audit of Company books and records and extensive negotiation with parties to the case, Staff supports the proposed Settlement. Staff believes that the Settlement, supported by all parties to the case is in the public interest and should be approved by the Commission. Background 0. Please describe Avj-sta's original filing. A. Avista made its origJ-na1 filing on May 13, 2015 requesting authority to increase it.s raLes by $13.2 million (5.22) and i3.2 million (4.52) for electric and gas service, respecti-ve1y, effective ,.Tanuary !, 2015. The Company also requested to increase its rates by an additional $13.7 million (5 . l-?) and $1 . 7 million (2 .22 ) f or electric and gas cAsE NOS. AVU-E-15-05/AVU-G-15- 01 tL/1-3 /ts LOBB, R. (Di) 2 STAFF 1 2 3 4 5 6 7 I 9 t-0 t_ l_ l2 13 t4 15 l_5 t7 L8 t9 20 2t 22 23 24 25 service, respectively, ef fective ,January a, 201-7. The Company proposed a capital structure of 50/50 and a return on common equity of 9.92. The Company proposed to spread the revenue increase in both years to electric and gas customer classes using a 25? move and a 33? move toward cost of service, respectively. Residential customer charges would j-ncrease from #5.25 to $8.50 and from $4.25 to $8.00 per month for electric and natural gas service, respectively. Fina11y, the Company proposed an FCA for both gas and electric servj-ce to track monthly recovery of fixed costs on an annual basis in between rate cases. If cost recovery was below that authorized by the Commission, then customers would receive a surcharge. If cost recovery exceeded that authorized by the Commission, customers would recej-ve a credit. Settlement Overview O. Please summarize the proposed Settlement. A. The proposed Settlement specifies a rate increase of $1.7 million (0.692) and $2.5 million (3.492) for electric and natural gas service, respectively, effective 'January l, 201,5. It. also specifies a 50/50 debt to equity capital structure, a 5.342 cost of debt and a 9.5* return on common equity. Besides specifying capital structure, equity return cAsE NOS. AVU-E-15-05/AVU-G-15-01 1-t/ t3 / ts LoBB, R. (Di) 3 STAFF 1 2 3 4 5 6 7 8 9 10 11 L2 13 1,4 15 L6 1,7 18 t9 20 21" 22 23 24 25 and the debt cost for both electric and gas service, the Settlement also specifies a variet.y of expense and investment adjustments. The electric and gas revenue adjustments faII primarily into three categories: 1) eliminate test year proforma expense and investment beyond December 31, 201,5; 2) modify miscellaneous test year expenses; and 3) lengthen amortization periods for deferred accounts. Electrj-c revenue requirement is further adjusted by continuing Palouse Wind expense recovery through the Power Cost Adjustment (PCA) mechanism rather t.han through base rates. The revenue increase will be spread to each electric and gas customer class based on a 25* and 33? move toward class cost of service, respectively, 6rs originally proposed by the Company. Electric residential energy rates wiLl increase by a uniform percentage to generate the additional revenue. The basic charge for residential electric customers will remain at #5.25 per month while the basic charge for residential gas service will increase from 54.25 to $5.25 per month. The remaining increase will be spread uniformly to commodity rates. The Settlement also est.ablishes an FCA for 3 years for both electric and natural gas service to track and defer over or under collection of Commission authorized fixed costs on an annual basis. The Settlement describes a varj-ety of FCA requirements including treatment of new and existing cAsE NOS. AVU-E-1s-0s/AW-G-1s-01 1-L/1-3/15 LOBB, R. (Di) 4 STAFF 1 2 3 4 5 5 7 8 9 10 11 t2 13 t4 t-5 L6 l7 18 1,9 20 2L 22 23 24 25 customers and annual reporting. A. Are there any ot,her provisions included in the proposed Settlement? A. Yes. The Set.tlement also specifies base power supply expenses for use in the PCA mechanj-sm, exLension of electric and natural gas rebates and an agreement for t.he part.ies to meet and confer on low income weatherization programs and 1ow income consumption data. Settlement Process O. What was the process that lead t,o t.he a1I-party Settlement? A. After the Company's initial filing on May 13, 201-5, the Commission issued a Notice of Applicatj-on and set an intervention deadl-ine of June 29, 2015. Five parties intervened in t,he case: l-) Clearwater Paper, 2) Consumer Act.ion Partnership of Idaho (CAPAI), 3) Idaho Conservation League, 4) Idaho Forest Group and 5) Snake River A1liance. Avista, Staff and the j-ntervening parties then conferred and set a schedule that included settlement. workshops, filing dates for direct and rebuttal testimony and a date of November 23, 201.5 for a technical- hearing. Part.ies convened a workshop on September 18, 20L5 to discuss case settlement. Through extensive discussions and give and take on a variety of issues that included over 23 revenue requj-rement. cAsE NOS. AVU-E-15-05/AVU-G-15-01Lt/:-3/ts LOBB, R. (Di) 5 STAFF 1 2 3 4 5 6 7 8 9 10 11 t2 13 t4 15 15 t7 l_8 1,9 20 2L 22 23 24 25 adjustments, class cost of service, revenue spread, rate design, multi-year rate plans and fixed cost adjustment mechanisms, the parties came to tentative agreement. Over the next month, the parties agreed to language culmj-nating in the proposed Settlement and Stipulation filed on October :.-9, 20]-5. Staff Investigat,ion a. What type of investigation did Staff conduct to evaluate the Company's rate increase request? A. There were fifteen Utilities Division Staff assigned to extensively review the Company's applicat.ion and identify issues in preparation for litigation at hearing. Staff conducted two weeks of onsite audits, submitted 155 production requesLs, and reviewed rate increase requests filed by the Company in other state jurisdictions. Staff identified twenty three adjustments to the Company's requested revenue requirement, evaluated and developed annual power supply expense for the PCA, compared and contrasted past and present class cost of service models and assessed the need for an FCA mechanism. Staff prepared a revenue requirement and est.ablished positions on all of the major issues in preparation to file direct testimony on Oct.ober 21, 20L5 . A. How did Staff prepare for the settlement workshop? A. Staff prepared for the settlement workshop by cAsE NOS. AVU-E-1s- 0sIAVU-G-l-5-01 1-t/]_3/ts LOBB, R. (Di) 6 STAFF 1 2 3 4 5 6 7 8 9 10 1L 72 13 t4 15 15 1_7 18 19 20 21" 22 23 24 25 preparing f or testimony in t.he lit.igated case. Staf f developed its revenue requirement adjustments and positions on various issues for presentation at the workshop in conjunction with preparing testimony for hearj-ng. O. What is Staff's settlement objective? A. The objective of settlement is to achieve an outcome that is better for customers than what otherwise could be achieved through a litigated case. Successful settlement from Staff's perspective is to convince the Company and other parties to accept the majority of Staff revenue adjustments and positions as part of the proposed Settlement rather than risk losing those issues at hearing. O. Does the Settlement achieve those objectives? A. Yes, I believe that it does. Of the 23 electric revenue requirement, adjustments that St.aff identified, roughly 17 were encorporated ej-ther totally or partially in the Settlement. Rather than an j-ncrease of $l-3 .2 million as proposed by the Company, the Settlement specified an elect.ric increase of only $1.7 miIlion. On the gas side, 14 of 16 adjustments were fu1Iy or partially included in the Settlement reducing the increase from $3.2 million to $2.5 mi1lion. O. What type of revenue requirement adjustments were proposed by Staff and included in the Settlement? A. Besldes a reduction in return on common equity, the cAsE NOS . AVU-E- 15 - 05/AVU-G- 1s - 0l-tt/ 13 / 1,5 LoBB, R. (Di) 7 STAFF 1 2 3 4 5 6 7 8 9 10 1l_ 1"2 13 t4 15 15 77 18 L9 20 2t 22 23 24 25 adjust.ments generally fa11 into three categories: 1) eliminate test year proforma expense and investment beyond December 3l-, 20L5; 2) modify miscellaneous test year expense; and 3) lengthen amortizat,ion periods for deferred accounts. O. What effect did equity return have on revenue requirement? A. The Company had originally proposed a return on common equity of 9.9+ while the Settlement specifies a reEurn of 9.52. Staff notes that. the lower return is consistent with return on equity established in Avista's Washington jurisdiction and Staff believes it is within a reasonable range for Avista's financial situation and represents a reasonable compromise in this case. The return on equity adjustment reduced electric revenue requirement, by $2.44 million and natural gas revenue requirement by $415,000. Capital strucLure and cost of debt remain as orlginally proposed by the Company. O. What effect did limiting the test year proforma perJ-od have on revenue requirement? The Company's original proposal included a multi- year rate increase with budget.ed expense and capital additions included through December 31, 201-7. The Settlement specifies a single year rate increase on ,January 1, 201-5 with expense and j-nvestment included through December 31, 201,5. The Settlement specifically reduces electric t,est year cAsE NOS. AVU-E-r-s-0s/AVU-G-1s-01Tt/]-3/t5 LOBB, R. (Di) 8 STAFF 1 2 3 4 5 6 7 I 9 10 11 t2 13 t4 15 t6 t7 18 19 20 2t 22 23 24 25 revenue requirement by $3.9 million to reflect reduced leve1s of actual 2015 capital investment and removes planned capital additions in 20]-6. The Settlement further removes nearly $l- million in electric revenue requirement for insurance, lnformatlon services and technology and non-executive labor expense increases planned for 201,6. Adjustment for these items on the gas side reduced revenue requirement by $333,000. Staff maintains that limitlng test year proforma expense and investment to December 31, 201-5 better refl-ects known and measurable costs actually incurred by t.he Company and is consistent with past Commission Order (Uo. 30772). O. What test year expenses where actually reduced from the Company' s proposal? A. The second category of adjustments reflects a $588,000 reductj-on in electric revenue requirement and a i279,000 reduction in gas revenue requirement to reduce proposed expense recovery in rates. The parties agreed to a variety of adjustments that Staff believes reflect.ed more appropriate leveIs of expense. Injuries and damage expenses were reduced for both electric and gas operations t.o reflect average expenses incurred over the last 5 years. Officer incentives were removed and non-officer incentives were reduced to reflect l-00? rather than a 1-02? payouE. Other miscellaneous cAsE NOS. AVU-E-1-s-0s/AW-G-1s-01tt/ t3 / ts LOBB, R. (Di) 9 STAFF 1 2 3 4 5 5 7 8 9 10 11 L2 13 L4 15 L6 L7 1B 1,9 20 2L 22 23 24 25 administ,ration and general expenses were reduced for such items as insurance expense for directors and officers, a 1ega1 expense error, abnormally high cleanup expenses incurred in 20L4, Board of Director expense allocated to shareholders and miscellaneous account 930 expenses. O. What impact did extended amortj-zation of deferral balances have on stipulated revenue requirement? A. The third category of adjustments extended deferral balance amortj-zation periods to reduce test year revenue requirement. by $788,000 and $158,000 for electric and gas service, respectively. Staff maintained that amortj-zation periods for project Compass and Lake Spokane project deferrals should be set at 4 years rather than 2 years as proposed by the Company. The parties agreed to 4 years for the purpose of settlement. O. Were there other revenue requirement adjustments included in the Settlement that did not fit i-nto the three categories? A. Yes. The Settlement included an electric expense adjustment of $3.5 mllIion for the Palouse Wind project. Expenses and benefits associated with this project are currently include for recovery in the Company's PCA mechanism. The Settlement specifies that Palouse Wlnd expenses will continue to be recovered in the PCA rather than included in base rates as originally proposed by the Company. cAsE NOS. AVU-E-Ls-05/AW-G-1s-01 t1-/ t3 / 1,s LOBB, R. (Di) 10 STAFF 1 2 3 4 5 6 7 8 9 10 11 1,2 13 t4 15 L5 t7 L8 19 20 2L 22 23 24 25 O. Why does Staff believe it is appropriate to contlnue PCA treatment of Palouse Wind expense? A. Staff maintains that the Palouse Wind project was never acquired to meet loads in Idaho. It was acquired to comply with Resource Portfolio Standards in Washington State. While the project does generate energy and provide some value to Idaho customers, the cost, for Avista to purchase the project output exceeds the value of the energy generated. Conseguently, Staff believes that. Company sharehol-ders should share in the annual economic loss created by the project. Avista disagrees with Staff's position but accepts the stipulated treatment for purposes of this case. The net customer benefit of continued PCA treatment of Palouse Wind expense is approxi-mately $fS0,000 or the Company's 10? share of $3 .5 million t,hat, would be eliminated with base rate treatment. Revenue Spread and Rate Design O. Please explain the Settlement with respect to class cost of service and revenue spread. A. The Company's original applicatlon in this case incl-uded class cost of service st.udies for both electric and natural gas service. Those studies both showed that resident.ial and small commercial customers were paying less than their appropriate cost of service and large high load factor customers were paying more than their appropriate cost CASE NOS. AVU-E-15-05/AVU-G-15-01 1-t/L3/L5 LOBB, R. (Di) l-l- STAFF 1 2 3 4 5 6 7 8 9 10 11 L2 13 74 15 15 1,7 18 t9 20 2L 22 23 24 25 of service. The Company consequently proposed moving electric customers 25e, toward cost of servj-ce and gas cusLomers 33? toward cost of servi-ce. While no party specifically agreed with the methodology used in the Company's cost of service study, all parties agreed t.hat the study results generally indicated whether customer classes were above or beLow cost of service. Therefore, all parties accepted the Company's proposed incremental move toward cost of service. Staff fuI1y reviewed the Company's class cost of service studies submitted in this case and those submitted by the Company in prior cases. Staff agrees for the purposes of this case that cost of service trends support the j-ncremental move as proposed in the Settlement. The resulting percentage increase by customer class is shown on page 15 of the Sett.Iement. O. How does the Settlement specify that rates will change? A. The Settlement specifJ-es that the volumetric energy rate will increase by a uniform percentage for all customer classes and residential basic charges wil-I remain at $5.25 per mont,h. The basj-c charge for natural gas residential customers will increase from $4.25 per month to $5.25 per month with a uniform percentage increase in the volumetric energy rate for the remaj-ning revenue requirement balance. cAsE NOS. AVU-E-l-5-0s/AVU-G-1s-01 LL/ t3 / Ls LOBB, R. (Di) t2 STAFF 1 2 3 4 5 6 7 I 9 1-0 l-1 t2 l_3 l4 15 t6 t7 18 t9 20 2L 22 23 24 25 The revenue requirement for all other gas service schedules will- be applied as a uniform percentage increase in the volumetric energy rate. Staff supports the increase in the natural gas basic charge for resj-dential customers that equals the current electric basic charge for resj-dential customers. Staff also believes the uniform percentage increase ln volumetrj-c energy charges is appropriate in this case given the sma11 overall increase in revenue requirement. O. Could you please describe t,he electric and natural gas rebate extension? A. Yes, electric customers are current.ly receiving an annual rebaEe through December 31-, 201-5 of approximately $2.8 miIlion for 2013 earnings sharing approved by the Commission in Case No. AVU-E-I-4-05. The Settlement specifies that the $2.8 million annual rebate w111 continue through December 31, 2Ol7 using $5.6 million in 201,4 revenue sharing. The natural gas rebate of approximately #A.2 million annually for 2013 revenue sharing and unused energy efficiency balance is also set to expire on December 31, 2OL5. The Settlement specifies that $0.2 million in 20L4 revenue sharing will be used to partially offset the l1-.2 million rebate that will expire on ,January 1 , 20:..6. Staff believes that use of revenue sharing funds to prolong rebates that would otherwise expire or to mitigate a CASE NOS. AVU-E*15-05/AVU-G-15-01 LL/L3 /ts LOBB, R. (Di) 13 STAFF 1 2 3 4 5 5 7 8 9 10 11 L2 l_3 l4 15 1,6 17 18 L9 20 2t 22 23 24 25 portion of an expiring rebate is appropriate. Customers are entitled to these funds and Staff supports the rate stabilizing effect that occurs from including them in the Settlement. Fixed Cost Adjustment O. What is an FCA mechanism? A. An FCA mechanism is designed to track fixed cost (Company costs that do not change with energy consumption) recovery and either surcharge for under recovery or rebate for over recovery on an annual basis. The mechanism decouples fixed cost recovery from energy consumption to assure that. fixed costs are recovered no matter how much energy is consumed. O. Please explain the Company's proposed FCA mechanism. A. The Company proposed a permanent electric and natural gas FCA based on a Commission approved 1evel of fixed cosL recovery per customer, known as the Fixed Cost Adjustment Revenue-Per-Customer. The proposal included two Rate Groups, Residential and Non-Residential. The Residential Rate Group included Schedul-e 1 for the electric FCA and Schedule l-01- for the natural gas FCA. The Commercial Rate Group for the electrj-c FCA included Schedules 11, a2, 2A,22,31, 32. The Commercial Rate Group for the gas FCA cAsE NOS. AVU-E-l-5-05/AVU-G-15-01 t1-/]-3/15 LOBB, R. (Di) 14 STAFF 1 2 3 4 5 5 7 8 9 l_0 1l_ 12 l_3 1-4 15 15 17 18 19 20 2t 22 23 24 25 j-ncluded Schedules 111 and 112. Each Rate Group had a distinct Fixed Cost Adjustment Revenue-Per-Customer. The Company proposed an annual filing for each rate group to recover or rebate the approprj-ate deferred revenue amount over a 12-month period (,January-December) . The surcharge/rebate reconciles mont,hly differences between fixed costs allowed to be collected on a per-customer basis, and the non-weather normalized actual fixed costs collected. The deferred revenue under/over collection would then be separately surcharged or rebat,ed to each customer group through the Company's proposed electric tariff Schedule 75 or the natural gas tariff Schedule 1-75. a. Is the stipulated FCA mechanism identical- to the Company' s original proposal? A. No. The parties have only agreed to a 3-year pilot, with a review following the end of the second fuII year. This will aIlow Staff and other parties an opportunity to evaluate the mechanism and determine whether it is functionj-ng as intended. The mechanism can be modified or discontinued if it is found to be operatJ-ng improperly. In order to facilitate on-going review, the Company agreed to provide quarterly reports showing the mont.hly deferrals by rate group, what the deferrals would have been if tracked by rat.e schedul-e, use and revenue-per- cAsE NOS. AVU-E-1s- 0sIAVU-G-1s-0r- 1-L/ t3 / 1-s LOBB, R. (Di) 15 STAFF l_ 2 3 4 5 6 7 8 9 10 11 L2 13 L4 15 t6 t7 18 19 20 2L 22 23 24 25 customer for existing and new customers, and other summary f inancial information. The Company had proposed to use the FERC interest rate on the unamortized FCA balancing accounts. Instead, the Parties have agreed to calculate the accrued interest based on the Customer Deposit Rate, which is consistent with prj-or Commission Orders. 1 While the Company's original proposal did not include a cap on annual surcharges, the Parties have agreed that. FCA surcharges in any given year cannot exceed 3?. The cap will be applied by rate group with any unrecovered balances carried forward to future years for recovery. Staff believes the cap is necessary to prevent large annual surcharges if weather or economic conditions vary significantly in a particular year. The FCA mechanics proposed in the Settlement are nearly identical to t.he Company's proposal. The only difference is that Fixed Cost Adjust,ment Revenue-Per- Customer for new customers added after the test perj-od will be less than that for existing customers. O. Why should Revenue-Per-Customer differ for new and existing customers in t.he FCA? 1 Based on Order No. 33187 in Case No. GNR-U-L4-L2, thedeposit rate for 2015 is 1-.0?. The rate is updated annua11y. cAsE NOS . AVU-E- l-s - 05/AVU-G- l-5 - 0L t1-/ 1-3 / Ls LOBB, R. (Di) t6 STAFF 1 2 3 4 5 6 7 8 9 10 11 t2 13 L4 15 t6 t7 18 t9 20 2L 22 23 24 25 A. The Parties agreed that the Fixed Cost Adjustment- Revenue-per-customer for new elect.ric customers will exclude fixed production and transmission costs. For new natural gas customers, recovery of costs related to fixed production and underground storage would also be excluded. This disparate treatment will limit fixed cost recovery for new customers in between rate cases to fixed costs that are more certain to occur. St.aff maintains t.hat cert.ain t.ypes of investments are "Iumpy" and may not actually be required Lo serve new customers in between general rate cases. Rather than assume these costs are incurred for automatic recovery in the FCA, they are removed from new customer revenue and only those incremental costs directly related to serving new customers are included. The new customer investment issue is further highlight.ed when the FCA reconcj-Ies the monthly difference between fixed costs allowed to be collected on a per- customer basis and fixed costs actually collected. As the number of customers increase between rate cases, the total fj-xed costs allowed to be collected increases beyond the amounL reviewed and authorized by the Commission. An FCA should not become a substitute for general rate case filings, whereby the Company requests rate treatment for investments actually incurred. Staff believes limiting FCA cAsE NOS. AVU-E-1s-0s/AVU-G-15-01 Lt/13 /ts LOBB, R. (Di) L7 STAFF 1 2 3 4 5 6 7 I 9 l_0 11 t2 13 L4 15 15 t7 18 19 20 2t 22 23 24 25 recovery to.specific types of fixed costs better assures that costs recovered through the FCA are actually incurred to serve a new customer. A. When will the Company file a proposed surcharge or rebate? A. FCA implementatj-on will commence concurrently with the natural gas and electric rat.e changes January 1, 201,6 . On or beforeJuly 1, 20!7 the Company will file its first proposed rate adjustment surcharge or rebate based on deferred revenue recorded from ,January 20L6 through December 20L6. The proposed tariff (Schedule 75 for electric, Schedule 1-75 for natural gas) included with that filing will show the adjustment as a rate per kWh for electric and a rate per therm for natural gas. This FCA rate will be determined using expected energy sales to surcharge/rebate the appropriate deferred revenue amount over a twelve-month period effective October 1, 201,7 for electric (to coincide wit.h the PCA period) and November !, 2Ol7 for natural gas (to coincide with the Purchased Gas Cost Adjustment period). The annual FCA will be filed consistent with this schedule for t,he remaining 2 years. O. Please explain why an FCA is necessary and how it benefits customers? A. Hj-storica11y, Staff has generally supported rate design proposals that keep fixed charges 1ow in order t.o CASE NOS. AVU-E-l-5-05/AVU-G-L5-0l- 1-t/ 13 / 1-s LOBB, R. (Di) 18 STAFF 1 2 3 4 5 6 7 8 9 10 11 1,2 13 t4 15 16 L7 18 t9 20 2L 22 23 24 25 encourage conservation and al1ow customers to control their bil-Is. While the Company's fixed costs do not necessarily change with the leve1 of energy consumptj-on, recovery of those fixed costs does. For example, when weather or favorable economic conditions contribute to higher than normal energy or natural gas sales, the Company may over- recover its fixed costs. Conversely, when Demand-Side Managemen! ("DSM") or price signals from certain rate designs cause customers to use less energy or natural- g&s, the Company may under-recover its fixed costs. Consequently, there's a financial disincentive for the Company to encourage conservation. The table below shows the Company's revenue from fixed charges as a percenL of its total fixed costs for each schedule included in the FCA. * Calculated using page 1 of Appendix B and C. For purposes of this table,Distribution and Customer Related Costs, and Common Costs are assumed to befixed costs. NaturaL Gas Fixed Costs also include the demand related charges in Schedul-e 150. CASE NOS. AVU-E-15-05/AVU-G-15-01- 1"1/ L3 / 1-5 LOBB, R. (Di) 19 STAFF Electric Schedule 1 Schedul-ett/12 ScheduLe 2L/22 Schedule3t/ 32 Fixed Costs 79,71,0,926 28 ,188 ,1-28 38,749,289 3 ,96 g, 533 Fixed Charge Revenue 6 ,484 , L65 2,453,750 4,935, 600 l.33 ,57 6 Fixed Charge Z of Fixed Costs 8.10?8.70*L2 -sO+3.40? Natural Gas Schedul-e 10l- Sc hedu1e 1"1"1/ LL2 Fixed Costs 31 ,448 ,841-9 ,37 4 ,373 Fixed Charge Revenue 4 ,7 69 ,536 1,677,185 Fixed Charge* of Fixed CosLs L2 .7 4e"1-7 - 892 l- 2 3 4 5 6 7 8 9 10 11 t2 13 L4 15 L6 l7 18 19 20 2t 22 23 24 25 The FCA reduces the financial disincenti-ve to encourage conservation by decoupling a portion of revenue from the Company's energy and gas sa1es. Consequently, the Company will be at less rj-sk of not. fu1ly recovering its fixed costs when it promotes cost-effective DSM programs and/or rate designs that, send a price signal to conserve energy or natural gas. If t,he Company successfully encourages lower energy and gas consumption, Staff bel-ieves the FCA will undoubtedly save customers money in the long- run by deferring or eliminating capital cosEs that might otherwise be required to serve growing 1oad. A. What impact might t,he FCA mechanism have on customers? A. Staff looked at t.he last two years to see what the impact would have been had the proposed mechanism been in place. fn 201-3, residential customers would have received a rebate of 0.792 for electric and 0.02* for gas. For the same time period, commercial customers would have received a rebate of 2.072 for electric and a surcharge of L.5OZ for gas. ln 2014, residential customers would have received a rebate of 0.05? for electric and a surcharge of L.l.7Z for gas. For the same time period, commercial customers would have received a rebate of 2.24* for electric and a surcharge of L.972 for gas. cAsE NOS . AVU-E- l-s - 0sIAVU-G- 15 - 0L t1-/1-3/ts LOBB, R. (Di) 20 STAFF Staff believes the mechanism will be largely impacted by weather, economic conditions, DSM/conservation, and rate design. For example, if t.emperatures are relatively mild (warm winters and cool summers), customers could see FCA surcharges. Conversely, if temperatures are extreme (co1d winters and hot summers), customers coul-d see FCA credits. O. Are there any other provisions in the Settlement? A. Yes, the Settlement specifies that the parties will collaborate on Iow income weatherization and 1ow income energy efficiency education. The objective of the collaboratj-on is to identify energy and gas consumption leveIs of 1ow income cust.omers and identify the proper energy efficiency funding leveIs in the future. The Settlement also specj-fies that the parties will initially meet no later than ,June L, 201"6 to discuss these j-ssues. Staff fu11y supports collaboration on the 1ow income energy efficiency issues and looks forward to actively participating in all associated meetings. O. Does this conclude your testimony in this case? A. Yes, it does. cAsE NOS. AVU-E-l-s-0s/AW-G-l-5-01tt/L3/as LOBB, R. (Di) 21- STAFF 1 2 3 4 5 6 7 I 9 10 11 L2 13 L4 15 15 t7 18 t9 20 2L 22 23 24 25 CERTIFICATE OF SERVICE I HEREBY CERTIFY THAT I HAVE THIS 13TH DAY OF NOVEMBER 20T5, SERVED THE FOREGOING DIRECT TESTIMONY OF RANDY LOBB IN SUPPORT OF THE STIPULATION AND SETTLEMENT, IN CASE NOS. AVU-E-15-05/AVU-G-15-OI, BY MAILING A COPY THEREOF, POSTAGE PREPAID, TO THE FOLLOWING: KELLY NORWOOD DAVID J MEYER VP - STATE & FED REG VP & CHIEF COUNSEL AVISTA CORPORATION AVISTA CORPORATION PO BOX3727 PO BOX3727 SPOKANE WA99220-3727 SPOKANE WA99220-3727 E-mail: kelly.norwood@avistacom.com E-mail: david.meyer@avistacom.com DEAN J MILLER LARRY A CROWLEY McDEVITT & MILLER LLP THE ENERGY STRATEGIES PO BOX 2564 INSTITUTE INC BOISE ID 83702 5549 S CLIFFSEDGE AVE E-mail: joe@mcdevitt-miller.com BOISE ID 83716 E-mail: crowleyla@aol.com CLEARWATER PAPER CORP DR DON READING C/O PETER J zuCHARDSON 6070 HILL ROAD RICHARDSON ADAMS PLLC BOISE ID 83703 515 N 27rH STREET E-mail: dreading@mindspring.com BOISE ID 83702 E-mail : peter@,ri chardsonadams. com BRAD M PURDY SNAKE RIVER ALLIANCE ATTORNEY AT LAW BOX 1731 2019 N 17TH STREET BOISE ID 83701 BOISE ID 83702 E-mail: knunez@snakeriveralliance.org E-mail: bmpurdy@,hotmail.com kmiller@,snakeriveralliance.org BENJAMIN J OTTO ID CONSERVATION LEAGUE 7IO N 6TH STREET BOISE ID 83702 E-mail: botto@idahoconservation.org '; 2u, -r, SECRETARY CERTIFICATE OF SERVICE