20161011Comments.pdf

BRANDON KARPEN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 7956
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
F ECE !VED
2016 OCT 11 PH I: 23
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF A VISTA
CORPORA TIO N'S APPLICATION TO
CHANGE ITS NATURAL GAS RATES AND
CHARGES (2016 PURCHASED GAS COST
ADJUSTMENT).
)
) CASE NO. AVU-G-16-02
)
) COMMENTS OF THE
) COMMISSION STAFF ___________________ )
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Brandon Karpen, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 33597 on September 9, 2016,
in Case No. A '-:U-G-16-02, submits the following comments.
BACKGROUND
On August 29, 2016, Avista Corporation dba Avista Utilities filed its annual Purchased
Gas Cost Adjustment (PGA) Application. By way of summary, the PGA is a Commission­
approved mechanism that adjusts rates up or down to reflect changes in Avista's cost to buy
natural gas from suppliers, including costs in transportation, storage, and other related charges.
A vista defers these costs into a PGA account, and then passes them on to customers through an
increase or decrease in rates.
Avista distributes natural gas in Northern Idaho, Eastern and Central Washington, and
Southwestern and Northeastern Oregon. Avista buys natural gas and then transports it through
pipelines for delivery to customers. In this PGA Application, Avista proposes to: (1) pass any
change in the estimated cost of natural gas for the next 12 months to customers (Tariff Schedule
STAFF COMMENTS 1 OCTOBER 11, 2016
150); and (2) revise the amortization rates to refund the balance of deferred gas costs (Tariff
Schedule 155). Id. at 2, 4.
With this Application, A vista proposes to decrease its PGA rates by about $6.1 million
(7.8%). Application at 1. The proposal would decrease the average residential or small
commercial customer's monthly bill by $4.65 per month (about 8.4%). Large commercial
customers' rates would decrease by about 7.7%. The proposal would not affect Avista's
earnings. The Company requests that the new rates take effect November 1, 2016. Id. at 5.
Below is a table summarizing the proposed changes reflected in this filing:
Table 1: Summary of Rate Changes
Commodity Demand Total Amortization Total Rate Overall
Schedule Change per Change Sch. 150 Change per Change per Percent
Service No. Therm per Therm Change Therm Therm Change
General 101 $(0.01140) $0.0048 $(0.00660) $(0.06958) ($0.07618) (7.7%)
Lg. General 111 $(0.01140) $0.0048 $(0.00660) $(0.06958) ($0.07618) (7.7%)
Interruptible 131 $(0.01140) -$(0.01140) $(0.07202) ($0.08342) 0.0%
STAFF ANALYSIS
Staff thoroughly reviewed the Company's Application and accompanying exhibits and
workpapers. Specifically, staff examined A vista's gas purchases for the year, its fixed price
hedges, pipeline transportation costs, and estimates of future commodity prices, and audited the
deferral balances to assess the reasonableness of the proposed changes. Staff verified that the
proposed changes to Schedules 150 and 155 accurately capture Avista's fixed (demand) and
variable (commodity) costs given the coming year's forecasted gas purchases. Staff also verified
that the proposed changes to Schedule 155 will properly amortize the deferral balance frorri the
pnor year.
Based on its review, Staff confirms that the proposed changes will not affect A vista's
earnings and recommends that the Commission approve the Application and proposed tariffs as
filed. Staff's analysis and recommendation is discussed in detail below.
Schedule 150
Tariff Schedule 150 has two parts: ( 1) the commodity costs; and (2) the demand costs.
Avista's commodity costs are the variable costs at which it must buy natural gas. The weighted
average cost of gas (WACOG) is an estimate of those costs. In this case, Avista estimates its
STAFF COMMENTS 2 OCTOBER 11, 2016
commodity costs will decrease by $0.0114 per therm, from the currently approved $0.252 to
$0.2406 per therm. Id. at 4.
Avista's demand costs are its fixed-capacity costs for interstate transportation and
underground storage, as well as capacity releases that are credited back to customers. The
demand costs are primarily costs to transport gas on interstate pipelines to Avista's local
distribution system. Avista proposes a $0.0048 per therm increase in the overall demand rate for
customers on Schedules 101 and 111. Avista's proposed demand rate includes an increased cost
of transporting gas over TransCanada-Gas Transmission Northwest, which is to take effect on
January 1, 2017. See id. at 3-4.
Schedule 155
Tariff Schedule 155 reflects the amortization of A vista's deferral account. With this
Application, A vista proposes to decrease the amortization rate for general and large general
service customers by $0.06958 per therm. As a result of wholesale natural gas prices that were
lower than the level approved in the Company's 2015 PGA, revenue collected by the Company
exceeded its costs. However, this over collection was partially offset by an under collection of
fixed-demand costs resulting from warmer than normal weather conditions. If approved, the
proposed amortization rate would increase the rebate customers receive to $0.09844 per therm
from the current rate of $0.02886 per therm. Put another way, the new amortization rate will
refund approximately $7.4 million to customers through the Schedule 155 portion of the PGA
based on normal sales volume.
A summary of the Schedule 155 deferral balance is shown on Table 2:
Table 2: Summary of Deferral Balance
Balance as of October 31, 2015
Amortization Activity
Total Unamortized Balance
Current Year Deferral Activity
Deferral of Price Differences
Interest on Deferrals
Excess Capacity Releases
Deferred Exchange Contract
Total Current Year Deferral
Balance to be Amortized
STAFF COMMENTS 3
$ (4,021,718)
1 744 148
$ (2,277,570)
$ (1 ,490,656)
(31 ,242)
(2,709,578)
(949,500)
$ (5,180,976)
$ (7 .458.546)
OCTOBER 11, 2016
The deferral consists of the difference in the price A vista paid for natural gas and the
W ACOG established in the previous PGA. The deferral also includes the monthly interest
charges on the deferred balances, and excess capacity releases for the benefit of customers.
During the 2016 PGA year, Avista's Idaho gas customers benefitted by $2.7 million in the
Schedule 155 Deferral Account.
A vista has a Deferred Exchange contract under which it receives natural gas during the
summer and redelivers that natural gas in the winter. A vista charges a fixed per therm price for
this service and flows any benefits through Schedules 150 and 155. Avista's proposed Schedule
150 includes a forecasted benefit of $1.46 million for Idaho customers. The amount used to
reduce the WACOG included in rates. Avista also allocated an additional $949,500 in benefits
under the contract to Idaho customers. The additional benefits from the Deferred Exchange
Contract are reflected in the table above.
Weighted Average Cost of Gas (WACOG)
The W ACOG includes fuel charges to move gas at the city gate, plus some variable
transport costs, and Gas Technology Institute (GTI) funding. Avista expects gas costs to
decrease in the coming year. However, costs may vary depending on weather and economic
conditions. Avista proposes a WACOG of $0.2406 per therm. The approved WACOG in the
Company's last annual PGA was $0.252 per therm. Staff Chart 1 below shows A vista's
W ACOG has been trending downward for the past several years.
Chart 1: Historical W ACOG
Avista Weighted Average Cost of Gas ($/Therm)
.
1.0000
E 0.8000
~ 0.6000
f=_ 0.4000
'.v;: 0.2000 --·
0.0000
$0.756
07
STAFF COMMENTS
"""-...........
$0.787 $0.491
08 09
-.
-
$0.458 $0.418 $0.352 $0.373 $0.385 $0.252 $0.240
10 11 12 13 14 15 16
Year
4 OCTOBER 11, 2016
Market Fundamentals & Price Analysis
Approximately 55% of A vista's annual throughput consists of market index purchases.
A vista continued to use a 30-day historical average of forward prices to forecast the volume­
weighted average annual index price, and forecasted a mainline fuel cost of $0.244 per therm.
To test Avista's forecast, Staff utilized its own volume-weighted forecast using the
NYMEX/NGX Futures prices at each of the three hubs where Avista purchases gas.1 By using
A vista's estimated volume allocation percentages for these three hubs, Staff forecasted the
volume-weighted cost of gas to be $0.241 per therm. Staffs forecast was consistent with
A vista's forecast. 2
The Energy Information Administration (EIA) projects Henry Hub prices will increase
from an average of $2.41 /MMBtu in 2016, to $3.01/MMBtu in 2017. Regionally, customers
benefit from lower prices at the Sumas, Rockies, and AECO hubs when compared to the Henry
Hub prices. Staff examined futures prices for the upcoming PGA year to determine price
differentials between the Henry Hub and hubs the Company utilizes. For the PGA period, price
differentials are AECO $-0.5527, Sumas $-0.0616 and Rockies $-0.0823. A majority of the
Company's purchases are from the AECO hub.
Based on Staff's review of the market fundamentals and trends, the 2016-2017 forecasts
are consistent, predicting relatively stable near-term gas prices. Staff observed that the
Company's weighted average cost of its current hedges, and estimated cost of forward-looking
index purchases, are reasonable. Staff recommends the Commission accept A vista's proposed
W ACOG of $0.2406 per therm. Staff also recommends that Avista return to the Commission
with a new filing if prices materially deviate from the proposed rates during the upcoming year.
Risk Management
A vista's Natural Gas Procurement Plan continues to use a structured approach to execute
its hedges that include a range of possible hedge windows with varying long-term and short-term
trigger prices . Additionally, its Procurement Plan allows the Company to make discretionary
purchasing decisions so it can adjust to changes in market conditions.
1 Avista is supplied by three natural gas hubs (Rockies, Sumas, and AECO). Future settlement prices are reported
daily as a price differential from the NYMEX Henry's Hub price.
2 A vista's proposed WACOG is slightly higher than the A vista's mainline fuel cost because the WACOG includes
variable interstate transportation costs, and contributions to the Gas Research Institute (GRI).
STAFF COMMENTS 5 OCTOBER 11, 2016
Avista modified its Natural Gas Procurement Plan in mid-2015, to change how the
Company utilizes its portion of the Jackson Prairie storage facility. With the modified plan,
storage is utilized to capture the economic benefits of purchasing lower cost natural gas
throughout the year and selling it for a premium at a later time.
In previous PGA filings, the Company utilized storage to meet peak demands and to
benefit from seasonal price differences. Historically, a sizable differential in summer and winter
gas prices existed with summer gas being lower priced. Recently, the seasonal price differential
has declined. As a result of this change, A vista is now using storage gas throughout the year to
strategically hedge and optimize its index purchases and sales. Under this plan, A vista's hedges
through June were executed at a weighted average price of $0.26 per therm and index purchases
with a weighted average price of $0.24 per therm.
Capacity Release
A vista buys the right to transport gas through several interstate pipelines. This enables
A vista to buy gas from a variety of basins, both in the US and in Canada3, and then transport that
gas to its jurisdiction. As mentioned previously, whenever Avista has surplus capacity on the
pipelines that serve its jurisdictions, surplus capacity is sold to other pipeline users at the highest
price available. Avista credits the benefits from Idaho and Washington off-system sales to Idaho
and Washington based on a three-year average of the five highest consecutive days of gas
consumption in each year. A vista's total capacity release revenue this year for Idaho and
Washington was $8.56 million, of which Idaho receives about $2.7 million.
CUSTOMER NOTICE AND PRESS RELEASE
The Company's press release and customer notice were included with its Application.
Staff reviewed the documents and determined that both comply with Rule 125 of the
Commission's Rules of Procedure, IDAPA 31.01.01.125.
The customer notice was included with bills mailed beginning September 2, 2016, and
ending October 1, 2016. Customers have the opportunity to file comments on or before October
11,2016.
3 Avista delivers domestically produced natural gas to its city gates through Northwest Pipeline, Gas Transmission
Northwest, TransCanada's Foothills Pipeline system, and Spectra Energy Pipeline.
STAFF COMMENTS 6 OCTOBER 11, 2016
CUSTOMER COMMENTS
As of October 11, 2016, the Commission has not received any comments from customers
regarding the proposed decrease in this case.
STAFF RECOMMENDATION
After thoroughly examining Avista's Application, natural gas purchases, and deferral
activity for the year, Staff recommends that the Commission approve Avista's proposed:
1. Tariff Schedule 150, including the proposed W ACOG of $0.2406 per therm.
2. Tariff Schedule 155, including the proposed amortization rate of $0.09844 per therm
credit to refund approximately $7.4 million to customers. This will result in a net
decrease in Avista's Idaho natural gas revenue by approximately $6.1 million or
7.8%.
Respectfully submitted this
Technical Staff: Daniel Klein
Donn English
Kevin Keyt
Bentley Erdwurm
i:umisc/comments/avug I 6.2bkdkdekkbe comments
STAFF COMMENTS
/ I f!]___ day of October 2016.
7 OCTOBER 11, 2016
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 11 1h DAY OF OCTOBER 2016,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-16-02, BY E-MAILING AND MAILING A COPY THEREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
KELLY NORWOOD VP
STATE & FED REGULATION
AVISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220-3727
E-MAIL: [e-mail]
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX 3727
SPOKANE WA 99220-3727
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE