20170609Morehouse Direct.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
FACSIMILE: [phone]
[e-mail]

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-G-17-01
OF AVISTA CORPORATION FOR THE )
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC AND )
NATURAL GAS SERVICE TO ELECTRIC ) DIRECT TESTIMONY
AND NATURAL GAS CUSTOMERS IN THE ) OF
STATE OF IDAHO ) JODY MOREHOUSE
)

FOR AVISTA CORPORATION

(NATURAL GAS ONLY)

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Avista Corporation
I. INTRODUCTION 1
Q. Please state your name, business address, and present 2
position with Avista Corp. 3
A. My name is Jody Morehouse and I am employed as
Director of Gas Supply for Avista Utilities (Avista or Company).
My business address is 1411 East Mission Avenue, Spokane,
Washington. In my current role I am responsible for Avista’s 7
natural gas supply and upstream pipeline transportation
resources.
Q. Would you please describe your education and business 10
experience? 11
A. Yes. I graduated from Montana State University with
a Bachelor of Science Degree in Mechanical Engineering and hold
a professional engineering license in the State of Washington.
I joined the Company in 1989 and have held staff and management
positions in our natural gas engineering, natural gas
operations, natural gas planning, and natural gas measurement
departments. Additionally, I held the position of Manager of
Pipeline Integrity and Compliance prior to my current role.
Q. What is the purpose of your testimony in this 20
proceeding? 21
A. The purpose of my testimony is to describe Avista’s 22
natural gas resource planning process, provide an overview of

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Avista Corporation
the Jackson Prairie natural gas storage facility, and provide
an overview of the Company’s 2016 Natural Gas Integrated 2
Resource Plan. A table of contents for my testimony is as
follows:
Description Page
I. Introduction 1
II. Planning for Commodity Resource Procurement 3
III. Jackson Prairie 10
IV. Integrated Resource Plan 12

Q. Are you sponsoring exhibits in this proceeding? 11
A. Yes. I am sponsoring Exhibit No. 7, Schedule 1, which
is a copy of the Company’s 2016 Natural Gas Integrated Resource
Plan acknowledged by this Commission on February 23, 2017.
Q. Is the Company proposing any changes to the cost of 15
natural gas for its retail natural gas customers in this case? 16
A. No, Avista is not proposing changes in this filing
related to the commodity cost of natural gas or upstream
pipeline transportation resource costs. Changes in the
commodity cost of natural gas and the cost of natural gas
pipeline transportation included in customers’ rates are 21
addressed in the Company’s annual Purchased Gas Cost Adjustment
(PGA) filing. The Company expects to file its annual PGA on or
before September 1, 2017, with new rates proposed to become
effective November 1, 2017.

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Avista Corporation
II. PLANNING FOR COMMODITY RESOURCE PROCUREMENT 1
Q. Please describe Avista’s natural gas portfolio as it 2
relates to the procurement of the natural gas commodity for its 3
local distribution company (“LDC”) customers? 4
A. Avista purchases natural gas for its distribution
customers in wholesale markets at multiple supply basins in the
western United States and western Canada. Purchased natural
gas can be transported through six inter-connected pipelines on
which Avista holds firm contractual transportation rights.
These contracts provide access to both US and Canadian-sourced
supply. The US-sourced natural gas represents approximately
25% of the contractual rights and provides transportation from
the Rocky Mountain supply basin. The remaining 75% provides
access to Alberta and British Columbia supply basins. This
diverse portfolio of natural gas transportation resources
allows the Company to make natural gas procurement decisions
based on the reliability and economics that provide the most
benefit to our customers. Natural gas prices in the Pacific
Northwest can be affected by global energy markets, as well as
supply and demand factors in other regions of the United States
and Canada. Price changes, combined with delivery constraints,
may cause the source mix to vary.
Illustration No. 1 below is a map showing our service

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Avista Corporation
territory, natural gas trading hubs, interstate pipelines, and
the Jackson Prairie Natural Gas Storage Facility:
Illustration No. 1 3

Future natural gas prices cannot be accurately predicted.
Market conditions, analysis, and experience shape our overall
procurement approach. The Company’s goal is to provide reliable 18
supply at competitive prices, with some level of price
certainty, in a volatile commodity market. To that end, the
Company utilizes a Procurement Plan which includes hedging (on
both a short-term and long-term basis), storage utilization,
and index purchases. This approach is diversified by

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Avista Corporation
transaction time, term, counterparty, and supply basin. The
Procurement Plan is disciplined, yet flexible, and layers in
fixed-price purchases over time and term to provide a level of
price certainty to customers for a portion of the portfolio. A
copy of the Company’s Natural Gas Procurement Plan is included
as Company witness Mr. Kinney’s Exhibit No. 4, Confidential
Schedule 2C, Avista’s Energy Resources Risk Policy.
The Procurement Plan provides a process that fixes future
natural gas prices for a targeted portion of the portfolio
through the use of hedge windows. The hedge windows are “open” 10
for a predetermined time period and have upper and lower pricing
levels which are determined by the market at the time the window
becomes effective. In a rising market, this reduces exposure
to extreme price spikes. In a declining market, it can
facilitate locking in lower prices. These windows can be
executed, or “closed”, if certain pricing levels are met, or 16
upon time expiration if no pricing events occur. The Company
always maintains some level of discretion and may choose not to
execute within a window or to change some aspect of a window
given market conditions.
The Natural Gas Supply Department monitors the results of
the Procurement Plan, evolving market conditions, variation in
demand profiles, new supply opportunities, and regulatory

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Avista Corporation
conditions. Although various windows and targets are
established in the initial design phase of the portfolio, the
plan provides flexibility to exercise judgment to revise and/or
adjust the Procurement Plan in response to changing conditions.
Material changes to the Procurement Plan are communicated to
Avista’s Senior Management and Commission Staff.
Q. What delivery period does the natural gas Procurement 7
Plan include? 8
A. The Procurement Plan includes the prompt six months
and seasonal strips (November-March or April-October) for up to
36 months from the current month. 11
Q. Please describe the components of the natural gas 12
Procurement Plan. 13
A. Each year a comprehensive review of the previous
year’s plan is performed. The review includes analysis of
historical and forecasted market trends, fundamental market
analysis, demand forecasting, transportation, storage and other
resource considerations. The plan includes the following
components:
1. Previous Year(s) Hedges – longer-term fixed-price
purchases executed as a part of a previous year’s 21
Procurement Plan.

2. Current Period Hedges (Prompt – 36 months) – the
portion of the portfolio addressed through the
utilization of hedge windows. In each window, fixed
price purchases are made for various prompt year

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Avista Corporation
delivery periods (i.e. November to March winter
purchase, April to October summer purchase, or
individual months). Prior to the execution of each
window, market conditions, market knowledge, and
other information are considered to determine if
execution will occur.

3. Natural Gas Storage – utilization of the working gas
capacity and deliverability of the Jackson Prairie
Natural Gas Storage Facility (“JP”). With JP, Avista 10
is able to provide natural gas during peak load events
during the higher demand winter months.
Additionally, JP withdrawals can be executed during
volatile daily gas price events. For less critical
operational purposes, JP withdrawals and injections
are frequently used to alleviate load imbalances on
pipelines. In 2015, Avista deployed a new natural
gas storage software model enabling Avista the
opportunity to further optimize the working gas
capacity. The model tracks the historical price
spreads of various time frames for JP injections and
withdrawals. This historical analysis quantifies the
relative benefit of current forward prices and
identifies optimal transactions to lock in more
economic value than the traditional summer-winter
spread.
27
4. Index Purchases – physical index-based natural gas
purchases are procured prior to or throughout the
delivery month. These purchases are usually
associated with daily pricing. The majority of the
amount of index purchases planned is the difference
between the forecasted demand less the sum of
previously executed hedges. Index purchases are also
made as part of Avista’s natural gas storage
management process throughout the year. This process
is explained in greater detail in Section III.
Q. Please describe how the Procurement Plan manages 38
volatility. 39
A. The Procurement Plan focuses on managing the costs
associated with serving varying retail load with supply from a

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Avista Corporation
wholesale market with price volatility. In order to manage
these seasonal, monthly and daily volume swings, Avista shapes
the components of the Procurement Plan by month (i.e. more
natural gas is hedged for the winter months than for the
summer). Illustration No. 2 below includes a chart that shows
the demand volatility:
Illustration No. 2 7
8

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Avista Corporation
Price volatility can also vary widely by season, month and
day. Illustration No. 3, below, includes a chart depicting the
natural gas price volatility over time:
Illustration No. 3 4
5

Avista cannot predict with accuracy what natural gas
prices will be. Our experience and intelligence related to
market fundamentals guide our procurement decisions. By
layering in fixed-price purchases over time, setting upper and
lower pricing levels on the hedge windows, and actively managing
storage resources, Avista is able to meet our goal of providing

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Avista Corporation
a meaningful measure of price stability and certainty, and
competitive prices for our customers.

III. JACKSON PRAIRIE 4
Q. Please describe Avista’s involvement with the Jackson 5
Prairie Natural Gas Storage Facility (JP). 6
A. Avista is one of the three original developers of the
underground storage facility at JP, which is located near
Chehalis, Washington. Although there have been corporate
changes due to mergers, acquisitions and name changes, Avista,
Puget Sound Energy (PSE) and Williams Northwest Pipeline each
hold a one-third share (equal, undivided interest) of this
underground gas storage facility through a joint ownership
agreement. Puget Sound Energy is the operator of the facility.
Q. What type of storage facility is JP? 15
A. JP is an underground aquifer storage facility.
Storage and the associated withdrawal and injection capability
has been created by a combination of wells, gathering pipelines,
compression and dehydration equipment, and the removal and
disposal of aquifer water.
Q. Please describe the present level of storage that 21
Avista owns at JP. 22
A. At the present time, Avista Utilities owns a total of

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Avista Corporation
8,528,013 dekatherms (Dth) of working gas capacity. This
capacity comes with a withdrawal capability (deliverability) of
398,667 Dth per day. Jurisdictionally this amount is broken
down as follows:

Q. What are the benefits of storage to Avista’s 8
customers? 9
A. Access to regionally located storage provides several
benefits to Avista’s customers. It enables the Company to 11
capture price spreads between time periods, improve reliability
and flexibility of supply, mitigates peak demand price spikes,
and numerous other economic benefits. 14
Avista utilizes a natural gas storage software model in
order to capture seasonal price spreads for the benefit of
natural gas customers. The model is governed by a storage
management program that sets boundaries on injections and
withdrawals as well as tracks real time market data to guide
the purchase and sale of natural gas storage transactions. The
program enforces storage constraints and requirements such as
the storage fill schedule, peak day load requirements,
transportation capacity limits, and deliverability constraints.

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Avista Corporation
The information within the model provides the Company’s 1
natural gas buyers the ability to identify additional
opportunities to purchase lower cost natural gas in the
immediate term for a sale in a future time period. For each
storage purchase transaction, a corresponding forward sale is
also made, locking in the benefit for our customers. Additional
purchases and sales are made continuously as market conditions
move into favorable conditions for each transaction. The effect
of storage volumes will be that they are more frequently cycled
in and out to take advantage of market conditions. It is
important to note that JP will still be utilized to meet peak
day needs, as well as to help mitigate daily price volatility.
The benefits associated with locking in time-period spreads
flow through to customers in the Company’s Purchase Gas 14
Adjustment (PGA) annual filings.

IV. 2016 NATURAL GAS INTEGRATED RESOURCE PLAN 17
Q. Please provide an overview of the Company’s 18
development of its 2016 Natural Gas Integrated Resource Plan. 19
A. The 2016 Integrated Resource Plan (“IRP”) was filed 20
with the Commission on August 31, 2016. The IRP includes
forecasts of natural gas demand and any supply-side
transportation resources and demand-side measures needed for

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Avista Corporation
the coming 20 years, which will help Avista continue to reliably
provide natural gas to our customers. A copy of the Company’s 2
2016 Natural Gas Integrated Resource Plan is included as Exhibit
No. 7, Schedule 1.
Q. What are the summary highlights from the 2016 IRP? 5
A. Highlights from the 2016 IRP are as follows:
 The Company has sufficient natural gas transportation
resources well into the future with resource needs
not occurring during the 20-year planning horizon in
Idaho, Washington, or Oregon;

 Natural Gas commodity prices continue to be
relatively stable due to robust North American
supplies led by shale gas development; and

 As forecasted demand is relatively flat, the Company
will monitor actual demand for signs of increased
growth which could accelerate resource needs.
Q. Has the Company’s 2016 Natural Gas IRP been 19
acknowledged by this Commission? 20
A. Yes. The Company’s 2016 IRP was acknowledged by the 21
Commission in Order No. 33720 on February 23, 2017.
Q. When will the Company file its next natural gas IRP? 23
A. The Company will file its next natural gas IRP on or
before August 31, 2018. A courtesy work plan will be filed in
August 2017 detailing Avista’s IRP planning process as well as 26
tentative dates and content for meetings with the Technical
Advisory Group (TAC). TAC meetings will begin in the first
quarter of 2018. 29

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Avista Corporation
Q. Does this complete your pre-filed direct testimony? 1
A. Yes, it does.