20170612Miller 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 )
OF AVISTA CORPORATION FOR THE )
CASE NO. AVU-G-17-01
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 ) JOSEPH D. MILLER
)
FOR AVISTA CORPORATION
(NATURAL GAS ONLY)
Miller, Di Page 1
Avista Corporation
I. INTRODUCTION 1
Q. Please state your name, business address and 2
present position with Avista Corporation. 3
A. My name is Joseph D. Miller. My business address
is 1411 East Mission Avenue, Spokane, Washington. I am
employed as a Senior Regulatory Analyst in the State and
Federal Regulation Department.
Q. Would you briefly describe your 8
responsibilities? 9
A. Yes. I am responsible for preparing and
maintaining the natural gas cost of service models for the
Company. I also provide support in the preparation of
revenue analysis, rate spread and rate design, and
miscellaneous other duties as required.
Q. Please describe your educational background and 15
professional experience. 16
A. I am a 1999 graduate of Portland State University
with a Bachelors degree in Business Administration, majoring
in Accounting. In 2005 I graduated from Gonzaga University
with a Masters degree in Business Administration. I joined
the Company in March 2008 after spending eight years in both
the public and private accounting sector. I started with
Avista as a Natural Gas Accounting Analyst in the Company’s 23
Resource Accounting Department. In January 2009, I joined
Miller, Di Page 2
Avista Corporation
the State and Federal Regulation Department as a Regulatory
Analyst. My primary responsibility was coordinating
discovery for the Company’s general rate case filings. In
my current role as a Senior Regulatory Analyst, I am
responsible for the Company’s natural gas cost of service
studies and revenue adjustments in all jurisdictions.
Q. What is the scope of your testimony in this 7
proceeding? 8
A. My testimony and exhibits will cover the Company’s 9
natural gas revenue normalization adjustments and cost of
service study performed for this proceeding. A table of
contents for my testimony is as follows:
Description Page 13
I. Introduction 1
II. Natural Gas Revenue Normalization 3
III. Natural Gas Cost of Service 7
IV. Cost of Service Results 10

Q. Are you sponsoring any Exhibits in this case? 19
A. Yes. I am sponsoring Exhibit No. 15, Schedule 1
which includes a narrative of the natural gas cost of service
study process, and Schedule 2, the natural gas cost of
service study summary results.
Q. Were these Exhibits prepared by you or under your 24
direction? 25
Miller, Di Page 3
Avista Corporation
A. Yes they were.
2
II. NATURAL GAS REVENUE NORMALIZATION 3
Q. Would you please describe the natural gas revenue 4
adjustment included in Company witness Ms. Andrews’ pro 5
forma results of operations? 6
A. Yes. Similar to the electric revenue
normalization adjustment, sponsored by Company witness Ms.
Knox, the natural gas revenue normalization adjustment
represents the difference between the Company’s actual 10
recorded retail revenues during the 12-months ended December
2016 test period, and retail revenues on a normalized (pro
forma) basis. The adjustment includes the re-pricing of pro
forma sales and transportation volumes at present rates
using pro forma sales volumes that have been adjusted for
unbilled sales, abnormal weather, and any material customer
load or schedule changes. The rates used exclude: 1)
Purchase Gas Cost Adjustment Schedule 150, which reflects
the costs related to purchasing and transporting natural gas
approved in the Company’s last PGA filing, 2) Temporary Gas
Rate Adjustment Schedule 155, which reflects the approved
amortization rate for prior deferred natural gas costs
Miller, Di Page 4
Avista Corporation
approved in the Company’s last PGA filing, and 3) Demand
Side Management Rate Adjustment Schedule 191.1
Q. Does the Revenue Normalization Adjustment contain 3
a component reflecting normalized natural gas costs? 4
A. No, natural gas commodity costs have been removed
from the Company’s filing.
Q. Have you determined the impact of each of the 7
components of this adjustment? 8
A. Yes. The net operating income impact for each of
the components is as follows:
1. Re-pricing of base distribution revenue increased
net operating income by $206,000.
2. Re-pricing base distribution unbilled revenue
decreased net operating income by $149,000,
3. The weather adjustment at present base rates
increased net operating come by $1,597,000.
4. The elimination of the deferred decoupling revenue
decreased net operating income by $1,360,000
The total net amount of the natural gas revenue
normalization adjustment is an increase to net operating
income of $294,000, as shown in adjustment column 2.07, on
page 7 of Ms. Andrews Exhibit No. 12, Schedule 2.

1 Documentation related to this adjustment is detailed in my workpapers
accompanying this case.
Miller, Di Page 5
Avista Corporation
Q. Would you please briefly discuss natural gas 1
weather normalization? 2
A. Yes. The natural gas weather normalization
adjustment is developed from a regression analysis of ten
years of billed usage per customer and billing period heating
degree-day data. The resulting seasonal weather sensitivity
factors (use-per-customer-per-heating-degree day) are
applied to monthly test period customers, and the difference
between normal heating degree-days and monthly test period
observed heating degree-days. This calculation produces the
change in therm usage required to adjust existing loads to
the amount expected if weather had been normal.
Q. In the discussion of electric weather 13
normalization sponsored by Ms. Knox, she indicated that the 14
adjustment utilized sensitivity factors from the 10-year 15
period January 2006 through December 2015. Is this true for 16
natural gas as well? 17
A. Yes, the natural gas weather adjustment utilized
weather sensitivity factors for the same 10-year period.
Q. What data did you use to determine “normal” 20
heating degree days? 21
A. Normal heating degree-days are based on a rolling
30-year average of heating degree-days reported for each
month by the National Weather Service for the Spokane Airport
Miller, Di Page 6
Avista Corporation
weather station. Each year the normal values are adjusted
to capture the most recent year with the oldest year dropping
off, thereby reflecting the most recent information
available at the end of each calendar year. The calculation
includes the 30-year period from 1987 through 2016.
Q. Is this proposed weather adjustment methodology 6
consistent with the methodology utilized in the Company’s 7
last general rate case in Idaho? 8
A. Yes. The process for determining the weather
sensitivity factors and the monthly adjustment calculation
is consistent with the methodology presented in Case No.
AVU-G-15-01.
Q. What was the impact of natural gas weather 13
normalization on the 12-months ended December 2016 test 14
year? 15
A. Weather was warmer than normal during the January
2016 through December 2016 period. The adjustment to normal
required the addition of 766 heating degree-days from
January through June and October through December.2 The
adjustment to sales volumes was an addition of 5,978,311
therms which is approximately 4.7% of total billed usage.

2 Heating degree days that occur during July through September do not
impact the natural gas weather normalization adjustment as the seasonal
sensitivity factor is zero for summer months.
Miller, Di Page 7
Avista Corporation
III. NATURAL GAS COST OF SERVICE 1
Q. Please describe the natural gas cost of service 2
study and its purpose. 3
A. A natural gas cost of service study is an
engineering-economic study which separates the revenue,
expenses, and rate base associated with providing natural
gas service to designated groups of customers. The groups
are made up of customers with similar usage characteristics
and facility requirements. Costs are assigned in relation
to each group’s test year load and facilities requirements, 10
resulting in an evaluation of the cost of the service
provided to each group. The rate of return by customer group
indicates whether the revenue provided by the customers in
each group recovers the cost to serve those customers. The
study results are used as a guide in determining the
appropriate rate spread among the groups of customers.
Exhibit No. 15, Schedule 1 explains the basic concepts
involved in performing a natural gas cost of service study.
It also details the specific methodology and assumptions
utilized in the Company’s Base Case cost of service study.
Q. What is the basis for the natural gas cost of 21
service study provided in this case? 22
A. The cost of service study provided by the Company
as Exhibit No. 15, Schedule 2 is based on the 12-months ended
Miller, Di Page 8
Avista Corporation
December 2016 test year pro forma results of operations
presented by Ms. Andrews in Exhibit No. 12, Schedule 2.
Q. Would you please explain the natural gas cost of 3
service study presented in Schedule 2? 4
A. Yes. Exhibit No. 15, Schedule 2 is composed of a
series of summaries of the cost of service study results.
Page 1 shows the results of the study by FERC account
category. The rate of return and the ratio of each
schedule’s return to the overall return are shown on lines 9
38 and 39. This summary is provided to Company witness Mr.
Ehrbar for his consideration regarding rate spread and rate
design. The results will be presented later in my testimony.
Additional summaries show the costs organized by functional
category (page 2) and classification (page 3), including
margin and unit cost analysis at current and proposed rates.
Finally, page 4 is a summary identifying specific customer-
related costs embedded in the study.
The Excel model used to calculate the natural gas cost
of service and supporting schedules has been included in its
entirety both electronically and hard copy in the natural
gas workpapers accompanying this case.
Q. Does the Natural Gas Base Case cost of service 22
study utilize the methodology from the Company’s last 23
natural gas case in Idaho? 24
Miller, Di Page 9
Avista Corporation
A. Yes, the Base Case cost of service study was
prepared using the same methodology applied to the study
presented in Docket No. AVU-G-15-01.
Q. What are the key elements that define the cost of 4
service methodology? 5
A. Underground storage costs are allocated by
normalized winter throughput. Natural gas main investment
has been segregated into large and small mains. Large usage
customers that take service from large mains do not receive
an allocation of small mains. System facilities that serve
all customers are classified by the peak and average ratio
that reflects the system load factor, then allocated by
coincident peak demand and throughput, respectively. Meter
installation and services investment is allocated by number
of customers weighted by the relative current cost of those
items. General plant is allocated based on the Company’s 16
blended four-part factor allocator (four-factor).
Administrative & general expenses are segregated into labor-
related, plant-related, revenue-related, and “other”. The 19
costs are then allocated by factors associated with labor,
plant in service, or revenue, respectively. The “other” A&G 21
amounts are allocated based on the Company’s four-factor. A
detailed description of the methodology is included in
Exhibit No. 15, Schedule 1.
Miller, Di Page 10
Avista Corporation
Customer Class Rate of Return Return Ratio
General Service Schedule 101 4.68%0.86
Large General Service Schedule 111/112 9.33%1.71
Transportation Schedule 146 6.36%1.17
Total Idaho Natural Gas System 5.46%1.00
IV. RESULTS 1
Q. What are the results of the Company’s natural gas 2
cost of service study? 3
A. The Base Case cost of service study presented in
this filing we believe provides a fair representation of the
costs to serve each customer group. The study indicates
that the General Service Schedule 101 (serving most
residential customers) is providing less than the overall
rate of return (unity), and Large General, and
Transportation service schedules (111/112 and 146) are
providing more than unity. The following Table No. 1 shows
the rate of return and the relative return ratio at present
rates for each rate schedule:
Table No.1: 14
Base Case Results 15
16
17
18
19
The summary results of this study were provided to Mr.
Ehrbar for consideration in the development of the proposed
rates.
Miller, Di Page 11
Avista Corporation
Q. Does this conclude your pre-filed direct 1
testimony? 2
A. Yes.