20171103Andrews Direct.pdf

idaho Publlc Utllities Commission
Otfice of the Secretary
RECEIVED
Nov 0 3 2017
DAVID J. MEYER
V]CE PRESIDENT AND CH]EF COUNSEL EOR
REGULATORY & GOVERNMENTAL AEFA]RS
AV]STA CORPORAT]ON
P.O. BOX 3721
1471- EAST M]SSION AVENUE
SPOKANE, WASHTNGTON 99220-3127
TELEPHONE: [phone]
EACSIMILE: [phone]
DAVID. MEYERGAVISTACORP . COM
BEEORE THE IDAIIO PT'BLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OE AVISTA CORPORAT]ON EOR THE
AUTHOR]TY TO ]NCREASE ]TS RATES
AND CHARGES EOR ELECTRIC AND
NATURAL GAS SERVICE TO ELECTR]C
AND NATURAL GAS CUSTOMERS IN THE
STATE OF IDAHO
CASE NO. AVU-E-71_07
CASE NO. AVU-G-T7_07
DIRECT TESTIMONY
OF ELIZABETH M ANDREWS
IN SUPPORT OF
ST] PULATION
EOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
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I. TNTRODUCTION
A. Please state your nane, employer and business
address.
A. My name is EIj-zabeth M. Andrews and I am
employed by Avista Corporation ("Company" or "Avista")
as Senior Manager of Revenue Requirements in the State
and Eederal- Regulation Department, at 7477 East Mission
Avenue, Spokane, Washington.
A. Have you previously provided direct testimony
l0 in this Case?
ll A. Yes. My previous direct testimony in this
t2 proceeding
support of
and natural
rate period
covered accounting
the Companyrs need
gas j-ncreases in
for the proposed
rates over the
resufts
and financial data in
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electric
two-year
31, 20L9.
including
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17 expense and rate
l8 operating results
Pl-an.
A. IYtrat is
January 7, 2078 through December
formed operating
base adjustments
and rate base for
made to actual
the Two-Year Rate
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2l A. The purpose of
22 support the electric and
23 elements of the
24 ("Stipulation") filed on
the scope of this testimony?
my testimony is to describe and
natural gas revenue requirement
Stipulation and Settlement
October 20, 2071 , as weII as
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explain why the Stipulation is in the public interest.
The parties to the Stipulation include the Staff of the
Idaho PubIic Utilities Commission ("Staff'), Cfearwater
Paper Corporation ( "Clearwater" ) , Idaho Forest Group, LLC
("Idaho Forest"), the Community Action Partnership
Association of Idaho ("CAPAI"), and the Company. These
entities are collectively referred to as the "SettIing
(*ICL"), and theParties. " The Idaho Conservation League
Sierra C1ub, do not join in the Settl-ement Stipulation.
l0 Company witness Mr. Ehrbar discusses the non-revenue
I I related elements of the Stipulation agreed to by the
12 Settling Parties, such as electric and natural gas Cost
13 of Service, Rate Spread and Rate Desi-gn, as wefl as other
14 Stipulation components related to the Power Cost
l5 Adjustment (PCA) and Eixed Cost AdSustment Mechanism
16 authorized ]evels and customer service-related
17 initiatives and programs.
18 9. Are you sponsoring any exhibits?
19 A. Yes. f am sponsori-ng Exhibit No. 7J, which is
20 a copy of the Stipulation and Settlement filed on October
21 20, 2071, with the Commission.
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II. ST'MMARY OE ORIGINAL EILING
A. P1ease describe the Company's general rate case
request, as filed.
A. On June 9, 2011, Avista filed an Application
with the Commission for authority to increase revenue
effective January 7,
electric and natural
proposed a Two-Year
electri-c base revenue
Commission suspended
charges for el-ectric
2018 and
gas servlce
Rate Pfan
, 2079 for
The Company
increase in
January 1
in Idaho.
with an
of $18.6 million or 1.5% for 2018,
and $9.9 million or 3.7% for 20L9. With regard to natural
gdsr the Company proposed an increase in base revenue of
$3.5 mj-l-Iion or B. 8% f or 2078 (5 .7% on a billed basis ) ,
and $2.I million or 5. 0% for 201"9 (3 . 3% on a billed
33808, dated June 30, 2077, the
the proposed schedules of rates and
basis). By Order No.
gas service.
used the resul-ts of theFor el-ectric, the Company
electric cost of service study
a guide to spread the general
and natural
(sponsored by Ms. Knox) as
increase. The spread of
the proposed increase generally resulted in the rates of
return for the various electric service schedules moving
approximately 158 cfoser to the overall rate of return
(unity) . While we believe it j-s reasonabl-e and
approprj-ate to use the cost of service study results as
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Avista Corporation
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the basis for rate spread, we tempered the
this case duemovement toward unity proposed in
to the impact such movemenL woul-d have between
schedul-es.
The Company proposed to increase the electric
monthly customer charge from $5.75 per month to $6.00 per
month effective January 1, 2018.
For natural gas, the Company used the resul-ts of the
cost of service study (sponsored by Company witness Mr.
Mil-l-er) as a guide to spread the natural gas general
increase. The spread of the proposed increase generally
resulted in the rates of return for the various service
schedul-es movj-ng approximately one-third closer to the
overal-l- rate of return (unity) .
The Company proposed to increase the natural gas
monthly customer charge from $5.25 per month to $6.00 per
month effective January 1, 20L8.
A. Wtrat are the primary faetors driving the
amount of
primarily
the rate
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19 Company's need for an electric and natural. gas increases?
20 A. The primary factor driving the Company's
2l electric and natural gas revenue requirements in 2018
22 and 2019 i-s an increase in net plant investment
23 (including return on investment, depreciation and
24 taxes, and offset by the tax benefit of interest) from
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that currently authorized. Eor 201-8, net power supply
expenses contributes to the incremental revenue
requirement.
For electric, specific capital investments over the
period 2011-20L8 include, among other things, upgrades to
certain major generating facilities, such as the Nine
Mile Rehabilitation project, the Little FalIs Plant
Upgrade, and the Kettle Falls Stator Rewind projectsr ds
well as capital investment associated with the Clark Fork
and Spokane River License agreements, discussed by
Company witness Mr. Kinney.
For natural 9ds, specific capital investments over
the period 201-7-2018 include, among other things, capital
investments related to the Gas Facilities Replacement
(Aldyl A) and Gas Isolated SteeI Replacement programs, as
weII as Gas Schweitzer Mountain Road HP and Gas Rathdrum
Prairie HP main reinforcement projects, discussed by
Company witness Ms. Rosentrater.
For power Supply, as discussed by Company witness
Mr. Johnson, the l-evel of Idaho's share of power supply
expense for 2018 has increased by approximately $1.9
million ($5.9 million on a system basis) from the level-
currently incl-uded in base rates. This increase in
expense is primarily due to Iower net spot market sales
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resulting from less favorable economic operating
conditions for the Company's gas-fired resources.
III. ST MMARY OE SETTLEI.{ENT STIPULATTON
9. Would you briefIy sunrmarLze the Stipulation?
A. Yes. Under the terms of the Stipulation, as
discussed further by Mr. Ehrbar, Avista would implement
revised tariff schedules to recover additionaldesigned
of $72.9annual electric revenue mil-Iion or 5.2% (on a
billed basis the increase is 5.1%), effective January 7,
20L8, and increase base revenues by $4.5 mi11ion, or 1. B%
(on a billed basis the increase is l.'7e") t, ef fective
January 1, 2019. For natural- gdS, the Settling Parties
agree that Avista would increase natural gas base revenue
by $L.2 mi-I1ion, or 2.9eb (7.9% on a billed basis) ,
effective January t, 20L8, and $1.1 million, or 2.Je"
(1.8% on a billed basis), effective January 7, 2079.
These rate changes are designed to provide retail-
revenues necessary to al-l-ow the Company the opportunity
to earn the rate of return agreed to in the Stipulation
1 Overall electrlc percentage increase in bi-I1ed rates for January
7, 2018 and .Ianuary l, 2019 vary from that shown by Mr. Ehrbar
within hls schedules for electric service, on page 4 of his
supporting testimony, as the Settlj-ng Parties agreed with the
proposal to offset the current Schedule 97 (Electric Earnings Test
Deferral ) rebate of $2 .'7 mj-11ion, which exp j-res on December 31,
2071, with $1.5 mi-11ion rel-ated to the electric earnings test for
cafendar year 2015.
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Avista Corporation
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for the two-year rate period January 7, 20L8 through
December 31, 2019.
As noted by Mr. Ehrbar, a residential customer using
an average of 910 kilowatt hours per month would see a
$5.22r ot 5.9%, increase per month for a revised monthly
bill of $93.34. An additional increase of $2.76 per
month, or 2.3eo, for a revised monthly biIl of $95.50
would be
Paragraph
electric
effective January l, 2079. (See Exhibit No. 7f,
15, for the January L, 20IB and January 7, 2019
l0 percentage changes in rates by rate schedule. )
ll For natural 9ds, a residential customer using an
12 average of 63 therms per month woufd see a $1.13 r ot
13 2.1"%, increase per month for a revised monthly bill of
14 $53.74. An additional increase of $1.09 per month, or
l5 2.0%, for a revised monthly bilI of $54. B3 would be
16 effective January l, 2079. (See Exhibit No. tJ, Paragraph
17 16, for the January L, 20lB and January I, 201-9 natural
18 gas percentage changes in rates by rate schedule.)
19 In determining this revenue increase, the Settling
20 Parties have agreed to various adjustments to the
2l Company's original filing, which are summarj-zed in the
22 Stipulation, and described further in my testimony
23 below.
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The Stipulation cal-l-s for an overal-I rate of return
of 7.672, determined using a capital structure consj-sting
of 50% common stock equity and 50% debtr dfl authorized
return on equity of 9.5% and cost of debt of 5.12%.
Vflith regard to the Two-Year Rate PIan, the Settling
Parties agree that, duri-ng the January 1, 2078 - December
37, 201-9 rate period covered by this Stipulation, Avista
will not file another electric or natural gas general
rate case to increase base rates before May 31-, 2079, and
any such rates wifl not go into effect prior to January
L, 2020. This does not apply to tariff filings
authorized by or contemplated by the terms of the Power
Cost Adjustment (PCA), Eixed Cost Adjustment (FCA), the
Purchased Gas Adjustment tariff (PGA) r ot other
miscellaneous annual fiJ-ings. Avista agrees that it wiIl
not file deferred accounting requests or requests to
create a regulatory asset during the Stay-out Period,
except in extraordinary circumstances. Eor purposes of
this paragraph extraordinary circumstances will- not
include changes in inter-jurisdictional allocation
methodology, accounti-ng changes r oL costs rel-ated to the
Company's participation in Energy Imbalance Markets.
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Lastly, the Settling Parties agreed to certain cost
of service, and rate spread and rate design changes as
described by Mr. Ehrbar in his supporting testimony.
A. Please o<plain how the Settling Parties arrived
at the Stipulation in this proceeding.
A. The Stipulation is the product of settlement
discussions held in the Commission offices on September
29, 20L1.2 It represents a compromise among differing
points of view, wj-th concessions made by
Parties, to reach a balancing of j-nterests
the Settling
As will be
Stipulationexplained in the Company's testimony,
represents a fair, just and reasonable
issues and is in the public interest.
Sti-pulation is the end
the
result of extensi-ve
discovery process3,
visits by Commission
compromise of the
In addition, the
audit work
including
Staff, and
in this
conducted through the
various on-site audit
hard bargaining by
proceeding.
The Stipulation
the Settling Parties
Settling Parties associated
Company's requested cost of
all- issues among the
the calcul-ation of the
capital, including capital
structure and cost components, and resolves aII revenue
2 The Sierra Cfub was unable to attend the settlement conference.3 Avista responded to over 719 production and audit requests
( including sub-parts ) from TPUC Staff and other intervenlng
parties.
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Avista Corporation
resofves
with
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requirement issues over the Two-Year Rate Plan. As
discussed by Mr. Ehrbar, the Stipulation al-so includes
agreement regarding certaj-n cost of service issues, ds
wel-I as rate spread and rate design.
A. Why is the Stipulation in the pubJ.ic interest?
A. The Stipulation is in the "public interest"
for several reasons. The Stipulation was the product of
the give-and-take of negotiation that produced an "end
resul-t" that is just and reasonabl-e. fn addition, it is
supported by the evidence, demonstrating the need for
rate adjustments to provide recovery of necessary
expenditures and investment, the costs of which are not
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from
The Settlement
a variety
Clearwater,
of
Idaho
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constituencies, including CAPAI,
Eorest Group, and the Staff of the
In addition, the Settfement
Commission.
provides base rate
(20l-B /201,9), which
and budget for
would prohibit
l8 certainty over the next two years
19 would benefit all customers, as they plan
20 their needs. The Two-Year Rate PIan
2l Avista from making further changes in base rates prior
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to January 1, 2020, thereby breaking the yearly cycle of
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rate f iJ-ings.
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III. Electric REVENT E REQUIRTMENT EIJED{ENTS
OF THE STIPUI.ATION
9. Please explain the derivation of the Electric
Revenue Requirement outlined in the Stipulation.
A. The Settling Parties agreed that electric
revenue increases are necessary, effective January 7,
201-8 and January !, 2019. While Avista's filing requested
electric revenue requirement increases of $18.6 milfion
and $9.9 miffion, effective January 7, 20LB and January
l0 l, 2019, respectively, the Settling Parties agreed-upon
l1 adjustments, including the agreed-upon rate of return,
l2 resul-t in recommended e]ectric revenue increases of $72.9
13 mil-l-ion and $4 . 5 million, respectively. These increases
14 are designed to provide suffj-cient retail- revenues for
l5 the 20lB and 201-9 two-year rate period, which woul-d
16 provide the Company wj-th the opportunity to earn the
l7 return agreed to in the Stipulation.
l8 9. Please e:cplain the Settling Parties, agreement
19 with regrard to an Authorized Rate of Return, incJ.uding
20 the Return on Equity.
2l A. The Settling Parties have agreed to an overall
22 rate of return of '7 .61e", based on a return on equity of
23 9.5eo, an equity component at 508 and cost of debt of
24 5.12%. By comparison, the Company's original filing
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requested an overall rate of return of 7.81%, a return on
equity of 9.9%, an equity component of 50% and cost of
debt of 5 .12%.
A. Please provide an overview of the electric
revenue reguirement adjustnents agreed to by the Settling
Parties for 2018 effective ilanuary 1, 2018.
A. The Settling Parties agreed to an electric
revenue requirement effective January 1, 2018 that
ref l-ects the
l0 table from the
adjustments shown below in the excerpted
Stipulation:
11 Tab]-e No. 1: Electric Revenue Requirement (Jan. L, 2018)
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24 descripti-ons provided within the summary tabfe above, the
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STI}IMARY TABLE OF ADJTISTN{ENTS TO ELECTRIC REVENT E RE,QTIIREI\IENT'
EFFECTIVE JANT]ARY I, 20I8
(000s of Dollars)
Reve nue
Requirement Rate Base
s 18,571 $ 796,609
a.)
b.)
c.)
Amount as Filed:
Adjustments:
Cost of Capital
Company 2017 Net Rate Base Updates
M isce llaneous Company Update s : Re gulatory Amortizatbq U ncollectibles,
Maintenance and IS/IT Expenses.
Remove Offrcer Incentives and Reduce Non-Offrcers Incentives
Reduce Officer Labor Expenses
Reduce 2017 IS/IT Capital Projects
Delay Meter Data Management Project Recovery to January l, 2019
Remove 2018 Expense: Delay Recovery to Janaury l, 2019
i.) 2018 Labor Increase
ii.) 2018 Undergromd Equipment Inspection Expense
Miscellaneous Adjtstrnents: Board of Director Expenses, Injuries and
Damages, Legal and Environmental Expenses, Removal of Expiring Lease
Expense and lnclusion of O&M Savings
Adjusted Amounts Efrective January l,2018
$
$
$
$
$
$
$
$
$
$
(2,&4)58$
ll2
(3e3)
(il5)
(276) $
(r,075) $
(447)
(270)
(671)
( r.926)
(t.762)
(6.834)
d.)
e.)
f)
c.)
h.)
i.)
s 12,890 s ?86108?
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1 adjustments accepted f or settl-ement purposes cover a
and cost categories, including thebroad range of revenue
authori zed rate of return . The individua.I ad j ustments
should not be viewed in isolationi rather, they should be
viewed in total as part of the entire Stipulation, and
are the result of hard bargai-ning and compromise.
9. Would you please elaborate on the individual
line itens contained within Tab].e No. L?
A. Yes. A description of the adjustments
resuJ-ting in the electric revenue requirement, effectj-ve
January !, 2018, foll-ows.
Cost of Capital (line a.) The overall revenue
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l3 requirement reduction refated to the cost of capital
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15 $2 . 604 mil-l-ion . The agreed-upon cost of capital
16 components are shown in the table below:
17
Component
Capital
Structure Cost Weighted Cost
Debt
Common EquE
Total
50%
50%
5.72%
9.50%
2.86%
4.75%
100%7.61.
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21 Company 2071 Net Rate Base Updates (Iine b. ) The
22 2071 filed electric capital additions were updated by
23 Avista to reflect adjustments for updated information,
24 including related depreciation expense, accumulated
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depreciation (A/D) and accumulated deferred federal
income taxes (ADEIT), associated with these adjustments
to reflect balances as of December 31, 2071. This
adjustment resulted in an overall- reduction to rate base
of $7.926 million, and an increased revenue requirement
of $58,000.
Miscellaneous Company Updates - (1ine c. ) This
adj ustment
removal of
reflects updates to expenses related to
amortization,
the expiri-ng Colstrip credit regulatory
uncollectible expense, maintenance expense
associated with the Company's Colstrip generation p1ant,
and annualized incremental Information Service /
fnformation Technology (IS/IT) Iabor positions added in
2071. This adjustment increases the overal-I revenue
requirement by $112, 000.
Remove Officer Incentives and Reduce Non-Officer
Incentives (1ine d. ) This ad;ustment reflects the
all officer incentives incl-uded in theremoval of
Company' s or j-g j-na1 f iling . This adj ustment also reduces
incentives for Non-Officers to a 100% payout ratio. This
adjustment decreases the overall revenue requj-rement by
$393, 000.
Reduce Officer Labor Expenses - (line e. ) This
adjustment reduces officer l-abor expenses from that
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1 included in the Company's origi-naI fi-Iing to an agreed-
overalfupon leveI. This adjustment decreases the
revenue requirement by $115,000.
Reduce 2011 IS/IT Capital Projects (line f.) This
adjustment reduces certain capital investments related to
Information Services/Information Technology ( IS/IT)
refresh and expansion projects planned during 2011. This
ad;ustment decreases the overall revenue requirement by
$216,000, and reduces net rate base by $7.162 million.
D€lgy Nlqter Data Management Proj ect Recovery to
January !, 2019 (l-ine g. ) This ad j ustment removes the
Meter Data Management System project costs completed in
October 207'1, delaying the recovery until January 1,
2019. This adjustment decreases the overall revenue
requirement by $1.075 mil1ion, and reduces net rate base
by $6.834 million.
Remove 2018 Expense: Oelay n tq {C4uery 1.
2079 (Iine h. )
2078 Labor fncrease (line i. )This
adjustment removes the incremental non-executive
Iabor increases planned for 2078, and includes them
with the January I,
decreases the
20L9 rate change. This
adj ustment overall- revenue requirement
by $ 441 ,000.
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20lB Underground Inspection Equipment Expense
(line ii. ) This adjustment removes the 20IB
underground equipment inspection costs, and incl-udes
them with the January 7, 2079 rate change. This
adjustment decreases the overall revenue requirement
by $270,000.
Miscellaneous Adjustments (Iine i.) Reflects the
net change
requested
($210,000) ;
electric in
removing legal expenses
error ($+2,000); 3)
in operating expenses rel-ated to: 1) removing
additional Board of Director expenses
aIl-ocated to Idaho2)
associated with certain feases expiring during
removrng expenses
the 2078
rate year
environmental cleanup costs al-Iocated to Idaho electric
in error ($4e,000) ; 4) inclusion of the O&M savings
associated with the Company's new website application
($23,000); 5) reducing the six-year average of in;uries
and damages ($11,000); and 6) the net effect of removing
certain other miscellaneous A&G expenses ($85r000). The
net effect of this adjustment decreases the overall
revenue requirement by $671r000.
9. Please sumnarize the impact of these
adjustments on the electric revenue requirement agreed to
by the Settling Parties effective ilanuary L, 2018.
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($192,000) ; 3) removing certain 2016
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A. The adjustments discussed above, and agreed to
by the SettIj-ng Partj-es, reduces AvisLa's 20lB rate year
electric revenue requirement of $18.571 million to $72.89
million, resulting in a 5.2% electric base rate increase
(on a billed basis the increase is 5.18 ) , effective
January
Settling
2018. The Net rate base agreed to by the
Parties for electric is $786.1 million.
A. Please provide an overview of the increrrental
electric revenue requirement components agreed to by the
Settling Parties effective ilanuary 1, 2OL9.
A. The Settling Parties agreed to an incremental
electric revenue increase effective January 7, 20L9 that
refl-ects the adjustments shown below in the excerpted
table f rom the St.i-pulation:
Tab1e No. 2: Electric Revenue Recruirenent (.ran. L, 2019)
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Avista Corporation
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a.)
b.)
SUMMARY TABLE OF ADJUSTMENTS TO ELECTRIC REVENUE REQTIIREMENT
EFFECTIVE JANUARY I, 20I9
(000s of Dollan)
Revenue
Requirement Rate Base
Rate Base Amount Effective January l, 2018
Incremental Revenue Adjustment to January l,2018 Rate Change
(see Tabel No. l):
Add Meter Data Management Project
Add 2018 Related Capital and Expenses:
2018 Capital Additions on an AMA Basis
Property Tax Expense on 2018 Plant Additions
2018 Annualized Labor lncrease
2018 Underground Equfment Inspection Expense
January l,2019 Incrcmental Revenue Adjustment and Rate Base
Amount (above January l,2018 Rate Change - see Table No. l)
$ 786,087
1.075 $
$
4,544 _$_t21222_
s
s
$
$
$
6,834
2,071i
IL
iii
iv.
I,,938
613
648
270
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A. P1ease elaborate on the individual line itanns
2 contained within Tab].e No. 2?
A. A description of the adjustments resulting in
the electric revenue requi-rement, ef fecti-ve January 7,
2079, foIIows.
Add Meter Data__I4enegeme4t Pro j ect (line a. ) This
adjustment adds the Meter Data Management System project
costs completed October of 2077 for recovery effective
January 7, 2079. This adjustment increases the overal-I
adjustment increases
by $1.938 million,
l0 revenue requirement by $1.075 million, and increases net
ll rate base by $6.834 million
12 Add 2018 Related Capi-tal and Expenses (line b. )
l3 2078 Capi-tal Additions on an AMA Basis ( Iine
t4 i . ) This ad j ustment includes certain 20LB capi-tal-
l5 additions on an AMA basis. This
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the overall revenue requirement.
and increases net rate base by $2.071 mill-ion
Property Tax Expense On 2078 Plant Additions
(line ii.) This adjustment includes property tax
expense associated with 2018 capital additions. This
adjustment increases the overall revenue requirement
by $613,000.
2078 Annual-ized Labor Increase (Iine iii.)
This adjustment inc1udes the 20L8 annualized non-
Andrews, Di 1B
Avista Corporation
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executive Iabor increases for both union and non-
union empJ-oyees. This adjustment increases the
overall- revenue requirement by $648,000
2078 Underground Inspection Equipment Expense
(Iine iv. ) This adj ustment j-ncludes the 2018
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10 adjustments on the electric rev€rnue
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by the Settling Parties effective Januar! L,
A. The adjustments discussed above,
underground equipment
adjustment increases the
by $270,000.
A. P1ease sumarize
inspecti-on costs. This
overall revenue requirement
the iryact of these
reguirement agreed to
20L9.
and agreed to
rate year
to $4.5
increase
effective
13 by the Settling Parties, reduces Avista's 20L9
14 electric revenue requirement of $9.9 milfion
15 miJ-Iion, resulting in a I.9% electric base rate
16 (on a billed basis the j-ncrease is 7.72) ,
l7 January 7, 2079. The Net rate base agreed to by the
l8 Settling Parties for electric is $795.0 million.
rv. NATTRAIJ GAS REVENTE REgUTREI4ENT ELEI{ENTS
OF THE STIPUI,ATION
A. Please e:<plain the derivation of the Natural
Gas Revenue Reguirement outlined in the StipuJ.ation.
Andrews, Di 79
Avista Corporation
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A. The Settling Parties agreed that natural- gas
2 revenue increases are necessary, effective January l,
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20lB and January 7, 2079. While
naturaf gas revenue requirement
the
the
Avista's filing requested
increases of $3.5 mi-Ilion
January 1-, 2078 and January
Settling Parties agreed-upon
agreed-upon rate of return,
and $2.7 million, effective
7, 2019, respectively,
adjustments, including
resuft in recommended natural gas revenue increases of
$7.2 million and $1.1 million, respectively. These
l0 j-ncreases are designed to provide sufficient retail
ll revenues for the 20lB and 20i-9 two-year rate period,
12 which would provide the Company with the opportunity to
13 earn the return agreed to in the Stipulation.
14 A. Is the Authorized Rate of Return, including the
15 Return on Equity the sarre as that e:<plained above for
16 electric?
17 A. Yes. Consistent with that for efectric, the
18 Settling Parties have agreed to an overall rate of return
19 of 7.61%, based on a return on equity of 9.5%, an equity
20 component at 50% and cost of debt of 5.12%.
2l A. Please provide an overview of the natural gas
22 revG:nue requirement adjustments ag'reed to by the Settling
23 Parties for 2018 effective .Ianuary 1, 2018.
Andrews, Di 20
Avista Corporation
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A. The Settling Parties agreed to a natural gas
revenue requirement effective January l, 20lB that
reffects the adjustments shown below j-n the excerpted
tabl-e f rom the StipuJ-ation:
Tab1e No. 3: Natural Gas Revenue Requirernent (,Jan. L, 2018)
A. Wou1d you
Line itoms contained
A. Yes. A
resulting in the
effective January 1,
Cost of Capital
(see above).
requirement by
please elaborate on the individual
within Tab1e No. 3?
descr j-ption of the adj ustments
natural gas revenue requirement,
2078, follows.
- (Iine a. ) As previously described
This adjustment reduces the overal1 revenue
$470,000.
Compeny 2lll Net Rate Base Updates (Iine b. ) The
20L7 filed natural gas capital additions were updated by
Andrews, Di 2l
Avista Corporation
a.)
b.)
c.)
d.)
e.)
f)
c.)
h.)
i.)
j.)
ST]MMARYTABLE OF ADJIISTMENTS TO NATI.IRAL GAS REVENUE REQTIIREMENT
EFFECTIVE JANI.IARY I, 20I8
(000s of Dollan)
Revenue
Requirrment Rate Base
Amount as Filed: $
Adjustments:
Cost of Capital $
Company 2017 Net Rate Base Updates $
Miscellaneous Company Updates: Uncollectibles and IS/IT Expenses. $
Adjust Weather Normalization $
Remove Officer Incentives and Reduce Non-Officers lncentives $
Reduce Oflrcer Labor Expenses $
Reduce 2017 IS/IT Capital ProFcts $
Remove Meter Data Management Project: Delay Recovery to January l, 2019 $
Remove 2018 Labor Expense: Delay Recovery to Janaury l, 2019 $
Miscellaneous Adjustments: Board of Director Expenses, lnjuries and $
Damages, Advertising Expenses, Legal Experses, Removal of Expiring Lease
Expense and Inclusion of O&M Savings/Expenses.
3,4E0 $ 144,807
$ 2.199
Adjusted Amounts Effective January l,2018 $ r,180
(470)
324
20
(r,r62)
(r0s)
(2e)
(43)
(4r5)
(120)
(300)
$ (2r4)
$ (r,860)
$ 144,932
I
I Avista to reflect adjustments for updated information,
related deprecj-ation expense, A/D and ADEIT,
with these adjustments to reflect balances as
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including
associated
of December 31, 2011. This adjustment increases the
overall revenue requirement by $324r000 and increases net
rate base by $2.199 million.
Miscellaneous Company Updates (line c. ) This
adjustment reflects updates to expenses rel-ated to
uncol-IectibIe expense and annualized j-ncremental IS/IT
l-abor positions added in 20L1. This adjustment increases
the overall revenue requirement by $20r000.
Adjust Weather Normalization (1ine d. ) This
adjustment revises the natural gas weather normal-ization
adjustment, increasing test year bi-J-Iing determinants,
thereby increasing test year (present) revenue. This
adjustment decreases the overall revenue requirement by
$L.762 million.
Remove Officer Incentives and Reduce Non-Officer
Incentives (J-ine e . ) This adj ustment ref lects the
al-1 of f icer incenti-ves i-ncluded in the
Company's original filing. This adjustment also reduces
incentives for Non-Officers to a 100% payout ratj-o. This
adjustment decreases the overall revenue requirement by
$1o5, ooo.
Andrews, Di- 22
Avista Corporation
removal- of
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Reduce Officer Labor Expenses ( line
expenses
filing to
f. ) This
adj ustment
incl-uded i-n
reduces of f icer l-abor from that
the Company's original an agreed-
overal-Iupon Ievel-. This adjustment decreases the
revenue requirement by 529,000.
Reduce 2071 IS/IT Capital Projects (Iine q.) This
adjustment reduces certain capital investments related to
IS/IT refresh and expansion projects planned during 2017.
This adjustment decreases the overall- revenue requirement
10 by $43,000, and reduces net rate base by $214,000.
il Delay Meter Data Management Project Recovery to
l2 Janqery lr ?!19 (line h. ) This adjustment removes the
l3 Meter Data Management System project costs completed in
until January I,14 October 2071, delaying the recovery
t5 20L9. This
requirement by
$1.860 miflion.
Remove 20tB
adjustment decreases the overall- revenue
$415,000, and reduces net rate base by16
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l8 Labor Expense: DeJ-ay Recovery to January
t9 1 2079 (Iine i. )This adjustment removes the
]abor increases planned for
with the January L, 2079 rate
decreases the overall revenue
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incremental non-executive
2018, and incl-udes them
change. This adjustment
requirement by $120, 000.
Andrews, Di 23
Avista Corporation
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Mj-scef Ianeous Ad j ustments (Iine j.) Refl-ects the
net change in operating expenses related to: 1) removing
requested additional Board of Director expenses
($70,000); 2) removj-ng 1ega1 expenses allocated to Idaho
natural gas in error ($3r 000) ; 3) removing expenses
associated with certain Ieases expiring during the 2078
rate year ($53,000) ; 3) removing advertising expenses
aIl-ocated to Idaho natural gas in error ($25,000); 4)
inclusion of the O&M savings associated with the
Company's new website application ($6,000) ; 5) reducing
the six-year average of injuries and damages ($127,000);
and 6) the net effect of removing certain other
miscellaneous A&G expenses ($16,000). The net effect of
this adjustment decreases the overal-I revenue requirement
by $300, 000.
A. Please sr:marize the iryact of these
adjustnents on the natural gas revenue requirement ag'reed
to by the Settling Parties effective January L, 2018.
A. The adjustments discussed above, and agreed to
by the Settling Parties, reduces Avista's 2078 rate year
natural gas revenue requirement of $3.48 million to $1.18
million, resulting in a 2.9% natural gas base rate
increase (1.9% on a billed basi-s), effective January 1-,
Andrews, Di 24
Avista Corporation
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2078. The net rate base agreed to by the Settling
Parties for natural gas is $744.9 million.
9. Please provide an overview of the incremental
natural gas revenue reguirement coryonents ag'reed to by
the Settling Parties effective ilanuary 1, 201-9.
A. The Settling Parties agreed to an incremental
natural gas revenue increase effective January 7, 2019
that ref .l-ects the adj ustments shown below in the
excerpted table from the Stipulation:
Tab1e No. 4: Natural Gas Revenue Reqtrirement (Jan. 1,
a. P1ease elaborate on the individual line iterrs
19 contained within Tab].e No. 4?
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20 A. Yes.A description of the adjustments
21 resulting in the natural gas revenue requirement,
effective January l, 2019, follows.
Add Meter Data Management Project (Iine a. ) This
adjustment adds the Meter Data Management System project
Andrews, Di 25
Avista Corporation
SUMMARY TABLE OF ADJUSTMENTS TO NATURAL GAS REVENUE REQUIREMENT
EFFECTI\TE JANUARY I, 2OI9
(000s of Dollars)
Revenue
Requirement Rate Base
Rate Base Amount Efrective January l, 2018
Incremental Revenue Adjustment to January l, 2018 Rate Change
(see Tabel No. l):
a.) Add Meter Data Management Project
b.) Add 2018 Related Capital and Expenses:
i. 2018 Capital Additions on an AMA Basis
ii. Property Tax Expense on 2018 Ptant Additions
iii. Annualized 2018 Labor Increase
January 1,2019 Incremental Revenue Adjustment and Rate Base
Amount (above January l, 2018 Rate Change - see Table No. l)
$ 144,932
s
$
$
$
4ts $1,860
(852)$4t4
122
l8r
_$__t_€f19_$ I,132
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costs completed October of 2011 f or recovery ef f ect j-ve
adj ustment increases the overa.l-I
$415r 000, and increases net rate
January L, 20L9. This
revenue requirement by
base by $1.860 million.
Add 2018 Related Capital and Expenses (line b. )
20LB Capital Additions on an AMA Basis ( Iine
i.) This adjustment includes 2078 capital additions
on an AMA basis. This adjustment increases the
overall revenue requirement by $414,000, and
decreases net rate base by $852r000.4
Property Tax Expense on 2018 Pl-ant Additions
(l-ine ii.) This adjustment includes property tax
expense associated with 20IB capital additions. This
adlustment increases the overall revenue requirement
by $122,000.
2078 Annualized Labor fncrease (Iine iii.)
This adjustment includes the 2078 annualized non-
executive Iabor increases for both union and non-
union employees. This adjustment increases the
overall revenue requirement by $181,000
a Includi-ng the lmpact of 2O7B capital additlons, as well- as
including the impact on accumufated depreciation and accumufated
deferred federal j-ncome taxes on total net plant during 2018 on an
average-of-monthly-average basis, has the result of decreasing
overall net rate base.
Andrews, Di 26
Avista Corporation
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A. Please sumarize the iryact of these
adjustnents on the natural gas revenue requirenent agreed
to by the Settling Parties effective ilanuar! L, 201-9.
A. The adjustments
by the Settling Part j-es,
discussed above, and agreed to
reduces Avista's 2079 rate
natural gas revenue requirement of $2.L
miIlion, resulting in a 2 .J eo natural-
million to
year
$1.1
rate
14 public interest?
gas base
increase (1.8% on a billed basis), effective January 7,
2079. The Net rate base agreed to by the Settling
l0 Parties for natural gas is $145.9 million.
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l2 v. coNcIJusIoN
l3 A. In conclusion, why is this StipuJ.ation in the
A. This Stipulation strikes a reasonable balance
between the interests of the Company and its customers,
including its low-j-ncome customers. As such, it
represents
interests
a reasonable compromise among differing
and points of view.
The terms of the Stipulation represent electric and
natural gas base rate increases designed to provide
necessary retail revenues over the Two-Year Rate Plan
from January 7, 20IB through December 37, 20L9. The
Settling Parties have agreed that the Company has
Andrews, Di 21
Avista Corporation
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I demonstrated the need for the revenue increases for its
2 eLectric and natural gas operations, thus providing
3 recovery of its costs over the 2078-2079 two-year rate
4 period.
5 ln the fi-na1 analysis, dny settlement reflects a
6 compromise in the give-and-take of negotiations. The
7 Commission has before it a Stipulation that is supported
8 by sound analysis and supporting evidence, the approval
9 of which is in the public interest.
l0 A. Does this conclude your direct testimony?
11 A. Yes, it does.
Andrews, Di 28
Avista Corporation