20170927Comments.pdf

DAPHNE HUANG
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-007 4
[phone]
IDAHO BAR NO. 8370
Street Address for Express Mail:
472 W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
12: tlSp
IN THE MATTER OF THE FIXED COST
ADJUSTMENT MECHANISM (FCA) ANNUAL
RATE ADJUSTMENT FILING OF AVISTA
CORPORATION FOR NATURAL GAS
SERVICE FROM NOVEMBER 1,2017
THROUGH OCTOBER 31, 2018
cAsE NO. AVU-G-17-03
COMMENTS OF THE
COMMISSION STAFF
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COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
Attorney of record, Daphne Huang, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 33816, submits the following
comments.
BACKGROUND
On July 3,2017 , Avista Corporation ("Avista" or "the Company") filed an Application
asking the Commission for authorization to implement Fixed Cost Adjustment (FCA) rates for
natural gas service from November l, 2017 through October 31,2018, and to approve its
corresponding modifications to Schedule 175, "Fixed Cost Adjustment Mechanism - Natural
Gas." The Company separately applied to implement FCA rates for electric service, in Case No.
AVU-E-17-04. The Company proposes per therm FCA surcharge rates for both residential and
non-residential groups in this case.
1STAFF COMMENTS SEPTEMBER27,2OI7
.,1
The Commission approved Avista's FCA as a three-year pilot program, as part of the
stipulation settlement of Avista's 2015 rate case, Case Nos. AVU-E-15-05, AVU-G-15-01.
Application at 3; Order No. 33437 at 10. In the Order approving the FCA program, the
Commission noted that the parties to Avista's rate case agreed to review the program's
effectiveness at the end of its second full year, to ensure it is functioning as intended. Id. at 3-4-
The Order also set forth how the FCA mechanism works, including treatment of existing versus
new customers, quarterly reporting, annual filings, interest, accounting , and 3o/o rate increase cap.
Id. at 4-6.
The FCA is a rate adjustment mechanism designed to break the link between the amount of
energy a utility sells and the revenue it collects to recover fixed costsl of providing service, thus
decoupling the utility's revenues from its customers' energy usage. Order No. 33437 at 3.
The Application (at 4, lines 1-6) quotes from the Commission Order No. 33437, which
approved Avista's Fixed Cost Adjustment Mechanism:
Fixed cost adjustment mechanisms are intended to encourage conservation,
and allow customers more control over their bills. Further, the proposed FCA
will remove any financial disincentive of the Company to encourage energy
conservation.
STAFF ANALYSIS
In its natural gas FCA filing, Avista proposes to increase rates for each rate group based on
the amount of deferred revenue recorded for January through December 2016. The Company
primarily attributes the natural gas FCA surcharges to abnormally warm weather and savings from
energy efficiency programs in20l6. Application at7-8.
Avista recorded $2,626,654 in surcharge deferred revenue for its natural gas residential
customer group in2016, which exceeded the 3Yo rate increase cap. Id. at 9 (table includes interest
and revenue-related expenses), 12-14. The Company proposes to increase residential rates by
2.466 cents per therm, to recover $ I ,440,064 from residential custom ers. Id. at 9. If approved by
the Commission, the Company would record this amount in a regulatory asset balancing account
and reduce the account balance each month by the revenue collected under the tariff. Id. at 10.
The remaining deferral balance of $1,233,698 would be carried over to be recovered or potentially
offset in a future period. Id. at 10.
I "Fixed costs" are a utility's costs to provide service that do not vary with energy use, output, or production, and
remain relatively stable between rate cases - for example, infrastructure and customer service.
2STAFF COMMENTS SEPTEMBER2T ,2017
For its non-residential group, Avista recorded $500,253 in surcharge deferred revenue in
2016, which also exceeded the 3o/o rate increase cap. Id. at 14 (table includes interest and revenue-
related expenses), 12-14. The Company proposes to increase non-residential rates by 1.615 cents
per therm, to recover $383,369 from commercial and industrial customers. Id. at 10-1 1. If
approved by the Commission, the Company would record this amount in a regulatory asset
balancing account and reduce the account balance each month by the revenue collected under the
tariff. Id. at 11 . The remaining deferral balance of $ I 25,952 would be carried over to be
recovered or potentially offset in a future period. Id. at ll.
Staff has reviewed the Company's filing, supporting workpapers, and production request
responses and verified that the Company used the Commission-approved methodology authorized
by Order No. 33437 to calculate the FCA deferral balance and associated rates for residential and
non-residential classes. Based on its review, Staff recommends that the Commission allow the
Company to recover $1,440,064 for the residential customer group and $383,369 for the non-
residential customer group in the 2017 FCA year.
History of Avista's FCA
As described above, the Commission approved Avista's FCA as part of the settlement in
the Company's 2015 rate case. The Parties to that settlement based the mechanism on Idaho
Power's FCA, but made several refinements to that mechanism. Most significantly, Parties agreed
that existing and new customers (i.e., customers added after the 2014 test year) would be treated
differently for the FCA deferral calculation. For new customers, recovery of incremental revenue
related to fixed production and storage costs is excluded from the FCA. Consequently, the FCA
revenue-per-customer for new customers is less than the FCA revenue-per-customer for existing
customers. This prevents what Staff views as a cost over-recovery by the Company and helps
keep FCA surcharges and customers' bills lower.
Avista's gas FCA also applies to more non-residential customer classes than Idaho
Power's FCA. Idaho Power's FCA applies to one non-residential rate schedule, Schedule 7
(Small Commercial Service.) Avista's gas FCA applies to Schedule 111 (General Service - Firm)
and ll2 (Large General Service - Firm).
aJSTAFF COMMENTS SEPTEMBER 27 , 2OI7
2016 FCA Balances and2017 FCA Rate Calculation
Staff verified that the Company correctly calculated the residential customer group deferral
amount of $2,673,762 and correctly limited rate recovery through the 2017 FCA residential rate to
the 3Yo cap of $ 1 ,440,064. Staff confirmed that applyin g the 3o/o cap results in a 2017 FCA
residential rate of 2.466 cents per therm. Staff agrees that the remaining deferral balance of
$1,233,698 should be recovered or offset in a future period.
Staff also verified that the Company correctly calculated the non-residential customer
group deferral balance amount of $509,321 and correctly limited rate recovery through the2017
FCA non-residential rate to the 3Yo cap of $383,369. Staff confirmed that applying the 3Yo cap
results in a20I7 FCA non-residential rate of 1.615 cents per therm. Staff agrees that the
remaining deferral balance of $125,952 should be recovered or offset in a future period.
The Company's proposed20lT FCA rates of 2.466 cents per therm for residential and
1.615 cents per therm for non-residential are shown in the Company's proposed First Revision
Sheet 175 under Monthly Rate for Group 1 (residential) and Group 2 (non-residential).
Future Collection of the Remaining Balances
Excluding the effect of the remaining $1,233,698 from the 2016 residential deferral
balance, current estimates of the 2017 FCA residential defenal balance show that it may result in a
rebate, rather than a surcharge, to customers. A similar situation exists for the non-residential
FCA balance. Before including the effect of the $125,952 remaining non-residential balance from
2016, current estimates of the 2017 FCA non-residential deferral balance also show a rebate to
customers.
Staff cautions that the 2017 residential and non-residential deferral balances are still
preliminary and six months remain in the FCA year, so the frnal2017 deferral balances are still
uncertain. If the current trends hold, it may be possible to collect the remaining $1,233,698 and
$125,952 from the 2016 residential and non-residential defenal balances at the same time as the
2017 deferral balances without exceeding the 3o/o caps. Staff will monitor the 20Il deferral
balances and evaluate the collection of the outstanding 2016balances when the Company makes
its 2017 FCA filing.
4STAFF COMMENTS SEPTEMBER27,2OI7
Drivers of Declining Gas Usage
The Company states that the FCA balances are surcharges because the monthly use-per-
customer in 2016 was lower than the use-per-customer established in the 2014 test year. In 2016,
average monthly usage in both residential and non-residential sectors decreased from the test year.
Average residential monthly usage decreased by five therms per customer and non-residential
usage decreased by l2l therms per customer. The Company identifies weather, energy efficiency
and "other" as drivers of the lower use-per-customer in2016.
Of the approximately $2.6 million residential balance, abnormally warm weather in20l6
resulted in revenue shortfalls of about $2.4 million. Of the approximately $500,000 non-
residential balance, $200,000 was related to abnormally warm weather.
Although the Company identifies energy efhciency as one of the factors contributing to the
decline in use-per-customer, the revenue shortfall associated with the Company's natural gas
energy efficiency programs was very small: $100,000 (33%) of the total residential balance and
$10,000 (2.0%) of the non-residential balance. Avista's Idaho natural gas energy efficiency
programs were suspended during2}l4 and 2015. The programs were re-instated in20l6, but the
program impact between the2014 test year and20l6 was minimal. The Company's 2016 DSM
Annual Report shows the residential group saved approximatelyl54,000 therms and
non-residential groups saved approximately 35,000 therms during 2016. Application at 8.
Staff notes that both natural gas FCA customer groups exceeded the 3Yo rate cap increase
in the first year of FCA implementation and that energy efficiency drove a very small part of that
balance.
Risk Reduction Attributable to the FCA
Staff agrees that fixed cost adjustment mechanisms remove financial disincentives for
utilities to pursue energy efficiency. While Staff is encouraged by the Company's successful work
to acquire cost-effective energy efficiency, the Company's programs are responsible for a very
small fraction of the overall decline in sales recovered through the FCA. The 2016 use-per-
customer analysis described above demonstrates that Avista's FCA removes financial
disincentives for energy efficiency, but it also removes the risk of declining sales associated with
weather fluctuations, business cycles, and all other factors. Although mitigating weather and other
risks have significant value from the Company's standpoint, it is less clear how customers benefit
from FCA rate adjustments for weather and other factors. Staff believes that Avista, Staff, and
5STAFF COMMENTS SEPTEMBER2T ,2OI7
other interested parties should evaluate the relative benefits of the FCA to the Company and its
customers and determine how the value of risk reduction realized by the Company should be
shared with customers. Staff believes these issues should be addressed by Parties at the end of the
second full year of the FCA's initial three-year term, which is the time established for program
review in the settlement approved by the Commission in Order No. 33437.
Tariff Revisions
The Company proposes revisions to Tariff Sheets 175, 175A,1758, and 175C to more
precisely describe the steps to calculate the FCA deferral balance and associated rates. The
proposed revision to Tariff Sheet 175 changes the monthly rate for Group I (Schedule 101
General Service) customers from $0.00000 per therm to $0.02466 per therm and Group 2
(Schedule 111 and ll2Larye General Service) customers from $0.00000 per therm to $0.01615
per therm. The proposed revision to Tariff Sheet 175A provides clarification on the calculation of
Total Delivery Revenue and Allowed FCA Revenue for new customers. The proposed revision to
Tariff Sheet l75B provides clarification on the calculation of actual revenue collected related to
fixed production and storage costs for new customers. The proposed revision to Tariff Sheet l75C
provides a detailed explanation of the 3Yo rate increase limitation.
Staff believes that revisions to Tariff Sheets 175A,1758, and l75C provide clarification
and enhanced transparency, and better conform the FCA tariffs to the terms of the Stipulation and
Settlement approved by the Commission in Order No. 33437.
CUSTOMER NOTICE AND PRESS RELEASE
Avista filed its Application on July 3,2017. The Company noted that it would be filing
several additional natural gas rate adjustment cases in the near future, and "in an effort to
minimize potential customer confusion, a single news release will be issued ... providing details
about each of the Company's rate requests." Application at 17.
On August 23,2017, the Company filed its customer notice, which contained information
regarding this case (AVU-G-17-03) only. On September 8, 2017, the Company filed its press
release, which included information for both this case and another case (Avista's annual Purchased
Gas Cost Adjustment, Case No. AVU-G-17-04). Staff reviewed both documents and determined
that, with respect to this case, they do not comply with Rule 125 of the Commission's Rules of
6STAFF COMMENTS SEPTEMBER27,2OI7
Procedure. IDAPA 31.01.01.125. Rules 125.04 and 125.05 require the press release and customer
notice to be filed with the Company's Application.
The notice was included with customer bills beginning August 15,2017, and ending
September 13,20ll . Customers have the opportunity to file comments on or before the
Commission's comment deadline of September 2'7,2011.
CUSTOMER COMMENTS
As of September 27 , 2017 , the Commission has receiv ed 17 comments from customers, all
of which were opposed to the proposed increase.
STAFF RECOMMENDATION
Staff recommends that the Commission approve the Company's FCA filing, specifically:
l. The deferral balance of $2,673,762for the natural gas residential customer group in2016,
while limiting recovery through the2017 FCA to the3o/o cap at $1,440,064. The
remaining deferral balance of $1,233,698 should be recovered or offset in a future period.
This results in a2017 FCA residential rate of 2.466 cents per therm.
2. The deferral balance of $509,321 for the natural gas non-residential customer group in
2016, while limiting recovery through the 2017 FCA to the 3o/o cap at $383,369. The
remaining deferral balance of $125,952 should be recovered or offset in a future period.
This results rn a 2011 FCA non-residential rate of I .61 5 cents per therm.
3. The Company's proposed revisions to Tariff Sheets 175, 175A, 1758, and 175C.
Staff believes these rates provide adequate opportunity for the Company to collect its
authorized deferred revenue and allow the Company a fair and equitable recovery of fixed costs.
7STAFF COMMENTS SEPTEMBER27,2OI7
7+Respectfully submitted this day of September 2017.
Deputy Attorney General
Technical Staff: Kevin Keyt
Donn English
Bentley Erdwurm
Rachelle Farnsworth
Daniel Klein
i : umisc: comments/avug I T.3djhdeberfkskdk comments
8STAFF COMMENTS SEPTEMBER27,2017
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 27TH DAY OF SEPTEMBER 2077,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-17-03, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
SR MGR RATES & TARIFFS
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-MAIL: [e-mail]
DAVID J MEYER
VP & CHIEF COI.INSEL
AVISTA CORPORATION
PO BOX 3727
SPOKANE WA99220-3727
E-MAIL: [e-mail]
CERTIFICATE OF SERVICE