20171020Comments.pdf

CAMILLE CHRISTEN
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03 l4
BAR NO. 10177
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION DBA AVISTA
UTILITIES FOR AN ORDER APPROVING A
CHANGE IN NATURAL GAS RATES AND
CHARGES
Street Address for Express Mail
472 W. WASHINGTON
BOISE, IDAHO 83702.5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. AVU-G.17-04
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Camille Christen, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 33886 on September 27,
2017, submits the following comments.
BACKGROUND
On August 31,2017, Avista Corporation dba Avista Utilities applied to the Commission
for an Order authorizing Avista to decrease its Purchased Gas Cost Adjustment (PGA) rates by
about $1.7 million. The PGA is a Commission-approved mechanism that adjusts rates up or
down each year to reflect changes in Avista's costs to buy natural gas from suppliers-including
changes in transportation, storage, and other related costs. Avista defers these costs into its PGA
account, and then passes them on to customers through an increase or decrease in rates.
Avista is a public utility that distributes natural gas in northern Idaho, eastern and central
Washington, and southwestern and northeastern Oregon. Application at 2. Avista buys natural
1STAFF COMMENTS ocToBER 20,2017
gas and then transports it through pipelines for delivery to customers. Avista's rates for natural
gas service in Idaho include a base rate component and a gas-related cost component. The base
rate component is intended to cover Avista's fixed costs to serve its Idaho customers - for
example, the Company's costs for equipment and facilities to provide service. The current base
rates were approved in Order No. 33437, Case No. AVU-G-I5-01. Separately from this
Application, the Company has applied to this Commission for an Order allowing Avista to
increase its base rates for natural gas service. See Case No. AVU-G-17-01. The gas-related cost
component of Avista's rates is at issue in this case.
With this Application, Avista proposes to: (l) pass any change in the estimated cost of
natural gas for the next 12 months to customers (Tariff Schedule 150); and (2) revise the
arnortization rates to refund or collect the balance of deferred gas costs (Tariff Schedule 155).
Avista's proposal would decrease Avista's annual revenue by about $1.7 million(2.7%). lf
approved, residential or small commercial customer's using an average of 61 therms per month
would decrease by $1.23 per month (about 2.4%). Application at4. Large General Service
customers' rates would also decrea.se by about 3.8%. The rate of Avista's customer receiving
intemrptible service would not change. Avista's proposal would not affect Avista's earnings.
Avista asks that the new rates take effect November 1,2017. Application at 5.
The Company summarizes the effect of the proposed rates (that is, the change from
current rates) as follows:
Table l: Summary of Proposed Rate Changes by Class
Id. at 3.
STAFF ANALYSIS
Staff reviewed the Company's Application and accompanying exhibits and workpapers
and supports the Company's proposal to reduce natural gas revenues in Idaho by approximately
$l.7 million. Staff examined the Company's gas purchases, fixed price hedges, pipeline
transportation costs and storage costs and estimates of future commodity prices. Additionally,
2
Service
Schedule
No.
Commodity
Change per
Therm
Demand
Change per
Therm
Total
Sch.150
Change
Amortization
Change per
Therm
Total Rate
Change per
Therm
Overall
Percent
Change
General 101 $(0.02167)$(0.00831)$(0.02ee8)$0.00982)($0.02016)(2s%)
Lg. General 111 $(0.02167)$(0.00831)$(0.02998)$0.00982 ($0.02016)(3.8%)
STAFF COMMENTS ocroBER 20,2017
Staff audited the Company's deferral balances to assess the reasonableness of the proposed
changes. Staff also reviewed Avista's jurisdictional allocations and Avista's Lost and
Unaccounted for Gas (LAUF) volumes.l Based on its review, Staff recommends that the
Commission approve Avista's PGA Application and proposed tariffs as filed. Staff s analysis
and recommendations are discussed in detail below.
Schedule 150 - Purchased Gas Cost Adjustment
The tariff Schedule 150 portion of the PGA consists of commodity costs and demand
costs. Avista's commodity costs are the variable costs that Avista incurs to buy natural gas. The
weighted average cost of gas (WACOG) is an estimate of those costs. In this case, Avista
estimates its commodity costs will decrease by $0.02167 (2.2f,) per therm, from the currently
approved $0.2406 (24.06O per therm to $0.2190 (21.90il per therm.
Avista's demand costs reflect the cost of pipeline transportation to the Company's system
and fixed costs associated with natural gas storage. In this Application, Avista proposes a
S0.00831 per therm decrease in the overall demand rate. The proposed decrease is primarily due
to new transportation rates for Williams Northwest Pipeline effective on January 1,2018 and
October 1,2018.
Schedule 155 - Deferral Account
Tariff Schedule 155 reflects the amortization of Avista's deferral account. This schedule
applies to general and large general service customers (residential and certain commercial
customers). Other commercial customers (those taking service under Tariff Schedule 1 12), and
High Annual Load Factor Large - Intemrptible Service customers under Tariff Schedule 132 do
not participate in the amortization, but receive a one-time rebate or surcharge. Avista proposes
to decrease the amortization rate in Tariff Schedule 155 by $0.00982 per therm. The existing
rate is $0.09344 per therm in the rebate direction; the proposed rate is $0.08862 in the rebate
direction.
A reconciliation of the Schedule 155 deferral balance is shown on Table 2:
I LAUF Gas is the difference between the volumes of natural gas delivered to the distribution system at the city gate
and volumes of natural gas billed to customers at the meter.
aJSTAFF COMMENTS ocToBER 20,2017
Table 2: Summary of Deferral Balance
Amortization Balance as of October 31,2016
Amortizatron Activity
Interest on Unamortized Balance
Total Unamortized Balance
Deferral Balance as of October 31,2016
Deferral of Demand Costs
Deferral of Price Differences
Interest on Deferrals
Excess Capacity Releases
Deferred Exchange Contract
Total Current Year Deferral Activity
Balance to be amortized
$ (7,021,399)
6,801,480
119.4114$ (239,398)
$(1,599,23 I )
(51 1,866)
(1,320,901)
(34,31 1)
(2,622,109)
(965.400)
$ (7.0s3.818)
s (7,293,216)
The defenal consists of the difference in the price Avista paid for natural gas and the
WACOG established by Order No. 33637 in the previous PGA. The deferral also includes
monthly interest charges on deferred balances and excess capacity releases for the benefit of
customers. During the 2017 PGA year, Avista's Idaho natural gas customers received a benefit
of approximately $2.6 million from capacity releases.
Avista has a Deferred Exchange contract under which it receives natural gas during the
sunmer and then redelivers that natural gas in the winter. Avista charges a fixed per therm price
for this service and flows all the benefits through Schedules 150 and 155. The Deferred
Exchange contract has a forecasted benefit of $1.43 million for Idaho customers, which reduces
the WACOG and is included in the proposed Schedule 150. Avista also allocated an additional
$965,400 in benefits in excess of the amount embedded in WACOG for this Deferred Exchange
contract. This additional benefit is reflected in the table above.
Weighted Average Cost of Gas (WACOG)
The WACOG includes fuel charges to move gas at the city gate, some variable costs, and
benefits associated with the Deferred Exchange contract. It does not include third party gas
management fees. In this case, Avista proposes a WACOG of 21.96 cents per therm. The
4STAFF COMMENTS ocToBER 20,2017
approved WACOG in the Company's last annual PGA was 24.0 cents per therm. Staff Chart l,
below, shows Avista's historical WACOG.2
Chart 1: Historical WACOG
Market Fundamentals & Price Analysis
Since approximately 68Yo of Avista's annual throughput consists of market index
purchases, Staff scrutinized Avista's projected monthly cost of purchased gas. Avista continues
to use a 30-day historical average of forward prices to forecast the volume-weighted average
annual index price, and forecasts a mainline fuel cost of $2. l4lMMBtu. Staff reviewed the
NYMEXA{GX Futures prices at each of the three hubs where Avista purchases gas.3 Using
Avista's estimated volume allocation percentages for these three hubs, Staff believes Avista's
projected mainline fuel cost is reasonable.a
Staff also examined the forecasts of national and regional organizations to see how
perceived market conditions might vary from the NYMEXAIGX Futures prices. Specifically,
Staff reviewed the forecasts from the Energy Information Administration (EIA) and the
Northwest Gas Association (NWGA).
2 The WRCOG includes contributions to the Gas Research Institute (GRI) of $0.00040 per therm and variable
interstate transportation costs.
3 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 Hub price.
a Avista's proposed WACOG is slightly higher than the Avista's mainline fuel cost because the WACOG includes
variable interstate transportation costs and conhibutions to the Gas Research Institute (GRD.
5
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STAFF COMMENTS ocToBER 20,2017
1
1
a
The EIA Short-Term Energy Outlook states
U.S. dry natural gas production is forecast to average 73.6 billion cubic feet per day
(Bcf/d) in2017, a 0.8 Bcf/d increase from the 2016 level. Natural gas production in 2018
is forecast to be 4.9 Bcf/d higher than the 2017 level.
In September, the average Henry Hub natural gas spot price was $2.98 per million British
thermal units (MMBtu), up 8 cents/MMBtu from the August level. Expected growth in
natural gas exports and domestic natural gas consumption in 2018 contribute to the
forecast Henry Hub natural gas spot price rising from an annual average of $3.O3AvIMBtu
in20l7 to $3.19/MMBtu in 2018. NYMEX contract values for January 2018 delivery
that traded during the five-day period ending October 5 suggest that a range of
$2.28iMMBtu to $4.63A4MBtu encompasses the market expectation for January Henry
Hub natural gas prices at the 95Yo confrdence level.
U.S. EIA Short-Term Energy Outlook Website, www.eia.gov/outlooks/steo/report/nateas.cfm
(Release Date of Oct. 11,2017) (Last visited Oct. 19,2017).
Based on Staff s review of the market fundamentals and trends, the201l-2018 forecasts
are consistent, predicting relatively stable near-term gas prices. Staff concludes that Avista's
weighted average cost of its current hedges, and estimated cost of forward-looking index
purchases, are reasonable. Staff thus recommends the Commission accept Avista's proposed
WACOG of $0.219 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
Avista uses a diversified approach to procure natural gas for the coming PGA year.
Avista's Procurement Plan uses a structured approach to execute its hedges that includes a range
of possible hedge windows with varying long-term and short-term trigger prices. However, its
Procurement Plan also allows it to make discretionary decisions so it can adjust to changes in
market conditions.
Avista modified its Natural Gas Procurement Plan in mid-2015 to change how the
Company uses its portion of the Jackson Prairie storage facility. With the modified plan, storage
is used to capture the economic benefits of purchasing lower cost natural gas throughout the year
and selling it for a premium at a later time.
The Company hedged natural gas in 2016-2017 on both a periodic and discretionary
basis. For the next PGA year Qllovember 2017 through October 2018) the Company plans to
STAFF COMMENTS ocToBER 20,20176
hedge approximately 460/o of its annual load requirements at a fixed price.s Under this plan,
Avista's hedges through July were executed at a weighted average price of $0.26 per therm.
Capacity Release
Avista buys the right to transport gas through several interstate pipelines. This enables
Avista to buy gas from a variety of basins, both in the US and in Canada, and then transport that
gas to its jurisdiction. When 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.
Avista's total capacity release revenue this year for Idaho was similar to 2016 at about$2.7
million.
Lost and Unaccounted For Gas
Staff reviewed Avista's LAUF gas volume and compared it to total throughput. Staff
believes Avista's overall LAUF gas volume of 0.41o/o of throughput is reasonable compared to
that of other local distribution companies (LDCs).
CUSTOMER NOTICE AND PRESS RELEASE
Avista filed drafts of its press release and customer notice with its Application. The
drafts included information for this case (AVU-G-17-03) and another case (AVU-G-17-04). A
final copy of the customer notice and press release were filed on September 74,2017. Staff
reviewed both final documents and determined that they comply with Rule 125 of the
Commission's Rules of Procedure. IDAPA 31.01.01.125.
The notice was included with customer bills beginning September 6 and ending
October 4. Customers have the opportunity to file comments on or before the Commission's
comment deadline of October 20,2017.
CUSTOMER COMMENTS
As of October 19, 2017, the Commission has received no comments from customers.
5 Volumes are comprised of: 1) volumes hedged for a term of one year or less, and 2) volumes from prior multi-year
hedges. Application at 3.
7STAFF COMMENTS ocToBER 20,2017
STAFF RECOMMENDATION
If approved, Avista's Application will result in a net decrease in Avista's Idaho natural
gas revenue by approximately $1.7 million or 2.7o/o. After thoroughly examining the 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 WACOG of $0.2190 per therm.
2. Tariff Schedule i 55, including the proposed amortization rate of $0.00982 per therm
credit to refund approximately $7.3 million to customers.
Respectfully submitted this LO day of October 2017
Cr*ilL,Urr.rX'a
Camille Christen
Deputy Attorney General
Technical Staff: Kevin Keyt
Donn English
Daniel Klein
i :umisc/comments/avugl T.4cckskphdk comments
8STAFF COMMENTS OCTOBER 2O,2OI7
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 2OTH DAY OF OCTOBER 2017,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-17-04, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
SR MGR RATES & TARIFFS
AVISTA CORPORATION
PO BO){ 3727
SPOKANE WA99220-3727
E-MAIL: [e-mail]
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-MAIL: david.me),[e-mail]
..L^ ^
SECRETARY
CERTIFICATE OF SERVICE