20180720Decision Memo.pdf

DECISION MEMORANDUM
TO COMMISSIONER KJELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:SEAN COSTELLO
DEPUTY ATTORNEY GENERAL
DATE: JULY 16,2018
SUBJECT:AVISTA'S APPLICATION TO IMPLEMENT FCA RATES FOR
NATURAL GAS SERVICE FROM NOVEMBER 1,2018 THROUGH
OCTOBER 31, 2019; CASE NO. AVU-G-18-03.
On July 2,2018, Avista Corporation applied to the Commission for authorization to
implement Fixed Cost Adjustment (FCA) rates for natural gas service from November 1 ,2018,
through October 31,2019, and to approve its corresponding modifications to Schedule 175,
"Fixed Cost Adjustment Mechanism - Natural Gas." Application at l. Avista also asks that the
Commission approve the level of natural gas FCA revenue deferred during calendar year 2017.
The Company separately applied to implement FCA rates for electric service, in Case No. AVU-
E-l8-06. The Company proposes per therm FCA rebate rates for both residential and non-
residential groups in this case. Avista asks that its Application be processed by Modified
Procedure, and requests an effective date of November 1,2018. Id. at2.
BACKGROUND
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. This decoupling removes a utility's incentive to increase sales as a means of
increasing revenue and profits, and encourages energy conservation. Id. at3-4; Application at 4.
The Commission approved Avista's FCA as a three-year pilot program, and part of the approved
settlement of Avista's 2015 rate case. See Case Nos. AVU-E-15-05; AVU-G-15-01;
Application at 3; and Order No. 33437 at 10. In the Order approving the FCA program, the
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.
DECISION MEMORANDUM I
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.
Application at 3-4. The Stipulation in those cases and Tariff Sheet 175 also set forth how the
FCA mechanism works, including treatment of existing versus new customers, quarterly
reporting, annual filings, interest, accounting, and3o/o rate increase cap. Id. at4.
On June 15,2018, the Commission approved an addendum to the settlement
stipulation approved in AVE-E-15-05 and AVU-G-15-01, which extended the term of the
Company's FCA pilot for an additional year. See Order No. 34085. As a result, the Company
also proposes changes to its Tariff Sheet ll5 to reflect, among other changes: (l) an FCA
mechanism term of four years; and (2) interested parties will conduct an effectiveness review at
the end of the third year. Application at 4.
PROPOSED 2018-2019 FCA RATE ADJUSTMENT
In its natural gas FCA filing, Avista proposes to decrease rates for each rate group
based on the amount of deferred revenue recorded for January through December 2017. The
Company mostly attributes these proposed changes to drivers such as abnormally cold weather in
2017 , and FCA revenue shortfall associated with energy efficiency programmatic savings. ,Id. at
7-8. Other drivers are not easily quantifiable but include, among other things, the effects of non-
programmatic energy efficiency and changes in business cycles. Id. at 8.
Avista recorded $1,636,265 in the rebate direction in deferred revenue for its natural
gas residential customer group in 2017. Id. at 9 (table includes carry over balance, interest and
revenue-related expenses). After taking into account the 2016 carry over balance of
approximately $1.2 million, the Company proposes to rebate $465,043, at a proposed rate of
-0.766 cents per therm, to the Company's residential natural gas customers served under rate
Schedule l0l. Id.; Application Exhibit B. If approved by the Commission, the Company would
record this amount in a regulatory liability balancing account and reduce the account balance
each month by the rebate received by customers under the tariff. Id. at 10.
For its non-residential group, Avista recorded $377,623 in the rebate direction in
deferred revenue in 2017. Id. (table includes carry over balance, interest and revenue-related
expenses). After taking into account the2016 carry over balance of approximately $108,778,the
Company proposes to rebate $274,617, at a proposed rate of -1.067 cents per therm, to the
Company's commercial and industrial natural gas customers served under rate Schedules 1l I
DECISION MEMORANDUM 2
and 112. Id.; Application Exhibit B. If approved by the Commission, the Company would
record this amount in a regulatory liability balancing account and reduce the account balance
each month by the rebate received by customers under the tariff. Id. at ll.
With its Application, Avista submitted its residential and non-residential rate
calculation, support for the Company's deferrals, and its proposed FCA tariff Sheet 175.
STAFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure with a comment
deadline of September20,20l8, and reply deadline of September27,20l8.
COMMISSION DECISION
Does the Commission wish to process this case under Modified Procedure with a
comment deadline of Septemb er 20, 20 I 8, and reply deadline of Septemb er 27 , 2018?
Sean Costello
Deputy Attorney General
lUfgal\CASUW-G-18{lwcmos\Avucltol sl.doc
3DECISION MEMORANDUM