20180920Comments.pdf

SEAN COSTELLO
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 8743
IN THE MATTER OF AVISTA
CORPORATION'S APPLICATION TO
IMPLEMENT FIXED COST ADJUSTMENT
RATES FOR NATURAL GAS SERVICE FROM
NOVEMBER 1, 2018, THROUGH OCTOBER 31,
2019
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Street Address for Express Mail:
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BOISE, IDAHO 83702.5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIBS COMMISSION
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CASE NO. AVU.G-18.03
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Sean Costello, Deputy Attorney General, and in response to the Notice of
Application and Notice of Modified Procedure issued in Order No. 341l4 on July 26,2018, in
Case No. AVU-G-I8-03, submits the following comments.
BACKGROUND
On July 2,2018, Avista Corporation (Avista or Company) 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 1. Avista
also asks the Commission to 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-18-06. The Company requests the Commission approve a rebate
STAFF COMMENTS SEPTEMBER 20, 2018I
rate of 0.766 cents per therm for its residential group and 1.067 cents per therm for its non-
residential group. Avista requests an effective date of November 1,2018. Id. at2.
History of Avista's FCA
An 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 sales. Order No. 33437 at 3-4. This decoupling is
intended to remove a utility's disincentive to pursue energy efficiency savings. While Staff is
encouraged by the Company's successful work to implement cost-effective energy efficiency
measures, it is important to note the Company's energy efficiency programs are responsible for
only a small fraction of the impact on sales recovered through the FCA.
Staff has argued in past comments that the FCA effectively removes the financial
disincentives for energy efficiency. However, the mechanism also removes the Company's risk
of declining sales caused by many factors beyond energy efficiency, including weather
fluctuations, economic cycles, improved building codes and standards, improved appliance
standards, and behavioral responses to higher utility bills. Mitigating risk has value from the
Company's standpoint because it stabilizes revenue and may lower capital costs.
In the Company's last rate case, the Commission approved Avista's FCA as a three-year
pilotprogram. See CaseNos.AVU-G-I5-01;Application at3;andOrderNo.33437at 10.
Order No. 33437 set forth how the FCA mechanism works, including treatment of existing
versus new customers, quarterly reporting, annual f,rlings, interest, accounting, and a 3Yo rate
increase cap. Id. at 4-6.
Avista's approved FCA mechanism includes separate inputs into the defenal calculation
for existing and new customers (i.e., customers added after the January 1,2075). Natural gas
customers added since the test year are subject to a FCA revenue-per-customer that excludes
incremental revenue related to fixed production and transmission costs. In order to segregate
customers for this calculation, Avista tracks usage of new customers, separately from existing
customers. Consequently, FCA revenue-per-customer for new customers is less than that for
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 costs.
2 SEPTEMBER 20, 2018STAFF COMMENTS
existing customers. The adjustment helps prevent over-recovery by the Company and helps keep
FCA surcharges and customers' bills lower.
The natural gas FCA includes customers from two rate groups. Group 1 is Schedule 101
(residential customers). Avista's non-residential customer group (Group 2) includes Schedules
1 1 1 and 112. Ehrbar Direct at74 rn Case No. AVU-G-15-01. These two rate groups are
included in the FCA because the Company's fixed costs are recovered through variable usage
rates that can be strongly affected by weather and other factors.
In Order No. 33437, the Commission ordered the parties to Avista's rate case to review
the program's effectiveness at the end of its second full year, to ensure it is functioning as
intended. See Application at 3-4. However, on June 15, 2018, the Commission approved an
addendum to the settlement stipulation approved in 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 175 to reflect, among other changes: (1) 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.
STAFF REVIEW
Staff reviewed the Application and supporting workpapers and performed an audit of the
Company's FCA deferral accounts and internal controls related to the FCA. Staff 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. The Company's FCA natural gas deferral balances and rates are accurate. Based on its
review, Staff recommends that the Commission allow the Company to rebate S465,043 for the
residential customer group and$274,617 for the non-residential customer group in the 2018 FCA
year. Id. at 9-10.
Staff agrees with the reported energy efficiency savings but notes that per-customer
consumption has been increasing since the natural gas FCA mechanism was approved in 2015.
Also, Staff will assess the mechanism and its effectiveness during the program review following
the end of the third full-year, as ordered by the Commission.
Staff supports the Company's requested revisions to Schedule 175, including updating
the new customer cost exclusion date from "customers added after January 1,2015" to the more
general terms of "FCA Base test year." See Application at 13.
aJSTAFF COMMENTS SEPTEMBER 20, 20I8
2017 FCA Balances and 2018 FCA Rate Calculation
In its natural gas FCA filing, Avista proposes to decrease rates for both the natural gas
residential and non-residential customer groups based on the deferred revenue recorded for
January through December 2017. The Company mostly attributes these proposed changes to
drivers such as abnormally cold winter weather in2017, and a FCA revenue shortfall associated
with energy efficiency savings. Id. at7-8. The Company states that other drivers are not easily
quantifiable but include, among others, the effects of non-programmatic energy efficiency and
changes in business cycles. Id. at8.
Avista proposes to credit natural gas residential customers (Group l-Schedule 101)
$465,043. Id. The Company calculated this amount by reducing the calendar year 2017 deferral
of $1,636,265 by the actual 2016 carry-over balance of $1,189,016, increased by the interest of
$16,212, and increased by the revenue-related expense adjustment of $1,581. Id. at9. If
approved by the Commission, the currently authorized residential FCA surcharge rate of 2.466
cents per therm will be revised to a rebate of 0.766 cents per therm. This will reduce the
Company's residential revenue by $1.9 million (4.23% reduction). Id, at2; and Exhibit B. The
Company proposes to 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.
The FCA proposal reduces the monthly bill of an average residential customer using 63 therms
per month by $2.04 - from $48.3 I to $46.27 - a 4.2Yo decrease. Id. at 14.
Avista also proposes to credit natural gas non-residential customers (Group 2-Schedules
I I I and 112) $274,617. Id. at ll; Exhibit B. The Company calculated this amount by reducing
the calendar year 2017 deferral of $377 ,623 by the actual 2016 carry-over balance of $ I 08,778,
adding $4,320 in interest, and adding a revenue-related expense adjustment of $ 1,452. If
approved by the Commission, the current authorized non-residential surcharge rate of 1.615
cents per therm will be revised to a rebate rate of 1.067 cents per therm. Id. at l0-l l. This will
reduce the Company's residential revenue by $0.7 million (555% decrease). Id. at2; and
Exhibit B. 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 l0-ll.
4STAFF COMMENTS SEPTE,MBER 20, 2018
Drivers of Increasing Energy Usage
According to the Company, abnormally cold winter weather resulted in increased per-
customer residential (2.1 therms) and non-residential (27 therms) monthly consumption relative
to the 2015 base year. Application at 7. Even without the effects of 2017's cold winter, per-
customer natural gas consumption has been increasing since the Commission approved the
Company's FCA mechanism in 2015. After correcting for the effects of weather, monthly gas
consumption has increased by approximately 1.4 therms per residential customer and 67 therms
per non-residential customer. See Company's Response to Staffs Production Request No. 1.
The Company reported that its energy efficiency programs resulted in small monthly
decreases of 0.3 therms per residential, and 4.0 therms per non-residential customer. Staff notes
that these decreases represent less than 0.5o/o and0.3yo, respectively, of each group's natural gas
consumption. The Company explained that its natural gas energy efficiency programs were
suspended during 2014 and2015, and not reinstated until 2016. Application at 7-8. Staff
believes that these decreases may be reasonable, given the relatively short time period over
which the Company's energy efficiency programs have been in operation. Staff will review the
Company's natural gas energy savings during the next demand-side management prudency
review.
Risk Reduction Attributable the FCA
As stated above, the FCA helps stabilize revenue and lower risk to the Company, thus
potentially lowering its cost of capital. However, it is less clear how customers benefit from
FCA rate adjustments. Avista, Staff, and other interested parties should determine how the value
of risk reduction realized by the Company should be shared with customers. Thus far, Staff has
not recommended a lower cost of equity to recognize the lower risk to the Company, but Staff
may consider such a proposal in the future. Staff believes these issues should be addressed by
interested parties during the program review following the end of the third full year, as approved
by Order No. 34085.
CUSTOMER NOTICE AND PRESS RELEASE
The Company's press release and customer notice were included with its Application on
Jtrly 2,2018. Staff reviewed the documents and determined both meet the requirements of Rule
125 of the Commission's Rules of Procedure. IDAPA 31.01.01.125. The notice was included
5STAFF COMMENTS SEPTEMBER 20,2018
with bills mailed to customers beginning July 12,2018, and ending August 10, 2018, providing
customers with a reasonable opportunity to file timely comments with the Commission by the
September 20,2018, deadline. As of September 19,2018, no comments had been filed.
STAFF RECOMMENDATIONS
Staff recommends that the Commission approve the Company' natural gas FCA filing,
specifically:
1 . The deferral balance of $1,636,265 for the natural gas residential customer group in
2017 . This results in a 2018 FCA residential rate of -0.766 cents per therm;
2. The deferal balance of $377,623 for the natural gas non-residential customer group
in 20 1 7. This results in a 2018 FCA non-residential rate of -l .067 cents per therm;
and
3. The Company's proposed revisions to Tariff Sheet 175.
Respectfully submitted this / oo day of September 2018
Sean Costello
Deputy Attorney General
Technical Staff: Cassie Koerner
Michael Morrison
Kathy Stockton
Johnathan Farley
Michael Eldred
Kevin Kelt
i : umisc/comments/avug I 8.3scj fkskckmemmkls comments
6STAFF COMMENTS SEPTEMBER 20,20I8
A(k-
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 2OTH DAY OF SEPTEMBER 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-I8-03, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
DIRECTOR OF RATES
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-MAIL: pat.ehrbar@,avistacorp.com
avi stadockets@avistacorp. com
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
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CERTIFICATE OF SERVICE