20181010Comments.pdf

EDITH PACILLO
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSTON
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 5430
IN THE MATTER OF AVISTA
CORPORATION'S APPLICATION TO
CHANGE ITS NATURAL GAS RATES AND
CHARGES (2018 PURCHASED GAS COST
ADJUSTMENT).
REC E IV ED
:il8 r:tT l0 Pl'l 2: 33
CASE NO. AVU.G-18.04
COMMENTS OF THE
COMMISSION STAFF
b)n\l\-_/ I 1
Street Address for Express Mail
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attomey for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Edith Pacillo, Deputy Attorney General, and in response to the Notice of
Application and Modified Procedure issued in Order No. 34144 on September 12,2018, in Case
No. AVU-G-I8-04, submits the following comments.
BACKGROUND
On August 27,2018, Avista Corporation dba Avista Utilities filed its annual Purchased
Gas Cost Adjustment (PGA) Application. The PGA is a Commission-approved mechanism that
adjusts rates up or down 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 to customers through an increase or decrease in rates.
Avista's proposal would not affect Avista's earnings. Avista asked the Commission to process
the Application by Modified Procedure and that the new rates take effect November 1,2018.
Id. at 5.
ISTAFF COMMENTS ocToBER 10,2018
Avista is a public utility that distributes natural gas in northern Idaho, Washington, and
Oregon. Avista buys natural 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. 33953, Case No. AVU-G-
17-01. The gas-related cost component of Avista's rates is at issue in this case.
In this PGA Application, Avista proposes to: (1) pass any change in the estimated cost of
natural gas for the next 12 months to customers (Tariff Schedule 150), and (2) revise the
amortization 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 $0.6 million(l%).
Residential or small commercial customers using an average of 63 therms per month would see
their bills decrease by $0.34 per month, which is a rate decrease of about 0.8%. Large General
Service (Schedule l l l) customers' rates would also decrease by about 0.8%. Avista's customers
receiving transportation service would also see rates decrease by about 2.2%.
Avista proposes to change its PGA rates for its customer classes as follows:
Table 1: Summary of Rate Changes by Class
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
Chanse
General 101 $0.00654 $(0.00e 18)$(0.00264)$(0.00283)$(0.00547)(0.8%)
Lg. General 111 s0.006s4 $(0.00918)s(0.00264)$(0.00283)s(0.00s47)(0.8%)
Lg. General tt2 $0.006s4 $(0.00918)$(0.00264)$(0.00264)(0.3%)
Interruptible l3l s0.00654 s0.00654 $0.006s4 (1.7o/ol
Transportation 146 $(0.00265)$(o.oo26s)(2.2%)
STAFF COMMENTS ocroBER 10,2018
STAFF ANALYSIS
Staff reviewed the Company's Application and accompanying workpapers and supports
the Company's proposal to reduce natural gas revenues in Idaho by approximately $0.6 million
or lYo. Staff examined Avista's gas purchases for the year, its fixed price hedges, pipeline
transportation and storage costs, and estimates of future commodity prices to assess the
reasonableness of the proposed changes. Staff also reviewed Avista's jurisdictional allocations
and the reasonableness of Avista's Lost and Unaccounted for Gas (LAUF) volumes. Staff
verified that Avista's filing will not change the Company's earnings. Staff also confirmed that
the proposed changes to Schedules 150 and 155 accurately capture Avista's fixed (demand) and
variable (commodity) costs given the coming year's forecasted gas purchases and properly
amortize the deferral balance from the prior year.
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 increase by $0.00654 per therm, from the currently approved
$0.16371 (16.37O per therm to $0.17025 (17.03t) per therm.
Avista's demand costs are the costs for interstate transportation and underground storage.
The demand portion of Schedule 150 also includes some benefits from the Deferred Exchange
contract that are credited back to customers. Avista proposes a $0.00918 per therm decrease in
the overall demand rate. The proposed decrease primarily reflects a change in exchange rates
between Canadian and U.S. dollars.
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 Schedules ll2 or
l3 I ) do not participate in the amortization, but receive a one-time rebate or surcharge. Avista
proposes to increase the amortization rate rebate in Tariff Schedule 155 by $0.00283 per therm,
from the current rebate rate of $0.08862 per therm to a rebate of $0.09145 per therm. This rebate
is derived from lower actual natural gas prices than embedded in the WACOG and additional
optimization efforts undertaken by Avista, such as capacity releases and the Deferred Exchange
contract. A reconciliation of the Schedule 155 defenal balance is shown on Table 2:
JSTAFF COMMENTS ocroBER 10,2018
Table 2: Deferral Balance Reconciliation
Amortization Balance as of October 31,2017
Amortization Activity
Interest on Unamortized Balance
Total Unam ortized Balance
Current Year Deferral Activity
Deferral Balance as of October 31,2017
Deferral of Demand Costs
Deferral of Commodity Price Differences
Interest on Deferrals
Excess Capacity Releases (I.{ov - June)
Deferred Exchange Contract
Residual Unamortized Balance from AVU -G-12-07
Total Current Year Deferral Activity
$(5,960,168)
6,249,496
(1 4,432\
$274,885
$(4,219,43r)
68,758
(825,343)
(44,935)
(2,1 98,1 30)
(979,367)
(12.233)
$(8,210,681)
PGA Total Balance for Amortizatron s(7p35J96)
Idaho Eamings Test - Residual Balance
Temporary Tax Benefits
Total Balance to be amortized via Rate Schedule 155 _$GJB0378)
The deferral consists of the difference in the price Avista paid for natural gas and the
WACOG established in the previous PGA. The deferral also includes monthly interest charges,
excess capacity releases - discussed in further detail below, and benefits from the deferred
exchange contract.
Avista has a Deferred Exchange contract under which it receives natural gas during the
summer and redelivers that natural gas in winter. Avista charges a f,rxed per therm price for this
service and flows all the benefits through Schedules 150 and 155. Avista's proposed Schedule
150 WACOG includes a forecasted benefit of about $1.47 million for Idaho customers during the
year. During the luly 2017 through June 201 8 deferral period, $ 1,485,413 flowed to customers,
(65,272)
(s79.410)
4STAFF COMMENTS ocToBER 10,2018
including $979,367 for the months of November 2017 through June 2018. The benefits from the
Deferred Exchange Contract are reflected in the deferral activity in the table above.
In Case No. AVU-G-12-07, Order 32169, approximately $1.55 million of the existing
PGA deferral balance was approved to offset increases related to the general rate case. This
amount was amortized from November 2013 through December 2014 with a residual amount of
512,233 remaining. In consultation with Commission Staff, this residual balance was transferred
to the deferral balance in November 2017 and is reflected in the deferral activity in Table 2.
In Case No. AVU-G-15-01, Order No. 33437, an extension to the Idaho Earnings Test
Rate Schedule 197 was approved. Earnings sharing was first approved in Case No. AVU-G-12-
07 and extended in Case No. AVU-G-14-01. Included in the total for amortizationis $65,2J2,
the residual balance remaining from the defenal of earnings sharing from the 2015 general rate
case.
Also included in the deferral balance for amortization is $579,410 of temporary (one-
time) tax benefits resulting from the 2017 Tax Cuts and Jobs Act in Order No 34070, Case No.
GNR-U-18-01, the Commission approved the settlement stipulation that directs the Company to
refund the natural gas temporary tax benefit to customers as a credit over one year through the
Company's Purchase Gas Adjustment, effective November 1,2018. These temporary tax
benefits consist of the non-plant related excess Accumulated Deferred Federal lncome Taxes, the
deferral of the January - May 2018 tax benefits, and the impact of the changes in Idaho State
income tax rates.
Weighted Average Cost of Gas (WACOG)
The WACOG includes fuel charges to move gas at the city gate, some variable transport
costs, Gas Research Institute (GRD funding, and some benefits associated with the Deferred
Exchange contract. It does not include third party gas management fees. In this case, Avista
proposes a WACOG of 17.03 cents per therm. This is a slight increase from the approved
WACOG in the Company's last PGA adjustment of 16.37 cents per therm. Staff encourages the
Company to update its WACOG if gas prices materially deviate. Chart I illustrates the trends in
Avista's WACOG.
5STAFF COMMENTS ocToBER 10,2018
Chart 1: Historical WACOG
Avista PGA WACOG (S/Therm)
0.9000
0.8000
0.7000
0.6000
Eb 0.s000s< 0.4000
ltl 0.3000
0.2000
0.1000
0.0000
So.zaz s0.491 So.+ss So.q1s So.:sz So.:z:s0.38s s0.2s2 .240 219 164 .t70
2008 2009 2010 20tt 20t2 2013 2014 2015 2016 20L7
Year * AVU-G-17-06
Market Fundamentals & Price Analysis
Staff reviewed Avista's projected monthly cost of purchased gas. Avista uses a 30-day
historical average of forward prices to forecast the volume-weighted average annual index price
and forecasts a cost of $ I .50 per dekatherm. Staff reviewed Futures prices at each of the three
hubs where Avista purchases gasl and believes Avista's cost forecast to be reasonable.
Staff also examined the forecasts of national and regional organizations to see how
perceived market conditions might vary from the NYMEXA{GX Futures prices. Specifically,
Staff reviewed the forecasts from the Energy Information Administration (EIA).2
The EIA Short-Term Energy Natural Gas Outlook states:
EIA forecasts dry natural gas production will average 81.1 Bcf/d in2018, up by 7.5
Bcf/d from2017 and establishing a new record high. EIA expects natural gas
production will rise again in2019 to 84.1 Bcf/d.
EIA expects Henry Hub natural gas spot prices to average $2.96lmillion British
thermal units (MMBtu) in 2018 and $3.10/MMBtu in 2019. NYMEX futures and
options contract values for November 2018 delivery that traded during the five-
day period ending August 2,2018, suggest a range of $2.33/MMBtu to
I 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's Hub price.
2 EIA website https://www.eia. gov/outlooks/steo/report/natgas.php
a
a
STAFF COMMENTS 6 ocToBER 10,2018
l
20L7* i 20L8
$3.48A4MBtu encompasses the market expectation for November Henry Hub
natural gas prices at the 95Yo confrdence level.
Based on Stafls review of the market fundamentals and trends, the 2018-2019 forecasts
are consistent, predicting relatively stable near-term gas prices. Staff believes that Avista's cost
of its current hedges and estimated cost of forward-looking index purchases are reasonable.
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
can be used to capture the economic benefits of purchasing lower cost natural gas throughout the
year and selling it at a later time. Under this plan, Avista's hedges through July were executed at
a weighted average price of $0.25 per therm. For the next PGA year (November 2018 through
October 2019), the Company plans to hedge approximately 32o/o of its annual load requirements.
Copacity 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 U.S. and in Canada, and then transport that
gas to its jurisdiction. As mentioned previously, whenever 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 just
over $2.5 million.
7STAFF COMMENTS ocToBER 10,2018
Lost and Unaccountedfor (LAUF) Gas
Staff reviewed Avista's LAUF gas volume and compared it to total throughput. Staff
noticed that the reported LAUF rate for 2017 and 2018 were identical at0.4lYo and contacted the
Company to confirm the 2018 rate. The Company informed Staff that the 2018 calculation was
completed about a month after the PGA filing and is actually 0.37%.
Staff is concerned that Avista did not provide current LAUF calculations with this filing
and did not disclose that fact until questioned. Staff believes Avista's corrected overall LAUF
gas rate of 0.37oh for 2018 may be reasonable given the Company's LAUF rates in recent years.
The Company reported LAUF rates of 0.61% in 2015, 0.74%in20l6,and0.4lo/oin2017.
Quarterly WACOG and Monthly Deferred Costs Report
Staning in20153, Commission Orders no longer explicitly ordered the Company to provide
quarterly WACOG reports and subsequently, the Company stopped providing those reports.
Staff finds value in both the quarterly WACOG reports and monthly deferred costs report and
recommends that the Commission order the Company resume filing both reports on an ongoing
basis.
CUSTOMER COMMENTS, NOTICE, AND PRESS RELEASE
The Company's press release and customer notice were included with its Application on
August 27,2018. Staff reviewed the documents and determined both meet the requirements of
Rule 125 of the Commission's Rules of Procedure (IDAPA 31.01.01). The notice was included
with bills mailed to customers beginning September 6,2018 and ending October 4,2078,
providing most customers with a reasonable opportunity to file timely comments with the
Commission by the October 10,2018 deadline.
As of October 9, 2018, no customer comments have been filed.
3 Order No. 33402
8STAFF COMMENTS ocroBER 10,2018
STAFF RECOMMENDATIONS
After examining 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 $0.17025 per therm;
2. Tariff Schedule 155, including the proposed amortization rate of $0.09145 per therm
credit; and
3. Staff also recommends that the Commission direct the Company to resume filing
quarterly WACOG reports and continue filing monthly deferred cost reports with the
Commission on an ongoing basis.
Respectfully submitted this t1b day of october 2018.
Pacillo
Deputy Attorney General
Technical Staff: Kevin Keyt
Johnathan Farley
Kathy Stockton
9STAFF COMMENTS ocToBER 10,2018
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS l0th DAY OF OCTOBER 2018,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-18-04, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
DIRECTOR OF RATES
AVISTA CORPORATION
PO BOX 3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
avistadockets@ avistacorp. com
DAVID J MEYER
VP & CHIEF COLINSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-MAIL: david.meyer@avistacor?.com
Y
CERTIFICATE OF SERVICE