20190701Ehrbar Direct.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COTINSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P .O. BOX 3727
14I1 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-37 27
TELEPHONE: (s09) 49s -4316
FACSIMILE: (509) 49s-88s 1
DAVID.MEYER@AVIS TACORP.COM
iTI9JUL:I AI{
ii-:"ri::*: IilIliiri'ri* I Lr!L."jTiLifl-li CCMIJ
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION
OF AVISTA CORPORATION FOR THE
EXTENSION OF AVISTA'S ELECTRIC
AND NATURAL GAS FIXED COST
ADJUSTMENT MECHANISMS IN THE
STATE OF IDAHO
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CASE NO. AW-E-t9-}j
CASE NO. AVU-G-I9-O 3
DIRECT TESTIMONY
OF
PATRICK D. EHRBAR
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)
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I.INTRODUCTION
a. Please state your name, business address and present position with
Avista Corporation?
A. My name is Patrick D. Ehrbar and my business address is 141 1 East Mission
Avenue, Spokane, Washington. I serve as the Director of Regulatory Affairs for Avista.
a. Would you briefly describe your educational background and
professional experience?
A. Yes. I am a 1995 graduate of Gonzaga University with a Bachelors degree
in Business Administration. In 1997 I graduated from Gonzaga University with a Masters
degree in Business Administration. I started with Avista in April 7997 as a Resource
Management Analyst in the Company's Demand Side Management (DSM) department.
Later,I became a Program Manager, responsible for energy efficiency program offerings
for the Company's educational and governmental customers. In 2000, I was selected to be
one of the Company's key Account Executives, where I was responsible for, among other
things, being the primary point of contact for numerous commercial and industrial
customers.
I joined the State and Federal Regulation Department as a Senior Regulatory
Analyst in2007. Responsibilities in that role included being the discovery coordinator for
the Company's rate cases, line extension policy tariffs, as well as miscellaneous regulatory
issues. In November 2009,I was promoted to Manager of Rates and Tariffs, and later
promoted to be Senior Manager of Rates and Tariffs. My primary areas of responsibility
included electric and natural gas rate design, power cost and natural gas rate adjustments,
customer usage and revenue analysis, and tariff administration. In October 2017, I was
promoted to my present position.
Ehrbar, Di
Avista Corporation
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0. What is the scope of your testimony in this proceeding?
A. My testimony will provide an overview of the Company's electric and
nafural gas Fixed Cost Adjustment Mechanisms ("FCA" or "FCA Mechanisms") that were
made effective on January l, 2076, and which would expire at the end of 2019 absent our
request to extend the life of the mechanisms in this proceeding.l The Company requests
that the Commission authorize the approval of changes to the Company's electric and
natural gas FCA Mechanism tariff Schedule's 75 and 775. These changes seek to:
1) Extend the current FCA Mechanisms through March 31,2025;
2) Modify the upcoming defenal period to be from January 1,2020 through June
30,2021, so as to better align the deferral periods and the rate adjustments;
3) Implement an annual true-up to the FCA Mechanisms; and
4) Extend the FCA Mechanism quarterly reporting requirement from 45 to 60 days.
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17 a. In summary, why should the Commission extend the Mechanisms
18 through March 31,2025?
19 A. Based on what we believe are proven benefits to both the customer and the
20 Company that the FCA Mechanisms have shown to date, as validated in the "Avista
2l Decoupling Evaluation - Final Report" prepared by H. Gil Peach and Associates (Exhibit
22 No. 1), and the lack of adverse impacts associated with these Mechanisms, the Company
23 requests the Commission approve the continuation of the FCA Mechanisms. By extending
24 the mechanisms and providing some certainty to the Company that it can recover a
25 significant portion of its fixed costs of providing service, the Company is able to maintain
26 its central focus of being a trusted energy advisor to its customers without adverse or
I In Order 34085 in Case No. AVU-E-15-05 and AVU-G-15-01, the Commission approved an all-party
settlement stipulation which extended the life of the FCA Mechanisms until the end of 2019.
Ehrbar, Di
Avista Corporation
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uncertain financial impacts from evolving customer choice in the future. The Company
believes that the FCA Mechanisms continue to be in the public interest, promote increased
conservation and customer choice as it relates to self-generation, and result in fair, just,
reasonable, and sufficient rates.
a. Are you sponsoring any exhibits that accompany your testimony?
A. Yes. I am sponsoring Exhibit No. I which is the "Avista Decoupling
Evaluation - Final Report" prepared by H. Gil Peach & Associates LLC. I am also
sponsoring Exhibit No. 2, a copy of the PowerPoint presentation from the FCA Workshop
held at the Idaho Public Utilities Commission on March 27 , 2019. A table of contents for
my testimony is as follows:
Table of Contents
I. TNTRODUCTION
II. BACKGROUND
III. PURPOSE AND BENEFITS OF FCA MECHANISMS..................
IV. FCA MECHANISM PERFORMANCE
V. RISK MITIGATION ASSOCIATED WITH FCA MECHANISMS ........
VI. INDEPENDENT REPORT FINDINGS AND RECOMMENDATIONS
VII. PROPOSED MODIFICATIONS TO THE FCA MECHANISMS
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II. BACKGROUND
0. Would you please provide the background of the Company's electric
and natural gas FCA Mechanisms?
A. Yes. On December 18, 2015, the Commission issued Order 33437 in Case
Nos. AVU-E-15-05 and AVU-G-15-01, approving a Settlement Stipulation ("Stipulation").
Included in the approved Stipulation were electric and natural gas FCA Mechanisms, which
went into effect on January I ,2016 for a three year term through December 3 1 , 20 1 8. Later,
Ehrbar, Di
Avista Corporation
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I in Order 34085, the Commission extended the mechanisms through December 31, 2019, so
2 as to allow "Staff and interested parties additional information and recommendations from
3 the third-party evaluation of Avista's decoupling mechanism in Washington along with an
4 additional year of data".2
5 Q. Before proceeding further, when you discuss FCA Mechanisms in
6 Idaho, are those similar in almost all respects to the Company's Decoupling
7 Mechanisms in Washington and Oregon?
8 A. Yes. But for small differences in mechanism mechanics, the Company's
9 Decoupling Mechanisms in Washington and Oregon are almost identical to the FCA
l0 Mechanisms in Idaho. In our view, the term FCA, or Fixed Cost Adjustment, is
11 synonymous with the term decoupling.
12 a. Did the Company contract with an independent, third-party to evaluate
l3 its Decoupling Mechanisms in the State of Washington?
14 A. Yes. As part of the approval of the Company's Decoupling Mechanisms in
15 Washington, the Washington Utilities and Transportation Commission (WUTC) required a
16 third-party evaluation, paid for by Avista shareholders, to be completed by the end of the
17 third full-year (2018) of the implementation of those mechanisms.
18 The WUTC required the Company to consult with its Energy Efficiency Advisory
19 Group ("Advisory Group") in the development of the Request for Proposals (RFP) and the
20 selection of the consultant to perform the evaluation. After incorporating input from the
2l Advisory Group (which includes members of Idaho Commission Staff, the Idaho
22 Conservation League, and the Community Action Partnership Association of Idaho), Avista
23 was required to file its draft RFP, including the scope of the evaluation Query, with the
Ehrbar, Di
Avista Corporation
2 Order 34085, p. 1
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I WUTC for approval. At a minimum, the evaluation was to address decoupling's effbct on
2 revenues, its impact on conseryation, the extent to which the allowed revenues are
3 recovering their allocated cost of service by customer class, and the extent to which fixed
4 costs are recovered in fixed charges for the customer classes excluded from the Washington
5 Decoupling Mechanisms.
6 The Company filed its draft RFP on June 1, 2017 with the WUTC. In preparation
7 of completing the draft RFP, the Company engaged with the Advisory Group in the
8 development of the RFP over the course of several months and included all requested edits,
9 modifications, and suggestions into the RFP document. On July 13,2017, the WUTC
l0 approved the Company's Request for Proposals.
l1 Upon the WUTC's approval of the RFP, the Company issued the approved RFP to
12 a group of consultants that were shared with the Advisory Group. H. Gil Peach &
l3 Associates was ultimately selected as the consultant for this project. In addition to meeting
14 the requirements set forth in the Statement of Work contained within the RFP, H. Gil Peach
15 & Associates had recently completed a similar decoupling evaluation for Puget Sound
16 Energy, which in the Company's view, added to their qualifications.
17 On October 1, 2018 the Company filed the final report conducted by H. Gil Peach
18 & Associates with the WUTC, as well as provided the report to the Advisory Group
19 (including the Idaho Advisory Group participants). The final report, labeled "Avista
20 Decoupling Evaluation - Final Report" ("Independent Final Report"), is included as
2l Exhibit No. 1.
22 a. Prior to preparing this filing, did the Company seek input from Idaho
23 Commission Staff and interested parties as to potential modifications to the FCA
24 Mechanisms?
Ehrbar, Di
Avista Corporation
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A. Yes. In the Addendum to the Stipulation in Case Nos. AVU-E-15-05 and
AVU-G-15-01, the Commission approved the following:
The Parties agree to an initial FCA term of 4 years, with a review of how the
mechanisms have functioned conducted by Avista, Staffi, and other interested
parties following the end of the third full-year. Avista may seek to extend the term
of the mechanism prior to its expiration.
Consistent with that requirement, Avista, Commission Staff, and the Idaho
Conservation League met on March 27,2019.3 Attached as Exhibit No. 2 is a copy of the
PowerPoint presentation from the FCA Workshop. A robust discussion occurred at that
workshop, and concepts and recommendations stemming from that meeting have been
incorporated into the Company's proposed FCA Mechanism modifications.
III. PURPOSE AND BENEFITS OF FCA MECHANISMS
a. What is the purpose and benefits of the FCA Mechanisms?
A. The purpose of the FCA Mechanisms is to adjust the Company's
Commission-authorized revenues from kilowaff-hour ("kwh") or therm sales, such that the
Company's revenues will be recognized based on the number of customers served under
the applicable electric and natural gas service schedules. The FCA allows the Company to:
1) defer the difference between actual FCA-related revenue received from customers
through volumetric rates, and the FCA-related revenue approved for recovery in the
Company's last general rate case on a per-customer basis; and2) file a tariff to surcharge
or rebate, by rate group, the total deferred amount accumulated in the deferred revenue
accounts for the prior January through December time period.
3 All parties to Case Nos. AVU-E-15-05 and AVU-G-15-01 were invited to attend the workshop. Clearwater
Paper and Idaho Forest Group attended a separate workshop held also on March 27,2019, but did not stay
for the FCA Workshop given that they, as Schedule 25 and25P customers, are exempt from the electric FCA,
and the Company is not proposing to modiry that in this Case.
Ehrbar, Di
Avista Corporation
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Said another way, the FCA is a mechanism designed to sever the link between a
utility's revenues and consumers' energy usage. These mechanisms remove the so-called
throughput incentive and promote more aggressive pursuit of cost-effective conservation.
As shown in Illustration Nos. I and 2 below for both electric and natural gas residential
customers, Avista has continued to see a decline in use-per-customer for the past several
years which is illustrative of the need and importance of the FCA Mechanisms:
Illustration No. 1: Electric Residential Use-Per-Customer
ldaho Electric Residential
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2008 2009 2010 201,1, 2012 2013 201,4 201,5 201,6 2017 201,8
Year
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Use per Customer Linear (Use per Customer)
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Avista Corporation
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Illustration No. 2: Natural Gas Residential Use-Per-Customer
ldaho Natura! Gas Residential
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2008 2009 2010 20L1. 20t2 2013 20L4 2015 2016 20fi 2At8
Year
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Use per Customer Linear (Use per Customer)
Absent the FCA Mechanisms, in periods of declining use-per-customer similar to
what the Company has experienced on the electric side, Avista would under-recover its
fixed costs of providing service to its customers in the periods in between general rate case
filings (given that a majority of the Company's fixed costs are recovered in variable energy
rates). To the extent use-per-customer declines from programmatic and non-programmatic
DSM, or distributed generation resources between general rates cases, the FCA
Mechanisms provide the Company recovery of its fixed costs for providing service to its
customers. These are the same fixed costs, on a revenue-per-customer basis, that the
Commission approves for recovery in a general rate case.
In addition, the FCA Mechanisms ensure that to the extent there is customer growth
in the rate year and beyond, the revenues are available to offset the growth in utility costs
following the test year. By allowing the Company to recover a significant portion of its
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Avista Corporation
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1 fixed costs of providing service, the Company is able to maintain its central focus of being
2 a trusted energy advisor to its customers without uncertainty as to the financial impact
3 customer choice may have on the Company.
4 0. What comments do you have related to the weather-normalized
5 increasing use-per-customer for natural gas?
6 A. As you can see in Illustration No. 2, use-per-customer coming out of the
7 Great Recession has actually been increasing. Absent the natural gas FCA Mechanism, the
8 increase in revenue would have accrued to the Company and the bottom line. That is not
9 Avista's objective, however. As we have said from the outset, our goal is to simply have
10 the opportunity to recover the fixed costs of providing service to customers, on a per-
I I customer basis, no more and no less. We believe it is still imperative to maintain a natural
12 gas FCA as well.
13 a. Would you say that the FCA Mechanisms have provided benefits to
14 both the Company and its customers?
15 A. Yes. As further detailed in the analysis provided in the Independent Final
16 Report, the FCA Mechanisms have proven to be a vital and meaningful program for both
17 the Company and its customers. Not only has the program accomplished its original
18 objectives of removing the disincentive for the Company to promote the efficient end-use
19 of energy through conservation, it has also been beneficial to customers in times of a colder
20 than normal winter, or a hotter than normal summer, when the Company has returned those
2l additional revenues back to customers. As described by the Alliance To Save Energy:a
22 As consumers broadly engage in energy efficiency, all ratepayers may23 benefit as the high costs of new power plants, transmission lines and
24 pipelines may be reduced or avoided. [FCA Mechanisms] may also reduce
25 volatility in energy bills due to weather and other factors, and it reduces
Ehrbar, Di
Avista Corporation
4 www.ase.org/resources/utility-rate-decoupl ing-0
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risk for utilities too. It preserves customers' incentive for efficiency while
removing utilities disincentives.
The Company has demonstrated, in a number of filings before this Commission,
that it has been aggressively pursuing all cost-effective conservation for a number of years.
The Company actively promotes technologies that are cost-effective, reliable, and feasible,
with the goal of meeting and exceeding its required targets. As shown in Illustration No. 3
below, the Company has exceeded its electric energy efficiency targets in each year since
the FCA was approved, as compared to the two prior years where we did not meet our IRP
target:
Illustration No. 3: Electric Enersy Efficiency Achievement
lD Electric IRP Targets to Actual Savings
r lRPTarget lActual
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'2018 actual svings are prelimimry.
'2018 & 2019 IRP Target includ6 2896 UCT
adJustment factor.
'2016 & 2017 verified gross etuals are
from'16'17 hpact Evaluation.
'Figures..lbgldgtuel converslons and
exclude dlsvgen & itEEA
2014
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2019
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20t720152015
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2018
15,370
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15,666 11,186
As can be seen in the Illustration No. 3 above, the Company achieved results
relatively close to our IRP Target in2014 and 2015. However, beginning in 2016, and
continuing in2017 and 2018, Avista achieved results well in excess of its IRP target.
Ehrbar, Di
Avista Corporation
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a. Is the presence of the FCA Mechanisms the reason why the Company
was able to exceed its goals in 2016 through 2018?
A. What the FCA Mechanisms do is remove any disincentive towards energy
effrciency. Since the implementation of the FCA, internal discussions regarding the merits
of energy efficiency, the "lost margin" associated with losing our own business, and like
conversations, have ceased. Avista always had an energy efficiency mindset; that has
grown under the presence of the FCA Mechanisms. The Independent Final Report came
to a similar conclusion regarding decoupling's role in energy conservation in Washington:
Decoupling is not a driver for energy conservation. But it facilitates pursuit
of all cost-effective energy conservation in accord with Commission
direction. Anyone who has been present in a non-decoupled utility when a
planned program budget cap is reached has heard staff telling customers
that the budget cap has been reached, so they should consider tracking when
the program will reopen in the next year and get their application in
immediately. From experience, we have seen major programs (elsewhere)
that are open for applications for one or two days a year. With decoupling,
that barrier is removed...to pursue all cost effective conservation.s
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19 a. Are there similar energy efficiency results on the natural gas side of the
20 business?
21 A. There are similar results for natural gas energy efficiency programs. Of
22 course the Company did not have programs in 2014 and 2015, but as can be seen in
23 Illustration No. 4 below, the Company greatly exceeded its IRP Target for natural gas
24 efficiency in20l6 and20l7. For 2018, the results have not yet been verifiedby an external
25 third party, but it appears that the Company missed its target that year. On the whole,
26 though, over the life of the natural gas FCA, from 2016 through 2018 the Company in total
27 greatly exceeded its IRP targets, on a cumulative basis.
5 Exhibit No. I - Avista Decoupling Evaluation - Final Report, H. Gil Peach & Associates LLC p. 6-10.
Ehrbar, Di
Avista Corporation
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Illustration No.4: Natural Gas Efficiency Achievement
lD Gas IRP Targets to Actual Savings
I IRP Target r Actual
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'2018 actual savings are preliminary.
'2016 & 2017 verified gross actuals are
from'1G'17 hpact Evaluation.
'No Gas Programs in 2014 or 2015
'Figures exclude the neSative impact to
therm savings due to fuel onversions.l
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Ehrbar, Di
Avista Corporation
456,000 228,O@ 320,830
a. Please explain further how the FCA Mechanisms have provided
benefits to Avista and customers.
A. The FCA Mechanisms have been an essential means for providing the
Company revenue stability each year, without impacting utility operations.6 They have also
been vital in ensuring the Company is able to recover the fixed costs of providing service
to customers, therefore making the Company agnostic to the impacts of customers pursuing
distributed generation (net metering) resources and conservation. Having an electric FCA
positively affects how Avista views the proliferation of distributed generation on our
system. While Idaho customers have been slower to adopt distributed generation as
compared to our Washington customers, with the FCA there is no reason to discourage the
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I amount of net metering on our system, given the limited impact on cost recovery in between
2 general rate cases. The Company has been supportive of customer choice towards
3 distributed generation resources as an alternative generation resource that certain customers
4 desire and that can provide benefits to Avista's system.T
5 The FCA Mechanisms also provide an important protection for customers. First, as
6 discussed earlier, by separating sales from revenues, the disincentive to promote
7 conservation is removed, as would any incentive for the utility to increase throughput.
8 Customers also benefit if the overall actual sales revenue collected by the Company on a
9 per-customer basis is greater than that approved by the Commission. For example, if a
10 winter is colder than normal, leading to loads that are higher than normal, the Company
1l rebates to customers all of the revenue collected above the allowed level.
12 The revenue provided to Avista through an FCA would not represent additional
13 revenue to the Company over and above what is needed to recover its costs; it represents
14 restoration of revenues that the Commission has already determined should be provided to
15 the utility from the last rate case, on a per-customer basis.
16 Customers also benefit through an annual rate increase limitation. The 3 percent
17 annual rate increase limitation ensures that the amount of an incremental rate adjustment
18 for any of the rate groups does not exceed more than 3 percent in any given year, reducing
19 the likelihood of rate shock.
7 In a two year period fiom December 31,2016 to December 31, 2018, distributed generation resources have
seen a 27%o increase in nameplate capacity in Avista's Idaho service territory, going from 6l total systems,
with a nameplate capacity of 505 kW's, to79 total systems, with a nameplate capacity of 641 kW's.
Ehrbar, Di
Avista Corporation
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I IV. FCA MECHANISM PERFORMANCE
2 Q. How have the FCA Mechanisms performed?
3 A. The FCA Mechanisms have proven to work for both the customers' and the
4 Company's benefit, as intended. Table No. 1 provides the deferral balances for the
5 Residential Customer Groups for both electric and natural gas which were in the surcharge
6 direction for the 2016 deferral period, in the rebate direction for the 2017 defenal period,
7 and in the surcharge direction for the 2018 deferral period.
8 For the electric Non-Residential Group, the deferral balance was in the surcharge
9 direction for the 2016 through 2018 deferral periods, while for the natural gas Non-
10 Residential Group, the deferral balance was inthe surcharge direction in2016, but inthe
I I rebate direction for 2077 and 2018. Over three years, the Mechanisms in total are working
12 as intended, and are going both ways - both surcharges and rebates.
Ehrbar, Di
Avista Corporation
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1 Table No. 1: Summarv of Deferral Balm
The primary drivers of the changes in the deferral balances were deviations in use-
per-customer primarily driven by actual weather being different from normal weather in
any given year, and continued energy efficiency savings that were acquired beyond what
was built into the Company's test year. Table Nos. 2 and 3 below provide the estimated
difference in use-per-customer comparing the deferral year to the test year, with an
estimation of the amounts attributable to weather and energy efficiency (note that the "Test
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Ehrbar, Di
Avista Corporation
Electric
Residential Gmup Non-Residential Gmup
Notes 2076 2017 2018 c 2016 2017 2018 c
Change in Average Use/Cust from Test Year (s82)348 (303)(1,787)(42e)(1,623)
Deferred Revenue ($)4,028,203 -2,816,256 1,753,478 2,556,424 610,929| \tzr,qoz
Requested Recovery ($)A 4,104,9sr -2,071,515 t,772,689 2,601,5 86 603,6991 1,s02,273
Customer Surcharge (Rebate) Revenue ($)3,290,149 -2,07t,515 1,772,689 2,601 ,s86 603,669 1,502,273
Carryover DeGrred Revemrc ($)8 I 4,802 0 0
tt0r 0r 0
Fixed Cost Adj Rate (Schedule 75) (S/kWh)B o.oozerl -o.ool76l o.oolso o.oozarl o.ooos6i o.ool40
Incrc rnental Revenue @e rtent)3.00% ! 4.73"/" | 1.560/"2.70" | -2.03"h| 0.91,
Limited by 3% Cap?Yes! No! No No! No! No
A: Requestedrecoveryisequaltodeferedrevenueafteradjustingdefemlbalmcecar4roverliomprioryear(ifany).interest,andrevenuerelatedepenses.
B: Fired Cost Adj Etes Schedule 75 (electric) take effect on October I st ofthe follorving year . For eErple, mtes shoM in the 2016 colum have an efective date
of October l, 201 7 (electric).
C: For20t8 Defered Revenues are Actual Values, howeverRequested Recovery, Schedule 75 Rates, and lncrcmntal Revenue (Percent) re estimted values that
will be fmalired in the July FCA surcharge/rcbate filing.
Natural Gas
Residential Gmup Non-Residential Group
Notes 2Ot6 i zOtt i zora c 2016 i z0tt i 2018 c
Change in Average Use/Cust from Test Year (7r)i 42i e6)(r,4sr)i t,tzsi 4
Deferred Revenue ($)2,626,6541 -1,636,26s! ss7,929 s00,2s3! -377,623 -137,897
ReqLrsted Recovery ($)A 2,673,7621 -46sp$l s64,03'7 so%2tl -274,617 -139,390
Ctstonrer Surcharge (Rebate) Revenre ($)1,440,064t1 -46s,0$l s64,037 383,369f -274,6fi11 -|.:D,3go
Carryover Deferred Revenrc ($)I,233,698t 0l 0 t2s,9s2l 0l 0
Fixed Cost Adi Rate (Sclredule 175) ($/therm)B tt0.024661 -0.00766t 0.0092i II0.0t6t5t -0.01067t -0.00540
Revenue (Percent)
by3%N,ol No
1
N,ol No
A: Requestedrecoveryisequaltodefenedrevenueafteradjustingdefemlbalmcecarryoverfromprioryear(ifany),interest,mdrevenuerelatedepenses.
B: Fired Cost Adj mtes Schedule 175 (natuml gas) take effect on November lst ofthe following yed. For eErple, Etes shoM in the 2016 colum have m
effective date ofNovember 1, 2017 (natuBl gas).
C: For20l8DeferedRevenuesarcActualValues,howeverRequestedRecovery,SchedulelT5Rates,andlncrerentalRevenue(Percent)mestiMtedvalues
that nill be imalired in the July FCA surcharge/rcbate filing.
l5
3.0001 -4.230/,a 11ot 3.00"1 -5.550/
Ye Ye
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Year" values are different each year due to general rate cases, which of course then affects
the cumulative energy efficiency savings due to a reset baseline).
Table No. 2: Electric Use-Per-Customer
For electric use-per-customer, the primary driver of any reductions is due to the cumulative
effects of energy efficiency, especially for the less-weather sensitive Non-Residential
Group. For natural gas as shown on Table No. 3, however, as one might suspect the largest
driver for any change in use per customer for a FCA Mechanism based on non-weather
normalized results would be the effects of weather, given natural gas' primary use as a
heating fuel.
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Avista Corporation
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Electric
2016 2017 2018
Usage
(Mwh)Customers
Use per
Customer
(klvh)
Usage
(M!vh)Customen
Use per
Customer
(kwh)
Usage
(M!vh)Customers
Use per
Customer
(k!vh)
---------- Residential
-------
Test Year |,147,395 102.923 1 1.148 t,143,267 I 03,838 I 1,0 10 I,145,126 104,855 10,921
Acttnl 1,107 ,7 67 I 04,843 10,s66 1,205,1 l9 1 06,1 04 I 1,358 1,145,982 107,930 10,61 8
Change from Test
Year -39,628 1,920 -582 61,852 ) )67 348 8s6 3,076 -303
Percent Change -3.45%1.87%-5.22%5.41%2.18%3.16%0.07%2.93%-2.78%
Change from Test
Year Due to:
Weather -37,132 -3s4 48,718 459 -16,755 -155
Cumulative Energy
Efficiencv -24,342 _, t,-28,058 -264 -6,t94 -57
Non-Residential
Test Year 1,120,783 23,074 48,573 I,080,s03 23,311 46,3s2 1,074,699 ,I <7<45,s86
Actual 1,102,117 ,)1 S<7 46,786 1,093,055 23,802 45,924 1,061,269 24,140 43,964
Change from Test
Year - I 8,666 483 -1,787 12,s52 49t -429 - 13,430 565 -1,623
Percent Change -1.67%2.09%-3.68%t.t6%2.n%-0.92%-1.25%2.39%-3.s6%
Change from Test
Year Due to:
Weather -5,497 -233 I 9,041 800 -63 l -26
Cumulative Energy'
Elliciencv -20,639 -876 -4s,109 -l,895 -24,396 -1,01I
1 Table No.3: Natural Use-Per-Customer
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The impacts of the FCA Mechanisms on customer bills have been small over the
first three calendar years of operation. Table No. 4 below provides a summary of the billing
rate effects from each of the Company's first two FCA Mechanism Rate Adjustments, as
well as the projected rate adjustments that will be filed later this summer related to the 2018
deferral period:
Ehrbar, Di
Avista Corporation
Natural Gas
2016 2017 2018
Usage
(Therms)Customen
Use per
Customer
(Therms)
Usage
(Therms)Customers
Use per
Customer
(Therms)
Usage
(therms)Customers
Use per
Customer
(Therms)
Residential ---
Test Year 55,714,01l 75,'707 736 55,714,01 l 75,707 736 59,156,634 78,604 753
Actual 52,276,419 78.604 66s 62.549.247 80.356 778 59,788,035 82,30 I 726
Change from Test
Year -3,437,592 2,897 71 6,835,236 4,649 42 631,401 3,697 26
Percent Change -6.17%3.83%-9.63%12.27%6.14%5.77%1.07%4.70%-3.47%
Change from Test
Year Due to:
Weather -4,983,458 -63 2,020,925 ,<-3,169,293 -39
Cumulative Enetgy
Efficiencv -154,713 t -271,876 -3 -173,276 t
__--- Non-Residential
-
Test Year 22,947,786 I,387 16,542 22,947,786 1,387 16,542 23,271,1t9 1,421 16.372
Acflral 21,450,7'73 1.421 15,09t 25,594,211 l,448 17,670 24,437,649 1,492 16,375
Change from Test
Year -1,497,013 34 - 1,45 1 2,646,425 6I 1,129 1,1 66,530 7t 4
Percent Change -6.s2%2.46%-8.77%1t.53%4.41%6.82%5.01%4.99%0.02%
Change from Test
Year Due to:
Weather -994,853 -700 469,940 324 -646.304 -133
Cumulative Energy
Elliciency -34,582 -24 -70,t73 -48 -37,596 _r<
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Table No.4: Rate Changes (Percentage)
2016 Deferral Year
2017 Defemal Year
2018 Deferral Year
Residential
3.0%
-4.7%
r.6%
Electric
Non-Residential
2.7%
-2.0%
0.9%
Natual Gas
Residential Non-Residential
2016 Deferral Year 3.0% 3.0%
2017 Defenal Year -4.2% -5.6%
2018 Deferral Year 2.2% 1.1%
a. Would you please provide a summary of the Commission's approvals
of FCA Mechanism rate adjustments?
A. Yes. The Company has made Commission filings related to its FCA
Mechanisms for the 2016 and 201 7 deferral years, and has made its 20 I 8 frlings coincident
with the filing ofthis Case. The deferral period year and the corresponding Docket numbers
for both electric and natural gas are detailed below in Table No. 5:
Table No. 5: Rate Change Case Numbers
FCA
Defenal Year
201 8
2017
2016
Electric
Case Number
TBD
AW-E-18-06
AW-E-17-04
Natural Gas
Case Number
TBD
AVU-G- 18-03
AW-G-17-03
For each of the 2016 and 2017 cases, Commission Staff reviewed the FCA deferrals
and recommended the Commission approve the Company's deferral balances and rate
recovery.
a. What is the history of customer comments in the FCA deferral rate
adjustment cases?
Ehrbar, Di
Avista Corporation
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A. For the 2017 and 2018 FCA Mechanism electric and natural gas rate
adjustment filings, the Commission has received only 36 comments. In fact, all of the
comments occurred in the 2017 rate adjustment review, and the Commission noted that
"many questioned the pending merger with HydroOne and its connection to Avista's
requested rate increase".8
V. RISK MITIGATION ASSOCIATED WITH FCA MECHANISMS
a. The Commission in the Company's 2018 electric and natural gas FCA
deferral filings stated that "we encourage interested persons and parties to examine
issues related to...the effect of the FCA on customer and Company risk and the
benefits accruing therefrom.o'e What is the Company's position on this matter?
A. The Company's position is no diffbrent today than when the mechanisms
were implemented. In fact, Company witness Mr. McKenzie in the Company's current
Idaho General Rate case addressed this very issue.lo When addressing whether the
regulatory mechanisms approved for Avista in Idaho set the Company apart from other
firms that operate in the utility industry, he found that Avista was not set apart. He found
that:
[C]ompanies in the electric and gas utility industries operate under a wide
variety of cost adjustment mechanisms, which range from revenue
decoupling and adjustment clauses designed to address rising capital
investment outside of a traditional rate case and increasing costs of
8 Order 33899, p. 3.
e See Electric FCA Order 341 58, p. 3 and Natural Gas FCA Order 341 70, p. 3
ro Case No. AVU-E-19-04.
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Avista Corporation
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environmental compliance measures to riders to recover bad debt expense
and post-retirement employee benefit costs.11
a. Did Mr. McKenzie find that the benefits associated with various
mechanisms, like the FCA, are already accounted for in the Company's return on
equity recommendations?
A. Yes. Mr. McKenzie found that:\2
Consistent with this view, the mitigation in risks associated with Avista's
ability to recover its costs in a more timely manner through various
adjustment mechanisms is already reflected in the results of the quantitative
methods presented in my testimony. (emphasis added)
When discussing his analysis of his ROE peer group analysis (the "Utility Group"), Mr.
McKenzie stated:13
[T]he companies in the Utility Group operate under a variety of regulatory
adjustment mechanisms.la For example, twelve of the firms benefit from
some form of revenue decoupling and seventeen operate in jurisdictions that
allow the use of future test years. In contrast to Avista, fourteen of the firms
in the proxy group have operating utilities that benefit from mechanisms
that allow for cost recovery of infrastrucfure investment outside a formal
rate proceeding. Many of these utilities also have the ability to implement
periodic rate adjustments to reflect changes in a diverse range of operating
and capital costs, including expenditures related to environmental
mandates, conservation programs, transmission costs, and storm recovery
efforts.
" Id. p. 46, ln. 1 1 - 15.
" Id.p.49, ln. 16-18.
'' Id. p. 48,Ln.4-12.
la Because this information is widely referenced by the investment community, it is also directly relevant to
an evaluation ofthe risks and prospects that determine the cost ofequity.
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Ehrbar, Di
Avista Corporation
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O. Have other regulators recognized that approval of adjustment
mechanisms do not warrant an adjustment to the ROE?
A. Yes. As Mr. McKenzie discusses in his direct testimony in the current Idaho
electric general rate case:ls
For example, the WUTC recognized in a 2015 order that the impact of adjustment
mechanisms is already reflected in cost of equity estimates for the proxy group:
We believe it is correct that cost of capital analysis cannot be
expected to produce results that support measurement of decrements
to ROE ostensibly due to approval of one risk mitigation mechanism
or another. Nor would cost of capital analysis be adequate to the task
of identifying increments to ROE that might be considered due to
some measure of additional risk a company takes on at some point
in time. The Commission has never tried to account separately in its
ROE determinations for specific risks or risk mitigating factors, nor
should it. Circumstances in the industry today and modern
regulatory practice that have led to a proliferation ofrisk reducing
mechanisms being in place for utilities throughout the United States
make it particularly inappropriate and unnecessary to consider such
an undertaking. The effects of these risk mitigating factors was
by 2013, and is today, built into the data experts draw from the
samples of companies they select as proxies.l6
Similarly, the Staff of the Kansas State Corporation Commission concluded that no
ROE adjustment was justified in the case of certain tariff riders because the impact
of similar mechanisms is already accounted for:
Those mechanisms differ from company to company and jurisdiction to
jurisdiction. Regardless oftheir nuances, the intent is the same; reduce cash-
flow volatility year to year and place recent capital expenditures in rates as
quickly as possible. Investors are aware of these mechanisms and their
benefits are a factor when investors value those stocks. Thus, any risk
tt Id. p. 48, ln. 13 - p. 49, ln. 15.
t6 Wash. Utils. &Transp. Comm'nv. Puget Sound Energt, ftc., Dockets UE-130130 and UG-130138
(consolidated) et al., Order 15.14 at69,\ 155 (June 29,2015) (intemal citations omitted, emphasis added)
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Avista Corporation
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a.
reduction associated with these mechanisms is captured in the market data
(stock prices) used in Staffs analysis.rT
Does Mr. McKenzie believe any adjustment to the ROE is warranted
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due to Avista's FCA Mechanisms?
A. No he does not. He states:I8
The FCA is supportive of Avista's financial integrity, but there is no evidence to
suggest that implementation ofthis mechanism has altered the relative risk ofAvista
enough to warrant any adjustment to its ROE. As noted earlier, the investment
community and the major credit rating agencies in particular, pay close attention to
the regulatory framework, including various adjustment mechanisms. Based
largely on the expanded use of ratemaking mechanisms such as revenue decoupling
and cost-recovery riders, Moody's upgraded most regulated utilities in January
2}l4.te Similarly, Moody's and S&P have noted Avista's ability to benefit from
these regulatory mechanisms in their assessment of the Company's risk profile.20
In other words, the implications of revenue decoupling and other regulatory
mechanisms are already fully reflected in Avista's credit ratings, which are
comparable to those of the proxy group used to estimate the cost of equity.
Moreover approval of the FCA does not remove overhanging regulatory risks.
Avista remains exposed to future determinations as to the prudency of its
expenditures and investments, and investors continue to evaluate expectations for
balance in the regulatory framework and in establishing allowed ROEs.
a. Does Avista believe that this issue needs to be resolved in connection
with this filing?
A. No, it should be addressed in connection with the establishment of the
authorized ROE in the Company's pending general rate case.
t7 Direct Testimony Prepared by Adam H. Gatewood, State Corporation Commission of the State of Kansas,
Docket No. l2-ATMG-564-RTS, pp. 8-9 (June 8, 2012). This proceeding was ultimately resolved through a
stipulated settlement.
r8 Case No. AVU-E-19-04,p.45, ln. 5 -p.46,ln.2.le Moody's Investors Service, US utility sector upgrades driven by stable and transparent regulatory
frameworks, Sector Comment (Feb. 3,2014).
20 Moody's Investors Service, Moody's downgrades Avista Corp. to Baa2, outlook stable, Rating Action
(Dec. 20, 2018). See also, S&P Global Ratings, Avista Corp. Ratings Affirmed; Off Ll/atch Positive;
Outlook Stable, RatingsDirect (Dec. I 0, 20 I 8).
Ehrbar, Di
Avista Corporation
22
I VI.INDEPENDENT REPORT FINDINGS AND RECOMMENDATIONS
2 Q. Before discussing the findings and recommendations of the
3 Independent Final Report, do you believe the findings for the Company's Decoupling
4 Mechanisms in Washington are applicable to the Company's FCA Mechanisms in
5 Idaho?
6 A. Yes, I do believe the findings in the Washington Independent Final Report
7 have merit when evaluating the Idaho FCA Mechanisms. As the Commission is well aware,
8 Avista operates its electric and natural gas operations in Washington and Idaho generally
9 as a system given the interconnected operations with only a state border segmenting one
10 portion of the system from the other. As such, as I discuss the findings from the
l1 Independent Final Report prepared for Washington purposes, I believe the findings are also
12 applicable to the Idaho FCA Mechanisms (also considering that Idaho parties participated
l3 in the development of the RFP scoping materials that ultimately led to the hiring of H. Gil
14 Peach and Associates).
15 a. What were the findings and recommendations from H. Gil Peach's
16 Independent Report, included at Exhibit No. 1?
17 A. The lndependent Final Report issued by H. Gil Peach and Associates is
l8 segmented into sections which were designed to address the requirements as fully described
19 in the Company's RFP. As described in the introduction of the Independent Final Report,
20 the evaluation was partly a compliance evaluation and partly a policy evaluation of Avista's
2l Decoupling (FCA) Mechanisms. The summary conclusion as stated on Page I of the
22 Independent Final Report states that "(w)e flnd that Avista's decoupling is working well
23 within the specific window of time examined." Sections I through 7 correspond to a
24 specific task and sections 8 through 10 correspond to specific topics and recommendations.
Ehrbar, Di
Avista Corporation
23
1
2
Excerpts of the summary of sections 1 through 9 and the report recommendations in Section
10 are detailed below:
Section 1 - Did Avista comply with the specifics of the decoupling order?
Findinss - The overall result in this section of the analysis is that we find the
deferrals and rates to have been calculated by the Company in accordance with the
Commission order and the Amended Petition, as determined by methodological
specifications in Schedule 75 and Schedule 175.21
Avista's View on Implications for Idaho - We believe that the consultant would
have come to a similar conclusion in Idaho, not to mention Commission Staff has
audited our 2016 and 2017 defercal periods and recommended Commission
approval of our rate filings in those cases.
Section 2 - Analyzes the billing impacts and recovery of cost of service related to
decoupling.
Findines - Impacts of decoupling on customer bills have been small over the first
three calendar years of operation, partly due to the timing of billing impacts.
An important characteristic of the Avista decoupling mechanism is that the
possibility of ever-increasing levels of carryover deferrals (snow-balling deferral
balances) is greatly reduced by allowing the decoupling rate to adjust incrementally
higher each rate year, subject to the annual 3%o cap. This feature limits rate shock
while also allowing the decoupling rate to amortize higher levels of requested
recovery.
An assessment to determine if allowed revenues from the residential, non-
residential, and customers not subject to decoupling rate classes are recovering their
respective costs of service shows significantly different results for electric and
natural gas. Avista's Washington electric system revenue exceeded total costs in
all three years. Overall the non-residential rate group subsidizes the residential rate
group and, to a much lesser extent, the non-decoupled rate group. These cross-
subsidization results are consistent with GRC expectations. Avista's Washinglon
natural gas system had a revenue shortfall in 201 5 and a surplus in 20 I 6 and 2017 .
Unlike the electric system, revenue surpluses and shortfalls have not been consistent
across the three years or within rate groups. The change in natural gas GRC
assumptions between 2015 and 201612017 appears to have materially shifted actual
and planned earnings results for all rate groups.22
Avista's View on Implications for Idaho - As discussed earlier, the FCA
mechanisms are functioning as intended, with some years showing surcharges, and
other years showing rebates. Overall, the rate changes in our view are relatively
21 lbid.
22 Id. p.2-28.
Ehrbar, Di
Avista Corporation
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modest, with the 3o/o rate cap helping to eliminate the potential for rate shock should
a large surcharge balance form. Further, we believe that excluding larger electric
and natural gas customers is appropriate given that their usage tends to be less
volatile (higher load factor). The Company continues to believe that the fixed costs
recovered from Schedule 25 ,25P and 146 are more stable, and therefore do not need
to be included in the mechanisms going forward.
Section 3 - This section provides an evaluation of trends in Low-Income Bill
Assistance and the Low-Income Weatherization services during the study period
(20 I 2-20 1 4 and 20 I 5-20 I 7).
Findines - The decoupling deferral tracker adjustment, Schedule 75 for electric and
Schedule 175 for natural gas, has had a relatively small impact on low-income
customer bills. On a percentage of bill basis there is no meaningful difference in
decoupling charges between low-income and all residential customers.
The average low-income customers used six percent (6%) more electricity per
premise rn 2077 than other residential customers. Low-income homes were also
substantially smaller. With higher use in smaller homes, electric use per square foot
in low-income homes was about forty percent (40%) higher than for other
residential customers. Analysis to determine why this is the case is beyond the
scope of this evaluation but older less efficient homes and greater reliance on
electric space heating in low-income homes are at least part of the explanation.
The average low-income customer used 16% less natural gas per premise than other
residential customers. On a per square foot basis, natural gas use was sixteen
percent (16%) higher in low-income homes than other residential. Much of this
difference is likely due to older less efficient building shells in low-income housing
units.23
Avista's View on ns for Idaho - Avista believes that the analysis for
low-income effects in Washington is similar had such analysis been completed for
Idaho. As mentioned earlier, our electric and natural gas operations are tied together
essentially as one integrated system. The populations in North Idaho and Eastem
Washington, in our view, are very similar. As such, we believe that the findings in
the Independent Final Report that rate adjustments had a relatively small impact on
low-income customers is the same in Idaho as it was in Washington.
Section 4 - Analyzes the effects of the Decoupling Mechanisms on Avista's revenue.
Findines - On the electric side, the 3o/o cap on annual rate increases from the
decoupling rate was only reached one out of six possible times when it came into
effect for electric residential in 20 I 5. For natural gas, the rate cap was reached 3 of
6 times, twice for residential customers and once for non-residential. Electric non-
Ehrbar, Di
Avista Corporation
23 Id. p.3-36
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residential is the only rate group that has not reached the rate cap. None of the four
rate groups were subject to the decoupling rate cap in20l7.2a
Avista's View on Implications for Idaho - As discussed earlier, Avista reached
the 3o/o cap on annual increases once on the electric side for the Residential Group
(2016 Deferral Year). For natural gas, in the 2016 deferral year the 3Yo cap was hit
for both Residential and Non-Residential Groups, but has not since that time. In the
end, the presence of the FCA Mechanisms has served to stabilize revenues for the
Company.
Section 5 - This section examined the extent to which fixed costs are recovered in
fixed charges for electric and natural gas customer classes both in the Decoupling
Mechanisms and customer classes excludedfrom the mechanisms.
Findings - Avista recovers about 13 percent of total electric fixed cost through
fixed customer charges, trending only slightly lower over the 2015-2017 period. On
the natural gas side, fixed charges have averaged nearly 24 percent offixed costs
between 2015 and 2017 . The percentage has moved higher for decoupled natural
gas non-residential customer classes and lower for residential.2s
Avista's View on Implications for Idaho - ln Idaho, the Company's fixed costs
recovered through fixed customer charges is approximately 13 percent for electric
operations. For natural gas, only 23o/o of fixed costs are recovered in fixed charges.
In the end, approximately 87 percent of electric fixed costs and77 percent of natural
gas fixed costs are recovered in volumetric rates.
Section 6 - This section analyzes the impact from decoupling related to electric to
natural gas conversions and electric and natural gas conservation savings.
Findines - Decoupling was an important factor facilitating Conservation
Achievement, but was not a driver of Conservation Achievement. On the electric
side the I-937 ten-year plan was the primary driver. On the natural gas side,
Commission direction towards the use of the gross UCT test was a primary driver.
Based on this analysis, we conclude that there is no evidence that decoupling has
any meaningful impact as a driver for energy Conservation Achievement.
However, in the presence of a strong driver like I-937 or a strong driver like
Commission direction to use the gross UCT test, it provides revenue stability and
more timely revenue recovery and so is a part of a "package" in that it eliminates
the "throughput" incentive. Where a non-decoupled utility will turn away energy
conservation customers, having reached its budget cap, Avista has demonstrated
that a decoupled utility can keep on servicing to acquire all cost-effective energy
conservation.26
24 Id. p. 4-12
2s Id. p. 5-3
26 Id. p. 6-17
Ehrbar, Di
Avista Corporation
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Avista's View on Implications for Idaho - In Idaho, I believe the f,rndings to be
the same. Earlier I discussed how Avista essentially operates as an integrated
system, with a border being the only separation between our service territories. As
such we have offered, where possible, the same energy efficiency programs in tdaho
as we do in Washington, so as to minimize customer confusion given our adjoined
service territories. While I-937 in Washington is a driver of our electric efficiency
programs, we work with our Idaho customers just as diligently to drive efficiency.
As I mentioned earlier in this testimony, the Company has demonstrated, in a
number of filings before this Commission, that it has been aggressively pursuing all
cost-effective conservation for a number of years. The Company actively promotes
technologies that are cost-effective, reliable, and feasible, with the goal of meeting
and exceeding its required targets. The presence of the FCA Mechanisms helps us
do just that.
Section 7 - This section provides an analysis of possible adverse impacts from the
Decoupling Mechanis ms.
Findings - We find no conclusive evidence of current adverse impact of decoupling
on cost control, operational efficiency, price signals or service quality. We have
expressed two concerns for the intermediate to long-term for two cost-control
approaches: making hiring reviews more extensive and so possibly creating some
short-staffing problems over time; and moving away from defined benefit
pensions.2T
Avista's View on Implications for Idaho - We do not believe that the independent
review would have different findings in Idaho as compared to Washington.
Section 8 - Low-Income Appendix,
Findines - The Avista Decoupling Evaluation RFP No. P.-41321 provided two
related Attachments to the Scope of Work: Attachment G - An Estimate of the
Number of Households in Poverty Served by Avista Utilities in Washington State28
and Attachment H - The Self-Sufficiency Standard for Washington State 2ol4.2e
Attachment G provides an estimate of how many Avista customers are below the
Federal Poverty Level in counties served by Avista. Attachment H estimates the
level of income required by households to achieve self-sufficiency without public
assistance. The Independent Final Report reviewed these two documents and
correlated findings with the low-income energy assistance information that was
reviewed for Task 3.30
21 Id. p. 1-17 .
28 An Estimate of the Number of Households in Poverty Served by Avista Utilities in Washington State, Brian
Kennedy, MS and D. Patrick Jones, Ph.D., Institute for Public Policy and Economic Analysis, May 2015.
2e fhe Sey-Sufficiency Standardfor Washington State 2014,Diana M. Pearce, PhD, Center for Women's
Welfare and the School of Social Work at the University of Washington, Revised August 2015.
30 Avista Decoupling Evaluation - Final Report, H. Gil Peach & Associates LLC. p. 8-1.
Ehrbar, Di
Avista Corporation
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Avista's View on Implications for Idaho - Nothing further to add.
Section 9 - Weather Appendix.
Findines - This section provides further discussion and analysis related to
observations in recent weather trends.3l
Avista's View on Implications for ldaho - Nothing further to add.
Section l0 - This section provides a summarv o-f the Independent Final Report
recommendations. [Avista has inserted its' response below each
recommendation]
Report Recommendation 1 - The decoupling mechanisms have worked as
expected to stabilize revenue without impacting utility operations and energy
efficiency programs. We also found no evidence of adverse impacts to any
customer groups. We recommend the electric and nafural gas mechanisms be
continued and certain modifications be considered.
Avista Response - This Petition addresses the continuation of the FCA
Mechanisms, with certain modifications.
Report Recommendation 2 - If practical for Avista, move the decoupling tariff
effective date up from November lst to July lst to substantially increase the
likelihood that reported revenue will be collected within two years, as required by
the Securities and Exchange Commission.
Avista Rgspan$ - Later in my testimony I will discuss our proposal to
move to a different "deferral year"
Report Recomruendalioul - Avista might consider adjusting the low-income
"carve out" each year for inflation to keep its value more stable between rate cases.
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Ehrbar, Di
Avista Corporation
28
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Avjsta Bespsnse - The issue of increasing low-income conservation
funding to at least match inflation will be taken up by Avista's energy
efficiency group and Advisory Group, before further changes are made.
Report Recommendation 4 - We have a sense that staffing is a bit thin compared
with other utility clients with whom we recently have been engaged for projects.
What works as a short-run cost savings may not work as well long-term. We
recommend consideration of some additional hiring of some additional staff in
Rates and in DSM (not short-term supplementary or temporary arrangements).
Avista Response - Proper staffing levels are a critical management issue
that is carefully considered on a periodic basis by Avista's leadership, with
a focus on balance between service and customer cost.
Report Recommendation 5 - We notice that as a cost savings measure, Avista has
moved from a defined benefit pension system to a system that puts employees at
individual risk in developing funding for retirement. We agree this will represent
cost-savings in the short term. Although such change is currently viewed as normal
in the industry, reflecting the market in this case may not be useful long-term.
Thinking of the five most recent "crashes" including the recent "Great Recession",
Avista might want to consider a plan that would enable some form of pension that
places institutional strength between employees as individual "nano-investors" and
market forces.
Avista Response - Similar to staffing levels, benefits provided to our
employees are carefully considered by Avista's leadership, with a focus on
balance between customer service, employee retention and customer cost.
This balance is periodically reviewed by management.
Report Recommendation 6 - Continue to work towards a possible low-income
rate. Households in need of income to meet the expectations of American
households prior to the income allocation reversal that began in the early 1970s, are
Ehrbar, Di
Avista Corporation
29
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likely about one-half of residential households (or at least 37 .syo, as shown in the
low-income appendix). A low-income rate would provide an additional tool to
maintain service for all customers.
Avista Response - Avista is cognizant of the laws in Idaho related to
offering low-income assistance, and will monitor this recommendation
should legislation allow for low-income bill assistance, including a low-
income rate.
Report Recommendation 7 - In the low-income area, consider either moving to a
higher level of rigor in evaluation and program administration by using the Self-
Sufficiency standard; or use the 200%o of the Federal Poverty Level as the program
guideline for need for program payment assistance and weatherization services.
Avista Response - Avista is cognizant of the laws in Idaho related to
offering low-income assistance, and will monitor this recommendation
should legislation allow for low-income bill assistance.
Report Regonqnqendalian E - Consider a redefinition of normal weather that
moves away from the 30-year moving average to a 20-year moving average, and
also maintain a moving average indicator for 15 years and 10 years to see how that
behaves empirically, since'onormal" has become a flow variable and it is rapidly
getting warner as a secular trend.
Avista Response - Avista will consider this recommendation and make
adjustments within the context of a general rate case filing, if deemed
appropriate.
Ehrbar, Di
Avista Corporation
30
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VII. PROPOSED MODIFICATIONS TO THE FCA MECHANISMS
a. Is Avista proposing to modify its FCA Mechanisms in this case?
A. Yes. As discussed earlier, the Company's FCA Mechanisms are working
well and have performed as intended. However, in our view several modifications are
needed. Below are the four proposed modifications:
1) Extend the current FCA Mechanisms through March 31,2025;
2) Modify the upcoming deferral period to be from January 1,2020 through June
30,2021, so as to beffer align the deferral periods and the rate adjustments;
3) Implement an annual true-up to the FCA Mechanisms; and
4) Extend the FCA Mechanism quarterly reporting requirement from 45 to 60 days.
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l5 a. For the fu! proposed modification, why should the Commission extend
16 the FCA Mechanisms through March 31,2025?
17 A. Based on proven benefits to both the customer and the Company that the
18 FCA Mechanisms have shown to date, as validated in the lndependent Final Report (Exhibit
19 No. 1), and the lack of adverse impacts associated with these mechanisms, the Company
20 requests the Commission approve the continuation of the FCA Mechanisms. By extending
2l the mechanisms and providing some certainty to the Company that it can recover a
22 significant portion of its fixed costs of providing service, the Company is able to maintain
23 its central focus of being a trusted energy advisor to its customers without adverse or
24 uncertain financial impacts from evolving customer choice in the future. The Company
25 believes that the FCA Mechanisms continue to be in the public interest, promote the policy
26 goals of increased conservation, and result in fair, just, reasonable, and sufficient rates.32
32 The Company is making the same request in the State of Washington in Dockets UE-190334 and UG-
1 9033 5.
Ehrbar, Di
Avista Corporation
3l
I Also important to note, is that the Company is not seeking to make the FCA
2 Mechanisms permanent. We agree with Commission Staff who, at the FCA Workshop
3 held in March 2019 stated that, for mechanisms like the FCA, having a more regular check-
4 in is desirable, so that modifications, if any, can be made. That would be more difficult if
5 the mechanisms were made permanent. As such, the Company would commit to having a
6 similar workshop by June 30,2024, as was held in March 2019, and would include any
7 proposed modifications stemming from that workshop in a future FCA Mechanism
8 extension request.
9 Q. Would you please explain the second proposed change to the FCA
l0 Mechanisms related to the timing of the first deferral period, should the Commission
l1 approve the Company's petition?
12 A. Yes. Presently the FCA allows the Company to defer the difference between
13 actual FCA-related revenue received from customers through volumetric rates, and the
14 FCA-related revenue-per-customer approved for recovery in the Company's last general
15 rate case, on a calendar year basis. The Company can then file a tariff to surcharge or
16 rebate, by rate group, the total deferred amount accumulated in the deferred revenue
17 accounts for the prior January through December time period. The filing date for tariff
18 adjustments currently occurs at the end of June, for rate-effective dates of October I
19 (electric) and November 1 (natural gas). There is quite a bit of lag between the deferral
20 period, and the rate effective dates for any adjustment.
2l Therefore, the Company would like to shrink that rate lag by making a one-time
22 adjustment. For the first deferral period post-approval of this Application, that period
23 would be 18-months, or January 2020, through June 30, 2021- The Company would then
24 file a tariff adjustment with the Commission by July 31, 2021 (and each July 3 I thereafter,
Ehrbar, Di
Avista Corporation
32
1 along with the annual Power Cost Adjustment filing), and would keep the same rate-
2 effective dates of October I (electric) and November I (natural gas). This change simply
3 reduces the lag between the deferral period and the rate-effective period.33
4 a. Would you please explain the third proposed change to the FCA
5 Mechanisms related to an annual true-up?
6 A. Yes. Presently under the mechanics of the FCA Mechanisms, the annual
7 revenue-per-customer is shaped based on the monthly kWh or therm usage from the test
8 year. The mechanisms use the resulting monthly percentage of usage by month and
9 multiply that amount by the annual FCA revenue-per-customer to determine the 72 monthly
10 values. TheCompanyisproposingtoaddanadditionalstepthatwould,attheend of a12-
11 month deferral calculation, take the annual FCA revenue-per-customer (multiplied by the
12 average annual number of actual customers), recompute the deferral, and compare that to
13 the actual deferred revenue for the period.
14 The benefit of this calculation is that the method of monthly shaping (i.e., using test
15 period loads to shape FCA monthly revenues) is not necessarily a perfect methodology.
16 The proposed change in our view puts the actual results more on par with the derivation of
11 the authorized amounts - i.e., authorized annual revenue-per-customer as compared to the
l8 sum of monthly revenue per customer.34
19 a. Looking back over the past three years of the mechanisms, what would
20 have been the effect ofsuch a calculation true-up?
2l A. Such a true-up would be extremely modest. Table No. 8 below provides the
33 The Company made slightly different changes related to the timing lag between the deferral year and the
rate effective date in the State of Washington in Dockets UE-190334 and UG-190335.
3a The Company is making the same request in the State of Washington in Dockets UE-190334 and UG-
r 90335.
Ehrbar, Di
Avista Corporation
33
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effect, for all rate groups for both electric and natural gas. The values located on the
"Change" lines show the difference between the actual deferrals for 2016 through 2018,
while the "Adjusted Deferral" includes the effect of the annual true-up. As you will see,
the adjusted deferrals do not materially deviate from the actual deferral, but in our view
going forward would make the actual deferral more accurate.
Table No. 6 - Backcast Results if Annual Adiustment was in Effect
Determine Year End Average Customer Adjustment to 20L6 - 2018 Deferrals
Electric FCA
usted Deferral
Deferral As Booked
Change
Natural Gas FCA
justed Deferral
Deferral As Booked
Change
ectric FCA
usted Deferral
I As Booked
Change
ural Gas FCA
usted Deferral
I As Booked
Change
20L6
Residential Non-Residential
20L7
Residential Non-Residential
S 3,990,149 Ss 4028,203 s
s (38,0s4) s
2,556,085
2,556,424
(33e)
S (2,861,280) S
s (2,816,256) s
S (41024) S
606,L20
6L0,929
(480e)
20L6
Residential Non-Residential
20L7
Residential Non-Residential
20L8
Residential Non-Residential
5 2,593,27L S
5 2,626,6s4 Ss (33,383) s
$ 1,,7M,659 S
5 L,753,418 Ss (&820) s
s34390
557,4il
s (21074) $
5 $,675,797) 5
S (1,536,265) Ss (39,s32) s
Ehrbar, Di
Avista Corporation
506,545
500,253
6,392
L,431,,383
1,421,,402
9,981
(125,750)
(137,897)
L2,t47
(378,973)
1377,623)
(1,350)
20L8
Residential Non-Residential
34
1 Q. When does the Company propose to institute the "true-up"
2 modification?
3 A. Should the Commission approve the modified deferral period for the first
4 "year" of the mechanisms (i.e., January l, 2020 through June 30, 2021), the Company
5 proposes to perform the true-up for the July 1, 2020 through June 30,2027 annual period,
6 and then for the subsequent July 1 through June 30 time periods thereafter. Because this is
7 an annual true-up, it would not make sense to compare an 1S-month actual time period to
8 an annual base, hence the reason for essentially excluding the first six months from the
9 annual true-up calculation.
l0 a. Would you please explain the fourth proposed modification, related to
I 1 the timing of natural gas quarterly reports?
12 A. Yes. The Company currently files quarterly reports related to its electric and
l3 natural gas FCA Mechanisms within 45 days of the end of each quarter, pursuant to Section
14 l3D of the Settlement in Case No AW-E-15-05 and AVU-G-I5-01. Throughout the first
l5 two years of the FCA Mechanisms, there have been instances where the Company has not
16 released its financial eamings prior to the due date of the quarterly reports. This
17 circumstance necessitates the need to file the quarterly reports confidentially prior to the
18 release of the Company's earnings, and then re-filing the quarterly report again without
19 confidentiality after the earnings release. To alleviate the need to file the quarterly reports
20 twice in these instances, the Company proposes to file the quarterly reports within 60 days
2l after the end of each quarter.3s
22 a. In summary, why should the Commission approve Avista's request for
3s The Company is making the same request in the State of Washington in Dockets UE-190334 and UG-
I 90335.
Ehrbar, Di
Avista Corporation
35
1 an extension of its FCA Mechanisms through March 31,2025?
2 A. As I discussed earlier, the FCA Mechanisms have provided proven benefits
3 to both the customer and the Company, with a lack of adverse impacts. By extending the
4 mechanisms and providing some certainty to the Company that it can recovil a significant
5 portion of its fixed costs of providing service, the Company is able to maintain its central
6 focus of being a trusted energy advisor to its customers without adverse or uncertain
7 frnancial impacts from evolving customer choice in the future. The Company believes that
8 the FCA Mechanisms continue to be in the public interest, promote increased conservation
9 and customer choice as it relates to self-generation, and result in fair, just, reasonable, and
l0 sufficient rates.
11 a. Does this conclude your pre-filed, direct testimony?
12 A. Yes it does.
Ehrbar, Di
Avista Corporation
36