20191213final_order_no_34502.pdf

Office of the Secretary
Service Date
December 13,2019
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA )CASE NO.AVU-E-19-06
CORPORATION'S APPLICATION FOR THE )AVU-G-19-03
EXTENSION OF ITS ELECTRIC AND )
NATURAL GAS FIXED COST )ORDER NO.34502
ADJUSTMENT MECHANISMS IN THE )
STATE OF IDAHO )
On July 1,2019,Avista Corporation ("Company")applied to the Commission
requesting approval to:1)extend its Fixed Cost Adjustment ("FCA")mechanisms for electric and
natural gas service throughMarch 31,2025;2)modify its upcoming deferral period to run from
January 1,2020 through June 30,2021;3)implement an annual true-up to its FCA mechanisms;
and 4)extend its FCA quarterly reporting requirement from 45-days to 60-days.The Company
requested a January 1,2020 effective date and that its Application be processed by Modified
Procedure.
On August 1,2019,the Commission issued a Notice of Application and Notice of
Modified Procedure establishing a November 7,2019 public comment deadline and a November
18,2019 Company reply deadline.Order No.34387.Staff filed the only comments,and supported
the Company's Application.The Company did not reply.
With this Order we approve the Company's Application.
BACKGROUND
The FCA is a rate adjustment mechanism designed to break the link between the
amount of energy a utility sells and the revenue it collects to recover fixed costs'of providing
service,thus decoupling the utility's revenues from its customers'energy usage.See Order No.
33437 at 3;Ehrbar Direct at 6-7.Decoupling is intendedto remove a utility's incentive to increase
energy sales as a means of increasing revenue and profits,and to encourage energy conservation.
Order No.33437 at 3-4.
The Commission initially approved the Company's FCA as a three-year pilot
program,and as part of the approvedsettlement of the Company's 2015 general rate case.See Case
Nos.AVU-E-15-05,AVU-G-15-01;Application at 3;and Order No.33437 at 10.The Order also
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.
ORDER NO.34502 1
set forth how the FCA mechanism works,including:treatment of existing versus new customers,
quarterly reporting,annual filings,interest,accounting,and 3%rate increase cap.Order No.33437
at 10.On June 15,2018,the Commission approved an addendum to the settlement stipulation
approved in AVU-E-15-05 and AVU-G-15-01,which extended the term of the Company's FCA
for an additional year.See Order No.34085;Application at 3.Pursuant to the addendum to the
settlement stipulation,the Company,Commission Staff,and interested parties met on March 27,
2019 to review the effectiveness of the FCA mechanism.Application at 2.
THE APPLICATION
The Company proposed to extend its electric and natural gas FCA mechanisms
through March 31,2025 and committed to attending a workshop with Commission Staff and
interested persons and parties before June 30,2024,to discuss the future of its electric and natural
gas FCA mechanisms.Application at 4.
During the initial deferral period of the proposed FCA extension,the Company will
use a one-time filing adjustment to shrink rate-lag.Id.at 5.Currently,the Company files its
previous year's FCA adjustments by June 30 followingthe deferral period for rates that will
become effective on October 1 (electric)and November 1 (natural gas).Id.Under the Company's
proposal,the Company will use a one-time 18-month deferral period,January 1,2020 through
June 30,2021,to move the deferral period closer to the filing and effective dates.Id.After the
initial deferral adjustment period,subsequent deferral periods will run from July I through June
30.Id.The new filing date will move from June 30,the current filing date,to July 31 of each year.
Id.Rates will still become effective on October 1 (electric)and November 1 (natural gas)as they
previously have.Id.
Additionally,the Company proposed to modify its FCA mechanisms to include an
annual true-up of the FCA,comparing computed deferred revenue to the actual deferred revenue.2
Id.at 5.
Finally,the Company proposed to change when it files its FCA quarterly reports
with the Commission from 45-days after the end of each quarter to 60-days after the end of each
quarter.Id.at 6.
2 At the end of each 12-month deferral period,the annual FCA revenue per customer will be multiplied by the number of actual
customers.The results of that calculation will be compared to the actual deferred revenue for the same 12-month period.The
difference between the actual deferred revenue and the calculated revenue will be added to,or subtracted from,the total balance.
For the initial period of the FCA extension,this will be based on an 18-month calculation.
ORDER NO.34502 2
THE COMMENTS
Staff reviewed the Company's Application,supporting work papers,Company
sponsored testimony,and production responses.Staff recommended the Commission approve the
Company's Application.Staff Comments at 3.Staff said the FCA mechanism works,as intended,
by helping to remove the Company's disincentive to pursue energy efficiency savings.Id.Staff
also said that cost-effective,energy efficiency savings are an important part of the Company's
integrated resource plan.Id.
However,in its comments,Staff reiterated similar concerns it has cited in previous
FCA comments,both gas and electric.Staff noted that while the FCA is effective at shielding the
Company's revenues from reductions in sales attributed to increased energy efficiency,it also
removes a significant portion of the fixed cost risk attributable to factors that include weather,
economic cycles,and improved building standards.Id.at 2.Staff said the lower risk associated
with fixed cost recovery through the FCA stabilizes revenue and therefore may reduce the
Company's capital costs.Id.at 3.Staff again suggested that customers should share the benefits
of lower capital costs through smaller future rate increases.Id.Additionally,Staff expressed
concern that the FCA provides for fixed cost recovery without verification that costs are incurred
by the Company because FCA costs are not trued up to actual costs like those in the Power Cost
Adjustment.Id.
Despite its concerns,Staff said the frequent rate case filings made by the Company
have provided Staff opportunities to review of the Company's capital expenditures,therefore
mitigating much of Staff's concern described above.Id.at 4-5.Staff also acknowledged the
Company's willingness to modify the FCA mechanism over time as a reason it supports the
proposed extension and modification.Id.
Besides Staff's recommendationto extend the FCA through March 31,2025,Staff
also recommended the Commission approve the Company's request to alter its first deferral period
of the FCA extension to better set-up future deferral periods and reduce lag time between FCA
effective dates.3Id.Staff said the reduction in lag time between the deferral period and the effective
date is both beneficial to the FCA mechanism and increases transparency.Id.Staff also supported
the annual true-up proposed by the Company.Id.at 5.Staff agreed with the Company that the
3 Currently the Company's FCA deferral period is a calendar year,January 1 through December 31.The Company then files its
FCA application by June 30 and new FCA rates are effective beginning October 1 (electric)and November 1 (gas).
ORDER NO.34502 3
current monthlydeferred revenue calculations do not mathematically match the annual revenue
per customer.Id.Staff said the proposed modification corrects the FCA deferred revenue issue by
having the FCA calculation follow authorized annual revenue per customer as opposed to the
current sum of monthlyrevenue per customer.Id.Finally,Staff supported modification of the FCA
quarterly reporting deadline from 45-days to 60-days because it would allow for a more careful
review and not alter the timely implementation of FCA rates.Id.
COMMISSION FINDINGS AND DISCUSSION
The Commission has jurisdiction over the Company and this matter under Title 61 of
the Idaho Code,including Idaho Code §§61-501,61-502,and 61-503.The Commission has
reviewed the record and finds the Company's requested FCA extension and modifications to be
fair,just,reasonable,and in the public interest.We find the Company's FCA mechanism
effectivelypromotes energy conservation without jeopardizing the Company's recovery of fixed
costs.There is no evidence to suggest any harm will come from extending the Company's FCA
mechanism through March 31,2025,or from any of the Company's other proposed modifications.
Further,allowing the Company to use an initial,18-month deferral period will help reduce lag time
between future deferral periods and effective dates.
We acknowledge Staff's concerns as to whether customers benefit from the FCA rate
adjustments for weather and other factors.We continue to encourage interested persons and parties
to examine this question in more detail for future analysis and discussion.
We believe the Company's proposed modifications will allow the FCA mechanism to
operate more efficiently going forward without affecting customers.These changes represent an
evolution in the program that the Company should continue to closely monitor and refine during
the extension period.
ORDER
IT IS HEREBY ORDERED that the Company's Application is approved and its FCA
mechanisms are extended,effective January 1,2020 through March 31,2025.
IT IS FURTHER ORDERED that the Company may alter the first deferral period of
its FCA extension by using a one-time 18-month deferral period,January 1,2020 through June 30,
2021.
IT IS FURTHER ORDERED that the Company may implement an annual true-up and
alter its quarterly reporting to 60-days from the end of each quarter for the FCA.
ORDER NO.34502 4
THIS IS A FINAL ORDER.Any person interested in this Order may petition for
reconsideration within 21-days of the service date of this Order with regard to any matter decided
in this Order.Within seven (7)days after any person has petitioned for reconsideration,any other
person may cross-petition for reconsideration.See Idaho Code §61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise,Idaho this I
day of December 2019.
PAUL KJEL A ER,ËRESIDENT
KRISTINE RAPER SIONER
ERIC ANDERSON,COMMISSIONER
ATTE :
Diane M.Hanian
Commission Secretary
I:\Legal\ELECTRIC\AVU-E-19-06_AVU-G-19-03\orders\AVUEl906_AVUGl903_final_dh.doex
ORDER NO.34502 5