20191107Comments.pdf

DAYN HARDIE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720.0074
[phone]
IDAHO BAR NO.9917
Street Address for Exprcss Mai[:
I133I W CHINDEN BVLD, BLDG 8, SUITE 201-A
BOISE, ID 837I4
Attomey lbr the Commission StafT
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
COMMENTS OI'THE
COMMISSION STAFF
BACKGROIJND
On July 1,2019, Avista Corporation ("Company" or "Avista") applied to the
Commission seeking an extension of its electric and natural gas Fixed Cost Adjustment C'FCA)
mechanisms through March 31,2025. Application at 1. With its Application, the Company also
requested the Commission's approval to alter the first deferral period of the proposed FCA
extension so the Company can better align future deferral periods with rate adjustments . Id. The
Company additionally requested authority to implement an annual true-up as part of its FCA
deferred revenue calculations and to extend its quarterly FCA reporting deadline. Id. Avista
STAFF COMMENTS NOVEMBER 7,20I9
F.:CEIVED
,t i i::'j -7 Pt'l l: 07
-: _l l,'
,0i,ii'ilssl0N
IN THE MATTER OF THE APPLICATION OF
AVISTA CORPORATION FOR THE
EXTENSION OF'ITS ELECTRIC AND
NATURAL GAS FIXED COST ADJUSTMENT
MECHANISMS.
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Dayn Hardie, Deputy Auomey General, and in response to the Notice of
Application and Modified Procedure issued in Order No. 34387 on August l, 2019, in Case No.
AVU-E- I 9-06lAVU-G- 19-03, submits the following comments.
)
)
)
)
)
)
CASE NO. AVU.E,-I9-06/
AVU-G-19-03
I
requested that its Application be processed using Modified Procedure with a proposed eflective
date ofJanuary 1,2020. Id. at2,8.
History of Avista's FCA
The FCA is a rate adjustment mechanism designed to break the link between the amount
ofenergy a utility sells and the revenue it collects to recover fixed costsl of providing service,
thus decoupling the utility's revenues from sales. This decoupling is intended to remove a
utility's disincentive to pursue cnergy efficiency savings.
The Commission approved Avista's FCA as a three-year pilot program, as part of the
approved settlement ofAvista's 2015 general rate casc. .See OrderNo.33437. This Orderalso
set forth how the FCA mechanism u'orks, including: trcatment olexisting versus new customers,
quarterly reporting, annual filings, interest, accounting. and 3% rate increase cap. 1d at 10. On
June 15, 2018, the Commission approved an addendum to the settlement stipulation approved in
Order No. 33437, which extended the term ofthe Company's FCA lbr an additional ycar. See
Order No. 34085. Pursuant to the addendum to the settlement stipulation, the Company.
Commission Staff, and interested parties met on March 27 ,2019 to review the efl'ectiveness of
the FCA mechanism.
In the present case, the Company proposes to extend its electric and natural gas FCA
mechanisms through March 3l ,2025 and has committed to atlending a workshop with
Commission Staffand interested parties befbre June 30,2024. to discuss the future of its electric
and natural gas FCA mechanisms. 1rl at 4.
I Fixed costs are a utility's costs to provide service that do not vary with cnergy use, output, or production, for
example, infrastructure and customer service costs.
)NOVEMBER 7,20I9
Staff Concerns Raised in Previous FCA Proceedings
The FCA goes beyond its staled lunction of removing a utility's disincentive to pursue
cnergy efficiency savings. StalThas statcd in past comments that while Avista's FCA is cffcctive
at shielding utility revenues lrom the reduction in sales produced by energy efficiency, the
mechanism also removes much ofthe Company's lixed cost risk ol'reduced sales attributable to
many other Iactors. 'l'hese factors include wcathcr, cconomic cyclcs. improvcd building codes
and standards, improved appliance standards, and behavioral responses to higher electric bills.
S'I'AI. I-' COMM t.,N'I'S
Addressing the risk associated vvith fixed cost recovery has value fiom llre Company's
standpoint because it stabilizes revenue and may lower capital costs. Staff has stated that
customers should share in the benefits of lower capital costs.
Staff has also stated in past comments rclated to Idaho Power's FCA that its mechanism
provides for recovery ofcosts without verification that these costs are incurred. The same
concem applies to Avista's FCA. This means that unlike the Pow'er Cost Adjustment ('PCA')
mechanisms in place fbr both Avista and ldaho Powcr, recovery olcosts in the FCA are not trued
up to actual costs. Staffs concem regarding Avista's FCA is somewhat mitigaled because
Avista has filed two electric general rate cases and one natural gas rate case since the
implementation of its FCA. These frequent filings have provided iur opportunity for periodic
review ofthe Company's capital expenditures.
STAFF REVIEW
Staff recommends the Commission approve Avista's request lbr the extension of its
elcctric and natural gas FCA mechanisms through March 31,2025. Additionally, Staff
recommends the Commission approve the Company's request to: (l) alter the first defenal
period of the proposed FCA extension so the Company can better align future deferral periods
with rate adjustments, (2) implement an annual truc-up as part of its FCA del-erred revenue
calculations, and (3) extend its quarterly FCA reporting deadline.
Stafls recommendation is based on its review olthe Company's Application, the
testimony of Company witness Mr. Patrick Ehrbar, and the attachments thereto. Although Staff
has concems with several aspects of the FCA, StafT supporls the extension primarily because it
helps remove a utility's disincentive to pursue energy efficiency savings. Acquiring cost-
elfective energy efficiency is an important part of lcast-cost, least-risk integrated resource
planning.
As mentioned above, the FCA removes much of the risk offixed cost recovery through
adjustments that help stabilize utility revenuc. l"or exanrple, ifa cool summer results in lower
sales and insufficient rcvenue to cover fixcd cost estimates, a subsequent FCA surcharge helps
make up the shortfall. Revenue stabilization reduccs financial risk and can help reduce the
Company's cost of equity. Lower equity costs benefit Avista, and if passed on to customers,
help mitigate customer ratc increases. lf Avista's proposed FCA is approved. Staflmay consider
-)S'|AFF COMMENTS NOVEMBER 7. 2019
proposing reductions to the Company's return on cquity to ensure these benefits are passed to
customers.
Despite Staff s conccms with the FCA, Staff supports Avista's request for an extension in
this case because the Company has been open 1o refining the mechanism over time. For
example, since implementation of the FCA, Avista has proposed several modifications that have
been accepted by the Commission. Avista is proposing three additional modifications in this
proceeding. Staff supports the extension of the FCA through March 31,2025, in part, bccausc of
Avista's demonstratcd efforts to address and remedy stakeholdcrs' concerns with the FCA.
Staffbelieves that the tkee modifications proposed by Avista will improve the
functionality of the FCA and recommends Commission approval of each.
First, the Company has proposed to alter the first deferral pcriod olthe proposed FCA
extension period so the Company can better align tuture deferral periods with rate adjustments.
Statfagrees with the Company that its proposal will reduce the lime belween the deferral period
and the ef'fective date of any adjustment.
Currently, the Company files its previous ycar's F'CA adjustments on or around June 30
following a l2-month del'enal period covering January I through December 31 of the previous
year. FCA rates then become effective on October I (electric) and November I (natural gas).
Under the Company's proposal, the deferral periods w'ill move forward by six months, which
means that they will begin calculating the FCA defenal on July I rather than January l. To
transition to del'erral periods beginning.Iuly l, 2019, the Company is proposing an eighteen-
month deferral period (January 1,2020 through June 30, 2021) as the first deferral period if its
Application is approved. Subsequent defenal periods will be l2 months and will run from July I
through June 30 as discussed above. Because each deferral period will movc forward by six
months, the Company is proposing that thc iiling dates move lrom June 30 to July 3 1 . Any
rebate or surcharge will be implemented closer to thc def-erral period. Rates will continue to be
eflective on October I (electric) and Novcmber I (natural gas). Staff views the reduction in lag
time between the deferral period and the effectivc date as a beneficial modilication to the FCA
mechanism. Placing a rate adjustment closer in time to the causc for the adjustment improves
the transparency of rates.
1S'IAFF COMMENTS NOVEMBE.R 7. 20I9
Second, the Company proposed an annual true-up2 as part of its FCA def'erred revenue
calculations. Staff supports this modification because the current deferred revenue calculation,
based on the calculation of l2-monthly results, does not mathcmatically match the annual FCA
revenue-per-customer result. The proposed true-up corrects this mismatch. StatTagrees with
Avista's observation that the proposed change puts the actual results more on par with the
derivation ofthe authorized iunounts (i.e.. authorized annual revenue-per-customer as compared
to the sum of monthly revenue-per-customer). The Company provided an analysis showing there
would have been a small impact if this change had bcen made during the pasl thee years of the
FCA. Staff reviewed those results, described in the testimony of Mr. Ehrbar, and agrees with
Avista's conclusion.
Third, the Company has proposed to extend the quarterly FCA reporting deadline.
Specifically, the Company proposes to modifu when it files its FCA quarterly rcpo(s with the
Commission from 45 days to 60 days after the end ofeach quarter. Staffsupports this
modification because it provides fbr a more careful review without impeding the timely
implementation of rates.
STAFF RECOMMENDATION
Staff recommends that the Commission approve:
1. the Company's proposal to extend its electric and natural gas FCA mechanisms
through March 3l,2025;
2. the Company's proposal to aller the first deferual period ofthe proposed FCA
extension so the Company can better align future deferral periods with rate
adjustments;
3. the Company's proposal to implement an annual true-up as part of its FCA
deferred revenue calculations;
4. the Company's proposal to extend its quarterly FCA reporting deadline; and
5. revised tariffs to conform to the aforementioned Staff recommendations I
through 4.
2 Staffclarifies that "true-up" in this case does not mean aligning to actual incurred costs, as it does in the PCA. ln
this context, "true-up" means aligning to authorized levels ofrecovery.
5STAFII COMMEN I'S NOVEMBER 7.20I9
Additionally, Staff recommends that the Commission order the Company to attend a
workshop with Commission Staff and interested parties before June 30,2024, to discuss the
future of its electric and natural gas FCA mechanisms.
Respectfully submitted this 1tL day of November 2019.
Hardi
Deputy Attomey General
Technical Staff: Bentley Erdwurm
.Iohan Kalala-Kasanda
Yao Yin
i iumisc:comments/avue l9.6,6vug I 9.3dhbejkyy commenls
6S'I'A I.' F CON,{ N{F,,N' I'S NOVEMBER 7, 2019
CERTIFICATE OF SERVICE
I FIEREBY CERTIFY THAT I HAVE THIS 7Ih DAY OF NOVEMBER 2019,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NOS. AVU-E-19-06/AVU.G.19.03, BY MAILING A COPY TI]EREOF,
POSTAGE PREPAID, TO THE FOLLOWING:
BENJAMIN J OTTO
ID CONSERVATION LEAGUE
710 N 6TII ST
BOISE ID 83702
E-mail: [e-mail]
DAVID J MEYER
VP & CHIEF COLTNSEL
AVISTA CORPORA'fION
PO BOX 3727
SPoKANE WA99220-372',1
E-mail: david.meyer(alavistacorp.com
SECREl-Y
CERTIFICATE OF SERVICE
PATRICK EHRBAR
DIR OF REGULATORY AFFAIRS
AVISTA CORPORATION
POBOX3727
SPoKANE WA99220-3727
E-mail: [e-mail]
avistadockets@avi stacoro.com