20190726Decision Memo.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KIELLANDER
COMMISSIONER RAPER
COMMISSIONER ANDERSON
COMMISSION SECRETARY
COMMISSION STAFF
FROM:DAYN HARDIE
DEPUTY ATTORNEY GENERAL
DATE: JULY 25,2019
SUBJECT:AVISTA'S APPLICATION TO IMPLEMENT FCA RATES FOR
NATURAL GAS SERVICE FROM NOVEMBER 1,2019 THROUGH
OCTOBER 31, 2020; CASE NO. AVU-G-I9-04.
On July l, 2019, Avista Corporation ("Company" or "Avista") applied to the
Commission for authorization to implement Fixed Cost Adjustment ("FCA") rates for natural gas
service from November l, 2019 through October 31, 2020, and to approve its corresponding
modifications to Schedule 175, "Fixed Cost Adjustment Mechanism - Natural Gas." Application
at l. Avista also asks that the Commission approve the level of natural gas FCA revenue deferred
during calendar year 2018. Id. The Company separately applied to implement FCA rates for
electric service, in Case No. AVU-E-19-01. The Company proposes per therm FCA surcharge
rates for residential customers and rebate rates for non-residential customers. The Company's
Application, if approved would increase overall natural gas revenues by $1.2 million. Id. at 12.
The monthly bill of an average residential gas customerwould increase by about $1.05, or2.3Vo.
Id. at ll. Avista asks that its Application be processed by Modified Procedure, and requests an
effective date of November l, 2019. Id. at 2.
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 costsl of providing
service, thus decoupling the utility's revenues from its customers' energy usage. Order No. 33437
at 3. This decoupling removes a utility's incentive to increase sales as a means of increasing
revenue and profits, and encourages energy conservatton. Id. at 3-4. The Commission approved
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 - fbr example, intiastructure and customer service.
DECISION MEMORANDUM I
Avista's FCA as a three-year pilot program, and part of the approved settlement of Avista's 2015
rate case. See Case Nos. AVU-E-15-05; AVU-G-15-01; Application at 3; and Order No. 33437 at
10. In the order approving the FCA program, the Commission noted that the parties to Avista's
rate case agreed to review the program's effectiveness at the end of its second full year, to ensure
it is functioning as intended. Application at 3-4. The settlement stipulation in those cases and
Tariff Sheet 175 also set forth how the FCA mechanism works, including: treatment of existing
versus new customers, quarterly reporting, annual filings, interest, accounting, and 3Vo rate
increase cap. Id. at 4.
On June 15,2018, the Commission approved an addendum to the settlement stipulation
approved in AVE-E-15-05 and AVU-G-15-01, which extended the term of the Company's FCA
pilot for an additional year. See Order No. 34085. The Company, Commission Staff, and interested
parties reviewed the FCA mechanisms on March 27 ,2019. Application at 4 n.2. The Company has
separately applied to extend the electric and natural gas FCA mechanisms through March 31,2025
in Case Nos. AVE-E-19-06 and AVU-G-19-03.
PROPOSED 2OI9.2O2O FCA RATE ADJUSTMENT
ln its natural gas FCA filing, Avista proposes a rate surcharge for residential customer
group and a rate rebate for its non-residential customer groups based on the amount of deferred
revenue recorded for each group in January through December 2018. The Company mostly
attributes these proposed changes to drivers such as warm weather in January, May, and December
2018, and FCA revenue shortfall associated with energy efficiency programmatic savings. /d. at
6-7. According to the Company, other drivers are not easily quantifiable but include, among other
things, the effects of non-programmatic energy efficiency and changes in business cycles. Id. atl .
Avista recorded $551 ,464 in the surcharge direction in deferred revenue for its natural
gas residential customer group in 2018. Id. (table includes: carry over balance, interest, and
revenue-related expenses). After taking into accountthe 2Ol7 carry over balance of $27,'725, the
Company proposes a surcharge of $601,306, at a proposed rate of 0.951 cents per therm, to the
Company's residential natural gas customers served underrate Schedule 101. Id. atl-8; Exhibit
B. If approved by the Commission, the Company would record this amount in a regulatory asset
balancing account and reduce the account balance each month by the surcharge received from
customers under the tariff. Id. at8.
2DECISION MEMORANDUM
For its natural gas non-residential customer groups, Avista recorded $137,897 in the
rebate direction in deferred revenue in 2018. Id. (table includes: carry over balance, interest, and
revenue-related expenses). After taking into account the 2017 carry over balance of ($853), the
Company proposes to rebate $142,949, at a proposed rate of -0.554 cents per therm, to the
Company's commercial and industrial natural gas customers served under rate Schedules l l l and
l12.ld. at 8-9; Exhibit B. If approved by the Commission, the Company would record this amount
in a regulatory liability balancing account and reduce the account balance each month by the rebate
received by customers under the tariff. Id. at9.
With its Application, Avista submitted its residential and non-residential rate
calculation, support for the Company's deferrals, and its proposed FCA tariff Sheet 175.
STAFF RECOMMENDATION
Staff recommends that the case be processed by Modified Procedure with a comment
deadline of October 8, 2019, and reply deadline of October 15,2019.
COMMISSION DECISION
Does the Commission wish to process this case under Modified Procedure with a
comment deadline of October 8,2019, and reply deadline of October 15,2019?
:Pq^ /-"
Dayn Hardie
Deputy Attorney General
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JDECISION MEMORANDUM