20191008Comments.pdf

DAYN HARDIE
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
(208) 334-03t2
IDAHO BAR NO. 9917
IN THE MATTER OF AVISTA
CORPORATION'S APPLICATION TO
IMPLEMENT FIXED COST ADJUSTMENT
RATES FOR NATURAL GAS SERVICE
FROM NOVEMBER 1,2019, THROUGH
ocToBER 31, 2020.
RECEIVED
?il9 CCT -B Al{ ll: l3
.-rrr;: h!l1l ln, rl ri i i"rJ,-)Lrri,:' .':::lillisstort
Street Address for Express Mail:
472W. WASHINGTON
BOISE, IDAHO 83702-5918
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIBS COMMISSION
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CASE NO. AVU.G.19.O4
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Dayn Hardie, Deputy Attomey General, and in response to the Notice of
Application and Modified Procedure issued in Order No. 34393 on August 5,2019, in Case
No. AVU-G-19-06, submits the following comments.
BACKGROUND
On July 1,2019, Avista Corporation ("Company" orooAvista") applied to the
Commission for authorization to implement Fixed Cost Adjustment ("FCA") rates for natural gas
service customers, effective from November 1, 2019 through October 31,2020, and to approve
its corresponding modifications to Schedtle l75, "Fixed Cost Adjustment Mechanism - Natural
Gas." The Company requested that the Commission issue an order approving FCA deferrals for
ISTAFF COMMENTS OCTOBER 8,2019
the period January 1,2018 through December 31,2018, and approve separate per therm FCA
rates, a surcharge rate for its residential group customers, and a rebate rate for its non-residential
group customers. The 2017 residential group deferral (current FCA rate) is a rebate of -0.766
cents per therm and the proposed 2018 FCA rate is a surcharge of 0.951 cents per therm. The
2017 non-residential group deferual is a rebate of -1.067 cents per therm and the proposed 201 8
FCA rate is a rebate of -0.554 cents per therm.
The Company's Application, if approved, would increase overall natural gas revenues by
around $ I .2 million, with around $ I .1 million of the increase attributable to the residential group
and $0.1 million attributable to the non-residential group. The monthly bill of an average
residential natural gas customer using 6l therms per month would increase by $1.05, from
$45.67 to $46.72 (a2.3% increase).
The Application states that the Company's proposed FCA rates conform to the 3o/o annual
rate increase limitation for both the residential and non-residential classes. For purposes of
confirming the 3oh rate increase limitation when switching from a rebate to a surcharge, the
calculation uses a rate of zerc as the base to begin the new period. Using the zero base, the
proposed 2018 FCA surcharge rate represents the Company's recovery from residential
consumers of $601 ,306, a l.3Yo increase, and a Company rebate to non-residential customers of
$142,949, a 7.2%o decrease in the rates.
Avista requested that its Application be processed by Modified Procedure with an
effective date of November 1,2019.
History of Avista's FCA
A Fixed Cost Adjustment 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 for
providing service, thus decoupling the utility's revenues from sales. Order No. 33437 at 3. This
decoupling is intended to remove a utility's disincentive to pursue energy efficiency savings.
Staff has stated in past comments that while the FCA is effective at shielding utility
revenues from the reduction in sales produced by energy efficiency, the mechanism has a much
broader impact. Avista's FCA removes the Company's fixed cost risk of reduced sales caused
by many factors beyond the Company's energy efficiency efforts, including weather, economic
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 costs.
2STAFF COMMENTS OCTOBER 8,2019
cycles, improved building codes and standards, improved appliance standards, and behavioral
responses to higher utility bills. Addressing these risks has value from the Company's
standpoint because it stabilizes revenue and as a result may lower capital costs.
The Commission approved Avista's FCA as a three-year pilot program as part of the
approved settlement of Avista's 2015 general rate case. See Case Nos. AVU-E-15-05,
AVU-G-I5-01. The Order also set forth how the FCA mechanism works, including treatment of:
existing versus new customers, quarterly reporting, annual filings, interest, accounting, and a3Yo
rate increase cap.
On June 15,2018, the Commission approved an addendum to the settlement stipulation
approved in AVU-E-I5-05 and AVU-G-I5-01, which extended the term of the Company's FCA
pilot for an additional year. See OrderNo. 34085;Application at3-4. 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 mechanisms. Avista has f,rled a separate
application with the Commission to extend the term of the FCA mechanisms through
March 31, 2025. (AVU-E-19-06, AVU-G-19-03)
Avista's approved FCA mechanism includes separate inputs into the deferral calculation
for existing and new customers (i.e., customers added after the test period). For new natural gas
customers added after the test period, recovery of incremental revenue related to fixed
production and underground storage facility costs is excluded. In order to identify customers for
this calculation, Avista tracks usage of new customers separately from existing customers.
Consequently, FCA revenue-per-customer for new customers is less than for existing customers.
The adjustment helps prevent over-recovery by the Company keeping FCA surcharges and
customers' bills lower.
The natural gas FCA includes customers from two groups: (1) Schedule 101
(residential), and (2) Schedules l l l and 112 (non-residential). These two rate groups are
included in the FCA because the Company's fixed costs are recovered through variable usage
rates that can be strongly affected by weather and other factors.
JSTAFF COMMENTS OCTOBER 8,2019
STAFF ANALYSIS
For the 2018 FCA year, Staff recommends that the Commission allow the Company to
recover $601,306 from the residential customer group with a surcharge rate of 0.951 cents per
therm and to refund $142,949 to the non-residential customer group with a rebate rate of -0.554
cents per therm. The proposed FCA rates represent rate increases from (1) the current rebate of
-0.766 cents per therm for the residential group and (2) rebate of -1.067 cents per therm for the
non-residential group.
Stafls recommendation is based on its review of the Company's Application, including
the supporting workpapers and responses to production requests. Staff also verified that the
Company used the Commission-approved methodology authorized in Order No. 33437 to
calculate its FCA deferral balance and associated rates for both residential and non-residential
customer groups. Staff reviewed the amortization from the prior year's deferral balance, thc
therm sales for the FCA year, new and existing customer counts, revenue from fixed costs
collections, the interest calculation, plus the internal control processes and internal audit
documents pertaining to the aforementioned items. Staff also verified that the authorized
amounts used to calculate the deferral were the same used to determine base rates authorized
during the deferral period. Staff then verified the FCA deferral amount and rates for residential
and non-residential customers.
As illustrated in Table I below, Avista's proposed surcharge of $601,306 from natural
gas residential customers is calculated by adjusting upward the 2018 calendar year deferral of
$557,464 by the actual 2017 carry-over balance of 526,725, adding $13,304 in interest, and
adding a revenue-related expense adjustment of $3,813. The Company's proposed 0.951 cents
per therm rate is designed to recover the $601,306 surcharge from the Company's residential
natural gas customers. Staff verified these residential calculations. If approved by the
Commission, the Company would record this amount in a regulatory balancing account and
reduce the account balance each month by the surcharge received under the tariff.
4STAFF COMMENTS OCTOBER 8,2019
Table 1: Residential Recovery
2018 Deferred Revenue $557,464
Plus 2017 Cany-Over Balance $26,725
Plus Interest through 1012112020 $ 13,304
Plus Revenue-Related Expense Adjustment $3,813
Total for Recovery $601,306
Avista's proposed rebate of $142,949 from natural gas non-residential customers is
presented in Table 2 below. This is calculated by adjusting downward the 2018 calendar year
deferral balance of -$137,897 (resulting in a larger rebate rate) by the actual 2017 carry-over
balance of $853, adjusting downward by $3,409 in interest, and $790 of revenue-related
expense. The Company's proposed -0.554 cents per therm non-residential FCA rate is designed
to refund the $142,949 rebate to customers in Schedules 1 I I and I l2 (affected non-residential
schedules). Staff verified these non-residential calculations. If approved by the Commission, the
Company would record this amount in the regulatory balancing account, and reduce the account
balance each month by the rebate received by customers under the tariff.
Table 2: Non-Residential Rebate
2018 Deferred Revenue ($137,897)
Plus 2017 Carry-Over Balance ($8s3)
Plus Interest through 10/2112020 ($3,409)
Plus Revenue-Related Expense Adjustment ($7eo)
Total Rebate (s142,949\
Energy Consumption Drivers
The proposed FCA surcharge deferrals for the residential customer group in 2018 are the
result of reductions in use-per-customer from levels in the 2016 test year. The 2016 use-per-
customers levels are used to establish the FCA base period. The proposed FCA rebate deferrals
for the non-residential customer group in 2018 are the result of increases in use-per-customer
from levels in the 2016 test year. Residential average monthly use-per-customer was lower by 2
therms, and non-residential average monthly use-per customer was higher by 1 therm in 2018.
5STAFF COMMENTS OCTOBER 8,2019
Avista estimated the impact of three primary drivers of FCA revenue deferrals: (1)
Weather, (2) Energy Efficiency, and (3) "Other." The Company identifies the "Other" drivers as
items that are difficult to quantify, such as the effects of non-programmatic energy efficiency and
the business cycle. The "Other" drivers have a more significant impact on non-residential
customers than on residential customers. Weather is an especially significant driver for
residential customers because residential energy usage is relatively sensitive to weather
fluctuations.
The following table shows Avista's estimates of these drivers on use-per-customer (UPC)
in therms and FCA revenue in millions of dollars (MM$). The results demonstrate that energy
efficiency is not the sole driver of declining energy sales, and that the FCA mechanism provides
fixed cost recovery for a wide range of factors.
Table 3: Effects of the Drivers on Use-per-Customer and FCA Revenue in
Million Dollars (MM $)
Source
Residential
UPC
(Therms)
Residential
FCA
Revenue
(MM$)
Non-
Residential
UPC
(Therms)
Non-
Residential
FCA
Revenue
(MM$)
Weather -).2 -$1.s0 -36 -$0.14
Energy Efficiency -0.4 -$0.20 -6 -$0.02
Other +1.4 +$1.44 +42 +$0.30
Total -2.2 -$0.56 0 +$0.14
Risk Reduction Attributable to the FCA
The FCA helps stabilize revenue and lowers risk to the Company, thus potentially
lowering its cost of capital. However, it is less clear how customers beneht from FCA rate
adjustments. Thus far, Staff has not recommended a lower cost of equity to recognize the lower
risk to the Company, but Staffmay consider such a proposal in the future.
6STAFF COMMENTS OCTOBER 8,2019
FCA Rates since Inception of the Program
There have been three rate adjustments since the FCA was approved in Avista's 2015
general rate case settlement, including the current FCA rate proposal. The residential rates and
non-residential rate are shown in Table 4 below:
Table 4: History of FCA Rates
Effective Dates
Residential
(CentslTherm)
Non-Residential
(Cents/Therm)
Nov. I ,2017 - Oct. 31, 2018 2.466 r.615
Nov. 1, 2018 - Oct. 31,2019 -0.766 -t.067
Nov. 1, 2019 - Oct. 31,2020.0.951 -0.554
* Nov. 1, 2019 - Oct. 31, 2020 shows rates proposed in this proceeding.
Table 4 shows that the rates have been both positive (surcharges) and negative (rebates)
over the period.
CUSTOMER NOTICE AND PRESS RELEASE
The Company's press release and customer notice were included with its Application.
Staff reviewed the documents and determined that both meet requirements contained in Rule 125
of the Commission's Rules of Procedure. IDAPA 31.01.01.125. The notice was included with
bills mailed to customers beginning July 1,2019 and ending August 16,2079, providing
customers with a reasonable opportunity to file timely comments with the Commission by the
October 8, 2019, deadline.
PUBLIC COMMENTS
As of October 7,2019, the Commission had received one comment, which opposed the
proposed rate increase.
7STAFF COMMENTS OCTOBER 8,2019
STAFF RECOMMENDATION
Staff recommends that the Commission approve the Company's FCA filing, specifically:
1. The proposed FCA residential surcharge rate of 0.951 cents per therm, which is
designed to recover $601,306 from the Company's residential natural gas
customer group; and
2. The proposed FCA non-residential rebate rate of -0.554 cents per therm, which is
designed to refund 5142,949 to the Company's non-residential natural gas
customer group.
Respectfully submitted this st,day of October 2019.
/) 7 /k--f,(. D&Erdie
Deputy Attorney General
Technical Staff: Bentley Erdwurm
Johan Kalala-Kasanda
Yao Yin
Jolene Bossard
i:umisc:comments/avug I 9.4dhbejkyyjb comments
8STAFF COMMENTS OCTOBER 8,20T9
CERTIFICATE OF SBRVTCE
I HEREBY CERTIFY THAT I HAVE THIS 8th DAY OF OCTOBER 2019,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-19-04, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
DIR OF REGULATORY AFFAIR
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-MAIL: patrick.elrrbar(r)avistacorp.com
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E_MAIL : ciavid. mc,verr*)avi stacorp. corn
CERTIFICATE OF SERVICE