20191009Comments.pdf

MATT HUNTER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10655
IN THE MATTER OF AVISTA
CORPORATION'S APPLICATION TO
CHANGE ITS NATURAL GAS RATES AND
CHARGES (2019 PURCHASED GAS COST
ADJUSTMENT).
RECSIVTD
iiig fiCT -9 Pll 12: 3l
'::i::ir }llt*'.*
Street Address for Express Mail:
11331 W. Chinden Blvd., Ste. 201-A
BOISE,IDAHO 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. AVU-G-19-06
COMMENTS OF THE
COMMISSION STAFF
COMES NOW the Staff of the Idaho Public Utilities Commission, by and through its
attorney of record, Matt Hunter, Deputy Attorney General, and in response to the Notice of
Application and Modified Procedure issued in Order No. 34436 on September 13, 2019, in Case
No. AVU-G-19-06, submits the following comments.
BACKGROUND
On August 23,2019, Avista Corporation dba Avista Utilities ("Avista" or "Company")
filed its annual Purchased Gas Cost Adjustment ("PGA") Application. The PGA is a
Commission-approved mechanism that adjusts rates up or down to reflect changes in Avista's
costs to buy natural gas from suppliers-including changes in transportation, storage, and other
related costs. Avista defers these costs into its PGA account, and then passes them to customers
through an increase or decrease in rates. Avista's proposal would not affect Avista's eamings.
Avista is a public utility that distributes natural gas in northern Idaho, Washington, and
Oregon. Avista buys natural gas and then transports it through pipelines for delivery to
customers. Avista's rates for natural gas service in Idaho include a base rate component and a
gas-related cost component. The base rate component is intended to cover Avista's fixed costs to
STAFF COMMENTS OCTOBER 9,2079I
serve its Idaho customers - for example, the Company's costs for equipment and facilities to
provide service. The current base rates were approved in Order No. 33953, Case
No. AVU-G-17-01. The gas-related cost component of Avista's rates is at issue in this case.
Overview of Proposed Rates
In this PGA Application, Avista proposes to: (1) pass any change in the estimated cost of
natural gas for the next l2 months to customers (Tariff Schedule 150); and (2) revise the
amortization rates to refund or collect the balance of deferred gas costs (Tariff Schedule 155).
Avista's proposal would increase Avista's annual revenue by about $3.3 million or about 5.6%.
Average residential or small commercial customers using an average of 64 therms per month
would increase by $2.26 a month.
Avista proposes to change its PGA per therm rates for its customer classes as follows:
Table 1: Summary of Proposed Rate Changes by Class
STAFF ANALYSIS
Staff reviewed the Company's Application and accompanying workpapers and supports
the Company's proposal to increase natural gas revenues in Idaho by approximately $3.3M
million or 5.6Yo. See Table I . Staff examined Avista's gas purchases for the year, its fixed price
hedges, pipeline transportation and storage costs, and estimates of future commodity prices to
assess the reasonableness of the proposed changes. Staff also reviewed Avista's jurisdictional
allocations and the reasonableness of Avista's Lost and Unaccounted for Gas (LAUF) volumes.
Staff verified that Avista's filing will not change the Company's earnings. Staff also confirmed
that the proposed changes to Schedules 150 and 155 accurately capture Avista's fixed (demand)
and variable (commodity) costs given the coming year's forecasted gas purchases and properly
amortize the deferral balance from the prior year.
2
Service Schedule
No.
Commodity
Change per
Therm
(a)
Demand
Change
per
Therm
(b)
Total
Sch.150
Change
(ra+b)
Amortization
Change per
Therm
(d)
Total Rate
Change
per
Therm
(e=c+d)
Percent
Change
General l0l s(0.01697)$(0.002e0)$(0.01e87)$0.05520 $0.03533 5.20/,
Lg. General lll $(0.01697)$(0.002e0)$(0.01e87)s0.0s520 $0.03s33 4.90h
Lg. General 112 $(0.016e7)$(0.00290)$(0.0r e87)s(0.01987)-2.60/0
Interruptible l3l s(o.o l6e7)$(0.0r 697)$(0.01987)-4.60/0
Transportation 146 $0.00265 $0.00265 2.lo/o
STAFF COMMENTS OCTOBER 9,2019
Schedule 150 - Purchosed Gas Cost Adjustment
The tariff Schedule 150 portion of the PGA consists of commodity costs and demand
costs. Avista's commodity costs are the variable costs that Avista incurs to buy natural gas. The
weighted average cost of gas ("WACOG") is an estimate of those costs. In this case, Avista
estimates its commodity costs will decrease by $0.01697 per therm, from the currently approved
$0.17025 per therm to $0.15328 per therm.
Avista's demand costs are the costs for interstate transportation and underground storage.
The demand portion of Schedule 150 also includes some benefits from the Deferred Exchange
contract that are credited back to customers. Avista proposes a slight decrease of $0.00290 per
therm in the overall demand rate. The proposed decrease is primarily related to changes in
exchange rates between Canadian and U.S. dollars, updated demand forecasts, and federal tax
reform for Gas Transmission Northwest (GTN). Application at 4.
Schedule 155 - Deferral Account
Tariff Schedule 155 reflects the amortization of Avista's deferral account. This schedule
applies to general and large general service customers (residential and certain commercial
customers). Other commercial customers (those taking service under Tariff Schedules 172 or
131) do not participate in the amortization, but receive a one-time rebate or surcharge. Avista
proposes changing the rebate rate in Tariff Schedule 155 from the current rebate rate of $0.09145
per therm to a rebate of $0.03625 per therm, a difference of $0.05520 per therm.
The Company experienced volatility in wholesale gas prices during the 2018-2019 due to
several events. In October 2018, the Enbridge pipeline rupture occurred, at a time when Jackson
Prairie was down for annual maintenance. The Enbridge pipeline event caused operational flow
orders and pipeline entitlements events for Avista. In addition, Avista's service territory
experienced much colder than normal temperatures in late February and early March. At that
time, Jackson Prairie experienced a compressor failure. These events contributed to higher than
normal natural gas prices. For example, the March 2018 gas daily average was $2.29 per
dekatherm and the gas daily average for the first few days in March 2019 was $161 per
dekatherm. The Company provided an in-depth presentation to the Commission about these
events during the semi-annual gas review in June 2019.
A reconciliation of the Schedule 155 deferral balance is shown on Table 2:
JSTAFF COMMENTS OCTOBER 9,2019
Table 2: Deferral Balance Reconciliation
Amortization Balance as of October 31, 2018
Amortization Activity
Tax Reform True-up
Interest on Unamortized Balance
Total Unam ortrzed Balance
$(7,255,326)
6,782,484
(7,206)
(3 1.s04)
$(51 1,552)
$(4,229,300)
291,147
6,389,698
(3t,471)
(2,086,925)
(960.600)
$(627,451)
$(1" 139.003)
(2,023,678)
/13.927)
Current Year Deferral Activity
Deferral Balance as of October 31, 2018
Deferral of Demand Costs
Deferral of Commodity Price Differences
Interest on Deferrals
Excess Capacity Releases
Deferred Exchange Contract
Total Current Year Deferral Activity
PGA Total Balance for Amortization as of June 30,2019
Forecast Amortization & Deferral through October 31,2019
Forecast Interest through October 31,2019
Total Balance to be amortized via Rate Schedule 155 _$G-176j08)
The deferral consists of the difference in the price Avista paid for natural gas and the
WACOG established in the previous PGA. The deferral also includes the monthly interest
charges on the deferred balances, excess capacity releases discussed in further detail below, and
the benefits from the deferred exchange contract.
Avista has a Deferred Exchange Contract under which it receives natural gas during the
summer and redelivers that natural gas in winter. Avista charges a fixed per therm price for this
service and flows all the benefits through Schedules 150 and 155. The benefits from the
Deferred Exchange Contract are reflected in the deferral activity in the table above in the amount
of $960,600.
Also included in the deferral balance for amortization is the remainder of temporary tax
benefits resulting from the 2017 Tax Cuts and Jobs Act in the amount of $7 ,206. In Order
No. 34070, Case No. GNR-U-18-01, the Commission approved the settlement stipulation that
directs the Company to refund the natural gas temporary tax benefit to customers as a credit over
one year through the Company's Purchase Gas Adjustment, effective November 1, 2018.
4STAFF COMMENTS OCTOBER 9,2079
For the calculation of the PGA amortization rate, Avista projects natural gas deferrals and
amortization collections through October 31,2019, as well as the interest during that time period
and includes this calculation with the total balance to be amortized as shown above. Avista
estimates that the balance for amortization as of October 31,2019 will be $(3,176,608) and
calculates atariff rate of $(0.03625) per therm for the period of November 1,2079 through
October 31,2020.
Weighted Average Cost of Gas (WACOG)
The WACOG includes fuel charges to move gas at the city gate, some variable transport
costs, Gas Research Institute (GRI) funding, and some benefits associated with the Deferred
Exchange Contract. It does not include third party gas management fees. In this case, Avista
proposes a WACOG of $0.1 5328 per therm. This is a slight decrease from the approved
WACOG in the Company's last PGA of $0.17025 cents per therm. Staff encourages the
Company to update its WACOG if gas prices materially deviate. Chart No. I shows Avista's
historical WACOG.
Chart 1: Historical WACOG
Avista PGA WACOG ($/Therm)
0.6000
0.5000
E
0.4000
o-cF
vI
0.3000
0.2000
0.1000
0.0000
s0.491 So.+ss So.ars So.Esz So.szs So.ass 5o.zsz 240 219 t64 170 .153
2009 2070 201.1 2012 2013 2074 2075 2076 2017 2017*2018 2019
Year * AVU-G-17-06
5STAFF COMMENTS OCTOBER 9,2019
I
Market Fundamentals & Price Analysis
Because a large portion of Avista's annual throughput consists of market index purchases
(approximately 57Yo), Staff scrutinizes Avista's projected monthly cost of purchased gas. Avista
continues to use a 30-day historical average of forward prices to forecast the volume-weighted
average annual index price, and forecasts a cost of $1.58 per dekatherm ($0.158 per therm).
Staff reviewed Futures prices at each of the three hubs where Avista purchases gasl and believes
Avista's cost forecast to be reasonable.
Staff also examined the forecasts of national and regional organizations to see how
perceived market conditions might vary from the NYMEXAIGX Futures prices. Specifically,
Staff reviewed the forecasts from the Energy Information Administration (EIA).2
The EIA Short-Term Energy Natural Gas Outlook states:
o EIA forecasts dry natural gas production will average 91.0 Bcf/d in
2019, up by 7.6 Bcf/d from 2018. EIA expects monthly natural gas
production to grow in late 2019 and then decline slightly during the first
quarter of 2020 as the lagged effect of low prices in the second half of 2019
reduces natural gas-directed drilling. However, EIA forecasts that growth
will resume in the second quarter of 2020, and natural gas production in
2020 will average 92.5 Bcfld.
. The Henry Hub natural gas spot price averaged $2.37lmillion British
thermal units (MMBtu) in July, down 3 cents/MMBtu from June. However,
by the end of the month, spot prices had fallen below $2.30/MMBtu. Based
on this price movement and EIA's forecast of continued strong growth in
natural gas production, EIA lowered its Henry Hub spot price forecast for
the second half of 2019 to an average of $2.36lMMBtu. In the July STEO,
EIA expected prices to average $2.50/MMBtu during this period. EIA
expects natural gas prices in 2020 will increase to an average of
$z.7slMMBtu. EIA's natural gas production models indicate that rising
prices are required in the coming quarters to bring supply into balance with
rising domestic and export demand in2020.
Based on Staff s review of the market fundamentals and trends, the 2019-2020 forecasts
are consistent, predicting relatively stable near-term gas prices. Staff believes that Avista's cost
of its current hedges and estimated cost of forward-looking index purchases are reasonable.
I Avista is supplied by three natural gas hubs (Rockies, Sumas, and AECO). Future settlement prices are reported
daily as a price differential from the NYMEX Henry Hub price.
2 EIA website https://www.eia.gov/outlooks/steo/report/natgas.php
6STAFF COMMENTS OCTOBER 9,2019
Risk Management
Avista uses a diversified approach to procure natural gas for the coming PGA year.
Avista's Procurement Plan uses a structured approach to execute its hedges that includes a range
of possible hedge windows with varying long-term and short-term trigger prices. However, its
Procurement Plan also allows it to make discretionary decisions so it can adjust to changes in
market conditions.
Avista modified its Natural Gas Procurement Plan in mid-2015 to change how the
Company uses its portion of the Jackson Prairie storage facility. With the modified plan, storage
can be used to capture the economic benefits of purchasing lower cost natural gas throughout the
year and selling it at a later time. Under this plan, Avista's hedges through July 2019 were
executed at a weighted average price of $0.171 per therm. For the next PGA year Q.{ovember
2019 through October 2020), the Company plans to hedge approximately 43o/o of its annual load
requirements.
Capacity Release
Avista buys the right to transport gas through several interstate pipelines. This enables
Avista to buy gas from a variety of supply basins, both in the U.S. and in Canada, and then
transport that gas to its service territory. As mentioned previously, whenever Avista has surplus
capacity on the pipelines that serve its jurisdictions, surplus capacity is sold to other pipeline
users at the highest price available. Avista's total excess capacity release revenue this year for
Idaho was just over $2 million.
Lost and (Jnaccountedfor QArJfl3 Gas
Staff reviewed Avista's LAUF gas rate and compared it to previous years. The Company
reported a LAUF gas rate of I.29Yo, which is higher than previous years. Table 3 shows a five-
year view of LAUF gas rates. Staff notes that the five-year average is 0.68%.
3 The American Gas Association describes unaccounted for natural gas in the utility system as follows: At a citli
gate. natural gas is transferred from an interstate or intrastate pipeline tcl a local natural gas utility. At that nlornent,
sonre utilities rneasure the volume of gas using highly sophisticated technology that is able to quickly and precisely
takeintoaccountavarietyoffactors,includingtemperatureandpressure. Theutilityreportsthevolumeofgassold
to customers as represented on their bills. The difference between the city-gate nreasurement and the volunre of gas
sold is treated as unaacounted-fbr gas by regulators, who build a l'onn of reirnbursernent for this gas into the utility's
rate sffucture.
7STAFF COMMENTS OCTOBER 9,2019
Table 3: LAUF Gas Rate History
Staff asked the Company about the increased LAUF rate. The Company responded to
StafPs questions with the following explanation:
The way the Company manages its data is the primary factor why Lost
and Unaccounted For (LAUF) numbers can deviate from year to year. The
LAUF report is comprised of two sets of data: 1) actual calendar delivered
pipeline volumes at the city gate, and 2) billed revenue volumes from end
use customers. Various factors including accounting adjustments, timing
differences, system changes, meter family failures/change-outs, etc. can
have an effect on each set of data. As such, periodically it is possible to see
numbers which deviate from previous years.
Standard testing for meters is within a+l-2Yo deviation. The Company's
natural gas distribution folks keep a close eye on meters to ensure we
continue to be and stay within that tolerance.
The Company will look into the LAUF report for the l2 months ending
June 30, 2019 as part of an effort to streamline the process related to this
calculation. An update will be provided in our next PGA filing.
Staff believes that the Company's explanation attributing the increase to timing and
reporting of LAUF data is reasonable. Additionally, the Company found no anomalies in meter
testing and continues to operate within industry standards of +l- 2%o deviation. However, Staff
will continue to monitor the LAUF rate to see if the increasing trend continues.
CUSTOMER COMMENTS, NOTICE, AND PRESS RELEASE
The Company's press release and customer notice were included with its Application on
August 23,2019. Staff reviewed the documents and determined both meet the requirements of
Rule 125 of the Commission's Rules of Procedure (IDAPA 31.01.01). The notice was included
with bills mailed to customers beginning September 9,2019 and ending October 7,2019. The
Commission set a comment deadline of October 9,2019. Customers whose bills will be mailed
on October 7,2019, will not have received their notices or had adequate time to submit
comments before the comment deadline. Customers must have the opportunity to file comments
and have those comments considered by the Commission. Staff recommends that the
Commission accept late-filed comments by customers. As of October 9,2019, one comment had
been filed in opposition to the Company's proposed increase.
8
2014-201s 2015-2016 2016-2017 2017-2018 2018-2019 5 Year Averaqe
LAUF Gas Rates 0.61%0.74%0.41%0.37%1.29%0.68%
STAFF COMMENTS OCTOBER 9,2019
STAFF RECOMMENDATIONS
After examining the Avista's Application, natural gas purchases, and deferral activity for
the year, Staff recommends that the Commission:
1. Approve Avista's proposed Tariff Schedule 150, including the proposed WACOG
of $0.15328 per therm;
2. Approve Avista's proposed Tariff Schedule 155, including the proposed
amortization rate of $(0.03625) per therm;
3. Direct the Company to continue filing quarterly WACOG reports and continue
filing monthly deferred cost reports with the Commission on an ongoing basis;
and
4. Accept late-filed customer comments.
Respectfully submitted this ?41 day of October 2019.
Hunter
Deputy Attorney General
Technical Staff: Rick Keller
Kevin Keyt
Kathy Stockton
Curtis Thaden
i : umisc: comments/avug I 9. 6mhklskkrkct comments
9STAFF COMMENTS OCTOBER 9,2019
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 9th DAY OF OCTOBER 2019,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-19-06, BY MAILING A COPY THEREOF, POSTAGE PREPAID,
TO THE FOLLOWING:
PATRICK EHRBAR
DIRECTOR REGULATORY AFFAIRS
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail : patrick.ehrbar@avi stacorp.corn
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE WA99220-3727
E-mail: david
CERTIFICATE OF SERVICE