20201006Comments.pdf

MATT HUNTER
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-007 4
[phone]
IDAHO BAR NO. 10655
IN THE MATTER OF AVISTA
CORPORATION'S APPLICATION TO
CHANGE ITS NATURAL GAS RATES AND
CHARGES (2020 PURCHASED GAS COST
ADJUSTMENT)
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Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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)
)
)
)
)
CASE NO. AVU-G.20-04
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, submits the following comments.
BACKGROUND
On June 30,2020, Avista Corporation dba Avista Utilities ("Avista") 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 on to customers through an
increase or decrease in rates.
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 12 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).
ISTAFF COMMENTS OCTOBER 6,2020
Avista's proposal would increase Avista's annual revenue by about $0.4 millionor aboutO.J%o
Average residential or small commercial customers using an average of 64 therms per month
would see bills increase by $0.31 or 0.6Vo per month.
The effect of the proposed changes on a customer class is shown in Table No. I below:
Table No. 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 $0.4 million
or O.'|Vo. See Table No. 1. 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
allocation 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
amortizes the deferral balance from the prior year.
Schedule 150 - Purchased 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 increase slightly by $0.00955 per therm, from the currently
approved $0.15328 per therm to $0.16283 per therm.
STAFF COMMENTS OCTOBER 6,20202
Service Schedule
No.
Commodity
Change per
Therm (a)
Demand
Change
per
Therm (b)
Total
Sch. 150
Change
(c=a+b)
Amortization
Change per
Therm (d)
Total Rate
Change
per
Therm
(e=c+d)
Percent
Change
General 101 $0.00955 $(0.0034s)$0.00610 $(0.00129)$0.00481 0.7Vo
Lg. General lll $0.00955 $(0.0034s)$0.00610 $(0.0012e)$0.00481 0.7Vo
Lg. General tt2 $0.009ss $(0.0034s)$0.00610 $0.00610 0.87o
Interruptible l3l $0.009ss $0.00955 $0.009ss 2.57o
Transportation 146 0.07o
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 $0.00345 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 new Canadian
Pipeline rates that went into effect June 1, 2020. Application at 4. In this case, Avista proposed
to decrease demand costs by $0.00345 per therm, from the currently approved $0.09350 to
$0.09005 per therm.
The new proposed total for Tariff Schedule 150 for customers on Schedules 101, 111,
and 112-schedules that have both the demand and commodity charge-is $0.25288 per therm.
For customers on Schedules 13 | and L32-schedules that only have commodity charges-the
new Tariff Schedule 150 is $0.16283 per therm.
Weighted Average Cost of Gas ("WACOG" )
The WACOG includes fuel charges to move gas to 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 6238 per therm. This is an increase of approximately 6.27o from the
current approved WACOG of $0.15328 cents per therm. Staff encourages the Company to
update its WACOG if gas prices materially deviate from the proposed amount.
Chart No. 1 shows Avista's historical WACOG. After a steady trend of declining gas
cost from 2010 until 2017 , the cost of gas appears to be more stable, averaging $0.162 per therm
since 2017.
aJSTAFF COMMENTS OCTOBER 6,2020
Avista PGA WACOG ($/Therm)
E
o-trF
1r|
0.5000
0.4s00
0.4000
0.3s00
0.3000
0.2s00
0.2000
0.1500
0.1000
0.0s00
0.0000
s0.4s8 s0.418 So.ssz 5o.Ezs So.Ess 5o.zsz 240 19 So.ro+o.L70
2018
153 s0.162
20L0 20Ll 2072 20L3 20L4 2075 2075 2077 20\7*20L9 2020
I r AVU-G-17-06
Chart No. 1: Historical WACOG
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 ll2 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 cunent rebate rate of $0.03625
per therm to a rebate of $0.03754 per therm, a difference of $0.00I29 per therm. Due to the
increase in the rebate, general and large general service customers will receive a $0.00129 per
therm decrease to their current bills under this schedule.
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. Customers received a benefit
of $839,588 during the PGA year from the Deferred Exchange Contract as shown in Table No. 2
below.
4STAI]F COMMENTS OCTOBER 6,2020
In Order No. 34712, Case No. AVU-G-20-O2,the Commission approved the petition and
agreement between the Company and Clearwater Paper Corporation to reduce the amount of the
penalty resulting from the Enbridge-owned West Coast Pipeline rupture in October of 2018.
Staff verified that the full amount of the penalty was properly recorded to the deferral balance
during the month of May 2019 and that the deferral balance was updated in March 2020 to
correctly reflect the amount of the penalty agreed upon by the parties and approved by the
Commission.
For the calculation of the PGA amortization rate, Avista includes the projected natural
gas deferrals and amortization collections through October 3I,2020, including any interest, to
derive the total balance to be amortized as shown on Table No. 2 below. Avista estimates that
the balance for amortization as of October 3I,2020 will be a rebate of $3,363,465 and calculates
a tariff rate of $0.03754 rebate per therm to customers on Schedules 101 and 111 for the period
of November I,2020 through October 31,202L
A reconciliation of the Schedule 155 deferral balance is shown in Table No. 2:
Table 2: Deferral Balance Reconciliation
Amortization Balance as of October 31.r2019
Amortization Activity
Interest on Unamortized Balance
Total Unam ortized B alance
Current Year Deferral Activity
Deferral Balance as of October 3I,2Ol9
Deferral of Demand Costs
Deferral of Commodity Price Differences
lnterest on Deferrals
Excess Capacity Releases
Deferred Exchange Contract
Total Current Year Deferral Activity
PGA Total Balance for Amortization as of May 31,2020
Forecast Amortization & Deferral through October 3I,2020
Forecast Interest through October 3I,2O2O
$
$ (2,693,903)
2,493,192
(14.955\
$ (215,666)
396,236
1,788,086
(6,300)
(r,938,269)
(839,588)
$ (599,835)
(815,501)
(2,533,071)
(14.893)
$
Total Balance to be amortized via Rate Schedule 155 s (3.363-465\
5STAFF COMMENTS OCTOBER 6,2020
Market Fundamentals & Price Analysis
Because alarge portion of Avista's annual throughput consists of market index purchases
(approximately 60Vo), 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 $1.77 per dekatherm ($0.177 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 NYMEXA{GX Futures prices. Specifically,
Staff reviewed the forecasts from the Energy Information Administration (EIA).2
The EIA Short-Term Energy Natural Gas Outlook3 states:
a U.S. dry natural gas production set an annual record in 2019, averaging 92.2Bcfld.
EIA forecasts dry natural gas production will average 88.7 Bcf/d in 2020, with
monthly production falling from its monthly average peak of 96.2 Bcfld in
November 2Ol9 to 82.1 Bcfld by April 2021, before increasing slightly. Natural
gas production declines the most in the Permian region, where EIA expects low
crude oil prices will reduce associated natural gas output from oil-directed rigs.
EIA's forecast of dry natural gas production in the United States averages 84.0
Bcf/d in202l. EIA expects production to begin rising in the second quarter of 2021
in response to higher natural gas and crude oil prices.
In July, the Henry Hub natural gas spot price averaged $1 .77 per million British
thermal units (MMBtu). EIA expects natural gas prices will generally rise through
the end of 2OZl, but the sharpest increases will be during this fall and winter when
they rise from an average of $2.1l/MMBtu in September to $3.l4lMMBtu in
February. EIA expects that rising demand heading into winter, combined with
reduced production, will cause upward price pressures. EIA forecasts that Henry
Hub natural gas spot prices will average $2.03/MMBtu in 2020 and $3.l4AvIMBtu
in202l.
Based on Staff s review of the market fundamentals and trends, the2020-2021 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's Hub price.
2 Short-Term Energy Outlook: Natural Gas, U.S. Energy Information Administration (Sep. 9,2020),
https ://www.eia. gov/outlooks/steolreport/natgas.php.
3 Id.
STAI]F COMMENTS OCTOBER 6,20206
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 later. Under this plan, Avista's hedges through July were executed at a
weighted average price of $0.171 per therm. For the next PGA year (November 2O2O through
October 2O2l), the Company plans to hedge approximately 4OVo of its annual load requirements.
Capactty 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. When Avista has surplus capacity on the pipelines that
serves its service territory, it can be sold to other pipeline users at the highest price available.
The revenue from the sale of surplus capacity is credited to customers through the PGA. Avista's
total excess capacity release revenue this year for Idaho was approximately $1.9 million.
Lost and (Jnaccountedfor ("LAUF")a Gas
Staff reviewed Avista's LAUF gas rate and compared it to previous years. The Company
reported a LAUF gas rate of -1.507o (found gas) which is lower than previous years. Staff asked
a The American Gas Association describes unaccounted for natural gas in the utility system as follows:
At a city gate, natural gas is transf'erred liom an interstate or intrastate pipeline to a local
natural gas utility. At that moment, some utilities measure the volume of gas using highly
sophisticated technology that is able to quickly and precisely take into account a variety of
factors, including temperature and pressure. The utility reports the volume ol'gas sold to
customers as represented on their bills. The diff'erence between the city-gate measurement and
the volume of gas sold is treated as unaccounted-for gas by regulators, who build a lbrm of
reimbursement for this gas into the utility's rate structure.
Unaccounted for Natural Gas in the Utility System, American Gas Association,
https://www.aga.org/policv/state/natural-gas-state-profiles/state-info/unaccounted-for-natural-gas-in-the-utility-
system/.
7STAFF COMMENTS OCTOBER 6,2020
the Company to provide supporting LAUF workpapers and a reconciliation of LAUF numbers
used in the PGA Report and numbers reported to the Pipeline and Hazardous Material Safety
Administration (PHMSA). The following table shows a five-year view of LAUF gas. The
five-year ayerage LAUF rate is 0.227o.
Table No.3: LAUF Rates and Reconciliation
The Company explained that the discrepancy in 2019 PGA and PHMSA numbers was
due to the PHMSA LAUF gas being divided by revenue instead of volume of gas delivered,
which resulted in reporting a number O.O27o greater than the true value. Staff believes that the
Company's explahation of the reporting discrepancy is reasonable and will continue to monitor
the reported LAUF rates.
CUSTOMER COMMENTS, NOTICE, AND PRESS RELEASE
The Company's press release and customer notice were included with its Application.
Each document addresses three casesr this case (AVU-G-20-04), the natural gas Fixed Cost
Adjustment (AVU-G-20-5), and the electric Fixed Cost Adjustment (AVU-E-20-06). Staff
reviewed the documents and determined that both meet the requirements of Rule 125 of the
Commission's Rules of Procedure, IDAPA 31.01.01.125. The notice was included with bills
mailed to customers between July 6 and August3,2O2O, providing customers with a reasonable
5 The PHMSA report for 2020 is pending submittal
STAI]F COMMENTS 8 OCTOBER 6,2020
Year Delivery Revenue Loss +/-Vo of
Purchase
PGA
Report
PHMSA
Report
2016 r20,958,577 120,058,585 899,992 0.74 0.14 0.74
2017 147,097,624 146,490,O05 607,619 0.4r o.4t 0.41
2018 134,637,626 134,139,456 498,170 0.37 0.37 0.37
2019 143,375,963 141,549,516 r,826,447 t.27 t.27 1.29
2020 154,340,500 156,662,982 (2,322,482)(1.s0)(1.s0)N/A5
5 Year
Average
140,082,058 137,180,109 301,949 0.22 o.22
opportunity to file timely comments with the Commission by the October 6,2020, deadline. As
of October 5,2020, no customer comments had been filed.
STAFF RBCOMMENDATIONS
After examining Avista's Application, natural gas purchases, and deferral activity for the
year, Staff recommends the Commission:
1. Approve Avista's proposed Tariff Schedule 150, including the proposed WACOG
of $0.16283 per therm and demand charge of $0.09005 per therm, for a total of
$0.25288 per therm;
2. Approve Avista's proposed Tariff Schedule 155, with the proposed amortization
rate of $0.03754 per therm; and
3. Direct the Company to continue filing quarterly WACOG reports and monthly
deferred cost reports with the Commission on an ongoing basis.
Respectfully submitted this (day of October 2020
Matt Hunter
Deputy Attorney General
Technical Staff: Kathy Stockton
Kevin Keyt
Rick Keller
Curtis Thaden
i:umisc:comments/avug20.4mhkskkrkct comments
r'l
9STAFF COMMENTS OCTOBER 6,2020
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 6fl' DAY OF OCTOBER 2020,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN
CASE NO. AVU-G-20-04, BY E-MAILING A COPY THEREOF, TO THE
FOLLOWING:
PATRICK EHRBAR
DIR OF REGULATORY AFFAIRS
AVISTA CORPORATION
POBOX3727
SPoKANE WA99220-3727
E-MAIL: patrick.ehrbar @ avistacom.com
avistadockets @ avistacorp.com
DAVID J MEYER
VP & CHIEF COI.INSEL
AVISTA CORPORATION
POBOX3727
SPoKANE W499220-3727
E-MAIL: david.meyer@ avistacorp.com
CERTIFICATE OF SERVICE