20221006Comments.pdf

MICHAEL DUVAL
DEPUTY ATTORNEY GENERAL
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. II7I4
IN THE MATTER OF AVISTA UTILITIES
APPLICATION FOR AN ORDER
APPROVING A CHANGE IN RATES FOR
PURCHASED GAS COSTS AND
AMORTIZATION OF GAS.RELATED
DEFERRAL BALANCES
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Street Address for Express Mail:
1I33I W CHINDEN BLVD, BLDG 8, SUITE 2OI-A
BOISE, ID 83714
Attomey for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
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CASE NO. AVU-G-22-06
COMMENTS OF THE
COMMISSION STAFF
STAFF OF the Idaho Public Utilities Commission, by and through its Attorney of
record, Michael Duval, Deputy Attorney General, submits the following comments.
BACKGROUND
On September 2,2022, Avista Corporation dba Avista Utilities ("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 the Company's costs to
buy natural gas from suppliers-including changes in transportation, storage, and other related
costs. The Company defers these costs into its PGA account and then passes them on to
customers through an increase or decrease in rates.
The Company states its proposal will increase annual revenues by about $11.2 million
(12.7%). The Company states that the average residential or small commercial customer using
1STAFF COMMENTS OCTOBER 6,2022
an average of 64 therms per month will see an increase of 57 .27 per month or I 1.9%. The
Company asks that the new rates take effect November 1,2022.
Overview of Proposed Rates
ln this PGA Application, the Company proposes to: (l) pass through changes in the
estimated cost of natural gas for the period of November 2022 through October 2023 to
customers (Tariff Schedule 150); and (2) revise the amortization rates to refund or collect the
balance ofdeferred gas costs (TariffSchedule 155).
The Company's proposed changes to Schedules 150 and 155 and the Company's rates are
discussed in greater detail below. The Company proposes to change its PGA rates for its
customer classes as shown in Table No. 1:
Table No. 1: Summarv of Proposed PGA Rate Chanses bv Class
Service
Sch
No.
Commodity
Change per
therm
Demand
Change per
therm
Total
Sch.150
Chanse
Amortization
Change per
therm
Total PGA
Rate Change
per therm
General l0l $ (0.001I l)$ (0.0000s)$ (0.001l6)$ 0.1 l6s8 s 0.1 1542
Lg. General ill s (0.001I l)$ (0.00005)s (0.001l6)$ 0.1 1658 s 0.1 1542
Le. General tt2 $ (0.001 il )$ (0.0000s)$ (0.001l6)$s (0.001 l6)
Interruptible l3l s (0.001I l)$s (0.001l l)s $ (0.001I l)
Transoortation 146 $$$$s
STAFF REVIEW
Staff supports the Company's proposal to increase natural gas revenues in Idaho by
approximately $1 1.2 million or about 12.7%. Staff examined the Company'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 the
Company's jurisdictional allocation and the reasonableness of the Company's Lost and
Unaccounted for Gas ("LAUF") volumes. Staff verified that the Company's filing will not
change the Company's earnings. Staff also confirmed that the proposed changes to Schedules
150 and 155 accurately capture the Company'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.
2STAFF COMMENTS OCTOBER 6,2022
Schedule 150 - Purchased Gas Cost Adjustment
The Tariff Schedule 150 portion of the PGA consists of commodity costs and demand
costs. The Company's commodity costs are the variable costs that the Company incurs to buy
natural gas. The Weighted Average Cost of Gas ("WACOG") is an estimate of those costs. In
this case, the Company estimates its commodity costs will decrease by $0.00111 per therm, from
the currently approved $0.35181 per therm to $0.35070 per therm.
The Company'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. The Company proposes an overall
demand rate of $0.09238 per therm. The proposed decrease of $0.00005 per therm for
residential customers is related to a number of factors including changes in exchange rates
between Canadian and U.S. dollars, updated demand forecasts, and new Canadian Pipeline rates
that went into effect June I ,2022. Application at 4.
Weighted Average Cost of Gas
The WACOG includes fuel charges to move gas at the city gate, some variable transport
costs, Gas Research [nstitute ("GRJ") funding, and benefits associated with the Deferred
Exchange Contract. It does not include third party gas management fees. In this case, the
Company proposes a WACOG of $0.35070 per therm, a decrease of approximately 0.32o/o from
the current approved WACOG of $0.35181 per therm. Staff encourages the Company to update
its WACOG if gas prices materially deviate. Chart No. I below shows the Company's historical
WACOG.
.,STAFF COMMENTS OCTOBER 6,2022
Chart No. 1: Historical WACOG
Schedule 155 - Amortization of the Deferral Account
Tariff Schedule 155 reflects the amortization of the Company's deferral account. The
Company's proposed amortization rate change for Schedule 101 and Schedule 1l I is an increase
in revenue (above the current surcharge) of $0.11542 per therm. The current rate applicable to
Schedule l0l andSchedule lll is$0.0l505pertherminthe surcharge direction; theproposed
rate is $0.13163 per therm in the surcharge direction.
The deferral consists of the difference in the price the Company paid for natural gas and
the WACOG established in the previous PGA. The deferral also includes the monthly interest
charges on the deferred balances. Included in the deferral activity are two items that benefit
customers: excess capacity releases totaling $3,230,427-discussed in detail in the Risk
Management section below-and the benefits from the Deferred Exchange Contract totaling
$1,879,734.
The Company has a Deferred Exchange Contract under which it purchases and stores
natural gas from another gas distribution utility during the summer and sells it back to the same
utility in the winter. The Company charges a fixed per therm price for this service and flows all
the benefits through Schedules 150 and 155. Customers received a benefit of $1,879,734 during
the PGA year from the Deferred Exchange Contract, and these benefits, along with the excess
capacity releases, are included in the deferral activity shown in Table No. 2 below.
4
Avista PGA WACOG (S/rherm)
0.450 -
0.400 -
0.350
0.300 --'
0.250 'E
o-g
at\0.200 '
:0.150 ,
O.1OO -,
:
0.050 :
0.000 -
so.3s2 s0.373:sO.:sS so.2s2 sO.24O sO.Zrg sO.rO+rsO.rZO sO.rSS s0.152 SO.2O3 SO.26s SO.3s2 SO.3s1
2072 2OL3 :2014 , 2015 20L6 20L7 2017*: 2078 2Ot9 , 2020 , 2021 202L**2022**1 2022
Year * AVU-G-17-06 *IAVU-G-21-07 tt+ AVU-G-22-02
STAFF COMMENTS OCTOBER 6,2022
The Company calculated the balance for amortization as of June 30,2022,tobe
$12,720,888. On a per therm basis, the net impact of the expiring amortization surcharge and the
new amortization surcharge is a change in the amortization rate of $0.11542 per therm.
Last year, in an effort to reduce the impact on customer bills, the Commission authorized
a 38-month period amortization period, rather than the normal l2-month period. The extended
amortization period allowed the Company to re-evaluate the amortization during the next PGA
filing and adjust the recovery period as appropriate. In this PGA filing, the Company used the
deferral and amortization balance as of June 2022, inclusive of the residual amortization balance
from the prior PGA and proposed amortizing the balance over 12 months, consistent with
historical filings. Staff supports a return to the historical 12-month amortization of the deferral
balance. A reconciliation of the Schedule 155 deferral and amortizatron is shown in Table No. 2:
Table No. 2: PGA Deferral and Amortization Reconciliation
Market Fundamentals & Price Analysis
The Company hedged natural gas throughout the previous thirty-six months for the
forthcoming PGA year. Approximately 4loh of the annual load requirements for this year's PGA
period (November 2022tbrongh October 2023) have been hedged at a fixed price derived from
5
Amortization Balance as of May 31, 2021
Amortization Activity
Transfer from Deferral Account &Large Customer True-Up (91112021)
Interest on Unamortized Balance
Total Unam ortized Balance
Current Year Deferral Activity
Beginning Deferral Balance
Deferral of Demand Costs
Defenal of Commodity Price Differences
Interest on Deferrals
Excess Capacity Releases
Deferred Exchange Contract
Total Amo rtization B alance
Total Balance to be amortized via Rate Schedule 155
$3,474,522
(1,128,442)
891,599
41.770
$ 3,279,449
$0
3,478,729
11,192,859
47,216
(3,230,427)
Q.046.938\
$9,441,439
s 12.720.888
STAFF COMMENTS OCTOBER 6,2022
the Company's Procurement Plan. Through June, the hedge volumes for the PGA period have
been executed at a weighted-average price of $0.291 per therm.
The Company used a l5-day historical average of AECO forward prices (ending July 18,
2022) to develop an estimated cost associated with index purchases. These index purchases
represent approximately 59Yo of estimated annual load requirements for the coming year. The
annual weighted average price for these volumes is $0.412 per therm.
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"). I The EIA
Short-Term Energy Natural Gas Outlook2 states:
ln August, the Henry Hub spot price averaged $8.80 per million British
thermal units (MMBtu), up from $7.28lMMBtu in July. Natural gas prices
rose in August because of continued strong demand for natural gas in the
electric power sector, which has kept natural gas inventories below their
five-year (2017-2021) average. We expect the Henry Hub price to average
about $9/MMBtu in 4Q22 and then fall to an average of about $6iMMBtu
in2023 as U.S. natural gas production rises.
Based on Staff s review of the market fundamentals and trends, Staff believes that the
Company's cost of its current hedges and estimated cost of forward-looking index purchases are
reasonable.
Risk Management
The Company uses a diversified approach to procure natural gas for the coming PGA
year. The Company's Procurement Plan uses a structured approach to execute its hedges that
includes a range of possible hedge windows with varying long-term and short-term trigger
prices. However, its Procurement Plan also allows it to make discretionary decisions so it can
adjust to changes in market conditions.
The Company modified its Natural Gas Procurement Plan in mid-2015 to change how the
Company uses its portion of the Jackson Prairie storage facility. With the modified plan, storage
I Energy Information Administration, https://www.eia.gov/outlooks/steo/reporUnatgas.php (last visisted
Sept.23,2022).
2 Energy Information Administration, https://www.eia.gov/outlooks/steo/report/natgas.php (tast visisted
Sept.23,2022).
6STAFF COMMENTS OCTOBER 6,2022
can be used to capture the economic benefits of purchasing lower-cost natural gas throughout the
year and selling it later if not consumed by customers.
Capacity Release
The Company buys the right to transport gas through several interstate pipelines. This
enables the Company to buy gas from a variety of supply basins, both in the U.S. and in Canada,
and then transport that gas to its jurisdiction. As mentioned previously, whenever the Company
has surplus capacity on the pipelines that serve its jurisdictions, surplus capacity is sold to other
pipeline users at the highest price available. The Company's total excess capacity release
revenue this year for Idaho was$.3,230,427.
Lost and (Jnaccountedfor (LAUF)3 Gas
Staff reviewed the Company's LAUF gas rate and compared it to previous years. The
Company reported a LAUF gas rate of 0.78Yo. The following table shows a five-year view of the
Company's reported LAUF gas.
Table No.3: Historical LAUF Rates
Year Delivery Revenue Loss */-Gain o/o Of Purchase
201 8 134,637,626 134,139,456 498,170 0.37
2019 143,375,963 141,549,516 1,826,447 1.29
2020 155,715,413 158,836,712 (3,121,299)(1.e7)
2021 156,717,867 I 56,036,1 68 681,699 0.44
2022 155,409,201 154,210,102 1,199,099 0.78
5 Year Average 149,171,214 148,954,391 216,823 0.r5
3 The Ame.ican Gas Association describes unaccounted for natural gas in the utility system is defined as follows
At a city gate, natural gas is transferred from 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 can quickly and precisely take into account a variety of factors, including
temperature and pressure. The utility reports the volume of gas sold to customers as represented on
their bills. The difference between the city-gate measurement and the volume of gas sold is treated
as unaccounted-for gas by regulators, who build a form of reimbursement for this gas into the
utility's rate structure.
American Gas Association, https://www.aga.org/policyistate/natural-gas-state-profiles/state-
info/unaccounted-for-natural-gas-in-the-utility-systen/ (last visited Oct. 6,2022).
7STAFF COMMENTS OCTOBER 6,2022
Accompanying Cases
The Company filed two other natural gas applications with rate adjustments effective
November 7,2022, that if approved, will increase overall natural gas revenue by approximately
$13.7 million or l5.5Yo. The Company's Energy Efficiency Tariff Rider Adjustment ("EE Tariff
Rider"), Case No. AYU-G-22-07, requests an increase in natural gas revenues of approximately
$2.6 million or 3.0o/o. The Company's Fixed Cost Adjustment ("FCA"), Case No. AVU-G-zz-
04, filed on July 29,2022, requests a decrease in the Company's overall natural gas revenues by
$0.1 million, or 0.2o/o. Table No. 4 below shows the effect of all three cases if approved as filed.
Table No. 4: Imnact of the Three Natural Gas Filines
CASE $ REVENUE CHANGE % REVENUE CHANGE
PGA $ I1.2 Million 12.7%
EE Tariff Rider $ 2.6 Million 3.0%
FCA $ (0.1 Million)(0.2%)
TOTAL $ 13.7 Million 15.50
CUSTOMER NOTICE AND PRESS RELEASE
The Company's press release and customer notice were included with its Application and
address the PGA in this case and the natural gas Energy Efficiency Charge (AVU-G-22-07).
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 beginning September 12,2022, and ending October 10,2022. The
Commission set a comment deadline of October 6,2022. Some customers will not have received
their notices or had adequate time to submit comments before the comment deadline. Customers
should have the opportunity to file comments and have those comments considered by the
Commission. Staff recommends that the Commission consider late filed comments by
customers. As of October 5, 2022, no customer comments had been filed.
8STAFF COMMENTS OCTOBER 6,2022
STAFF' RECOMMENDATIONS
After examining the Company's Application, natural gas purchases, and deferral activity
for the year, Staffrecommends the Commission:
l. Approve the Company's proposed Tariff Schedule 150 as filed, including the
proposed WACOG $0.35070 per therm and demand charge of $0.09238 per
therm, for a total of $0.44308 per therm;
2. Approve the Company's proposed Tariff Schedule 155 as filed, with the proposed
amortization rate of $0.13163 per therm;
3. Direct the Company to continue filing quarterly WACOG reports and monthly
deferred cost reports with the Commission on an ongoing basis; and
4. Consider late-filed comments from customers.
6 trr
Respectfully submitted this day of October2022.
Michael Duval
Deputy Attorney General
Technical Staff: Robin Maupin
Kathy Stockton
Kevin Keyt
Curtis Thaden
i:umisc/comments/avug22.6mdrmklskkct comments
9STAFF COMMENTS OCTOBER 6,2022
CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS 6th DAY OF OCTOBER 2022,
SERVED THE FOREGOING COMMENTS OF TIm COMMISSION STAFF, IN
CASE NO. AVU-G-22.06, BY E-MAILING A COPY THEREOF, TO THE
FOLLOWING:
PATRICK EHRBAR
DIR OF REGULATORY AFFAIRS
AVISTA CORPORATION
PO BOX 3727
SPoKANE W A 99220-3727
E-MAIL: [e-mail]
dockets@avistacorp. com
DAVID J MEYER
VP & CHIEF COUNSEL
AVISTA CORPORATION
PO BOX3727
SPOKANE W A 99220-3727
E-MAIL: [e-mail]
Y
CERTIFICATE OF SERVICE