20230201Garbarino Direct.pdf

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
[e-mail]

BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-23-01
OF AVISTA CORPORATION FOR THE )
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC SERVICE ) DIRECT TESTIMONY
TO ELECTRIC CUSTOMERS IN ) OF
THE STATE OF IDAHO ) MARCUS J. GARBARINO
)

FOR AVISTA CORPORATION

(ELECTRIC ONLY)

Garbarino, Di 1
Avista Corporation
I. INTRODUCTION 1
Q. Please state your name, business address and present position with 2
Avista Corporation. 3
A. My name is Marcus J. Garbarino and my business address is 1411 East 4
Mission Avenue, Spokane, Washington. I am employed as Manager of Regulatory 5
Affairs in the Regulatory Affairs Department. 6
Q. What is your educational background and professional experience? 7
A. I am a 2008 graduate of Eastern Washington University with a Bachelor 8
of Arts degree in Business Administration, majoring in Accounting, and became a 9
Certified Public Accountant in May 2011. After spending four years in the public 10
accounting sector, I joined Avista in April 2012 as a Resource Accounting Analyst. In 11
July 2014, I moved to the Company’s Internal Audit Department as a Senior Internal 12
Auditor until joining the Regulatory Affairs group in October 2020 as Manager of 13
Regulatory Affairs. My primary responsibilities include electric cost of service, customer 14
usage and revenue analysis, and preparing annual Purchased Gas Adjustment filings for 15
all jurisdictions, amongst other things. 16
Q. What is the scope of your testimony in this proceeding? 17
A. My testimony and exhibits will cover the Company’s electric revenue 18
normalization adjustment to the test year results of operations, the proposed Load Change 19
Adjustment Rate to be used in the Power Cost Adjustment and Fixed Cost Adjustment 20
mechanisms, and the electric cost of service study performed for this proceeding. A table 21
of contents for my testimony is as follows: 22
23
Garbarino, Di 2
Avista Corporation
Description Page 1
I. Introduction 1 2
II. Electric Revenue Normalization 2 3
III. Proposed Load Change Adjustment Rate 5 4
IV. Electric Cost of Service 7 5
6
Q. Are you sponsoring any exhibits in this case? 7
A. Yes. I am sponsoring Exhibit No. 16 composed of three schedules. 8
Schedule 1 details the calculation of the proposed Load Change Adjustment Rate, 9
Schedule 2 includes a narrative of the electric cost of service study process, Schedule 3 10
presents the base case electric cost of service study summary results. 11
Q. Were these exhibit schedules prepared by you or under your 12
direction? 13
A. Yes, they were. 14
15
II. ELECTRIC REVENUE NORMALIZATION 16
Q. Would you please describe the electric revenue normalization 17
adjustment included in Company witness Ms. Schultz’ pro forma results of 18
operations? 19
A. Yes. The electric revenue normalization adjustment represents the 20
difference between the Company’s actual recorded retail revenues during the test year, 21
twelve-months-ended June 2022, and base rate retail revenues on a normalized (pro 22
forma) basis. The total revenue normalization adjustment increases Idaho net operating 23
income by $10,761,000, as shown in adjustment column 2.07 on page 7 of Ms. Schultz’ 24
Exhibit No. 4, Schedule 1. 25
Garbarino, Di 3
Avista Corporation
The revenue normalization adjustment consists of four primary components: 1) 1
re-pricing customer usage (adjusted for any known and measurable changes) to base tariff 2
rates presently in effect, 2) adjusting customer load and revenue to a 12-month calendar 3
basis (unbilled revenue adjustment), 3) weather normalizing customer usage and revenue, 4
and 4) eliminating the deferred revenue associated with the Fixed Cost Adjustment (FCA) 5
mechanism during the test year recorded in results. 6
Q. Since these elements are combined into a single adjustment, would 7
you please identify the impact of each component? 8
A. Yes. A breakdown of the four components of the revenue normalization 9
is as follows: 10
1. The re-pricing of billed usage, including the effects of the September 1, 11
2022 base rate increase, elimination of the revenue and expense associated 12
with the Clearwater Purchase and Sale agreement, as well as the 13
elimination of adder schedule revenue and related amortization expense 14
(Schedule 59 Residential Exchange Credit, Schedule 75 Fixed Cost 15
Adjustment, Schedule 76 Tax Customer Credit, Schedule 91 Public 16
Purpose Tariff Rider, and Schedule 95 Optional Renewable Power)1 17
results in an increase to net income of $8,683,000. 18
19
2. The re-pricing of unbilled calendar usage and elimination of unbilled 20
adder schedule revenue and expense results in a decrease to net income of 21
$655,000.2 22
23
3. The weather normalization adjustment decreases net income $1,435,000. 24
25
4. The elimination of the FCA deferred revenue recorded in the test year 26
increases net income by $4,168,000. 27
The combined impact of these four elements is an increase to net income of $10,761,000. 28

1 Municipal Franchise Fee and Power Cost Adjustment revenues and related expenses are eliminated in
separate adjustments.
2 The unbilled adjustment consists of removing June 2021 usage billed in July 2021 from the test year,
adding June 2022 usage billed in July 2022 to the test year, and re-pricing the net usage at present base
rates.
Garbarino, Di 4
Avista Corporation
Q. Earlier you stated that customer usage is “adjusted for any known 1
and measurable changes”. What material usage adjustments were made to the test 2
year? 3
A. No known and measurable changes were identified. Therefore, no 4
adjustments were made to the test year. 5
Q. Please briefly summarize the electric weather normalization process. 6
A. The Company’s electric weather normalization adjustment calculates the 7
change in kWh usage required to adjust actual loads during the test period to the amount 8
expected if weather had been normal. This adjustment incorporates the effect of both 9
heating and cooling on weather-sensitive customer groups. The weather adjustment is 10
developed from an analysis of ten years (January 2012 through December 2021) of 11
calendarized usage-per-customer and calendar period heating and cooling degree-day 12
data. The resulting monthly weather sensitivity factors (use-per-customer-per-heating-13
degree day and use-per-customer-per-cooling-degree day) are applied to the difference 14
between normal heating/cooling degree-days and monthly test year observed 15
heating/cooling degree-days. 16
Q. Is this proposed weather adjustment methodology consistent with the 17
methodology utilized in the Company’s last general rate case in Idaho? 18
A. The Company is proposing two changes to the weather normalization 19
methodology. First, the Company proposes to change the definition of “normal” from a 30-20
year to a 20-year rolling average. Second, the Company proposes to adjust its non-degree day 21
seasonal regression factors from seasonal factors to monthly factors. These two changes are 22
discussed in detail in Company witness Dr. Forsyth’s testimony. 23
Garbarino, Di 5
Avista Corporation
Q. What data was used to determine “normal” heating and cooling 1
degree days? 2
A. Normal heating and cooling degree days are based on a rolling 20-year 3
average of heating and cooling degree-days reported for each month by the National 4
Weather Service for the Spokane Airport weather station. Each year the normal values 5
are adjusted to capture the most recent year with the oldest year dropping off, thereby 6
reflecting the most recent information available at the end of each calendar year. The 7
calculation includes the 20-year period from 2002 through 2021. 8
Q. What was the change in kWhs resulting from weather normalization 9
for the twelve-months-ended June 2022 test year? 10
A. During the test year, weather was near normal during the winter and 11
warmer than normal during the summer. Since electric usage is impacted by both heating 12
and cooling, weather normalization required a reduction to usage for more heating degree 13
days and a reduction to usage for more cooling degree days during the test year compared 14
to normal. The annual total adjustment to Idaho electric sales volumes was a reduction 15
of 19,508,484 kWhs, which is approximately 0.5% of billed usage. The electric system 16
monthly weather adjustment volumes were provided to Company witness Mr. Kalich as 17
an input to the Pro Forma Power Supply adjustment. 18
19
III. PROPOSED LOAD CHANGE ADJUSTMENT RATE 20
Q. What is the Load Change Adjustment Rate? 21
A. The Load Change Adjustment Rate (LCAR) is part of the Power Cost 22
Adjustment (PCA) mechanism that prices the change in power supply-related costs 23
Garbarino, Di 6
Avista Corporation
associated with the change in actual retail loads from the retail loads that were used to set 1
the PCA base costs. The LCAR determination process for all Idaho investor-owned 2
utilities was established in IPUC Case No. GNR-E-10-03, Order No. 32206, which was 3
approved on March 15, 2011. The LCAR is also a key component in the Company’s 4
electric Fixed Cost Adjustment (FCA) mechanism.3 5
Q. How was the LCAR determined? 6
A. The proposed LCAR was determined by first computing the proposed 7
revenue requirement on the total production and transmission costs contained within Ms. 8
Schultz’ Idaho electric pro forma total results of operations. The production/transmission 9
revenue requirement amount is then divided by the Idaho normalized retail load used to 10
set rates in order to arrive at the average production and transmission cost-per-kWh 11
embedded in proposed rates. This amount is then multiplied by the proportion of 12
production and transmission costs classified as energy-related in the cost of service study. 13
The LCAR, therefore, represents the energy-related portion of Avista’s production and 14
transmission costs, on a per-kWh basis. 15
Q. Do you have an exhibit schedule that shows the calculation of the 16
proposed LCAR for the rate years beginning September of 2023 and 2024? 17
A. Yes. Exhibit No. 16, Schedule 1 begins with the identification of the 18
production and transmission revenue, expense and rate base amounts included in each of 19
Ms. Schultz’ actual, restating, and pro forma adjustments to results of operations. The 20
resulting production and transmission cost components are summarized on page 1. Rate 21

3 As required in the Company’s FCA, the LCAR from the PCA (grossed up for revenue-related expenses)
multiplied by kWh sales is deducted from base rate revenues in the FCA to ensure that no overlap occurs
between the PCA and the FCA.
Garbarino, Di 7
Avista Corporation
Year 1 (September 1, 2023 – August 31, 2024) values are shown on Line 39 and Rate 1
Year 2 (September 1, 2024 – August 31, 2025) values are shown on Line 53. 2
Page 2 shows the revenue requirement calculations for each rate year based on the 3
production and transmission cost components from page 1. The rate of return and debt 4
cost percentages on Line 2 are inputs from the proposed cost of capital (Exhibit No. 5, 5
Schedule 1, Page 4). The normalized retail load on Line 10 comes from the workpapers 6
supporting the revenue normalization adjustment. Line 11 represents the average total 7
production and transmission cost-per-kWh proposed to be embedded in Idaho customer 8
retail rates. Lines 12 and 13 are values taken from the cost of service study report titled 9
“Functional Cost Components at Proposed Return” which represents total costs at unity. 10
Line 12 shows the amount of production and transmission costs classified as energy-11
related, while Line 13 shows the total production and transmission costs in the study. 12
The resulting LCARs on Page 2, Line 14 are $0.02523 per kWh or $25.23 per 13
MWh for Rate Year 1 and $0.02654 per kWh or $26.54 per MWh for Rate Year 2. The 14
calculation of the LCAR for each rate year will be revised based on the final production 15
and transmission costs, and rate of return, that are approved by the Commission in this 16
case. 17
18
IV. ELECTRIC COST OF SERVICE 19
Q. As part of Settlement approved in the Company’s last general rate 20
case, did the Parties agree to “meet and confer” regarding the Company’s electric 21
cost of service study? 22
A. Yes. Provision 24 of the Settlement Stipulation in Case No. AVU-E-21-23
Garbarino, Di 8
Avista Corporation
01 stated the following: 1
Electric Cost of Service and Basic Charge Workshop – The Parties 2
agree, prior to the Company’s next general rate case filing, to meet 3
and confer regarding the Company’s electric cost of service study and 4
the appropriate level of basic charges. The purpose of the workshop 5
will be to discuss the merits of differing cost of service methodologies 6
and basic charge levels. The Company will provide available 7
information, studies and data requested by any of the Parties so as to 8
enable meaningful workshop participation and discussion of issues. 9
No Party shall be bound by workshop discussions and may contest 10
cost of service and rate spread or rate design issues in subsequent 11
proceedings. 12
13
In compliance with that agreement, the Parties held a meeting on May 4, 2022, to discuss 14
the Company’s electric cost of service study. This resulted in no changes in the 15
calculation or methodology used to perform the electric cost of service study. 16
Q. Please briefly summarize your testimony related to the electric cost of 17
service study. 18
A. I believe the Base Case electric cost of service study presented in this case 19
is a fair representation of the costs to serve each customer group. The Base Case study 20
shows Residential Service Schedule 01, Large General Service Schedules 21/22, and 21
Pumping Service Schedules 31/32 provide less than the overall rate of return under 22
present rates. All of the other service schedules provide more than the overall rate of 23
return under present rates to varying degrees. 24
Q. What is an electric cost of service study and what is its purpose? 25
A. An electric cost of service study is an engineering-economic study, which 26
separates the revenue, expenses, and rate base associated with providing electric service 27
to designated groups of customers. The groups are made up of customers with similar 28
load characteristics and facilities requirements. Costs are assigned or allocated to each 29
Garbarino, Di 9
Avista Corporation
group based on, among other things, test year load and facilities requirements, resulting 1
in an evaluation of the cost of the service provided to each group. The rate of return by 2
customer group indicates whether the revenue provided by the customers in each group 3
recovers the cost to serve those customers. 4
The study results are used as a guide in determining the appropriate rate spread 5
among the groups of customers. Schedule 2 of Exhibit No. 16 explains the basic concepts 6
involved in performing an electric cost of service study. It also details the specific 7
methodology and assumptions utilized in the Company’s Base Case cost of service study. 8
Q. What is the basis for the electric cost of service study provided in this 9
case? 10
A. The electric cost of service study provided by the Company as Exhibit No. 11
16, Schedule 3 is based on the twelve-months-ended June 2022 Pro Forma Study 12
presented by Ms. Schultz in Exhibit No.4, Schedule 1. 13
Q. Would you please explain the cost of service study presented in 14
Exhibit No. 16, Schedule 3? 15
A. Yes. Exhibit No. 16, Schedule 3 is composed of a series of summaries of 16
the cost of service study results. The summary on page 1 shows the results of the study 17
by FERC account category. The rate of return by rate schedule and the ratio of each 18
schedule’s return to the overall return are shown on Lines labeled 645 and 646. This 19
summary was provided to Company witness Mr. Miller for his consideration regarding 20
rate spread and rate design. The results will be discussed in more detail later in my 21
testimony. 22
Garbarino, Di 10
Avista Corporation
Pages 2 and 3 are both summaries that show the revenue-to-cost relationship at 1
current and proposed revenue. Costs by category are shown first at the existing schedule 2
returns (revenue); next the costs are shown as if all schedules were providing equal 3
recovery (cost). These comparisons show how far current and proposed rates are from 4
rates that would be in alignment with the cost study. Page 2 shows the costs segregated 5
into production, transmission, distribution, and common functional categories. Line 774 6
on page 2 shows the target change in revenue which would produce unity in this cost 7
study. Page 3 segregates the costs into demand, energy, and customer classifications. 8
Page 4 is a summary identifying specific customer-related costs embedded in the study. 9
The Excel model used to calculate the cost of service and supporting schedules 10
has been included in its entirety electronically in the workpapers accompanying this case. 11
Q. Given that the specific details of this methodology are described in the 12
narrative in Exhibit No. 16, Schedule 2, would you please give a brief overview of 13
the key elements and the history associated with those elements? 14
A. Yes. Production costs are classified to energy and demand in this case 15
based on the system load factor. The Company has presented this approach in prior 16
general rate cases (Case Nos. AVU-E-11-01, AVU-E-15-05, AVU-E-16-03, AVU-E-17-17
01, AVU-E-19-04 and AVU-E-21-01). 18
Transmission costs are classified as 100% demand and allocated by the average 19
of the 12 monthly coincident peaks. This methodology is the same treatment as the last 20
five Idaho cases (Case Nos. AVU-E-12-08, AVU-E-15-05, AVU-E-16-03, AVU-E-17-21
01 AVU-E-19-04 and AVU-E-21-01) and reflects the methodology accepted in the 22
Settlement in Case No. AVU-E-10-01. 23
Garbarino, Di 11
Avista Corporation
Distribution costs are classified and allocated by the basic customer theory 1
accepted by the Idaho Commission in Case No. WWP-E-98-11.4 Additional direct 2
assignment of demand-related distribution plant has been incorporated to reflect 3
improvements accepted by the Commission in Case No. AVU-E-04-01. 4
Property insurance and taxes are functionalized and allocated based on plant in 5
service. Pensions and employee insurance expenses are allocated based on salary and 6
wages. FERC fees are identified and allocated based on energy consumption. Revenue-7
based fees, uncollectible accounts expenses, and excise taxes are allocated by relative 8
share of total revenue. Other administrative and general costs which can be directly 9
associated with production, transmission, distribution, or customer relations functions 10
based on Company department (expenditure organization) are directly assigned to those 11
functions and then allocated to customer class by the relevant plant or number of 12
customers associated with the function. The remaining administrative and general costs 13
are categorized as common costs and have been assigned to customer classes by the four-14
factor allocator accepted by the Idaho Commission in Case No. AVU-E-04-01. 15
Q. Does the Company’s electric Base Case cost of service study follow the 16
methodology filed in the Company’s last electric general rate case in Idaho? 17
A. Yes. 18
Q. What are the results of the Company’s electric Base Case cost of 19
service study presented in this case? 20
A. Table No. 1 summarizes the Base Case cost of service study results. The 21
first two columns show the rate of return and the relationship of the customer class return 22

4 Basic customer cost theory classifies only meters, services, and street lights as customer-related plant; all
other distribution facilities are considered demand-related.
Garbarino, Di 12
Avista Corporation
Customer Class
Rate of
Return
Return
Ratio
Revenue to
Cost Ratio
Cost Less
Revenue
($000's)
Residential Service Schedule 01 4.10%0.87 0.86 22,376$
General Service Schedules 11/12 5.89%1.24 0.92 3,686$
Large General Service Schedules 21/22 4.18%0.88 0.85 8,116$
Extra Large General Service Schedule 25 5.80%1.22 0.93 1,649$
Extra Large General Service Clearwater Paper Schedule 25P 7.53%1.59 0.99 286$
Pumping Service Schedules 31/32 3.58%0.75 0.82 1,354$
Lighting Service Schedules 41 - 49 8.04%1.70 1.00 (5)$
Total Idaho Electric System 4.74%1.00 0.88 37,462$
Base Case Cost of Service Study Summary Statistics
to the overall return (relative return ratio) at present rates for each rate schedule.5 The 1
next column presents the ratio of revenue provided by present rates divided by the total 2
cost of service at the requested overall return (revenue-to-cost ratio)6, followed by the 3
dollar value of the difference between total cost and present revenue for each customer 4
class.7 5
Table No. 1: 6
7
8
9
10
11
12
As can be observed from the above table, the return ratio measure of relative cost 13
recovery shows that Residential Service Schedule 01, Large General Service Schedules 14
21/22, and Pumping Service Schedule 31/32 provide less than the overall rate of return 15
under present rates (under unity). All other service schedules provide more than the 16
overall rate of return under present rates to varying degrees (over unity). The revenue-17

5 Avista typically has used the relationship of each customer group’s earned return to the overall Idaho
electric earned return, called the return ratio, as the measure of relative cost recovery provided by present
and proposed rates.
6 Revenue-to-cost is a stand-alone measure of how each group’s revenue compares to total cost of service
for the group (as indicated by the cost study). It can be shown as a ratio of revenue divided by cost or the
difference of cost less revenue. A revenue-to-cost ratio less than 1.00 indicates that the customer group is
not covering the costs to serve them, whereas a ratio greater than 1.00 indicates that the customer group is
paying more than the cost to serve them (providing a subsidy to other groups). When shown as the
difference of cost less revenue, the value represents the revenue change necessary to equal the cost of
service indicated by the cost study.
7 In my cost of service exhibit the Cost less Revenue value is called “Target Revenue Change” and may be
found on Exhibit 16, Schedule 3, page 2, at line 774.
Garbarino, Di 13
Avista Corporation
to-cost ratio measure indicates that present revenues from the Lighting Service Schedules 1
41 – 49 meet the total cost of service produced by the study. Present revenues from all 2
other customer groups provide less than the total cost to serve them. The summary results 3
of this study were provided to Mr. Miller for consideration in the development of 4
proposed rates. 5
Q. Does this conclude your pre-filed direct testimony? 6
A. Yes. 7