20230725Ehrbar Rebuttal Testimony.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 ) CASE NO. AVU-G-23-01
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC AND ) REBUTTAL TESTIMONY
NATURAL GAS SERVICE TO ELECTRIC ) OF PATRICK D. EHRBAR
AND NATURAL GAS CUSTOMERS IN THE ) IN SUPPORT OF
STATE OF IDAHO ) STIPULATION

FOR AVISTA CORPORATION

(ELECTRIC AND NATURAL GAS)
Ehrbar, Reb 1
Avista Corporation

I. INTRODUCTION 1
Q. Please state your name, employer, and business address. 2
A. My name is Patrick D. Ehrbar, and I am employed as the Director of 3
Regulatory Affairs for Avista Utilities (“Company” or “Avista”), at 1411 East 4
Mission Avenue, Spokane, Washington. 5
Q. Have you previously filed direct testimony in this proceeding? 6
A. Yes, I filed testimony in support of the Settlement Stipulation on July 7
12, 2023. 8
Q. Are you sponsoring any exhibits? 9
A. No, I am not. 10
Q. What is the scope of your rebuttal testimony? 11
A. The purpose of my testimony is to support the portion of the 12
Settlement Stipulation related to the agreed-upon basic charges, and to rebut Idaho 13
Conservation League / NW Energy Coalition (“ICL/NWEC”) witness Lauren 14
McCloy’s filed testimony urging “the Commission to reject the rate design portions 15
of the settlement.”1 16
Q. Would you please provide a brief summary of your rebuttal 17
testimony? 18
A. Yes. As I will discuss in this testimony, (1) the proposed increases in 19
the residential Schedule 1 and 101 basic charges is not a wholesale conversion to 20
straight fixed variable rate design; at best, only a small movement in that direction 21
(still only 18% (electric)and 41% (gas) of direct customer costs recovered after 22

1 McCloy, Di-2, lines 6-7.
Ehrbar, Reb 2
Avista Corporation

increase in basic charge); (2) is not prejudicial to interests of low income customers; 1
indeed, prior analysis suggests that the opposite may in fact be true; (3) increase will 2
not detract from conservation efforts. 3
Q. Before addressing the residential basic charges agreed to by the 4
Settling Parties2 for Schedules 1 and 101, do you understand witness McCloy to 5
take issue with the rate design changes for any other rate schedules contained in 6
the Settlement Stipulation? 7
A. No, witness McCloy does not appear to take issue with any other rate 8
design components, but for the basic charges for Schedules 1 and 101. Appendix F of 9
the Stipulation (Exhibit No. 19) provides a summary of the current and proposed rates 10
and charges for both electric and natural gas service. 11
Q. Would you please provide a summary of what was agreed to for 12
basic charges for Schedules 1 and 101 for the two-year rate plan? 13
A. Yes. For settlement purposes, the Settling Parties agreed that for Rate 14
Year 1, the residential basic charge would increase from $7.00 per month to $15.00 15
per month, and for Rate Year 2 will go from $15.00 per month to $20.00 per month 16
for both electric (Schedule 1) and natural gas (Schedule 101) customers. These are 17
the same increases that were originally proposed by the Company when it filed this 18
case. 19
Q. Are the proposed increases in the basic charges arbitrary or 20
otherwise “not meet the basic principles of cost causation”?3 21

2 The parties to the Stipulation include the Staff of the Idaho Public Utilities Commission ("Staff”),
Clearwater Paper Corporation ("Clearwater"), Idaho Forest Group, LLC ("Idaho Forest"), and
Walmart Inc.
3 McCloy, Di-3, lines 9-10.
Ehrbar, Reb 3
Avista Corporation

A. No, they are not arbitrary, and very much meet the basic principles of 1
cost causation. As discussed by Company witness Mr. Miller, a significant portion of 2
the Company’s costs are fixed and do not vary with customer usage. These costs 3
include distribution plant and operating costs to provide reliable service to customers. 4
For electric, the total customer allocated costs, as shown in Company witness Mr. 5
Garbarino’s Exhibit No. 16, Schedule 3, Page 4, line 26, those costs are $19.24 per 6
customer per month. Factoring in distribution demand cost per customer per month 7
of $23.84, as shown in Mr. Garbarino’s Exhibit No. 16, Schedule 3, Page 4, line 29, 8
the total customer and distribution demand monthly cost is $43.08. For natural gas, 9
the total customer allocated costs, as shown in Company witness Mr. Anderson’s 10
Exhibit No. 17, Schedule 6, Page 4, line 24, those costs are $21.96 per customer per 11
month at current rates. Factoring in distribution demand cost per customer per month 12
of $7.56, as shown in Mr. Anderson’s Exhibit No. 17, Schedule 2, Page 8, the total 13
customer and distribution demand monthly cost is $29.51. These are essentially fixed 14
costs that are allocated based on the number of customers served. 15
The values detailed above are based on a reasoned and long-standing 16
methodology, developed through robust cost of service studies, which calculate the 17
level of costs applicable to various rate schedules (the very definition of cost 18
causation). The underlying costs are directly related to the cost of providing 19
service to customers, whether or not these customers actually even use the 20
applicable energy. Put another way, the fixed costs detailed above, which are well 21
above the levels agreed-to in the settlement, are caused by customers connected to 22
our systems. They include the costs detailed by witness McCloy, but also 23
Ehrbar, Reb 4
Avista Corporation

important fixed costs including service lines, service drops, regulation, 1
transformation, and other items. 2
Q. Is there a rule or law that you are aware of that strictly limits what 3
should make up a customer charge?4 4
A. No I am not aware of a rule or law limiting the makeup of a 5
customer or basic charge. For this proceeding, relevant information comes from 6
the recent Commission in Order No. 35802 the Commission approved Rocky 7
Mountain Power’s request to increase the Customer Service Charge from $8.00 to 8
$29.25 per month, over five years. In that case the Commission notes:5 9
The Commission is persuaded by the Company’s testimony on the average 10
cost of service for a residential customer, and the Company’s 2021 Cost-of-11
Service Study. The analysis shows fixed costs represent 77 percent of the 12
average cost of service for Schedule 1 residential customers, and the current 13
$8.00 per month Customer Service Charge recovers only nine percent of the 14
fixed costs for Schedule 1 and 36 customers. 15
16
Q. Has the Company conducted a similar analysis showing the 17
percentage of a residential customers costs are fixed? 18
A. Yes. One only needs to look at the Company’s Fixed Cost 19
Adjustment (FCA) mechanisms proposed authorized baseline values included as 20
Appendix B (electric) and Appendix D (natural gas) to the Settlement Stipulation. 21
As stated in its very name, the Fixed Cost Adjustment mechanisms track the level 22
of fixed costs approved in general rate cases and compare that value on a per 23
customer basis to the revenue paid by actual customers in the rate effective period. 24

4 McCloy, Di-4, lines 1-2.
5 Order 35802, PAC-E-22-15, p. 10.
Ehrbar, Reb 5
Avista Corporation

For electric operations, as shown on p. 1 of Appendix B, the total level of 1
fixed costs either tracked through the FCA, or recovered through the monthly Basic 2
Charge, is the difference between “Total Rate Revenue” (line 3) and “Variable 3
Power Supply Revenue” (line 6). That amount for Residential Schedule 1 is 4
$117,342,364, shown on line 7. Dividing that value by the number of annual bills 5
for customers served on Schedule 1 (line 8) results in fixed costs of $84.95 per 6
month. A $15 per month basic charge represents only 18% of total fixed monthly 7
costs. 8
For natural gas operations, as shown in Appendix D, all of the costs 9
included in the natural gas FCA are fixed in nature, and wholesale natural gas costs 10
and interstate pipeline transportation are tracked in the Purchased Gas Cost 11
Mechanism. For General Service Schedule 101 (which is primarily made up of 12
residential customers), the total fixed costs shown on p. 1 of Appendix D (line 3) is 13
$39,382,000. That value divided by the number of annual customer bills (line 8) 14
results in fixed costs of $36.48 per month. A $15 per month basic charge represents 15
only 41% of total fixed monthly costs. 16
Given the large disparity between the level of fixed costs, and the present 17
basic charge levels, we believe it is appropriate to recover more of these fixed 18
customer costs through the basic charge. And the proposed charges are not 19
“randomly selected” nor have Avista anywhere near recovering “all of Avista’s 20
fixed costs” in a basic charge.6 21
Q. Will increasing the fixed charge “increase net revenue because 22

6 McCloy, Di-4, lines 8-9.
Ehrbar, Reb 6
Avista Corporation

each additional customer will take on costs that are already being paid by other 1
customers”?7 2
A. No, Avista will not recovery more “net revenue” with higher basic 3
charges, whether from existing or new customers. The FCA is actually the 4
protection against that. While all customers will pay a higher basic charge, higher 5
use customers will actually see a lower revenue increase resulting from this case, 6
while lower use customers will see a higher overall increase. This is not new to the 7
Commission, who addressed this issue in the Rocky Mountain Power case: 8
While certain customers may end up paying more per month under the 9
modified Customer Service Charge, this modification helps to ensure all 10
customers are paying a proper amount of the fixed costs required to serve 11
them. We believe there may be additional benefits for customers who will 12
likely see their summer and winter bills more levelized.8 13
14
Turning back to the revenue of Avista, under the design of the FCA 15
mechanisms, the FCA revenue per customer determination is made by taking total 16
rate revenue, as a schedule, and removing from that any variable power supply-17
related costs, and the revenue from fixed monthly charges, to ultimately determine 18
the authorized, or baseline FCA Revenue. To the extent less revenue is covered by 19
the fixed monthly charge, the higher the FCA Revenue would be, and vice versa. 20
So, in aggregate, basic charges and the FCA are complementary, and not “belt and 21
suspenders.”9 And, with higher basic charges, there will be less volatility in any 22
FCA deferrals, resulting in smaller bill effects, as compared to the alternative. 23
Q. Do customers actually benefit with higher basic charges, contrary 24

7 McCloy, Di-4, lines 18-20.
8 Order 35802, PAC-E-22-15, p. 10.
9 McCloy, Di-8, line 3.
Ehrbar, Reb 7
Avista Corporation

to witness McCloy’s assertions?10 1
A. Absolutely. Increases in fixed monthly basic charges will benefit 2
high users of energy and will cause customers who use less energy to pay more, on 3
a monthly basis. It’s as simple as this – when the fixed costs of providing service 4
are high, but those fixed costs are recovered more in a variable, usage based energy 5
rate(s), then high users will pay more fixed costs vis-a-vie low energy users. A 6
higher basic charge starts to fix that inequity. 7
Q. Would you say that higher basic charges are more equitable for all 8
customers, including low-income customers? 9
A. Yes, especially for low-income customers. In Section IV of her 10
testimony, witness McCloy states that “higher fixed charged disproportionately 11
impact low-income customers because in many jurisdictions they tend to have 12
lower than average energy use”.11 One only need to look at an analysis conducted 13
in this jurisdiction to see that the opposite is true for low-income electric users. 14
Given the short turnaround time for rebuttal testimony the Company was unable to 15
run a fresh analysis of low income usage as compared to the general residential 16
customer population. But, historically speaking, the prior analysis the Company 17
conducted has shown low income customers use the same, or more energy, than the 18
general residential customer population. Most recently, in Case No. AVU-E-15-19
05/AVU-G-15-01, I provided the following testimony:12 20
The Company recently conducted an analysis which shows that limited 21
income customers, on average, do use more electricity than other residential 22
customers. For the analysis, the Company looked at those limited income 23

10 McCloy, Di-8, lines 8-9.
11 McCloy, Di-11, lines 3-4.
12 Ehrbar, Di-53, line 9 through Di-54, line 22.
Ehrbar, Reb 8
Avista Corporation

Idaho Residential Electric Usage Analysis (Billed Usage - Not Weather Corrected)
Year: Calendar 2014
Sample Size
Average Annual
kWh Usage
Average Monthly
kWh Usage
Electric Only Customers - Limited Income (LIHEAP)2,615 13,160 1,097
Electric Only Customers - All Other Residential Customers 34,641 12,800 1,067
Difference 360 30
Dual Fuel Customers - Limited Income (LIHEAP)1,727 9,828 819
Dual Fuel Customers - All Other Residential Customers 44,235 10,507 876
Difference -679 -57
Total Limited Income (LIHEAP)4,342 11,835 986
Total All Other Residential Customers 78,876 11,514 960
Difference 321 27
customers who received a LIHEAP grant during the January – December 1
2014 time period, and compared their annual usage to the usage of all of the 2
other residential customers.13 The results of the analysis are shown in the 3
Table 13 below: 4
5
Table No. 13 6
7
8
9
10
11
12
13
14
15
16
17
The analysis shows that limited income customers who only have electric 18
service use 360 kWhs more per year than the “All Other Residential 19
Customers” population. For the combined limited income population, 20
the analysis shows that they used 321 kWhs more in 2014 than “Total 21
All Other Residential Customers” population. 22
23
This analysis shows that limited income customers may be harmed by 24
having a rate design with a lower basic charge and a higher tail-block rate, 25
as these customers are more susceptible to use in the tail-block. A higher 26
basic charge, on the other hand, would result in lower volumetric rates (than 27
would otherwise be the case), providing some relief to these high-use 28
customers during the winter months. (emphasis added) 29
30
Q. How else is an increased basic charge more equitable for 31
customers? 32
A. We build our distribution system to serve all customer’s peak load. 33
These costs are essentially fixed, and all customers should share in those costs. The 34

13 Customer usage extracted from the Company’s billing system were from Schedule 1 customers
that had their account open during the entire test year, i.e., from January 1, 2014 through December
31, 2014. Any accounts opened for a partial year were excluded. The Company acknowledges that
the limited income population used for this analysis is not comprehensive. However, because the
Company does not track customer incomes, it is based on the best information available.
Ehrbar, Reb 9
Avista Corporation

electric distribution system is available to all customers whether they use 1 or 3,000 1
kWh’s per month (and likewise for natural gas customers and the gas distribution 2
system). Recovering those fixed costs based on their variable energy use is not cost 3
based and is inequitable, as it results in some customers paying less for distribution 4
services than others, even though they are using the same infrastructure. Including 5
these costs in the basic charge is an equitable approach to ensure all customers pay 6
their fair share of the costs of maintaining and upgrading the distribution system. 7
Beyond the discussion about low income customers noted earlier, one should 8
also think about the number of customers Avista serves who are seasonal in nature. 9
The Company has a number of customers who have second, or vacation homes, in our 10
service territory. For the vast majority of the year, while the Company incurs 11
approximately $85 of monthly fixed costs to serve those customers, they only pay $7 12
of that presently. The remaining revenue is ultimately recovered from all other 13
customers, including low income customers. 14
Q. Do you view the increase in basic charges to cause Avista “to have 15
a decreased incentive to pursue conservation”?14 16
A. No, the Company does not have a decreased incentive. One need 17
only review Appendix F to the Settlement to see that, for Residential Schedule 1 as 18
shown on pp. 2-3, the base rate decreases over the two-year time period for the 19
present level of 10.378 cents to kWh to 10.286 cents per kWh in Rate Year 2. This 20
0.092 cents per kWh is a decrease of less than 1 percent in the second block 21
variable rate. That miniscule difference will not affect utility conservation planning, 22

14 McCloy, Di-10, lines 3-4.
Ehrbar, Reb 10
Avista Corporation

nor affect customer participation in energy efficiency projects, in my view. 1
Importantly, though, it does send the proper cost causation price signal to 2
customers, as noted by the Commission.15 Finally, it should be remembered that 3
electric Schedule 1 also is an inclining block rate schedule, where the higher prices 4
noted above in the second block will continue to serve as an energy efficiency price 5
signal to customers. 6
Q. Witness McCloy provides three recommendations the Commission 7
require if the Settlement Stipulation is approved in whole.16 Would you please 8
respond to those recommendations? 9
A. Yes. The first recommendation is related to a proposal that Avista 10
alter its cost-effectiveness calculation to account for any decrease in energy 11
efficiency (specifically for electric operations, given the reference to the Northwest 12
Power Act). As I discussed earlier in this testimony, there is almost no impact to 13
customer’s electric volumetric rates as a result of the combination of the rate 14
increase and basic charge modernization. As such, we do not believe there will be 15
any impact to electric DSM program participation, and importantly nor was there 16
any evidence provided by NWEC/ICL to support such an assertion (for electric or 17
natural gas). 18
Second, witness McCloy asks for an increase in low-income weatherization 19
funding, coupled with a bill discount for low-income customers. For low-income 20
weatherization, the Company through its energy efficiency offerings has a budget 21
of $875 thousand for weatherization (electric and natural gas). In 2022, only $467 22

15 Order 35802, PAC-E-22-15, p. 10.
16 McCloy, Di-12, lines 6-19.
Ehrbar, Reb 11
Avista Corporation

thousand was utilized by our CAP agency partners who deliver those programs. In 1
any event, the proper venue for determining a proper level of weatherization 2
funding is through the long-standing Energy Efficiency Advisory Group, of which 3
ICL, NWEC, and Commission Staff are all members. 4
Also included in NWEC/ICL’s second recommendation is a 5
recommendation for low-income bill discounts. As the Commission is aware, 6
Idaho Code 61-315 strictly prohibits rate discrimination. That law has been the 7
primary impediment for Avista and other regulated utilities from offering low-8
income rate assistance of any kind in the State of Idaho. 9
Finally, witness McCloy proposed the Commission open a docket relating 10
to “the interplay between high fixed charges and revenue decoupling”.17 Avista 11
views this to be unnecessary, given the testimony provided above that clearly 12
describes the interplay between fixed charges and the FCA. Put succinctly, if all 13
fixed costs were included in a fixed monthly charge (so called straight-fixed 14
variable rates), the FCA/decoupling no longer be necessary. To the extent variable 15
charges are used to recover fixed costs, then the FCA/decoupling comes more into 16
effect. 17
Q. Does this conclude your testimony? 18
A. Yes, it does. 19

17 McCloy, p. 12, lines 18-19.