20050712_1254.pdf

DECISION MEMORANDUM
TO:COMMISSIONER KJELLANDER
COMMISSIONER SMITH
COMMISSIONER HANSEN
COMMISSION SECRETARY
LEGAL
WORKING FILE
- -
FROM:RICK STERLING
KATHY STOCKTON
DATE:JULY 6, 2005
RE:ANNUAL REVISIONS TO A VISTA'S SCHEDULE 51 - LINE
EXTENSION, CONVERSION AND RELOCATION SCHEDULE.
On February 21 2005, Avista Utilities filed revised Schedule 51 , the Company s Line
Extension, Conversion and Relocation schedule in compliance with Order No. 28562 issued on
November 27, 2000 in Case No. A VU-OO-l. Avista is required by the Order to make an
annual filing, on or before April 1, updating its line extension costs and charges to reflect actual
costs incurred in the previous calendar year. The Commission, at its March 17, 2005 Decision
Meeting, approved the 2005 annual revisions with an effective date of March 25, 2005.
On June 22, 2005 , recognizing that the Schedule 511ine extension charges approved
earlier in March had been incorrectly computed, A vista submitted a corrected set of Schedule 51
tariff sheets for approval. Nearly all of the Schedule 51 line extension charges approved in
March reflected a significant decrease (approximately 10%) from costs in the previous year.
A vista stated that this decrease in costs was primarily the result of a substantial reduction in the
overhead rate applied to construction material costs. The Company stated that it had undergone
an extensive review and modification of its purchasing activities and practices. As a result
purchasing activities have been streamlined and the pool of construction materials used for
overhead allocation was expanded. The overhead rate went from 20 percent to 8.5 percent in
2004 and A vista expected it to remain at that level during 2005. Because of the substantial
decrease in nearly all of the line extension charges, Staff requested that the Company re-check its
DECISION MEMORANDUM - 1 -JULY 6, 2005
computation of the overhead rate. Staff was assured by the Company that its significantly
reduced overhead rate was correct.
In its current filing seeking approval of the corrected rates, A vista states that the
Company recently discovered that an inadvertent error was made in the calculation of the line
extension costs reflected in its present tariff. During 2004, A vista states, it installed a new
financial system that interfaces with the system that is used to develop line extension costs.
During that process, the overhead loading rates for the line extension costs were set at incorrect
levels. The costs set forth in the new proposed tariff sheets reflect the correct amounts using the
appropriate overhead rates. Now, rather than a 10% decrease from 2004 costs, the new proposed
rates reflect an approximate 5% increase from 2004 costs. Thus, the new proposed costs are
more than 15% higher than those approved earlier in March.
Staff has reviewed the corrected overhead rate and the new revised tariff and believes
them to be accurate. A vista s previous computation of an incorrect overhead rate was
unfortunate, especially after being questioned by Staff and providing reassurance that the
substantially lower overhead rates were, in fact, correct. Staff understands that the new, higher
revised rates may cause confusion and frustration with developers and customers who may have
done business under the rates that have been in effect since March. Nevertheless, the new
proposed rates appear to be correct, and Staff believes Avista should be permitted to charge
them.
Staff recommends approval of the revised tariff with an effective date of July 25 2005.
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DECISION MEMORANDUM - 2 -JUL Y 6, 2005