Idaho Public Utilities Commission

September 2, 2008

Case No. AVU-G-08-03

Contact: Gene Fadness (208) 334-0339, 890-2712

Commission taking comments through Sept. 23 on gas surcharge

The Idaho Public Utilities Commission will take comments through Sept. 23 on Avista Utilities’ request to increase its one-year gas cost surcharge by about 14 percent in order to collect $11.6 million it paid to gas suppliers over the last year. None of the money collected in the surcharge can go to increase company profits, but most go directly to pay off gas supply expenses not covered in existing customer rates.

In 2007, Avista customers got a 4.6 percent decrease as a result of the annual Purchased Gas Cost Adjustment (PGA) and in 2006, customers got a 2 percent decrease. But a wholesale gas market that soared to levels not seen since Hurricanes Rita and Katrina in 2005 resulted in the company under-collecting from customers the amount it owed to gas suppliers. Although natural gas prices decreased about 30 percent in August, prices remain above levels at this time a year ago.

For an average Avista Gas customer who uses about 65 therms per month, the one-year PGA surcharge would increase an average monthly bill from $75.14 to $85.58. The actual increase will vary depending on customer use.

Commission staff will review Avista’s gas purchasing policies to ensure that it found the most reasonably priced gas it could and that it also used other tools such as hedging and storage to protect customers as much as possible from market volatility. Avista purchases natural gas for customers and transports it over pipelines in the Northwest and in Canada.

According to Avista, three major factors contributed to higher than normal prices: 1) an unusually long, cold spring depleted storage reserves nationwide; 2) natural gas imports from Canada to the United States are declining; and 3) international demand has lured liquefied natural gas (LNG) away from the United States, decreasing supply here and putting pressure on natural gas prices.

About 67 percent of Avista’s estimated customer demand for the upcoming year is either pre-purchased or placed in storage. This year, Avista increased its underground Jackson Prairie storage capacity from 11 percent to 21 percent of expected annual demand requirements. Storage allows Avista to purchase lower-cost gas during the spring and summer months and store it for use during the winter heating season when wholesale gas prices are typically highest.

Unfortunately the proposed PGA comes during the same year the company also has a rate case pending before the commission, its first since 2004. A proposed settlement to that case now before the commission would result in a 4.7 percent increase in permanent gas rates. The company is also requesting an Oct. 1 effective date for the rate case.

“For Avista customers, this is one of those years when there is a double whammy of both a permanent rate increase request on top of the annual Purchased Gas Cost Adjustment request,” said commission President Mack Redford. “Idaho, unfortunately, is not immune from the rapid increases we witnessed nationwide over the last year in the wholesale gas markets.” Intermountain Gas, which operates in southern Idaho, has an application before the commission to increase its PGA surcharge by 18 percent.

Unlike a base rate change that permanently adjusts rates until the company files a rate case, Avista’s PGA is adjusted every Oct. 1 and covers only gas supply costs not covered in base rates. During those years when the company over-collects anticipated gas supply expenses, as in 2006 and 2007, customers get a PGA credit. During those years when gas prices are higher than anticipated and the company under-collects from customers, a surcharge is applied.

In the face of ever-increasing expenses from all utilities, the commission continues to encourage customers to participate in energy efficiency programs available through community action agencies and the utilities. Customers can also take advantage of level-pay plans and programs that can assist customers on low- and fixed-incomes. Customers can read details about those plans by clicking on “Consumer Information,” on the top left-hand corner of the PUC Website at www.puc.idaho.gov. Those without Internet access can contact the commission at 1-800-432-0369 to request consumer assistance information.

The commission intends to proceed under a modified procedure that allows this case to be handled through written public comments rather than by public hearing. However, comments may request a public hearing.

Comments are accepted via e-mail by accessing the commission’s homepage at www.puc.idaho.gov and clicking on "Comments & Questions." Fill in the case number (AVU-G-08-03) and enter your comments. Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to (208) 334-3762.

A full text of the commission’s order, along with other documents related to this case, is available on the commission’s Web site. Click on “File Room” and then on “Gas Cases” and scroll down to the above case number.