Idaho Public Utilities Commission

Case No. AVU-E-09-01, AVU-G-09-01

February 12, 2009

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

Commission begins processing Avista rate case

The Idaho Public Utilities Commission suspended for up to seven months an application by Avista Utilities to raise electric rates by an average 7.8 percent and natural gas rates by 3 percent.

Avista, which serves 121,000 electric customers and 93,000 gas customers in north-central and northern Idaho, asked for an effective date of Feb. 23. The up-to-seven month suspension will allow the commission’s staff of auditors, engineers and attorneys to thoroughly investigate Avista’s request.

The commission also set a Feb. 25 deadline for parties who want to intervene in the case for the purpose of presenting evidence, cross-examining witnesses and participating in settlement conferences. Customers who want to provide written comment and participate in future workshops or hearings do not need to file petitions to intervene. The commission will announce comment periods and dates for public workshops and hearings in the near future.

Avista is seeking an increase of $31.2 million in its annual electric revenue and $2.7 million in annual gas revenue. The company claims that customer growth, along with aging generation plants, power lines and poles and substations, requires the utility to invest about $200 million per year in upgrades.

Avista is seeking an average rate of return on rate base of 8.8 percent and an 11 percent return on equity.

State statutes require that regulated utilities be allowed to recover their prudently incurred costs of doing business plus a rate of return that it is not unreasonably high, but high enough to attract Wall Street investment in generation, distribution and transmission projects. When the commission denies cost recovery to a utility it must be able to legally demonstrate why the denied costs were not prudently incurred or needed to serve customers. Utilities, as well as other parties in the case, can appeal commission decisions to the state Supreme Court.

Avista’s requested base rate increase for electric rates is actually 12.8 percent, but the utility is proposing to reduce its annual Power Cost Adjustment by $12.3 million, or 5 percent, which results in a proposed net increase of 7.8 percent for electric customers. However, it is important for customers to know that the proposed PCA decrease is for only one year. The PCA changes ever year depending on water and market conditions. The PCA covers the utility’s variable power supply expenses not already included in base rates. During years when water levels are above normal and market prices are normal or below-normal, the PCA can result in a credit to customers. If the utility must buy more power than usual because of low-water conditions or market prices are above normal, the PCA can result in a surcharge.

The PCA does not affect company earnings. All the money raised by the PCA is kept in a deferred account which is then used to pay extraordinary power supply expenses. When the company has above-normal power supply expenses, shareholders must bear 10 percent of the cost while ratepayers pay 90 percent. In this case, Avista is proposing that sharing mechanism be changed to require shareholders to pay 5 percent, while customers pay 95 percent. Conversely, when there is a PCA credit, shareholders get 10 percent and customers get 90 percent of the credit. Avista is proposing to give customers 95 percent of the credit during years when the PCA deferral account has a surplus, while shareholders pay 5 percent.

If Avista were to get the entire 7.8 percent increase, an average customer’s electric bill would increase by about $6.71. This includes a company proposal to increase its monthly service charge from $4.60 to $5.

On the gas side, an average residential customer who uses 66 therms per month would see an increase of about $2.56 per month, including a proposed increase in the customer service charge from $4 per month to $4.25.

Driving the natural gas rate request are increased operating costs and increased capital investment. A major portion of costs for gas supply, which have dropped in recent months, are not included in the base rate case, but are included in the annual Purchase Gas Cost Adjustment (PGA) mechanism. On Jan. 6, customers got an average 4.7 percent decrease in the PGA to account for declining wholesale market prices for gas.

Customers can read more about this case, including testimony from company officials, on the commission’s Web site at www.puc.idaho.gov. Click on “File Room” and then on “Electric Cases” and scroll down to Case No. AVU-E-09-01. For the gas case, select “Gas Cases” and scroll down to Case No. AVU-G-09-01.