Idaho Public Utilities Commission

Case Nos. AVU-E-10-01 and AVU-G-10-01, Order No. 31038

April 14, 2010

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

Commission begins processing Avista rate case

The Idaho Public Utilities Commission has suspended for up to six months a request by Avista Utilities to increase its electric rates by 14 percent and natural gas rates by 3.6 percent. The company seeks to increase its annual revenue by $32.1 million and is asking for an overall rate of return of 8.55 percent and a return on equity of 10.9 percent.

The suspension is routine procedure for the commission in major rate cases to allow the commission’s staff of auditors, engineers and attorneys time to thoroughly investigate Avista’s application.

If the increases were granted in full, the bill of an average residential electric customer (964 kilowatt-hours per month) would increase by $11.40. The gas increase would be about $2.77 per month for a residential customer who uses 63 therms per month.

State law requires that regulated utilities be allowed to recover their prudently incurred expenses and earn a reasonable rate of return, which is also established by the commission. When the commission denies recovery of some or all expenses, it must be able to legally demonstrate why the expense was not needed to serve customers or was not prudently incurred. Commission rulings can be appealed to the state Supreme Court by either the utility or customer groups.

Organizations representing customer groups have until April 23 to file for intervention status in the case. Those granted intervention may present evidence, cross-examine witnesses and participate in settlement conferences. Organizations that have filed to intervene thus far include Idaho Forest Products, Clearwater Paper Company and the Idaho Community Action Network, the latter representing low-income customers. Avista customers not representing customer groups will also be able to participate in the case by filing written comments and attending public workshops and testifying at formal hearings to be announced at a later date.

Avista claims the increases are necessary because of escalating power supply costs, increased costs to meet new federal requirements that ensure reliability, and the need to replace aging infrastructure.

Power supply contracts that provide Avista customers with about 100 average megawatts, about 10 percent of the company’s entire retail load, expire at the end of this year. The power provided by these contracts is about 3 cents per kilowatt-hour, which is well below the cost to replace that power, according to Avista president and CEO Scott Morris. Avista’s average cost of resources is now about 4.3 cents per kWh. The additional cost to replace the expiring contacts will be about $10 million, according to Avista.

Also included in this case are about $21 million in costs related to a power purchase agreement with the owners of the Lancaster natural gas generating station near Rathdrum. About 80 percent of Avista’s requested increase is attributable to the Lancaster agreement, termination of the low-cost power contracts and increased customer load.

Replacing aging infrastructure has also resulted in increased costs to the company, Morris said. For example, the cost of a transformer that steps down voltage to residential customers has increased to more than $1,400 per transformer. Six years ago the cost was about $750 per transformer. A transformer is needed to serve every three to four residential or small-business customers. About 12 percent of the requested increase is attributable to upgrades of existing infrastructure.

Avista’s last rate case, filed in early 2009, resulted in an average 5.7 percent base rate increase to customers last July after the company requested 12.8 percent in January. However, customers ended up paying 1.5 percent more, after a 4.2 percent reduction in the annual Power Cost Adjustment (PCA) was applied against the base rate increase.

Base gas rates increased by 2.1 percent last year. However, the base rate increase was more than offset by three reductions in the Purchase Gas Cost Adjustment (PGA) portion of customer bills due to the declining prices of natural gas on the wholesale market. Those reductions were 4.7 percent in January, 6.7 percent in June and 22 percent in November. With the PGA reductions, the average residential natural gas bill is now $61.82 per month compared to $83.94 per month at the beginning of 2009.

Avista customers may track the progress of the case on the commission’s Web site at www.puc.idaho.gov. Click on the electric icon, then on “Open Electric Cases” or “Open Gas Cases,” and scroll down to Case Numbers AVU-E-10-01 or AVU-G-10-01. Avista’s application and testimony from its officers is now on the site. As the case progresses, more testimony, including that from other parties in the case and commission staff, will be added.

Customers can file written comments via e-mail by accessing the commission’s Web site and clicking on "Comments & Questions." Fill in the case number above and enter comments. Comments can also be mailed to P.O. Box 83720, Boise, ID 83720-0074 or faxed to (208) 334-3762.