Idaho Public Utilities Commission

Case Nos. AVU-E-10-01, AVU-G-10-01

September 21, 2010

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

Commission adopts settlement of Avista rate case

The Idaho Public Utilities Commission has adopted a settlement to the Avista Utilities electric and gas rate cases that increases electric rates an average 9.25 percent over three years and gas rates an average 2.6 percent over two years. The first year electric increase is 3.59 percent and the first year gas increase is 1.9 percent, both effective Oct. 1.

The commission said the settlement “represents a reasonable compromise to the positions and we find it in the public interest.”

“In particular, we note the Stipulation and Settlement represents a significant reduction in the request revenue increase. More specifically, the first year increase in electric rates contained in the Stipulation and Settlement is 3.59 percent rather than the 14 percent originally proposed by Avista,” the commission said.

The commission said it recognized “that initial disputes among the parties were numerous and significant. This case has generated many customer comments opposed to the rate increases originally requested by the company.”

Avista originally requested a $32.1 million increase in annual electric revenue and a $2.6 million increase in annual gas revenue. The settlement approved by the commission gives the company $21.2 million spread over three years in electric revenue and $1.85 million spread over two years in gas revenue. Helping to offset the increase was a $17.5 million deferred state income tax benefit.

The three-year phased rate increase effective dates are as follows:

-- Oct. 1, 2010 -- 3.6 percent electric and 1.9 percent gas.

-- Oct. 1, 2011 – 3.9 percent electric and 0.72 percent gas.

-- Oct. 1, 2012 – 1.74 percent electric and 0 percent gas.

Parties to the case which supported the settlement included Avista, commission staff, Idaho Forest Group, Clearwater Paper Association, the Idaho Conservation League, the Snake River Alliance and the Community Action Partnership Association of Idaho, the latter which represents customers on low- and fixed-incomes. The Idaho Community Action Network did not participate in settlement discussions, but submitted comments opposing any rate increase. North Idaho Energy Logs also intervened in the case but did not file comments.

The rate case settlement is the first of two rate adjustments proposed this year. The second is the company’s annual Power Cost Adjustment, (PCA) which would increase rates for one year an average 2.6 percent. The commission is expected to rule on that request in the next few days.

For a residential customer who uses the average residential consumption of 1,000 kWhs per month, the rate effective Oct. 1 would increase a bill by about $3.50 per month from $80.90 to $84.40. If the one-year PCA is approved, an average residential bill would increase by another $1.88 per month. The customer service charge for electric customers increases from $4.60 to $5 per month. The gas customer service charge of $4 per month does not increase. Avista originally requested an increase to $6.75 per month for both customer service charges.

The adopted settlement ends a case that began last March.

The commission is well aware of the impact of rate increases in today’s economy, particularly on customers with low and fixed incomes. “We do agree with those comments that Avista needs to ‘tighten its belt’ to reduce costs and improve its efficiencies,” the commission said. Avista and other parties in the case need to be “diligent in finding efficiencies or instances where the company’s costs may be unreasonable,” the commission said. The phased-in rate increase and tax credit help mitigate the impact of the increase given the current state of the economy.

“Understandably, most of the customers submitting comments oppose Avista’s initial double-digit rate increase,” the commission said. While the commission does all it can to find expense reductions and other methods to mitigate the impact of rate increases, state law does not allow the commission to outright reject rate increases. State statutes require that all regulated utility rate requests be considered by the commission to determine whether the expenses the utility seeks to recover through customer rates are needed to serve customers and if they are prudently incurred. The commission may deny expense recovery if the utility fails to provide evidence that adequately supports the new expenses as needed to serve customers and prudently incurred. All commission decisions can be appealed to the state Supreme Court by the utility, intervenors or customers.

The settlement increases funding for low-income weatherization from $465,000 to $700,000 per year. The fund will permit more low-income customers and senior citizens to weatherize their homes resulting in lower energy bills. The settlement also provides $40,000 to Community Action Partnership agencies for low-income outreach and education programs about energy conservation. Avista will conduct five energy conservation workshops for senior citizens in five Idaho communities no later than Dec. 31, 2011.

When Avista filed the rate case in March, it said 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. Also included in this case were 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 increase is attributable to the Lancaster agreement, termination of the low-cost power contracts and increased customer load.

A full text of the commission’s order, along with other documents related to this case, is available 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 Number AVU-E-10-01 or AVU-G-10-01.

Interested parties may petition the commission for reconsideration by no later than Oct. 12. Petitions for reconsideration must set forth specifically why the petitioner contends that the order is unreasonable, unlawful or erroneous. Petitions should include a statement of the nature and quantity of evidence the petitioner will offer if reconsideration is granted.

Petitions can be delivered to the commission at 472 W. Washington St. in Boise, mailed to P.O. Box 83720, Boise, ID, 83720-0074, or faxed to 208-334-3762.