Idaho Public Utilities Commission

Case AVU-G-10-02, AVU-E-10-03

October 1, 2010

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

Avista PCA, gas efficiency charges increase

The Idaho Public Utilities Commission has approved two increases, one to electric rates and another to natural gas rates for customers of Avista Utilities.

Gas customers will pay an average 2.6 percent more for an increase to the gas energy efficiency rider. For a residential gas customer who uses the utility’s average of 66 therms per month, the increase is about $1.52 per month. Avista did not propose an increase to its existing tariff for energy efficiency programs for its electric customers.

Electric customers will pay an average 2.6 percent more for the company’s yearly Power Cost Adjustment, which tracks the always changing costs of electric power supply. For an electric customer who uses an average of 1,000 kWh per month, the increase is about $1.88 per month.

Neither of the rate adjustments increase or decrease company earnings. All the money collected in the PCA and in the efficiency rider must go directly to those programs.

Natural gas efficiency rider, Case No. AVU-G-10-02

Customer response to more than 30 Avista conservation programs to reduce natural gas consumption has been greater than anticipated, with customers in Idaho and Washington saving 2 million therms as a result of the programs, well above the targeted 1.6 million therms.

When utilities propose increases in efficiency riders, the commission investigates the conservation programs funded by the rider for their cost-effectiveness and approves them only if it has evidence demonstrating that lack of such programs would result in even higher rates for customers.

In its comments, commission staff stated an increase in natural gas rates will not be viewed favorably by many customers, especially given the current economic climate. However, after a review of the programs, staff determined, and the commission agreed, that the total of all customers’ bills will be lower with the programs and the rider in place than without them. For example, the reduction of more than 2 million therms by customers during 2009 prevented Avista from having to buy or store those 2 million therms at greater cost to customers.

Other than voluntary reduction, utility-operated energy efficiency remains the lowest-cost resource for all customers. Even those who do not directly participate in the programs benefit from them because of the lower consumption systemwide. The company’s most recent cost-benefit analysis (2008) indicates the net benefit to customers from the programs was more than $8.9 million.

Avista’s conservation programs consist primarily of providing financial incentive or rebates for cost-effective efficiency measures installed by customers with a simple payback of greater than one year. This includes more than 300 measures packaged into 30-plus programs. Some of the measures include programs for appliances, compressed air and HVAC systems and motors. There are also industrial applications, maintenance strategies and sustainable building measures.

Portions of rider revenue go toward low-income weatherization, direct aid ($465,000) to Idaho electric and natural gas low-income customers and $25,000 to Idaho Community Action Partnership agencies for low-income outreach and conservation education.

The per-therm cost of the rider to residential customers increases from $0.034 cents per therm to $0.057 cents.

On the electric side, Avista is not proposing an increase to its energy efficiency rider, even though it anticipates a shortfall of about $600,000 at the close of 2010. Avista’s 2009 energy efficiency savings in electricity in Idaho and Washington was more than 82 million kilowatt hours, or about 9.4 average megawatts. That was 143 percent of the company’s target of 57.2 million kWh. The company claims the net benefit to customers from the electric programs during 2008 was more than $39 million.

Power Cost Adjustment, Case No. AVU-E-10-03

Below-normal hydro generation and costs associated with the Lancaster generating plant resulted in more power supply expense than is already included in base rates resulting in Avista’s one-year 2.6 percent Power Cost Adjustment (PCA) surcharge.

The two major components of Avista customers’ electric bills are the base rate, which covers primarily fixed costs that don’t change from year to year, and the PCA rate. The PCA increases or decreases rates depending on conditions outside the company’s control that can dramatically alter power supply expense. Those conditions include variations in hydroelectric generation caused by lack of stream flows, unanticipated changes in fuel costs and changes in wholesale market prices for energy.

During those years when power supply expenses are less than what is already covered in base rates, customers receive a credit. During years when power supply expenses are greater than included in base rates, customers get a surcharge. Both the surcharge and credit last for 12 months and then a new adjustment will be calculated to adapt to changing conditions and updated projections. The updated PCA is effective Oct. 1 of each year. Unlike a general rate case, a PCA increase does not increase company earnings. The PCA surcharge is collected from ratepayers, kept in a deferred account, and then passed directly to wholesale power and fuel suppliers.

The PCA surcharge effective Oct. 1 increases from 0.34 cents per kWh to 0.53 cents per kWh.