Idaho Public Utilities Commission

Case Nos. AVU-E-11-01 and AVU-G-11-01, Order No. 32292

July 22, 2011

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

PUC begins investigation of Avista electric, gas rate requests

The Idaho Public Utilities Commission has initiated a six-month investigation of an application by Avista Utilities to increase rates of its Idaho electric customers by an average 3.7 percent and its natural gas customers an average 2.7 percent. Avista serves about 122,500 electric customers and 74,200 natural gas customers in northern Idaho.

Avista applied for the rate increase on July 5. The commission suspended the requested effective date of August 5 for up to six months to allow time for the commission’s staff of auditors, engineers and attorneys to thoroughly review the company’s application. It also set a deadline of July 28 for parties who want to intervene in the case to present evidence, cross-examine witnesses and participate in settlement discussions. Customer comment deadlines, workshops and hearings will be announced at a later date. To date, parties that have intervened in the case include Clearwater Paper, the Idaho Conservation League and the Community Action Partnership Association of Idaho, which represents primarily customers on low- and fixed-incomes.

Despite requests from customers to reject the application, state law prohibits the commission from arbitrarily refusing to consider utility rate increase requests without first examining the evidence. State statutes require that rate requests be considered to determine whether the expenses the utility seeks to recover through customer rates were needed to serve customers and if they were prudently incurred. The commission may accept, reject or modify the company’s request. When it denies expense recovery it must be able to legally demonstrate why the expenses were not needed to serve customers or were not prudently incurred. All commission decisions can be appealed to the state Supreme Court by the utility, intervenors or customers.

Avista is seeking a $9 million increase to its annual revenue requirement to operate the electric side of the company and a $1.9 million added revenue requirement on the gas side.

If the request were granted in full, the bill of a customer who uses the company’s average of 956 kilowatt-hours per month would increase from $83.81 per month to $86.87. That includes a proposed 50-cent increase in the customer charge from $5 to $5.50 per month. The bill of a natural gas customer who uses the company average of 62 therms per month would increase from $60.76 to $62.91. That includes a proposed 50-cent increase in the customer service charge from $4 to $4.50 per month.

Avista is asking the commission to approve an overall rate of return of 8.49 percent and a return on equity of 10.9 percent.

Customers should be aware that their electric rates will increase by about 3.9 percent and gas rates by 0.72 percent on Oct. 1 of this year, in what will be the second-year payment on a settlement to Avista’s 2010 general rate case that increased electric rates 9.25 percent overall and gas rates 1.9 percent. That increase was spread over three years to mitigate its impact on customers.

About 90 percent of Avista’s requested electric increase is due to net plant investment, according to the company’s application. Capital expenditures of about $482 million are planned for 2011-12 to account for customer growth and investment in generation upgrades and distribution and transmission facilities. Avista has upgraded or plans to upgrade four of the five generation units at the Noxon Rapids hydroelectric facility by May 2012. Capital additions are also planned at the Kettle Falls biomass plant, the Colstrip coal plant and the Coyote Springs II natural gas plant.

On the gas side, the proposed increase is not related to changes in natural gas prices, which are accounted for in the annual Purchased Gas Cost Adjustment (PGA), but to fixed costs of providing natural gas such as operations and maintenance and plant investment.

Avista CEO Scott Morris said the utility has a legal obligation to provide safe and reliable service to every customer who requests electric or natural gas service. “When new customers want service, we must hook them up, even if the cost to serve those customers results in increased costs to all other customers,” Morris said in written testimony provided to the commission.

Morris said the company occasionally receives comments from customers that Avista “tighten its belt,” like other businesses. Morris claims that Avista is not like any other business because of its legal obligation to serve. “Without the obligation to serve, we could consider refusing to hook-up some new customs ... we could consider no longer serving some of the more remote, most costly areas to provide service ...,” he said. “Unregulated businesses have the opportunity to shut down aging facilities or under-producing retail outlets, eliminate product lines and cut back on investment and maintenance. We do not.”

Morris’ testimony, along with that from other company officials, can be accessed on the commission’s Web site. As the case progresses, testimony from commission staff and intervenors and customer comments will be added. The Web site is www.puc.idaho.gov. Click on the electric icon, then on “Open Electric Cases,” and scroll down to Case No. AVU-E-11-01. For the gas case, click on the gas icon, then on “Open Gas Cases,” and scroll down to Case No. AVU-G-11-01.