Public Counsel recommends rejection of Avista's requested rate hikes

Experts also say utility’s “decoupling” surcharge program should end

SEATTLE – The Public Counsel Section of the Washington State Attorney General’s Office today challenged electric and gas rate increases proposed by Avista, saying the Spokane-based utility’s request is not justified and that, in fact, the company might be charging its customers too much for service.

Avista’s request, filed with the Utilities and Transportation Commission (UTC) in January 2009 would increase the electric rates of its residential customers by 18.5 percent. Overall, the proposed request would generate an additional $74.7 million in revenues – $69.8 million from electric customers and $4.9 million from gas customers (a 2.4 percent overall increase).

But if the UTC approves all of Public Counsel’s recommendations, Avista’s electric revenues would [CORRECTED]be reduced approximately $12 million below  only increase by $4.3 million above current levels, resulting in lower electric rates. Revenues from gas rates would only rise by approximately $400,000.

Avista serves 230,364 electric customers and 143,673 natural gas customers mostly living in Eastern Washington.

The UTC will examine the testimony and evidence presented by Public Counsel and other parties and issue a decision by the end of the year. Customers can voice their comments during two public hearings Sept. 30 in Spokane or by writing or emailing the UTC. Proceedings to cross-examine expert witnesses are scheduled to begin Oct. 6.

Testimony filed today with the UTC includes analysis on numerous elements of Avista’s proposal and the following recommendations:

1. Trim down expenses.

Public Counsel recommends trimming the revenue request in several major areas, including:

• $10.4 million for shareholder profit margin. This would reduce the company’s current shareholder profit margin.
• $300,000 less for executive compensation.
• $893,000 less for expenses related to the Board of Directors.
• [CORRECTED]$30.4 million $19.6 million  less for power-cost recovery. Costs have declined significantly since the case was filed in January.
• $3 million less for expenses of an Asset Management Program

With these and other items, Public Counsel’s accounting expert concluded that Avista should be allowed an increase to electric rates of roughly [CORRECTED]$6million $16 million, at most, before taking into account the Lancaster contract issue (discussed below).

2. Lancaster contracts shouldn’t be factored in rate request.

Avista is seeking approval for contracts to purchase some of its electricity from a Lancaster, Idaho, power plant. The transaction would transfer contract obligations from Avista Corporations’ unregulated side to the regulated utility and its customers.  When calculating its revenue request, the company factored in the cost of that power purchase agreement.

Public Counsel’s expert witness concluded that Avista had not shown a need for the power in the near term. Moreover, the contracts are of questionable value to consumers and Avista failed to follow UTC requirements for prudent acquisition of new power resources. As noted, when Lancaster costs are removed from the electric rate request along with others challenged by Public Counsel, Avista’s electric rates would [CORRECTED]be reduced $12 million below only need to increase $4.3 million above current levels.

“The evidence is clear that Avista’s request is not justified,” said Assistant Attorney General Simon ffitch, chief of the Public Counsel Section. “When the Lancaster contracts are removed from this request, it appears to us that electric customers actually should see [CORRECTED]their rates go down only a minimal increase.”

3.  Eliminate “decoupling.”

Additionally, Public Counsel recommends that the Avista “decoupling” pilot program be discontinued based on the results of an independent evaluation report. Decoupling allows utilities to pass along a surcharge to make up for lost revenue when their customers use less energy due to conservation or for other reasons. The UTC authorized Avista to implement “decoupling” for an initial three year pilot period which ended earlier this year.

An independent evaluation of the pilot showed that Avista lost about only about $250,000 in gas revenue in 2007 and 2008 due to customer participation in the company’s conservation programs. Yet, the company is on course to collect almost $1.5 million through the “decoupling” surcharge for the same time period.  

The mismatch occurs because the decoupling pilot compensates the utility for lower usage from many causes unrelated to company programs. For example, when a customer buys a more efficient appliance on their own, or when a household uses less power due to economic circumstances, Avista is entitled to count the losses towards its surcharge.

“In other words, Avista customers are rewarded for using less energy  by getting hit with a surcharge  that amounts to over four times Avista’s conservation-related revenue losses,” ffitch said. “That’s actually a disincentive for customers to save energy. ‘Decoupling’ is an experiment that ought to end.”

4. Provide more assistance to low-income residents.

Public Counsel filed joint testimony with The Energy Project, a low income advocacy organization, recommending that a program to assist low-income residents be maintained to keep pace with any rate increases. They noted that existing program funding falls far short of reaching all eligible consumers.

PUBLIC COMMENTS

The public can comment in person at two hearings on Wednesday, Sept. 30, in the Spokane area:

• 12:30 p.m. to 2:30 p.m., at the Spokane Valley Council Chambers, Redwood Plaza, 11707 East Sprague Ave.
• 5:30 p.m. to 7:30 p.m., at the City of Spokane Council Chambers, lower level of City Hall, 808 W. Spokane Falls Blvd.

Written comments should be sent to UTC, P.O. Box 47250, Olympia, WA, 98504 or e-mail to comments@utc.wa.gov. Include your name and mailing address, the name of the company (Avista), and docket no. UE-090134 (electric)/UG-090135 (gas). Customers may also comment to the UTC by phone at (888) 333-9882.

The Public Counsel Section advocates for the interests of consumers on major rate cases, mergers and other rulemakings before the UTC. Public Counsel also advocates for consumers in court appeals, through technical study groups and before the Legislature and other policy makers. The office maintains contact with the public through a citizen advisory committee, community organizations, public hearings and personal contact with consumers in major cases. More information about Public Counsel’s work is available online at/utilities.aspx.

Media Contacts:
Kristin Alexander, AGO Media Relations Manager - Seattle, (206) 464-6432, kalexander@atg.wa.gov
Simon ffitch, Public Counsel Section Chief, (206) 389-2055
Chuck Eberdt, The Energy Project, (360) 255-2169

Editor’s Note: The spelling of Simon ffitch is correct. The surname begins with two lowercase f’s.