Case No. AVU-G-05-2, Order No. 29902

October 27, 2005

Contact: Gene Fadness (208) 334-0339 office; (208) 841-1107 cell




Increase will allow Avista to pay gas supply expenses


The rapidly increasing cost of natural gas on the wholesale market left state regulators with little choice but to approve Avista Utilities’ application for an increase of an average 23.8 percent to cover the costs the company incurs buying gas for its 66,000 north Idaho customers.


“Unfortunately, the Idaho Public Utilities Commission has no authority over the wholesale price of natural gas, as it is an unregulated commodity subject to regular market forces,” the commission said in today’s order. “A public utility such as Avista is obligated to serve all those in its territory who demand service. It cannot, like a non-regulated business, cut back on purchases when the price is too high,” the commission said. “As a result, the law requires that the company be allowed to recover costs that are prudently incurred in serving its customers.”


 The increase, which becomes effective Nov. 1, does not increase company earnings. The revenue raised from the surcharge – $15.2 million – is placed in a deferred account and can be used only to pay gas supply, transportation and storage expenses.


“Given the specific customer concerns, we wish to make clear that no portion of this increase is to pay executive officers of Avista; to pay debt arising from poor investments or imprudent purchases or to pay advertising costs or the sponsorship of sports teams/arenas. The rate increase in this case is solely related to the recovery of costs from the increased price of natural gas,” the commission said.


State law requires that regulated utilities be allowed to recover from customers all prudently incurred expense. The commission uses a yearly mechanism, called the Purchased Gas Cost Adjustment (PGA) that allows the company to adjust rates to reflect changes in the costs for purchases of gas from the wholesale market.


With the increase, the bill of an average residential and small-business customer who uses 70 therms a month will increase about $16.36 per month, from about $70 to $86.36.


The commission noted the financial hardship increases of this size place on customers, but indicated the PGA is a temporary surcharge that tracks wholesale gas prices and not a permanent base rate increase. The PGA applications “are generally external costs over which the company has little or no control,” the commission said. The commission did order the company to file for another rate adjustment if forward commodity prices decrease by 5 percent or more from the forward prices approved in this order.


Before the wholesale gas market became so volatile the annual PGA adjustment was not significant and, during some years, customers got decreases. That has not been true in recent years with the rapidly increasing cost of natural gas. In the past year, natural gas prices have more closely followed the price of crude oil and both are at historically high levels. In 2004, the company received a 14.2 percent increase in its PGA. In 2003, the PGA was increased 2.5 percent, but in 2002 customers got a 15.6 percent decrease.


The commission asked the company to provide better written documentation of its gas purchasing decisions. The commission said it was satisfied, based upon commission staff’s review, that the company has taken the first steps in providing for “disciplined purchases and hedges without speculation or causing undue risk to customers.” However, the company was directed to work with staff to formalize a risk management strategy. “At a minimum, the company must enhance the documentation of its gas hedging and large gas purchases to facilitate the commission’s review of those purchases for reasonableness and prudence.”


In filed comments, the commission staff commended Avista for its increased contributions to programs that provide financial assistance to customers on low and fixed incomes. In the past five years, Avista shareholders donated $565,000 to Project Share, a program to provide energy assistance to qualifying customers, and increased its funding for weatherization programs for low-income customers from $108,000 per year to $350,000 per year.


A full text of the commission’s order, along with other documents related to this case, are available on the commission’s Web site at Click on “File Room” and then on “Gas Cases” and scroll down to Case No. AVU-G-05-02.


Interested parties may petition the commission for reconsideration by no later than Nov. 17. 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.