Ratepayer Victories Emerge from Avista Rate Case Preliminary Order

Back in November 2015, we reported on concerns CUB had in response to Avista’s request for a rate increase from residential and small business customers. Specifically, the company wanted to raise residential rates by 8.9% while simultaneously reducing rates by 7% for large industrial customers. CUB had a few different objectives going into this proceeding, but biggest issue was to fight this unfair rate spread, which we did not feel was justified in the evidence provided by Avista.

The Public Utility Commission (PUC) released a preliminary order on the rate case at the end of February. Though the verdict was a mixed bag, we consider this to be a victory because our top priority was met: the Commission rejected the idea of giving big rate decreases to industrial customers while simultaneously increasing the rates of residential and small business customers. Here is a breakdown of our wins and losses:

The Good News:

Rate Spread

Avista is getting most of their system growth from new and expanding industrial customers, and some of the company’s cost increases are attributable to infrastructure improvements that were made specifically for industrial customers. So when the company proposed to lower industrial customer rates while increasing residential ones, CUB’s red flags went up. To justify its proposal, the company quoted an incremental cost study which was based on what it would cost to build an entirely new distribution system for natural gas. The problem with this study was that it didn’t account for all the energy savings that have been acquired through improvements in household technologies. Residential customers are using less energy today than Avista’s distribution system was built to accommodate, therefore it doesn’t make sense to increase their rates for service. Additionally, Avista could not prove that its other infrastructure improvements (the ones not specifically serving industrial users) are of more benefit to residential customers than any other customer class.

This issue was a top priority for CUB in part because the PUC expressed disinclination last year to allow rate decreases for some customers when overall rates were increasing. Additionally, we were the only intervenor that took issue with this part of Avista’s proposal. We are pleased to report that the Commission agreed with our arguments, and has ordered an overall increase of 4.9% instead of 8.9%. Residential customers will see an increase of 5.2% and small business rates will go up by 5.8%.

Pension Returns

Avista lowered its expected return on its pension investment from 6.6% to 5.3%, and in turn proposed an increase in rates to reflect the increased pension expense. CUB recommended keeping the pension return at 6.6%, and the Commission agreed with our recommendation. The expertise we gained in 2012-2015 by working on the pensions docket, which we won in August of last year, was instrumental in allowing us to argue effectively against increasing Avista’s pension return from residential customers.

Return on Equity

Avista recommended a Return On Equity (ROE) of 9.9%. CUB argued jointly with the Northwest Industrial Gas Users (NWIGU) to set the ROE at 9.35%. The Commission decided on an ROE of 9.4%.

The Bad News:

Capital Structure

CUB and NWIGU asked for a change in capital structure, to add a bit more debt and a little bit less equity. Our reasoning for this request lies in the fact that the price of money is at a historic low, which should prompt an adjustment to the debt/equity ratio. Unfortunately the Commission did not agree with our arguments on this issue, but CUB will likely continue to pursue it because the changing economics warrant reevaluation of how the value of equity is determined.

Prudence of Capital Investments

CUB argued that two capital investments made by Avista were not prudent. The PUC said that they shared our concern but that Avista had met its burden of proof for prudency. This was a disappointing outcome, but prudence disallowances are one of the most difficult arguments to win in the sphere of utility regulation.

Overall, CUB is pleased with our results from this case. We will find out more about the Commission’s reasoning for their decisions in this case when the final order is issued in the next few weeks, so watch for more info soon.

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