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Washington denies Avista's power cost request, says utility may owe customers

Washington utility regulators denied Avista Corp.'s request to recover $15 million in power costs, saying the utility is probably collecting more than its expenditures through another rate charge and may have to provide a rebate instead.

The Washington Utilities and Transportation Commission, or WUTC, on Aug. 10 took the advice of its staff and denied Avista its request for a 2.9% power cost rate increase because the utility is already collecting more than it needs from customers through its Energy Recovery Mechanism, under which the company has accumulated a substantial surplus compared to its variable power costs.

"The cumulative Energy Cost Deferral Balance as of June 30 is $23.5 million in the rebate direction," the WUTC staff said in a memo to the commission. "This exceeds the total incremental amount of the power cost increase the company proposes to collect over the next eight months. Simply stated, even if the alleged increase in net power supply costs materialize, the [Energy Recovery Mechanism] carries a sufficient balance to easily absorb that alleged increase."

Avista expressed disappointment with the decision. "The increased costs included in the [power cost rate adjustment] were known changes in power costs, which have generally been less controversial in prior regulatory proceedings," company President and CEO Scott Morris said in a press release.

The company said it requested the $15 million annual adjustment to begin Sept. 1, with a second increase at the conclusion of a general rate case in late April 2018. Avista said it designed the power cost adjustment as a starting point to get cost recovery back on track for its Washington electric operations.

Avista noted that in December 2016, the commission completely denied its general rate request for a revenue increase in 2017. As a result, the company filed another general rate case in May to ask for a $61.4 million electric rate increase. That rate case is still pending.

"Avista's power supply costs, on a normalized basis, are much higher than those built into base retail rates, and a revenue increase is needed to recover these increased costs on a going-forward basis," Avista said. "These increased costs are included in Avista's pending general rate case in Washington, which is scheduled to be concluded by April 26, 2018."

The general rate case request is a three-year plan with an 8.8% rate increase that would take effect May 1, 2018, a second increase of 2.4% in May 2019 and a third increase of 2.5% in May 2020, Avista said when it announced the general rate request.

Those percentages included when the rate case filing was announced are related to billed revenues, while the 12.5% increase mentioned in Avista's Aug. 11 news release pertains to the proposed base revenue increase, Avista spokeswoman Casey Fielder said in an email. The proposed May 1, 2018, increase was the requested billed revenue increase of $46.4 million had the power cost rate adjustment been approved. Since the adjustment was not approved, the requested billed revenue increase is about 12%, or $61.4 million, equal to a base revenue increase of 12.5%, she said.

The base revenue request includes power supply costs, Fielder said. The company also receives revenue from other tariff changes, which results in a billed revenue increase request, Fielder said.

"The billed revenue amounts and percentages provide a more accurate picture of the revenues that will be billed to customers," she said.

On July 19, Ontario-headquartered transmission and distribution utility Hydro One Ltd. announced it agreed to acquire Avista for $5.3 billion. On an Aug. 2 earnings call, Morris said Avista expects the deal to close in the second half of 2018. That would be after the conclusion of the rate case. In addition to federal agencies, Washington, Idaho, Oregon, Montana and Alaska would have to approve the merger.

The rate case is separate from the proposed acquisition, Fielder said. Once Avista files its request for approval of the acquisition with the Washington commission, the agency will set a procedural schedule in that matter.