SPOKANE, Wash., Aug. 25 // -- Avista (NYSE: AVA) and all other parties in the company's electric and natural gas rate case filings have reached a settlement agreement that, if approved by the Washington Utilities and Transportation Commission (WUTC), would resolve all issues in the cases and result in an overall electric increase of 7.2 percent in billed rates and a natural gas increase of 3.2 percent in billed rates. New rates would become effective Dec. 1, 2010. Under the terms of the settlement agreement, annual electric revenues would increase by $29.5 million and natural gas annual revenues by $4.6 million.
If the agreement is approved by the WUTC, a residential customer in Washington using an average of 1,000 kilowatt-hours of electricity per month would see a $5.62 per month increase, or 7.8 percent, for a revised monthly bill of $77.41. A residential customer using an average of 69 therms of natural gas per month would see a $2.17 per month increase, or 3.6 percent, for a revised monthly bill of $62.20.
In addition to Avista, the parties to the settlement are the staff of the WUTC, the Public Counsel Section of the Washington Office of the Attorney General, Northwest Industrial Gas Users, Industrial Customers of Northwest Utilities and The Energy Project. The WUTC is not bound by the settlement.
"We believe the settlement agreement represents a fair and reasonable outcome for our customers and for our shareholders," said Dennis Vermillion, Avista Corp. senior vice president and president of Avista Utilities. "The agreement is the result of concessions and compromises on a number of issues to arrive at an outcome that is supported by all parties in the rate filings. It also represents continuing progress in our efforts to timely recover the costs of serving our customers."
Avista's original request filed with the WUTC in March 2010 was for an electric rate increase of 13.4 percent, or $55.3 million in increased annual electric revenues. The difference between the original request and the amount in the settlement agreement is due partly to an $11.7 million decrease in power supply costs, caused primarily by the decline in natural gas fuel prices since Avista's original filing in March.
The settlement is based on an overall rate of return of 7.91 percent with a common equity ratio of 46.5 percent and a 10.2 percent return on equity. Avista's original request was based on an overall rate of return of 8.33 percent with a common equity ratio of 48.4 percent and a 10.9 percent return on equity. These changes reduced the electric revenue requirement by $7.3 million and the natural gas revenue requirement by $1.3 million.
Avista had requested to increase natural gas rates by an average of 6.0 percent, or $8.5 million in additional annual revenue. The decline from the original request to the amount in the settlement agreement is also due in part to additional Jackson Prairie (JP) natural gas storage that will be used in Avista's utility operations beginning May 1, 2011. The actual revenue requirement associated with the new JP natural gas storage inventory would be deferred and recovered through the annual purchased gas adjustment mechanism until the costs are reflected in the next general rate case. This provision reduced Avista's base rate revenue requirement by approximately $1.2 million.
As part of the settlement agreement, Avista would not file a general rate case in Washington before April 1, 2011.
Recognizing the impact of rising prices on customers, especially limited income and senior customers, funding under this settlement for Avista's Low Income Rate Assistance Program (LIRAP) would also be increased by the same percentage as the overall rate increase approved in this case. Total electric LIRAP bill assistance funding would increase to approximately $3.3 million and natural gas funding would increase to $1.7 million. Also, annual funding for low-income energy efficiency programs would increase from $1.5 million to $2.0 million.
Lancaster Plant Cost Deferrals
The parties have agreed that recovery of the deferred net costs associated with the power purchase agreement for the Lancaster Plant for 2010 would be limited to $6.8 million. Avista expects the 2010 net costs to be approximately $12 million. The net deferred costs of $6.8 million would be recovered over a five-year amortization period with a rate of return on the unamortized balance. For the six months ended June 30, 2010, Avista had deferred $7.6 million of net costs associated with the Lancaster Plant. The parties agreed that the costs for Lancaster for 2011 and going forward are reasonable and should be recovered in rates.
2010 Energy Recovery Mechanism
As part of the settlement related to the 2010 Lancaster Plant deferrals, the parties have agreed that there would be no deferrals under the Energy Recovery Mechanism (ERM) for 2010 in either the surcharge or rebate direction. Avista Corp. would assume the risk on all costs and benefits in ERM-related power supply costs for 2010.
Avista absorbed $2.8 million of costs under the ERM (within the dead-band) for the six-months ended June 30, 2010, as actual net power supply costs exceeded the amount included in base retail rates. However, by the end of 2010 Avista expects to be in a benefit position under the ERM and into the customer/company sharing bands in the rebate direction, due primarily to lower wholesale electric and natural gas fuel prices than the amount included in retail rates.
Avista estimates ERM deferrals in the rebate direction that would be available to the company to offset all or a portion of the Lancaster deferrals absorbed by the company, to be in the range of $0 to $5 million. The opportunity to be in the upper part of the range will be dependent upon normal hydro-electric generation for the balance of the year, thermal generating plants operating reliably, and a continuation of relatively stable wholesale electric and natural gas prices, among other factors. In addition, the $0.5 million carry-over balance in the ERM from prior periods in the rebate direction would be recorded as a benefit to the company, such that the total ERM balance at Dec. 31, 2010, would be zero.
The ERM is an accounting mechanism that captures the difference between Avista's actual cost of generating and purchasing power each month, and the cost currently included in customer rates. Refer to Avista Corp.'s Annual Report on Form 10-K for the year ended Dec. 31, 2009, and Quarterly Report on Form 10-Q for the period ended June 30, 2010, for further details with respect to the ERM.
Avista offers a variety of energy efficiency programs for residential, limited income, commercial and industrial customers. In addition to helping customers manage their energy use, the programs also help reduce the amount of future, more costly energy resources needed to meet customer demand.
In addition to support for energy assistance programs, Avista also offers services for customers such as comfort level billing, payment arrangements and Customer Assistance Referral and Evaluation Services (CARES), which provide assistance to special-needs customers through referrals to area agencies and churches for help with housing, utilities, medical assistance and other needs.
For more information about the rate process, visit www.avistautilities.com.
Avista Corp. is an energy company involved in the production, transmission and distribution of energy as well as other energy-related businesses. Avista Utilities is our operating division that provides electric service to 355,000 customers and natural gas to 315,000 customers. Our service territory covers 30,000 square miles in eastern Washington, northern Idaho and parts of southern and eastern Oregon, with a population of 1.5 million. Avista's primary, non-regulated subsidiary is Advantage IQ. Our stock is traded under the ticker symbol "AVA." For more information about Avista, please visit www.avistacorp.com.
Avista Corp. and the Avista Corp. logo are trademarks of Avista Corporation.
This news release contains forward-looking statements, including statements regarding our current expectations for future financial performance and cash flows, capital expenditures, financing plans, our current plans or objectives for future operations and other factors, which may affect the company in the future. Such statements are subject to a variety of risks, uncertainties and other factors, most of which are beyond our control and many of which could have significant impact on our operations, results of operations, financial condition or cash flows and could cause actual results to differ materially from those anticipated in such statements.
The following are among the important factors that could cause actual results to differ materially from the forward-looking statements: weather conditions (temperatures and precipitation levels) and their effects on energy demand and electric generation, including the effect of precipitation and temperatures on the availability of hydroelectric resources, the effect of temperatures on customer demand, and similar impacts on supply and demand in the wholesale energy markets; the effect of state and federal regulatory decisions on our ability to recover costs and earn a reasonable return including, but not limited to, the disallowance of costs and investments, and delay in the recovery of capital investments and operating costs; changes in wholesale energy prices that can affect, among other things, the cash requirements to purchase electricity and natural gas, the value received for sales in the wholesale energy market, the necessity to request changes in rates that are subject to regulatory approval, collateral required of us by counterparties on wholesale energy transactions and credit risk to us from such transactions, and the market value of derivative assets and liabilities; global financial and economic conditions (including the impact on capital markets) and their effect on our ability to obtain funding at a reasonable cost; our ability to obtain financing through the issuance of debt and/or equity securities, which can be affected by various factors including our credit ratings, interest rates and other capital market conditions; economic conditions in our service areas, including the effect on the demand for, and customers' payment for, our utility services; the potential effects of legislation or administrative rulemaking, including the possible adoption of national or state laws requiring resources to meet certain standards and placing restrictions on greenhouse gas emissions to mitigate concerns over global climate changes; changes in actuarial assumptions, interest rates and the actual return on plan assets for our pension plan, which can affect future funding obligations, pension expense and pension plan liabilities; volatility and illiquidity in wholesale energy markets, including the availability of willing buyers and sellers, and prices of purchased energy and demand for energy sales; unplanned outages at any of our generating facilities or the inability of facilities to operate as intended; the outcome of pending regulatory and legal proceedings arising out of the "western energy crisis" of 2000 and 2001, and including possible refunds; the outcome of legal proceedings and other contingencies; changes in, and compliance with, environmental and endangered species laws, regulations, decisions and policies, including present and potential environmental remediation costs; wholesale and retail competition including, but not limited to, alternative energy sources, suppliers and delivery arrangements; the ability to comply with the terms of the licenses for our hydroelectric generating facilities at cost-effective levels; natural disasters that can disrupt energy generation, transmission and distribution, as well as the availability and costs of materials, equipment, supplies and support services; blackouts or disruptions of interconnected transmission systems; disruption to information systems, automated controls and other technologies that we rely on for operations, communications and customer service; the potential for terrorist attacks or other malicious acts, particularly with respect to our utility assets; delays or changes in construction costs, and our ability to obtain required permits and materials for present or prospective facilities; changes in the long-term climate of the Pacific Northwest, which can affect, among other things, customer demand patterns and the volume and timing of streamflows to our hydroelectric resources; changes in industrial, commercial and residential growth and demographic patterns in our service territory or the loss of significant customers; the loss of key suppliers for materials or services; default or nonperformance on the part of any parties from which we purchase and/or sell capacity or energy; deterioration in the creditworthiness of our customers and counterparties; the effect of any potential decline in our credit ratings, including impeded access to capital markets, higher interest costs, and certain covenants with ratings triggers in our financing arrangements and wholesale energy contracts; increasing health care costs and the resulting effect on health insurance provided to our employees and retirees; increasing costs of insurance, more restricted coverage terms and our ability to obtain insurance; work force issues, including changes in collective bargaining unit agreements, strikes, work stoppages or the loss of key executives, availability of workers in a variety of skill areas, and our ability to recruit and retain employees; the potential effects of negative publicity regarding business practices, whether true or not, which could result in, among other things, costly litigation and a decline in our common stock price; changes in technologies, possibly making some of the current technology obsolete; changes in tax rates and/or policies; and changes in our strategic business plans, which may be affected by any or all of the foregoing, including the entry into new businesses and/or the exit from existing businesses.
For a further discussion of these factors and other important factors, please refer to our Annual Report on Form 10-K for the year ended Dec. 31, 2009 and Quarterly Report on Form 10-Q for the quarter ended June 30, 2010. The forward-looking statements contained in this news release speak only as of the date hereof. We undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances that occur after the date on which such statement is made or to reflect the occurrence of unanticipated events. New factors emerge from time to time, and it is not possible for management to predict all of such factors, nor can it assess the impact of each such factor on our business or the extent to which any such factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statement.
SOURCE Avista Corp.
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