Avista has received approval from the Washington Utilities and Transportation Commission (WUTC) to implement a natural gas revenue decoupling mechanism. The Spokane, WA-based utility said the new rate mechanism will allow it to increase promotion of energy efficiency programs and services to its 140,000 Washington natural gas customers.
The decoupling mechanism is being introduced as a three-year pilot that will allow Avista to separate in the rate structure its fixed costs from the costs of purchasing natural gas to serve customers and to recover a portion of its fixed costs not recovered because of reduced energy usage by customers. Fixed costs are primarily the expenses incurred in owning and maintaining the underground gas delivery system.
"In 2006, our Washington customers saved more than 660,000 therms of natural gas, and we provided about $1.6 million in energy efficiency incentives through our program offerings to residential, commercial, industrial and limited income customers," said Bruce Folsom, Avista senior manager of demand side management. "With the decoupling mechanism in place, we will be able to look for new opportunities to help our customers more efficiently manage their natural gas use and save money on their energy bills."
Similar rate designs have been adopted by utilities and regulators across the country to spur utility-financed conservation programs and to preserve utility revenues in an era of declining distribution system throughputs (see Daily GPI, June 14, 2006).
Under the decoupling mechanism, annual fixed cost rate adjustments will be capped at no more than 2% each year and will be tied directly to the amount of natural gas savings from Avista's energy efficiency programs during the preceding year. The first rate adjustment will be filed this fall in conjunction with Avista's annual purchase gas cost adjustment (PGA).
About 80% of a residential customer's monthly bill is the cost of natural gas, with the remaining 20% made up of Avista's fixed cost to provide gas service. Avista does not mark up the cost of natural gas purchased to serve its customers, but through the purchase gas cost adjustment (PGA) mechanism the company annually adjusts its prices -- up or down -- to reflect the actual cost of serving customers.
Prior to the WUTC approval of the decoupling mechanism, Avista's ability to recover the majority of its fixed operational costs was tied to gas sales volume. When the majority of fixed costs are recovered through sales volumes and those sales volumes are lower than expected, the recovery of fixed costs falls short of the level needed to support distribution system operations.
Rate decoupling was recently rejected by regulators in Iowa (see Daily GPI, Dec. 21, 2006). Washington Gas Light Co. is seeking rate decoupling and performance-based rates from Washington, DC, regulators (see Daily GPI, Dec. 22, 2006). In October, the New Jersey Board of Public Utilities approved a three-year rate-decoupling pilot (see Daily GPI, Oct. 13, 2006).
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