Spokane, WA-based Avista Corp. and all other parties involved in the company’s electric and natural gas rate filing in Idaho have reached a settlement agreement that, if approved by the Idaho Public Utilities Commission (PUC), would result in no net rate increase for natural gas customers and less than 2% for residential electric customers, the company said.

For natural gas service, rates would increase by 2.11%, but would be offset by an equivalent purchased gas adjustment decrease.

The PUC had previously approved a 6.7% drop in retail natural gas rates for Avista’s Idaho customers (see Daily GPI, June 3). That decline was directly related to the continued decline in wholesale gas costs. It was the second time in six months the PUC lowered Avista’s retail gas rates; in January gas rates were lowered 4.7%.

Since last fall Avista has been steadily decreasing its retail natural gas rates in its headquarter state of Washington and Idaho (see Daily GPI, Jan. 5). Avista has said in the two states collectively about 75% of the average residential gas utility bill is due to the cost of gas and pipeline transportation. The rest reflects Avista’s fixed cost to provide natural gas service.

The settlement agreement sets Avista’s rate of return on rate base at 8.55%, with a common equity ratio of 50% and a 10.5% return on equity. The new rates would take effect Aug. 1.

Lower natural gas prices were a major driver in the agreement, which includes a lower electric rate increase than Avista originally requested, the company said.

“Natural gas prices have decreased substantially since we filed for rate adjustments this past January,” said Avista Utilities president Dennis Vermillion. “Just as customers have seen a decrease in the cost of natural gas that they use in their homes, we’ve experienced a decrease in the cost of natural gas used to generate electricity.”

The exclusion of costs associated with short term power supply contracts that will be recovered through an existing power cost adjustment (PCA) mechanism also helped hold down rates, Avista said.

Under the terms of the settlement agreement, electric revenues could increase by an overall 5.7%, or $12.5 million. Offsetting the electric increase will be an overall 4.2% decrease in the current PCA surcharge. As a result of the two adjustments, a typical residential customer would see a 1.9% increase in their monthly bill.

Included in the rate proposal are relicensing costs for the company’s Spokane River hydropower projects. If Avista receives approval from the Federal Energy Regulatory Commission (FERC) for the relicensing before July 22, the relicensing costs will be included in the electric rate increase. Avista’s relicensing application is on FERC’s meeting agenda for Thursday (June 18). If Avista does not receive a new FERC license before July 22, the relicensing costs would continue to be deferred with a carrying charge. The resulting increase in revenues would be 4.3%. With the offsetting PCA decrease, a typical residential customer would see a 0.6% increase in their monthly bill.

Last month Fitch Ratings pushed up Avista’s credit rating to the lower rung of its investment grade (from “BB+” to “BBB-“), citing Avista’s “more balanced” regulatory environment, improved financial profile and continued focus on its core utility business (see Daily GPI, May 27). Avista’s credit now is rated as investment grade by the three major rating agencies.

Avista serves 311,000 retail gas utility customers in three western states, with the bulk being in Washington and Idaho; it has 352,000 electricity customers.

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