Avista seeks rate hikes

TUESDAY, MAY 17, 2011

Average bill would rise $7.13 for electricity, $3.26 for natural gas

Avista Utilities is again asking Washington regulators for permission to raise rates.

The utility’s request, filed Monday, asks for a 9.3 percent jump in electrical service rates and a 5.1 percent hike for natural gas service by next spring.

For the average residential customer, monthly electric bills would go up $7.13 for a total of $84.14. Monthly gas bills would go up $3.26, totaling $66.71.

The request is pending before the Washington Utilities and Transportation Commission, which must make a decision within 11 months.

Avista has been asking for yearly rate increases, with the latest rate hike for Washington customers taking effect Dec. 1. Executives at the 122-year-old utility said the annual rate hikes are needed to pay for $1.2 billion worth of improvements to aging infrastructure over the next five years and to keep up with higher operating costs.

Avista plans to spend $250 million this year to upgrade 40- to 70-year-old power lines, poles, substations and other equipment to ensure reliable service, said Kelly Norwood, an Avista vice president. Upgrades at hydropower dams are also part of expenditures.

“We occasionally receive comments from some of our customers to the effect that Avista should cut its costs and ‘tighten its belt’ like other businesses are having to do in these difficult economic circumstances, and keep retail rates the same,” Scott Morris, Avista’s chairman and chief executive officer, said in written testimony to the commission.

Morris said he’s taken those comments to heart. As part of its cost-cutting, Avista has enacted hiring restrictions, offers a less generous pension plan to new employees and refinanced long-term debt to lower interest payments.

But Morris said the cost savings don’t cover the amount that Avista needs to spend to update its generating and transmission equipment. Some of the work is mandated by national reliability standards.

Avista’s pending request is likely to undergo close scrutiny from regulators.

Last year, the Utilities and Transportation Commission approved a rate increase that was about half of Avista’s original request after the utility reached a settlement for a lower amount. Commission members also chastised the Spokane-based utility after an audit uncovered that Avista had incorrectly billed ratepayers for $38,000 in costs that should have been borne by the company’s shareholders, including professional portraits and first-class travel for the board of directors, charitable contributions and advertising to enhance Avista’s image.

The flagged items were not included in rates. Avista agreed to conduct an internal audit and train employees to reduce errors.

Public hearings on Avista’s current rate proposal will be scheduled later, said Marilyn Meehan, a spokeswoman for the Utilities and Transportation Commission. In the meantime, the commission is accepting written comments on the proposal.

In the most recent request, Avista is seeking $44.5 million in additional revenue, which would include a 10.9 percent return on equity for the shareholders. Return on equity is the amount earned on a common stock investment. Over the past five years, Avista’s return on equity has ranged between 5.6 percent and 8.1 percent.

Morris said Avista isn’t the only utility that’s asked for more frequent rate increases to keep up with costs. Throughout the Northwest, nine public and investor-owned utilities have had new rates approved since the beginning of 2010, he said.

Even with higher rates, Avista customers still aren’t paying the full cost of the capital upgrades, Norwood said. Utility customers pay about $100 million annually for capital upgrades through their bills. The rest of the money comes from borrowing and shareholders through stock offerings.

Avista is also considering asking Idaho regulators for rate hikes.

The utility recently posted robust first quarter earnings of $41.9 million, a 45 percent increase from the first quarter of 2010. Norwood said the 2010 earnings were abnormally low as a result of a record-warm winter and reduced hydropower generation.

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