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Washington attorney general, regulators demand Avista refund customers more than $41 million

UPDATED: Fri., Sept. 13, 2019

Washington Attorney General Bob Ferguson talks to reporters, Monday, Aug. 26, 2019, during a news conference in Seattle. On Friday, Sept. 13, 2019, asked that the state Utilities and Transportation Commission require Spokane-based utility Avista Corp. refund customers $41 million in overcharges from 2016 to 2018. (Ted S. Warren / AP)
Washington Attorney General Bob Ferguson talks to reporters, Monday, Aug. 26, 2019, during a news conference in Seattle. On Friday, Sept. 13, 2019, asked that the state Utilities and Transportation Commission require Spokane-based utility Avista Corp. refund customers $41 million in overcharges from 2016 to 2018. (Ted S. Warren / AP)

Washington state Attorney General Bob Ferguson is demanding that Avista refund customers $41 million for overcharging them from 2016 to 2018.

In written testimony filed Friday with the state Utilities and Transportation Commission, Ferguson argued that Avista should refund customers for overcharges between January 2016 and April 2018. He urged the commission that sets rates for the state’s energy companies to force the refund.

“My office has continued to fight for ratepayers and challenge Avista’s unlawfully high rates,” Ferguson said in a statement. “It’s time for Avista to make it right through refunds of the millions of dollars they overcharged Washingtonians.”

Separately, staff members of the UTC said Avista should refund $36 million to electric customers and $7 million to natural gas customers, for a total of $43 million, in the same matter.

Ferguson’s demand and UTC’s input stem from a 2018 decision by the state Court of Appeals that found the UTC had incorrectly applied a rate-making tool that added about $20 million to Avista’s rates over a two-year period, violating state law. In addition, Ferguson argues that the UTC-approved rate didn’t reflect updated, lower power costs, adding another $21 million to Avista’s rates, bringing the total ratepayer refund to $41 million.

About 420,800 Avista customers could be entitled to refunds, with the average residential customer receiving about a $40 refund.

“We are in the process of reviewing the testimony and will have the opportunity to formally respond with testimony on October 11, also as part of the procedural schedule,” Avista said in a statement. “After all of the input from all parties is considered, the utility commission will issue a decision and determine the refund amount, if any.”

The UTC will issue a final decision on Ferguson’s refund call after an Oct. 30 hearing on the case. A ruling could take six weeks or more.

The requests for refunds to ratepayers were precipitated by a UTC decision to allow Avista to raise its electrical and natural gas rates in 2016 using an “attrition adjustment” tool, which was frequently used by the UTC to set rates “during the early 1980s in an environment of exceptional inflation and high interest rates,” according to to the opinion from the state appellate court.

The utility company argued that its “ongoing capital investment program” merited the use of the tool, which had last been used in the 1980s. Avista has spent about $400 million a year in capital improvements in recent years. In 2018, it spent $418.7 million to “enhance service and system reliability for our customers and replace aging infrastructure.”

The UTC agreed with Avista’s reasoning and granted the rate increase using the rate adjustment tool. At the time, the UTC said Avista’s circumstance leading to its request for an attrition adjustment – the high capital investment – was the “new normal,” but said that it required the utility to “demonstrate that the cause of the mismatch between revenues, rate base and expenses is not within the utility’s control.”

The UTC agreed with Avista that capital investments to its natural gas operations were “beyond its control,” but “expressed frustration” that Avista would not demonstrate the “quantifiable benefits to ratepayers.”

The state delegates rate-making authority to the UTC, which seeks to set rates that “enable the company to operate successfully, to maintain its financial integrity, to attract capital, and to compensate its investors for risks assumed.” Avista is authorized by the UTC to have an annual rate of return of 9.4%.

According to Avista’s 2018 annual report filed with the federal Securities and Exchange Commission, Avista shareholders saw a net income of $136.4 million last year and had total equity of $1.77 billion.

Ferguson believes the rates were too high, and contends that Avista and the UTC incorrectly applied the attrition adjustment to the rates, inflating them beyond what was reasonable.

In its defense before the appellate court, the UTC said the state Supreme Court gave regulatory agencies a “fairly broad range” as well as an ability to “exercise substantial discretion” when deciding how to set rates, allowing it to use the attrition tool.

In testimony to the appellate court, Scott Morris, the outgoing Avista CEO, said the rate increase was necessary because operating expenses continued to grow, while customer growth remained “stagnant.”

According to the report filed with the SEC, the utility’s operating expenses in 2018 were $1.13 billion, equivalent to the previous two years. Operating revenues for Avista in 2018 were $1.3 billion, and net income was $136.6 million.

In August 2018, the appellate court’s three-judge panel ruled against the UTC and its use of attrition to set Avista’s rates in 2016.

“We strike all portions of the attrition allowance attributable to Avista’s rate base and reverse and remand for the WUTC to recalculate Avista’s rates,” the court concluded.

The rate case, which was first contested in Thurston County Superior Court and later sent to the Court of Appeals, was remanded back to the UTC in the spring. The commission reopened the rate case in May 2019, scheduled the Oct. 30 hearing, and now the parties are offering testimony, leading to Ferguson’s demand and the UTC recommendation.

During the past 11 years of Morris’ tenure, Avista sought increases in electric and gas utility rates 11 times, according to information from the UTC.

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