Costs for replacing aging electric infrastructure to ensure reliability is the major driver in Avista's request filed on May 16 with the Washington Utilities and Transportation Commission (UTC) to increase electric and natural gas rates for customers. The UTC has up to 11 months to review the filings and issue a decision.
"We continue to make significant investments in replacing our aging infrastructure and upgrading our generation facilities to preserve reliability and gain efficiency," said Avista Chairman, President and Chief Executive Officer Scott L. Morris. "Although we have taken measures to ensure that the costs we incur represent the most cost-effective and reliable way to continue to serve our customers, we continue to experience significant increases in costs."
The requests would produce $38.3 million, or 8.7 percent, in additional billed revenue for electric service and $6.2 million, or 4.0 percent, in additional billed revenue for natural gas service. Both requests are based on a proposed rate of return on rate base of 8.23 percent, with a common equity ratio of 48.04 percent and a 10.9 percent return on equity.
If the requests are approved by the UTC, a residential customer using an average 977 kilowatt hours per month would see a $7.13 per month increase, or 9.3 percent, for a revised monthly bill of $84.14. A natural gas customer using an average of 67 therms per month would see a $3.26 increase, or 5.1 percent, for a revised monthly bill of $66.71.
In 2011, Avista is investing approximately $250 million in its infrastructure to ensure reliability and meet customer demand by systematically replacing aging equipment, including power lines, poles, substations, transformers and related equipment for its transmission and distribution systems, in addition to upgrading generation-related facilities. National compliance requirements also drive Avista's need for continued investment in its transmission system.
The cost of upgrading equipment today is orders of magnitude more expensive than the equipment being replaced, some of which has been serving customers for 40 to 70 years. The significant difference between the aging infrastructure and the replacement equipment is a major driver in the need for annual rate adjustments. Based on current expectations, Avista plans to invest approximately $1.2 billion in its utility system for the five-year period ending Dec. 31, 2015.
Also included in infrastructure costs are upgrades to the remaining two 1950s-era turbines at Avista's Noxon Rapids hydroelectric project in Montana that will increase the amount of clean, renewable power available to serve customers. In Washington, the increased capacity resulting from upgrades will count as new renewable energy under the state's renewable portfolio standards law. Among other generation-related projects included in the filing are the $4.7 million upgrade of the 82-year-old spill gates at Avista's Nine Mile project that will increase efficiency, as well as maintenance and upgrades at other hydro and thermal facilities.
To enhance service reliability, Avista is also requesting to recover increases in costs related to its vegetation management program that covers almost 11,000 circuit miles of power lines. Other additional cost increases relate to power supply and transmission-related expenses, as well as administrative and general expenses.