Purchased Gas Cost Adjustment (PGA) 101 Annette Brandon– Avista 2019 Natural Gas Outlook Meeting July 16, 2019

Brief History ORS 757.259(2)(e) - Identifiable utility expenses or revenues, the recovery or refund of which the commission finds should be deferred in order to minimize the frequency of rate changes or the fluctuation of rate levels or to match appropriately the costs borne by and benefits received by ratepayers. Order 08-504 – “The PGA is a tariff that allows a utility to recover the changes in its wholesale gas costs on a periodic basis, without the need for a formal rate review. The PGA provides for pass through to customers of actual, prudently-incurred costs of natural gas purchases. The Commission determines the amount of gas costs that are passed through to customers in rates. Because actual gas costs incurred during any particular time period are not known in advance, deferred accounting is associated with the PGA mechanism.” 1

Commodity, Demand, and Amortization The Three Components of the PGA The cost of the actual molecules purchased by the utility to serve customers needs (Commodity WACOG) Demand/Transportation The cost of transporting natural gas from the hub/field to the utility’s distribution system. Transportation Resources are Owned & Operated by Interstate Pipelines such as: Williams - Northwest Pipeline TransCanada - Gas Transmission Northwest Amortization True-up of the actual cost of natural gas and transportation compared to the revenue received from customers based on the prior PGA. * WACOG = Weighted Average Cost of Gas Embedded PGA Rate Amortization Demand Commodity

From Purchased Gas to Purchased Gas Adjustments Commodity Executed Hedges Hedges to be Executed Prices: 60-day basin-weighted average forward index prices Misc. Charges – fuel, broker fees, border fees PGA Commodity Cost Forecast Commodity Costs Embedded Commodity Rate Forecast Commodity Volumes (therms) 3

From Purchased Gas to Purchased Gas Adjustments Demand Demand Costs Pipeline Contracts – Fixed Costs (with future rate changes if known) Less: Capacity Release Credits Canadian Exchange Difference Forecast Demand Costs Embedded Demand Rate Forecast Demand Volumes (therms) 4

From Purchased Gas to Purchased Gas Adjustments Amortization Commodity Deferral - Actual vs. Embedded Commodity Costs Optimization benefits – storage, basin, transport Actual prices higher or lower than estimated Volume differences due to warmer or colder weather Balance to be Amortized the following year Demand Deferral - Actual vs. Embedded Demand Costs Pipeline Contracts (primarily due to capacity releases) Capacity Releases more or less than estimated Canadian Exchange Rate differences 5

Example – Commodity and Amortization 6