20250131Direct E. Andrews_Exhibits.pdf

RECEIVED
Friday, January 31, 2025
IDAHO PUBLIC
UTILITIES COMMISSION
$DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY& GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
[e-mail]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-25-01
OF AVISTA CORPORATION FOR THE ) CASE NO. AVU-G-25-01
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC AND )
NATURAL GAS SERVICE TO ELECTRIC ) DIRECT TESTIMONY
AND NATURAL GAS CUSTOMERS IN THE ) OF
STATE OF IDAHO ) ELIZABETH M. ANDREWS
1
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)

1 I. INTRODUCTION
2 Q. Please state your name, business address, and present position with Avista
3 Corporation.
4 A. My name is Elizabeth M. Andrews. I am employed by Avista Corporation as
5 Senior Manager of Revenue Requirements in the Regulatory Affairs Department. My
6 business address is 1411 East Mission, Spokane, Washington.
7 Q. Would you please describe your education and business experience?
8 A. I am a 1990 graduate of Eastern Washington University with a Bachelor of
9 Arts Degree in Business Administration, majoring in Accounting. That same year, I passed
10 the November Certified Public Accountant exam, earning my CPA License in August 1991.1
11 I worked for Lemaster & Daniels, CPAs from 1990 to 1993, before joining the Company in
12 August 1993. 1 served in various positions within the sections of the Finance Department,
13 including General Ledger Accountant and Systems Support Analyst until 2000. In 2000, I
14 was hired into the State and Federal Regulation Department, now Regulatory Affairs, as a
15 Regulatory Analyst until my promotion to Manager of Revenue Requirements in early 2007,
16 and later promotion to Senior Manager of Revenue Requirements. I have also attended
17 several utility accounting, ratemaking and leadership courses.
18 Q. As Senior Manager of Revenue Requirements, what are your
19 responsibilities?
20 A. Aside from special projects, I am responsible for the preparation or support of
21 normalized revenue requirement and ratemaking studies for the various jurisdictions in
' Currently,I keep a CPA-Inactive status with regards to my CPA license.
Andrews, Di 1
Avista Corporation

I which the Company provides utility services. Since 2000, I have led, or assisted in, the
2 Company's electric and/or natural gas general rate filings in Idaho, Washington, and Oregon.
3 Q. What is the scope of your testimony in this proceeding?
4 A. My testimony and exhibits in this proceeding will support various adjustments
5 in which I sponsor, that are included by Company Witness Ms. Schultz within her overall
6 electric and natural gas revenue requirement studies prepared for the Company's proposed
7 Two-Year Rate Plan effective September 1, 2025, through August 31, 2027. These
8 adjustments include the following: 1) Pro Forma Wildfire Plan Expenses, 2) Pro Forma
9 Insurance Expense, 3) Pro Forma Miscellaneous Operations and Maintenance (O&M)
10 Expense, 4) Pro Forma Colstrip and Coyote Springs (CS2) Maintenance, 5) Pro Forma
II Colstrip Regulatory Asset Additions and Amortization, and finally, 6) Pro Forma Colstrip
12 Assets and Depreciation Removal (effective 01/01/2026).2
13 In addition to the various accounting adjustments I sponsor, I will discuss the
14 Company's requests to update its Wildfire and Insurance Expense Balancing Account
15 baselines to match pro formed wildfire plan and insurance expenses.
16
2 Avista currently owns a 15% share of two coal-fired generation facilities located in Colstrip, Montana,known
as Colstrip Units 3 and 4, which have a combined capacity of about 1,480 MW, and were placed in service in
1984 and 1986. Included within the discussion of adjustments I sponsor related to Colstrip, I discuss the
accounting methodology for recovery of Colstrip costs and balances as of December 31, 2025, the removal of
certain Colstrip costs effective January 1,2026 (effective with the transfer of plant ownership of Colstrip Units 3
and 4 to NorthWestern Energy at the end of 2025,as discussed by Company witness Mr.Kinney,and finally,the
accounting for the on-going Colstrip Regulatory amortizations.
Andrews, Di 2
Avista Corporation

I A table of contents for my testimony is as follows:
2 Description Page
3 I. Introduction 1
4 II. Sponsored Pro Forma Adjustments 5
5 A. Pro Forma Wildfire Plan Expense 9
6 B. Pro Forma Insurance Expense 10
7 C. Pro Forma Miscellaneous O&M Expense 12
8 D. Colstrip and Coyote Springs (CS2) Maintenance 14
9 E. Pro Forma Colstrip Regulatory Asset Additions &Amorts. 16
10 F. Pro Forma Colstrip Asset and Depreciation Removal 19
11
12 III. Balancing Account Expense and Baseline Updates 24
13 A. Wildfire Expense Balancing Account 24
14 B. Insurance Expense Balancing Account 32
15
16 Q. Are you sponsoring any exhibits to be introduced in this proceeding?
17 A. Yes. I am sponsoring Exhibit No. 5, Schedule 1C. Confidential Schedule 1C
18 provides charts and details by line of insurance for the actual period 2009 through 2024, and
19 estimated 2025 through 2026 (confidential).
20 Q. Would you please summarize your direct testimony?
21 A. Yes. Below is a summary of the principal topics discussed in my direct
22 testimony:
23 • I sponsor specific Idaho electric and natural gas Pro Forma Adjustments as
24 follows:
25
26 1) Pro Forma Wildfire Plan expenses reflecting $5.74 million of annual
27 O&M electric expense;
28
29 2) Pro Forma Insurance Expense, reflecting annual electric and natural gas
30 insurance expense of approximately $9.6 million and $1.1 million,
31 respectively;
32
33 3) Pro Forma Miscellaneous O&M Expense, reflecting an increase above
34 test period levels for a limited sub-set of O&M expenses for electric and
35 natural gas of $3.4 million and $0.7 million, respectively in Rate Year 1
36 ("RY1"), and $1.6 million and $0.3 million, respectively in Rate Year 2
37 ("RY2");
Andrews, Di 3
Avista Corporation

1 4) Pro Forma Colstrip and Coyote Springs (CS2) Maintenance, reflecting
2 an increase in regulatory amortizations above test period levels of$1.1 million
3 in RY1 and $0.4 million in RY2, as well as a reduction of overall Colstrip/CS2
4 maintenance expense in RY2 of$1.9 million, to reflect the transfer of Colstrip
5 3 and 4 to NorthWestern Energy (NorthWestern). In addition, with the
6 reduction in overall O&M expense, after removal of Colstrip O&M and the
7 next CS2 major maintenance, the Company is proposing to reduce the annual
8 O&M expense baseline (reflecting CS2 maintenance only), to approximately
9 $12.4 million (system) effective l/l/2027;3
10
11 5) Pro Forma Colstrip Regulatory Asset Additions and Amortization,
12 reflecting an increase in regulatory amortization expense of$221,000, mainly
13 due to the increase in Colstrip plant additions (Idaho's share) from January
14 2024 through December 2025, of $4.8 million, deferred and included within
15 the Colstrip Regulatory Asset; and
16
17 6) Pro Forma Colstrip Assets and Depreciation Removal, effective
18 January 1, 2026, recorded as a result of the transfer of the Colstrip Unit 3 and
19 4 plant to NorthWestern, resulting in a reduction to Colstrip depreciation
20 expense, and the transfer of all remaining net plant or rate base balances as of
21 December 31, 2025 to the Company's Colstrip Regulatory Asset. This
22 adjustment, therefore, reflects a reduction to Colstrip depreciation expense of
23 $2.0 million in RYI and $1.0 million in RY2. Net plant (gross plant net of
24 accumulated depreciation (A/D)) is also reduced approximately $12.4 million
25 in RYI and by $5.8 million in RY2.4 Finally, this adjustment also reflects the
26 increase in the Colstrip Regulatory Asset in RYI and RY2 of $12.4 million
27 and $5.8 million, respectively, as well as the associated increase in regulatory
28 amortization expense of $141,000 in RYI and an incremental amount of
29 $70,000 in RY2, to reflect the increase in the Colstrip Regulatory Asset
30 amortized over approximately 28 years.
31
32 • The Company is proposing to increase its electric Wildfire Expense Balancing
33 Account baseline from $4,637,000 to $5,740,000 over the Two-Year Rate Plan,
34 mainly as a result of increases in enhanced vegetation management efforts and
35 risk-tree identification and removal. As sponsored by Ms. Schultz, the Company is
36 also proposing a two-year amortization of its total Deferred Wildfire Expenses,
37 deferred through September 30, 2024, of$6.5 million (or $3.23 million annually)
38 over the Two-Year Rate Plan. Including capital additions, sponsored by Company
3 The current Colstrip/CS2 maintenance expense baseline, established in Case No. AVU-E-15-07, is
approximately $20.4 million (system). By reducing the maintenance expense baseline to approximately $12.4
million effective 1/I/2027, the level of Colstrip/CS2 O&M expense is approximately $20.4 million (system) in
RYI, and $15.0 million (system) in RY2 (effective 9/I/2026 — 8/31/2027 —prorated over the RY2 rate period).
The higher maintenance expense during 2026 and prior to I/l/2027,reflects the removal of Colstrip,however it
reflects the CS2 overhaul major maintenance expense planned prior to I/1/2027.
4 The removal of Colstrip effective January 1, 2026, has the effect of removing Colstrip balances for the period
January—August 2026 in RYI (8 months),and the remaining Colstrip balances,September—December 2026,in
RY2(4 months).
Andrews, Di 4
Avista Corporation

I witness Mr. Malensky, pro formed from July 1, 2024 through August 31, 2027,
2 total O&M expense, deferred wildfire expense amortization, and pro formed return
3 of and on capital investment - results in an overall increase to the Idaho electric
4 revenue requirement included in this case (above existing authorized levels),
5 totaling approximately $6.7 million in RY1 and $2.1 million in RY2. In addition,
6 Avista is requesting a carrying charge be applied to existing and new deferred
7 balances, as well as while balances are being amortized. Finally, as discussed by
8 Company witness Mr. Miller, the Company is proposing the Wildfire Expense
9 Balancing Account deferred balances be recovered through an annual rate
10 adjustment similar to the PCA (Schedule 66), through new tariff Schedule 87, that
11 would be filed at the same time, and with the same effective date, as the already
12 established cadence of annual electric rate adjustments that go into effect on
13 October 1, annually,beginning in 2026 with balances deferred after October 2024.
14
15 • The Company is proposing to increase its electric and natural gas Insurance
16 Expense Balancing Account baselines from $4,009,000 to $9,556,000 for electric
17 and from $714,000 to $1,100,000 for natural gas, over the Two-Year Rate Plan, as
18 result of the significant increase and variability in insurance expenses. In addition,
19 Avista is requesting a carrying charge be applied to existing and new deferred
20 balances, as well as while balances are being amortized. Finally, as discussed by
21 Mr. Miller, the Company is proposing the electric and natural gas Insurance
22 Expense Balancing Account deferred balances be recovered through an annual rate
23 adjustment similar to the PCA (Schedule 66) and PGA (Schedule 1501155),
24 through new tariff Schedules 67 and 167, that would be filed at the same time, and
25 with the same effective date, as the already established cadence of annual electric
26 and natural gas rate adjustments that go into effect on October 1 for electric and
27 November 1 for natural gas, annually, beginning in 2026 with balances deferred
28 after October 2024.
29
30
31 II. SPONSORED PRO FORMA ADJUSTMENTS
32 Q. Before addressing certain pro forma adjustments, does the Company have
33 a viewpoint on the Commission's recent Idaho Power order on the treatment of pro
34 forma capital additions?
35 A. Yes, we do.
36 Q. As discussed by Company witness Ms. Benjamin, the Company is seeking
37 capital additions on an "average of monthly averages" (AMA) basis in the rate effective
38 period. Does that conflict with the Commission's recent findings in a recent Idaho
Andrews, Di 5
Avista Corporation

I Power adjudication?
2 A. No, our request in this case, and the Commission's finding in Idaho Power's
3 2024 adjudication' are not in conflict. As the Commission notes in its Order6, Idaho Power
4 filed a "limited" rate case, seeking to update only a few components of revenue requirement,
5 while leaving all other items "out of scope".' So, from the start, the two cases are not similar,
6 as Avista has filed- in this rate case - adjustments to all components of revenue requirement—
7 revenues, expenses, and rate base. By doing so, all revenue requirement components are
8 aligned (matching of all costs and benefits in each rate year), contrary to the findings of the
9 Commission in Idaho Power's case where it stated "... and the limited nature of this case
10 presents additional problems as various aspects of a full rate case, non-labor O&M, power
11 cost expense, etc., are considered out-of-scope, further misaligning costs and benefits."8 In the
12 end, our filing is not subject to the same shortcomings identified in Idaho Powers' filing.
13 Q. The Commission, in Idaho Power's case, discussed allowing parties
14 "sufficient time" to review capital additions included in rate cases. What is the
15 Company's position on that discussion point?
16 A. We absolutely agree that the Commission, Staff and the parties should have the
17 ability to do a thorough audit and sampling of the capital additions the Company is seeking
18 cost recovery of in this case or any case. That was true in prior Avista rates cases and remains
19 so here. What is also important to note, and we believe should give the Commission some
20 reassurance, is that the vast majority of the capital additions included in this case are
21 programmatic capital additions. These are longstanding programs of regular utility "baskets"
5 Case No.IDC-E-24-07,Order 36438.
6 Ibid.
7 Id.p.3.
'Id.p.6
Andrews, Di 6
Avista Corporation

I of on-going utility spending that are not new to the parties, only the level of spend changes
2 over time. These are programs such as the investments to connect new customers,
3 replacement of aging poles, transformers, substations, generation assets, road moves, metering
4 infrastructure, and many other customary utility investments.
5 As Ms. Benjamin details in her testimony, Illustration No. 1 below shows overall total
6 s_ sy tem capital additions (transfers to plant) for the Pro Forma, RY1 and RY2 periods, of
7 $539.3 million, $443.1 million and $499.8 million, respectively. This illustration
8 distinguishes between what are ongoing projects or programs from the Pro Forma period
9 ending August 2025, versus incremental projects that are estimated to transfer-to-plant from
10 September 2025 through August 2027, representing $40.9 million in RY1 and $30.5 million
11 in RY2.9
12 Illustration No. 1—Production Plant Investment(System Transfers to Plant)
13 Avista Total Annual Capital Additions
$'s in millions (System Transfers to Plant)
14 $600 Ill $30.5(2)
$500 $40.8
15
$400
16 $300
17 $200
Shoo —
18
s-
Pro Forma RY1 RY2
19 July 2024-Aug 2025 Sept 2025-Aug 2026 Sept 2026-Aug 2027
$539.3 $443.1 $499.8
20 ■Continuation of Ongoing Business Cases ■Additional Business Cases Initiated in RYl-RY2
(1)The majority of incremental investment in RY3 is associated with Coyote Springs 2(CS2)CT Rotor Replacement and Noxon
21 Rapids Gantry Crane Modernization,totaling$39.1 million.
(2)The majority of incremental investment in RY2 is associated with KF Ash Landfill Expansion,CS2 Low Pressure Evaporator
Replacement,Central 24 HR Operations Facility,and Energy Trade&Risk Management Implementation,totaling$28.2 million.
9 Similarly, witnesses Mr. Howell, Mr. DiLuciano, and Mr. Manuel, who address most of the capital projects,
have also included yearly bar charts for the Pro Forma, RY1 and RY2 periods, depicting the yearly transfers to
plant per the spend within each existing Business Case and transfers associated with an entirely new Business
Case in RY1 and RY2 for their respective areas.
Andrews, Di 7
Avista Corporation

I As can be seen from this illustration, by far the vast majority of the capital investment
2 (91% in RY1 and 94% in RY2) relate to ongoing, multi-year efforts that continue over time,
3 in areas familiar to the parties. The rationale and justification for these ongoing projects or
4 programs, therefore, does not change over time, only the fundin levels.evels. Furthermore, many
5 of these ongoing, multi-year Business Cases have previously been reviewed by parties in prior
6 general rate cases, and the Commission therefore has approved the associated investments as
7 prudently incurred, but at different funding levels. This should facilitate the review of
8 changes in expenditure levels within each Business Case for the Two-Year Rate Plan.
9 Q. The Commission also stated in the Idaho Power order that it is "open to
10 considering requests for additional riders, or other cost recovery mechanisms as may be
11 appropriate".10 Is Avista requesting additional mechanisms or riders in this case?
12 A. No, the Company is not forecasting a need for additional riders or mechanisms,
13 because we do not believe that special treatment, such as a new rider or mechanism, is
14 necessary at this time beyond what is already in place. Our primary issue in general rate cases
15 is timely recovery of capital additions and reducing regulatory lag. All of the information
16 necessary to support the Company's timely recovery of capital is presented in this case, now,
17 detailed in the Company's pro forma capital adjustment and supporting documentation. As
18 discussed earlier, these capital additions, by and large, are additions due to continuing
19 programs, programs which the Commission and the parties are already familiar with.
20 Q. If the Company were to propose a mechanism in this case, what would
21 that look like?
22 A. It would be a capital tracking mechanism, whereby we would request that the
io Case No.IDC-E-24-07,Order 36438,p. 6.
Andrews, Di 8
Avista Corporation

I Commission authorize in rates the AMA balances for the rate effective periods, and then have
2 a "subject to review and refund" proceeding after the fact to validate the overall level of
3 transfers as compared to those included in rates. This is a "mechanism" that has been
4 authorized in Washington since 2021, and we have now had two rate cases in that jurisdiction
5 where the mechanism has been successfully utilized. It has greatly reduced the regulatory lag
6 associated with capital additions, but it has not removed all regulatory lag overall across our
7 system.
8 Q. Moving on, would you now please describe each of the pro forma
9 adjustments which you are sponsoring in this proceeding?
10 A. Yes. Below is a summary of each adjustment that I am sponsoring in this
11 proceeding. Further details are provided within my workpapers (or that of Ms. Schultz) that
12 have been provided with the Company's filed case.
13 A. Pro Forma Wildfire Plan Expense (electric only)
14 Q. Please describe the Pro Forma Wildfire Plan Expenses adjustment.
15 A. Electric Pro Forma Wildfire Plan Expenses, Adjustment (3.14), is pro formed
16 in RY1, beginning September 1, 2025, reflecting the net increase in expenses associated with
17 the Company's Wildfire Resiliency Plan("Wildfire Plan"), as supported by Mr. Malensky.l1
18 Specifically, this pro forma adjustment increases June 30, 2024, twelve-months- ended
19 (12ME 06.30.2024) test period distribution and transmission operating expenses by $585,000
20 to reflect Idaho's share of annual wildfire operating expenses expected during the Two-Year
11 Wildfire Plan capital additions, together with associated accumulated depreciation (A/D), accumulated
deferred federal income taxes(ADFIT), and depreciation expense, from July 1, 2024, through August 31, 2027,
over the Two-Year Rate Plan are included in Pro Forma Capital Additions Adjustments 3.08 and 3.09 in RY1,
and Pro Forma Capital Additions Adjustments 26.01 and 26.02 in RY2, sponsored by Ms. Benjamin. Mr.
Malensky discusses the need for these additions in his direct testimony.
Andrews, Di 9
Avista Corporation

I Rate Plan of $5,740,000. This adjustment also removes non-recurring test period deferred
2 regulatory credit expense from the test period (removes FERC Account 407 balances), related
3 to deferring wildfire expenses during the period July 1, 2023 through June 30, 2024,
4 increasing administrative and general (A&G) Regulatory Amortization expense by
5 $1,189,000. The net of this adjustment increases related wildfire expense by $1,774,000
6 above test period levels, prior to the impact of the amortization of the Deferred Wildfire
7 balances12, or depreciation expense related to pro formed Wildfire Plan capital additions. The
8 effect of this adjustment (PF 3.14) decreases Idaho electric net operating income ("NOI") by
9 $1,401,000.
10 Section III. A. "Wildfire Expense Balancing Account" below, provides additional
11 information supporting the pro forma expenses and capital investment included in this case,
12 the deferral of and proposed amortization of Wildfire Plan deferred expenses, as well as, the
13 proposal to update the Wildfire Balancing Account baseline to track expenses beginning
14 September 1, 2025.
15 B. Pro Forma Insurance Expense (electric and natural gas)
16 Q. Please describe the Pro Forma Insurance Expense adjustment.
17 A. Electric Adjustment (3.06) and Natural Gas Adjustment (3.06), Pro Forma
18 Insurance Expense, is pro formed in RY1 beginning September 1, 2025, reflecting increases
19 above the 12ME June 30, 2024 test period insurance expense for general liability, directors
20 and officers ("D&O") liability, property insurance, and other insurance expense, as discussed
12 Ms. Schultz sponsors the two-year amortization of deferred Regulatory Assets and Liabilities (PF Adjustment
3.11), including the amortization of the "Regulatory Credit - Wildfire Balancing Account O&M" balance of
$6.46 million, resulting from wildfire expenses deferred from September 1, 2023 — September 30, 2025. The
annual amortization of this balance over the Two-Year Rate Plan totals $3.23 million. Additional deferral
amounts will continue to be recorded monthly to the "Regulatory Credit - Wildfire Balancing Account O&M"
beyond the balance requested for recovery in this proceeding.
Andrews, Di 10
Avista Corporation

I further below. Idaho electric and natural gas pro forma insurance expense is adjusted to the
2 level of insurance expense the Company is expecting during the Two-Year Rate Plan.
3 Expected invoices for December 2024 for the Company's general and property insurance
4 premiums, and estimated March 2025 for D&O and other insurance premiums were used to
5 further estimate the planned insurance expense levels over the Two-Year Rate Plan. The
6 Company will update any 2024/2025 estimated amounts, as well as updated insurance
7 expense levels expected over the Two-Year Rate Plan included in this case, as soon as the
8 remaining actual invoices in 2024/2025 are available. The effect of the electric and natural gas
9 insurance adjustments (PF 3.06) increases insurance expense by $4.07 million for electric and
10 $282,000 for natural gas, above test period levels. This adjustment also removes non-
11 recurring test period deferred regulatory credit expense from the test period (removes FERC
12 Account 407 balances), related to deferring insurance expenses during the period July 1, 2023
13 through June 30, 2024, increasing administrative and general (A&G) Regulatory
14 Amortization expense by $1,874,000 for electric and $78,000 for natural gas. The net of these
15 adjustment increases related insurance expense by $5.9 million for electric and $360,000
16 above test period levels, prior to the impact of the amortization of the Deferred insurance
17 balances. This results in pro formed electric and natural gas insurance expense levels of
18 approximately $9,556,000 and $1,100,000, respectively.13 As discussed in Section III. B.
19 "Insurance Expense Balancing Account," these pro formed levels also represent the
20 Company's proposed Insurance Expense Balancing Account baseline levels over the Two-
" Ms. Schultz sponsors the two-year amortization of Idaho deferred Regulatory Assets and Liabilities (PF
Adjustment 3.11), including the amortization of the "Regulatory Credit — Insurance Expense Balancing
Account"balance of$2.75 million for electric and $122,000 for natural gas, resulting from insurance expenses
deferred from September 1, 2023 — September 30, 2024. The annual amortization of these balances over the
Two-Year Rate Plan totals $1.37 million for electric and $61,000 for natural gas. Additional deferral amounts
will continue to be recorded monthly to the "Regulatory Credit - Insurance Balancing Account"
beyond the balance requested for recovery in this proceeding.
Andrews, Di 11
Avista Corporation

I Year Rate Plan.
2 Section III. B. "Insurance Expense Balancing Accounts" below, provides additional
3 information supporting the pro forma expenses included in this case, as well as the proposal to
4 update the proposed Insurance Expense Balancing Account baseline to track insurance
5 expenses beginning September 1, 2025. The effect of this adjustment decreases electric NOI
6 by$4,692,000 for electric and $234,000 for natural gas.
7 C. Pro Forma Miscellaneous O&M Expense (electric and natural gas)
8 Q. Please describe the Pro Forma Miscellaneous O&M Expense adjustments
9 included for RY1 and RY2.
10 A. Electric Adjustment (3.12) and Natural Gas Adjustment (3.12), Pro Forma
11 Miscellaneous O&M Expense, included in RY1, reflects escalated increases in certain (or
12 subset of) Company O&M and A&G expenses, from the 12ME June 30, 2024 test year
13 through RY1, effective September 1, 2025, through August 31, 2026, not otherwise pro
14 formed within the Company's electric or natural gas Pro Forma Studies (sponsored by Ms.
15 Schultz). An annual escalation rate of 5.28% for electric and natural gas operations was
16 applied by FERC account to certain O&M and A&G annual test period balances as of June
17 30, 2024, through August 31, 2026 (or 2.17 years). All 12ME June 30, 2024 test period
18 expenses restated or pro formed within the electric or natural gas Pro Forma Studies, are
19 excluded prior to the use of the escalation, including the following expenses: 1) all labor and
20 benefits, including, salaries, incentives, pension and medical costs; 2) insurance expenses and
21 amortizations; 3) IS/IT expenses; 4) power supply costs; 5) Montana riverbed lease expenses;
22 6) Colstrip and CS2 major maintenance expenses; 7) wildfire related expenses; 8)
23 administrative expenses (office space charges); 9) locates expense; and 10) other expenses
Andrews, Di 12
Avista Corporation

I removed through restating adjustments (i.e., miscellaneous restating, eliminate adder schedule
2 balances, gas supply costs, and revenue-related expenses). This adjustment, therefore,
3 increases RY1 Idaho O&M expense by $3.4 million for electric and $705,000 for natural gas,
4 and decreases Idaho NOI by $2,673,000 for electric and$557,000 for natural gas.
5 Electric Adjustment (26.06) and Natural Gas Adjustment (26.06), Pro Forma
6 Miscellaneous O&M Expense, included in RY2, reflects escalated increases in certain (or
7 subset of) Company O&M and A&G expenses, to reflect incremental expenses in RY2,
8 beyond RY1 levels, effective September 1, 2026, through August 31, 2027, not otherwise pro
9 formed within the Company's electric or natural gas Pro Forma Studies (sponsored by Ms.
10 Schultz). The same escalation growth rate of 5.28% for electric and natural gas operations
I I used in RY1, applied by FERC account to certain O&M and A&G annual balances as of RY1,
12 is used to escalate RY2 above RY1 levels. This adjustment increases RY2 Idaho O&M
13 expense by $1.56 million for electric and $325,000 for natural gas, and decreases Idaho NOI
14 in RY2 by $1,232,000 for electric and $257,000 for natural gas.
15 Q. Why did the Company use an escalation rate on the miscellaneous O&M
16 and A&G accounts, not otherwise pro formed elsewhere, of 5.28% for electric natural
17 gas operations?
18 A. The Company based its increase in miscellaneous O&M and A&G expenses on
19 the average increase in expense from 2019 - 2024, excluding 2022, of Avista's electric and
20 natural gas actual operating expenses. In the past few years, Avista has seen more significant
21 increases in O&M across its service territories than in previous years, including 8.0% above
22 2019 levels in 2020, an incremental 4.9% in 2021 above 2020 levels, an incremental 10.7% in
23 2022 above 2021 levels, an incremental 5.62% in 2023 above 2022 levels, and finally, an
Andrews, Di 13
Avista Corporation

I incremental 2.63% in 2024 above 2023 levels. Excluding the higher outlier, 2022 of 10.7%,
2 the average of the O&M/A&G increases year-over-year results in an average of 5.28% for
3 Idaho electric and natural gas operations.
4 Although inflationary increases experienced in previous years such as 2022 have
5 declined in recent years, the impacts to supply chain disruptions, for example, caused by the
6 COVID-19 pandemic, as well as other impacts such as the effects of the war in the Ukraine,
7 inflationary pressures still impact both the consumer and producer (business-to-business)
8 level expenses, impacting the cost of the goods and services purchased by the Company,
9 above existing test period levels. Based on the Company's historical increased expenses in
10 recent years, as well as the expected inflationary impacts on the market place in which
11 Avista's utility business operates, impacting the cost of the goods and services purchased by
12 the Company, the Company believes the escalation percentage of 5.28% for electric and
13 natural gas, used for the limited miscellaneous O&M and A&G (subset of) expenses included
14 in electric and natural gas Pro Forma Adjustments 3.12 (RY1) and 26.06 (RY2), to be
15 reasonable.
16 D. Colstrip and Coyote Springs (CS2) Maintenance Adjustments (electric only)
17 Q. Please describe the Colstrip and Coyote Spring (CS2) O&M Expense
18 adjustments included for RY1 and RY2.
19 A. Electric Adjustment (2.12) Colstrip and Coyote Springs Maintenance, reflects
20 the accounting treatment for deferred maintenance expenses for Colstrip and CS2 as approved
21 in Order 32371 on September 30, 2011 (in Case No. AVU-E-I l-01 and AVU-G-I1-01). Per
22 Order 32371, the Company deferred the non-fuel O&M costs associated with the Company's
23 Colstrip and Coyote Springs 2 ("CS2") thermal generating plants. The deferral amount
Andrews, Di 14
Avista Corporation

I represents the difference between actual O&M costs and the authorized "Base O&M" costs
2 for each respective year. Beginning with calendar years 2013 through 2015, the authorized
3 system "Base O&M" expense level (per Case No. AVU-E-12-08) costs totaled $14.4 million
4 (system). For 2016, in Case No. AVU-E-15-05, the system "Base O&M" cost was adjusted
5 upward from $14.4 million to $20.4 million, to better reflect O&M expenses in the future
6 based on a five-year average for the period 2012-2016, and has remained at this level
7 unadjusted since that time. The three-year amortization period has also remained the same.14
8 Included in the 12ME 06.30.2024 historical test period level are the three-year
9 amortizations of the Idaho deferrals from years 2020-2023 totaling approximately $890,000.15
10 Calculated RY1 amounts include the three-year amortizations of the Idaho deferrals from
11 years 2022-2023 and estimated for 2024-2025, on a pro rata basis, totaling approximately
12 $2.0 million. Adjusting expense in RY1 to the pro rata share of years 2025 and 2026
13 (including one-third of each amount deferred (actual or estimated) for calendar years 2022
14 through 2023 and 2024 through 2025, respectively), increases Idaho regulatory amortization
15 expense approximately$1.1 million, and decreases NOI by $856,000.
16 Electric Adjustment (26.09) Pro Forma Colstrip and CS2 Maintenance, adjusts the
17 Colstrip/CS2 maintenance amortization expense level included in RY1 discussed above, to
18 reflect the revised amortization expense for RY2. This adjustment adjusts RY1 amortization
19 expense to a pro rata share of years 2026 and 2027 for RY2, which include one-third of each
14 Case No. AVU-E-11-01 ordered that each deferred balance be amortized over a three-year period following
the deferral period.
15 In addition,in 2022 the Company received$2.5 million in insurance proceeds related to a CS2 insurance claim
filed in 2018 due to the failure of equipment at the CS2 natural gas generating facility. Approximately $1.3
million of the insurance proceeds were recorded as an offset to net capital CS2 investment, with the remaining
balance of approximately $1.2 million related to O&M expenses, deferred for return to Idaho and Washington
customers. Idaho's share of the O&M expense amount deferred was approximately$413,000,which were netted
together with the estimated 2022 deferral,impacting deferral years 2022-2024.
Andrews, Di 15
Avista Corporation

I amount deferred (actual or estimated) for calendar years 2023 through 2025 and 2024 through
2 2026, respectively, increasing Idaho electric regulatory amortization expense by
3 approximately $391,000.
4 In addition, in RY2, in order to reflect the reduction in overall Colstrip and CS2
5 maintenance expense expected beginning in January 2027, mainly due to the transfer of plant
6 ownership of Colstrip Units 3 and 4 to NorthWestern at the end of 2025 as discussed above,
7 the Company is also including a reduction to O&M (maintenance) expense of approximately
8 $1.9 million. This adjustment reflects the Company's proposal to reduce the system
9 authorized "Base O&W expense level (for CS2 only) from $20,352,021 as noted above, to
10 $12,350,250, effective January 1, 2027.16 1 17 Therefore, the overall effect in RY2 of this
11 adjustment (26.09) reduces net production O&M expense by $1.5 million and increases NOI
12 by$1.2 million.
13 E. Pro Forma Colstrip Regulatory Asset Additions and Amortization (electric only)
14 Q. Please describe the Pro Forma Colstrip Regulatory Asset Additions and
15 Amortization adjustment.
16 A. Electric Adjustment (3.15) Pro Forma Colstrip Regulatory Asset Additions and
17 Amortization, reflects the approved treatment by the IPUC to recover Avista's investment in
18 the Colstrip Units 3 and 4 generating facilities after reflecting an accelerated depreciation rate
19 of 2027. This adjustment also reflects the Company's proposal to include the pro forma
" This has the effect of a split "O&M Baseline" of$15.08 million in RY2, reflecting 4 months (09.2026 —
12.2026)of authorized O&M Baseline of$20.4,plus 8 months(01.2027-8.2027)of the proposed O&M Baseline
of$12.35 million. Idaho's share of this overall reduction is approximately$2.8 million beginning January 2027,
or$1.9 million on a pro rata basis during RY2(09.2026-8.2027).
17 Although Colstrip Units 3 and 4 transfer ownership after 12.31.2025,reducing Colstrip maintenance expense,
CS2 is expected to have its major overhaul in 2026, dependent on plant run-hours. Therefore,while the overall
system O&M expense in 2025 (Colstrip &CS2) is expected at$22.8 million,the system O&M expense in 2026
(CS2 only) is expected at$28.1 million, and in 2027 (CS2 only), overall O&M finally drops to $12.35 million.
Therefore,the Company proposes to revise the"O&M Baseline"effective January 1,2027.
Andrews, Di 16
Avista Corporation

I Colstrip capital additions for 2024 and 2025, and include this investment in the Colstrip
2 Regulatory Asset for recovery over its authorized remaining amortization period
3 (approximately 28 years).
4 Company witness Mr. Kinney sponsors the Colstrip capital additions within his
5 testimony and exhibits, which include descriptions of 2024 — 2025 capital additions ($6.45
6 million) that have been included in this general rate case, for prudency review in this
7 proceeding (See Mr. Kinney's direct Testimony and Exhibit No. 6, Schedule 7C). The effect
8 of this adjustment increases Idaho regulatory amortization expense by $221,000, increases
9 Colstrip net plant by $4,793,000, above test period levels, and decreases electric NOI by
10 $150,000.
11 Q. Please provide a brief summary of the accounting treatment approved by
12 the IPUC for Colstrip Units 3 and 4 in Order 34276 of Case No.AVU-E-18-03.
13 A. On March 19, 2019, per Order 34276 in Case No. AVU-E-18-03, the IPUC
14 approved the Settlement Stipulation proposed by the Settling Parties, regarding Avista's
15 recovery of Colstrip Units 3 and 4's undepreciated investment in Colstrip Units 3 and 4 and
16 its asset retirement obligations (ARO) for Colstrip, assuming a remaining "useful life" of
17 those units through December 31, 2027.18 The IPUC approved the recovery of the
18 undepreciated balance as follows:
19 • Maintain the current level of Idaho's share of depreciation expense of$2.475 million
20 annually currently being recovered from customers through December 31, 2027.
21 • Use of$6.41 million (ID share) of"temporary"tax credits associated with Non-plant
22 Excess ADFIT19 to offset the total balance associated with the acceleration of
23 depreciation/ARO costs on the current Colstrip Unit 3 and 4 assets.
'$ Prior to the "useful life" of 2027 for depreciation purposes approved in Case No. AVU-E-18-03, these units
had been on a depreciation schedule of 2034 and 2036, respectively. No closure date was established for
Colstrip Units 3 and 4 as a part of the Settlement agreement.
19 The tax credits were made available by the provision of the Tax Cuts and Jobs Act (TCJA) that reduced the
federal corporate tax rate from 3 5%to 21%.
Andrews, Di 17
Avista Corporation

1 • The remaining balance not recovered through depreciation will be recovered through
2 the amortization of a Regulatory Asset (FERC Account No. 183.327 - Colstrip
3 Regulatory Asset) and amortized over 34.75 years (beginning April 1, 2019) through
4 2053. The Regulatory Asset, net of accumulated deferred federal income taxes, will
5 be included in rate base and will earn Avista's rate of return.20
6
7 • Prudency of any capital additions not yet in current rates are subject to review in
8 future rate proceedings.
9
10 Q. Were any modifications made to the accounting for Colstrip after the
11 accounting treatment described above was implemented?
12 A. Yes. The Company originally included the transmission assets in its proposal
13 to accelerate depreciation to 2027 and defer the excess amount of depreciation not included in
14 customers' rates for recovery over 34 years. The Company determined that the transmission
15 assets will be functional if and when the Colstrip generating units are no longer functional.
16 Therefore, on September 1, 2021, per Order 35156 in Case No. AVU-E-21-01, the IPUC
17 approved the Settlement Stipulation proposed by the Settling Parties to remove the
18 transmission assets from the Colstrip accounting that has been approved by the Commission.
19 Q. Please explain the impact to the Colstrip Regulatory Asset amortization
20 expense as a result of the 2024 and 2025 additions included and the update to ARO
21 amounts in this case.
22 A. As shown in Table No. 1, the annual amortization expense increased $255,000
23 from the annual amount approved in the last general rate case. The amortization was updated
24 for the following:
25 • As described above, the Company was authorized to begin recovery of the ARO
26 costs that will be incurred for future closure of the facility. In the 2021 general
20 The Colstrip related accounts included as rate base include the following: FERC Account No. 101.0 —Plant
Cost, FERC Account No. 108.0 — Accumulated Depreciation, FERC Account No. 108027 — Colstrip Plant
Adjustment, FERC Account No. 182.327 —Regulatory Asset Colstrip, FERC Account No. 230.027 — Colstrip
ARO Liability,FERC Account No.254.027—Regulatory Liability Colstrip,FERC Account No.242.0—Colstrip
Accounts Payable,and associated Accumulated Deferred Federal Income Taxes,among others.
Andrews, Di 18
Avista Corporation

I rate case, Idaho's share of these costs was estimated to be approximately $18
2 million, which excludes the ARO associated with the transmission assets.
3 Annually, the Company evaluates this estimate and updates the costs. The most
4 current estimate of ARO costs is $15.1 million, estimated as of December 31,
5 2024, $754,000 higher than the estimate in the Company's last case. Of the $15.1
6 million currently estimated ARO costs, the Company has incurred approximately
7 $2.5 million through December 31, 2024. Updating the generation ARO costs
8 increases the annual amortization costs by $27,000.
9
10 • As described above, this adjustment reflects the pro forma Colstrip capital
11 additions for 2024 and 2025 investment of$6.45 million included in the Colstrip
12 Regulatory Asset for recovery over its authorized remaining amortization period
13 (approximately 28 years).
14
15 Table No. 1 —Idaho Colstrip Amortization Expense
16
17 Idaho Colstrip Amortization Expense ($000s)
18 Amortization Expense Approved AVU-E-21-01 $ 728
Updates to Amortization Expense Filed in Case:
19 Update ARO Costs on Generating Assets 27
20 Rate Year 1 - Capital Additions 228
Net Updates 255
21 Total Amortization Expense Proposed- Rate Year 1 $ 983
22
23 F. Pro Forma Colstrip Asset and Depreciation Removal, Effective 01/01/2026
24 (electric only)
25
26 Q. Mr. Kinney discusses the Company's decision to transfer plant ownership
27 of Colstrip Units 3 and 4 to NorthWestern at the end of 2025 and no longer serve Avista
28 customers with this facility. Has the agreement to transfer ownership been reflected
29 within the Colstrip related adjustments in RY1 and RY2, impacting the requested
30 electric revenue requirements over the Two-Year Rate Plan?
31 A. Yes, it has. Within the Company's Two-Year Rate Plan (effective September
32 1, 2025 through August 31, 2027), the effective date of this transfer agreement with
Andrews, Di 19
Avista Corporation

I NorthWestern at the end of 2025 will occur. Therefore, as noted above, existing adjustments
2 impacting Colstrip rate base and expenses over the Two-Year Rate Plan and on a go-forward
3 basis have been included (i.e., Adjustments 3.15, and 26.09). In addition, to reflect the
4 removal of certain Colstrip rate base and expense balances from Avista's books of record as
5 of December 31, 2025, as well as to reflect recovery of any unrecovered Colstrip balances at
6 that time, the Company has included the adjustments described below (i.e., Adjustments 3.16
7 and 26.10) impacting RY 1 and RY2.
8 Q. Please describe the Pro Forma Colstrip Assets and Depreciation Removal,
9 Effective 01/01/2026 adjustment, impacting both RY1 and RY2.
10 A. Electric Adjustment (3.16) Pro Forma Colstrip Assets and Depreciation
11 Removal (effective 01/01/2026) in RY1, reflects the impact of removing the net Colstrip
12 investment (gross plant, offset by A/D) and depreciation expense effective January 1, 202621
13 from net plant in RY1 due to the transfer of the Colstrip plant to NorthWestern as discussed
14 by Mr. Kinney at the end of 2025, and recording (moving) the unrecovered net plant balance
15 for Colstrip assets expected at December 31, 2025, to the Colstrip Regulatory Asset, for
16 amortization over the remaining life of the Colstrip Regulatory Asset (approximately 28
17 years). This adjustment, therefore, reduces (credits) gross plant $84.4 million, reduces
18 (debits) A/D $72.0 million, and increases the Colstrip Regulatory Asset $12.4 million (net of
19 gross plant and A/D). In addition, this adjustment removes from RY1, Colstrip depreciation
20 expense included in current rates on existing pre-2018 investment, effective January 1, 2026
21 (or 8 months in RY1), reducing depreciation expense in RY1 by approximately $2.0 million.
22 As noted above, Order 34276 in Case No. AVU-E-18-03, required Avista to maintain
21 This has the effect of removing 8 months in RY1, i.e.,January 2026—August 2026, of the September 2025—
August 2026 rate period.
Andrews, Di 20
Avista Corporation

I the current level of Idaho's share of depreciation expense of$2.475 million on Colstrip Units
2 3 and 4 annually currently being recovered from customers. This reflected depreciation on
3 Colstrip plant investment through December 31, 2017. Depreciation on the existing plant
4 investment through December 31, 2017 reflected accelerated depreciation to recover this
5 investment through December 31, 2027. With the transfer of ownership, this results in
6 unrecovered net plant (plant investment through December 31, 2017) as of December 31,
7 2025, of$5.9 million. Rather than recover this amount through depreciation expense January
8 1, 2026 through December 3, 2027, this unrecovered net plant investment is a portion of the
9 amount moved to the Colstrip Regulatory Asset ($12.4 million) effective January 1, 2026, and
10 amortized over the remaining 28 year amortization period, increasing amortization expense by
11 $141,000 in RY1 (and an incremental amount of$70,000 in RY2, as noted below).
12 The net effect of this adjustment in RY1 to Idaho electric operations, results in an
13 increase to regulatory amortization expense of$141,000, a reduction to depreciation expense
14 of$2.0 million, and an increase to NOI of $1.4 million. This adjustment also decreases net
15 plant by $12.4 million, offset by an increase to Deferred Debits (Colstrip Regulatory Asset) of
16 $12.4 million, resulting in no ($0.0) impact to net rate base.
17 Electric Adjustment (26.10) Pro Forma Colstrip Assets and Depreciation Removal
18 (effective 01/01/2026) in RY2, reflects the impact of removing the remaining net Colstrip
19 investment (gross plant, offset by A/D) and depreciation expense (effective January 1, 2026)22
20 from RY2 net plant, and recording (moving) the remaining unrecovered net plant balance for
21 Colstrip assets at December 31, 2025, to the Colstrip Regulatory Asset, for amortization over
22 the remaining life of the Colstrip Regulatory Asset (approximately 28 years). This
22 This has the effect of removing the remaining 4 months in RY2,i.e., September 2026—December 2026,of the
September 2026—August 2027 rate period.
Andrews, Di 21
Avista Corporation

I adjustment, therefore, reduces (credits) gross plant $36.2 million, reduces (debits) A/D $30.4
2 million, and increases the Colstrip Regulatory Asset $5.8 million(net of gross plant and A/D).
3 In addition, this adjustment removes from RY2 the remaining Colstrip depreciation expense,
4 not reduced in RY1, on existing pre-2018 investment, effective January 1, 2026 (or 4 months
5 in RY2), reducing depreciation expense an incremental amount in RY2 of approximately $1.0
6 million.
7 The net effect of this adjustment in RY2 to Idaho electric operations, results in an
8 incremental increase to regulatory amortization expense of $70,000, a reduction to
9 depreciation expense of$1.0 million, and an increase to NOI of$0.7 million. This adjustment
10 also decreases net plant by $5.8 million, offset by an increase to Deferred Debits (Colstrip
11 Regulatory Asset) of$5.8 million, resulting in no ($0.0) impact to net rate base.
12 Q. Please summarize the overall impact to Idaho net rate base and net
13 expenses in RY1 and RY2 as result of the Colstrip related pro forma adjustments
14 discussed above.
15 A. Table No. 2 below summarizes the adjustments proposed by the Company to
16 net rate base and expense in RY1 above current authorized levels, and in RY2, above RY1
17 levels, as a result of the 2024—2025 Colstrip capital additions, and the transfer of the Colstrip
18 plant to NorthWestern effective January 1, 2025, including the following adjustments: Pro
19 Forma Adjustments 3.15 (Pro Forma Colstrip Regulatory Asset Additions & Amortization),
20 and 3.16 (Pro Forma Colstrip Assets and Depreciation Removal, effective January 1, 2026 (8
21 mos.)), in RY1, and 26.09 (Pro Forma Colstrip and CS2 Maintenance) and 26.10 (Pro Forma
22 Colstrip Assets and Depreciation Removal, effective January 1, 2026 (4 mos.)) in RY2.
23
Andrews, Di 22
Avista Corporation

I Table No. 2 - Colstrip Removal and Capital Additions -Net Changes
2 Colstrip Removal-Net Changes to Rate Base and Expense
(millions) Adjustment
3 Rate Base Impact RY1 RY2 Reference
Colstrip Regulatory Asset(2024-2025 Capital Additions) $ 6.5 $ - 3.15
4 Remove Colstrip Net Plant(Effective 01.01.2026) $ (12.4) $ (5.8) 3.16/26.10
Transfer to Colstrip Regulatory Asset $ 12.4 $ 5.8 3.16/26.10
5 Net Change in Rate Base $ 6.5 $ -
6 Expense Impact
Colstrip Maintenance Expense $ (1.9) 26.09
7 Colstrip Depreciation Expense $ (2.0) $ (1.0) 3.16/26.10
Colstrip Regulatory Asset Amortization $ 0.4 $ 0.1 3.15 /3.16/26.10
8 Net Expense /Revenue Requirement Impact $ (1.6) $ (2.8)
9 As noted in Table No. 2, the overall net change to Colstrip related assets is an increase in net
10 rate base in RY1 of $6.5 million, related to the additions of required capital investment in
11 2024 and 2025. For expense, as a result of the transfer of the Colstrip plant to NorthWestern
12 at the end of 2025, the overall net change in Colstrip related expense is a reduction of $1.6
13 million in RY1 and $2.8 million in RY2.23
14 Q. Are there any additional accounting requirements necessary to reflect the
15 transfer of the Colstrip plant to Northwestern that you wish to discuss?
16 A Yes, there are. To reflect the transfer of the Colstrip plant to NorthWestern
17 effective December 31, 2025, the Company will have to remove certain Colstrip asset and
18 liability balances from its books of record,24 excluding asset and liability accounts for its
19 Colstrip Regulatory Assets, Colstrip Asset Recovery Obligation (ARO) or Colstrip
20 transmission assets. This will include the removal of net plant (gross plant, A/D, ADFIT,
23 This change in expense does not reflect the impact on net power supply expense sponsored by Company
witness Mr.Kalich.
24 The Colstrip related accounts included as rate base include the following: FERC Account No. 101.0 -Plant
Cost, FERC Account No. 108.0 - Accumulated Depreciation, FERC Account No. 108027 - Colstrip Plant
Adjustment, FERC Account No. 182.327 -Regulatory Asset Colstrip, FERC Account No. 230.027 - Colstrip
ARO Liability,FERC Account No.254.027-Regulatory Liability Colstrip,FERC Account No.242.0-Colstrip
Accounts Payable,and associated Accumulated Deferred Federal Income Taxes.
Andrews, Di 23
Avista Corporation

I etc.), as discussed above, but it will also have to remove other Colstrip balances, such as land
2 or inventory balances that exist as of December 31, 2025, including FERC Account 154.400
3 (Plant Materials and Supplies - Colstrip) and FERC Account 151.120 (Fuel Stock Coal —
4 Colstrip). These balances are not amortized or depreciated, and therefore do not currently
5 impact expense, and have yet to be recovered. The Company has not reflected these balances
6 within the pro forma adjustments discussed previously, as the inventory balances, for
7 example, will vary throughout the year and therefore are unknown at this time. The Company
8 proposes to net its Colstrip asset/liability accounts which need to be removed from its books
9 of record, including land and inventory balances (just as it will net the actual gross plant and
10 A/D balances) at December 31, 2025, and transfer the overall total to the Colstrip Regulatory
11 Asset, which will true-up the Colstrip Regulatory Asset with actual balances versus those pro
12 formed in this case. The Company would then true-up the Colstrip Regulatory Asset balance
13 and amortization of the adjusted balance in its next general rate case. The Company does not
14 believe the remaining incremental amount to be amortized, not included in this case, will be
15 material on an annual basis.
16
17 III. BALANCING ACCOUNT EXPENSES AND BASELINE UPDATES
18 Q. Please summarize the Wildfire and Insurance Expense Balancing
19 Accounts and the update to each baseline proposed by the Company in this case.
20 A. Below is a summary of the Wildfire and Insurance Expense Balancing
21 Accounts, and the proposed update to each baseline proposed by the Company in this case.
22 A. Wildfire Expense Balancing Account
23 Q. Please explain what was approved with regards to the Wildfire Expense
Andrews, Di 24
Avista Corporation

I Balancing Account in the Company's prior general rate cases.
2 A. In the Company's prior general rate case, Case No. AVU-E-21-01, Order
3 35156, the Commission approved a two-way Wildfire Expense Balancing Account to defer
4 the difference in actual O&M Wildfire expenses, up or down, over the 10-Year Wildfire
5 Resiliency Plan. The authorized "base" level approved in RY1, effective September 1, 2021,
6 was $1.471 million, and $1.836 million for RY2, effective September 1, 2022. The balance in
7 the deferral over time was to be included for review and recovery in future general rate
8 cases.25 In Case No. AVU-E-23-01, Order 35909, the Commission approved an update to the
9 Company's authorized "base" level from $1.836 million to $4.637 million effective over
10 Avista's Two-Year Rate Plan, effective September 1, 2023 through August 31, 2025.
11 In the Wildfire Expense Balancing Account approved by the Commission, Avista is to
12 record the deferral balances (expense levels higher or lower than the general rate case
13 established base) into a balancing account recorded as a separate regulatory asset in FERC
14 Account 182.3 (Other Regulatory Assets), and credit FERC Account 407.4 (Regulatory
15 Credit), interest is not accrued on the balance as it is being deferred.
16 Q. Is the Company recommending a change in the Wildfire Expense
17 Balancing Account baseline in this general rate case?
18 A. Yes, it is. Wildfire expenses used in the prior baselines were expected levels
19 based on expected costs over the period 2023 - 2024. As explained by Mr. Malensky within
20 his direct testimony, annual Wildfire expense is expected to be $15.4 million in 2025 and
21 $13.8 million in 2026, on a system basis. The majority of these costs relate to distribution
22 "Risk Tree."
23
25 Order 35156,at 17-18.
Andrews, Di 25
Avista Corporation

I Idaho's share of incremental wildfire expenses, and the proposed Wildfire expense
2 baseline was included in this case at approximately $5,740,000 annually, or approximately
3 $1.1 million higher than the current baseline in effect as of September 1, 2025. Idaho's share
4 (expense and baseline), was determined based on incremental direct and allocated wildfire
5 non-labor expense, prorated for the period September 1, 2025 — August 31, 2026 (RY1),
6 based on current expectations as of December 2024. The reduction in expected Wildfire
7 expense for RY2 (prorated, Idaho share) was not material to RY1, therefore the Company is
8 proposing the balancing account baseline approved effective September 1, 2025, remain in
9 effect until revised in the next general rate case.
10 As noted above, the Company has included Pro Forma Wildfire Expense, Adjustment
11 (3.14), which increases the 12ME June 30, 2024, test period distribution and transmission
12 operating expenses by $585,000 to reflect Idaho's share of annual wildfire operating expenses
13 expected during the Two-Year Rate Plan of approximately $5.7 million.
14 This adjustment also removes non-recurring test period deferred regulatory credit
15 expense from the test period (removes FERC Account 407 balances), related to deferring
16 wildfire expenses during the period July 1, 2023 through June 30, 2024, increasing
17 administrative and general (A&G) Regulatory Amortization expense by $1,189,000. The net
18 of this adjustment increases related wildfire expense by $1,774,000 above test period levels,
19 prior to the impact of the amortization of the Deferred Wildfire balances26, or depreciation
26 Ms. Schultz sponsors the two-year amortization of deferred Regulatory Assets and Liabilities (PF Adjustment
3.11), including the amortization of the "Regulatory Credit - Wildfire Balancing Account O&M" balance of
$6.46 million, resulting from wildfire expenses deferred from September 1, 2023 — September 30, 2025. The
annual amortization of this balance over the Two-Year Rate Plan total $3.23 million. Additional deferral
amounts will continue to be recorded monthly to the "Regulatory Credit - Wildfire Balancing Account O&M"
beyond the balance requested for recovery in this proceeding.
Andrews, Di 26
Avista Corporation

I expense related to pro formed Wildfire Plan capital additions.2' The effect of this adjustment
2 (PF 3.14) decreases Idaho electric net operating income ("NOI") by $1,401,000.
3 Q. Please provide an updated summary table of the Company's wildfire
4 O&M expense and capital levels over the 10-year plan.
5 A. The annual level of capital and operating expense levels on a system basis over
6 the Ten-Year Wildfire Plan, as discussed by Mr. Malensky, are shown in Illustration No. 2 of
7 Mr. Malensky's testimony and recreated below.28
8 Illustration No. 2—Annual Wildfire Resiliency Plan Costs (System)
9 Avista Wildfire Resiliency Plan Expected Cost
10 S7o,o00
S6o,oao
11
S50'O
12
2 $4o 000
0
13 ` $30,000
14 ~ $20,000
15 $10,000
-
1 6 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029
Actual Actual Actual Actual
■Capital $3,421 $19,375 $26,066 $28,319 $33,750 $35,250 $60,250 $60,250 $60,250 $60,250
17 ■O&M $2,430 $7,602 $17,273 $19,727 $16,721 $15,391 $13,812 $12,130 $11,050 $10,160
18 As explained by Mr. Malensky, a major O&M category in the Wildfire plan is related
27 As discussed by Mr. Malensky, the Company has not included offsets to operating expenses in this case
associated with wildfire. The goal of 10-Year Wildfire Plan(2020-2029) is to reduce the overall risk associated
with wildfires. In short,the benefits of the Wildfire Plan are largely measured in terms of risk reduction for all
parties involved. The Company,however,recognizes a potential for costs savings and cost shifts from operating
and maintenance expense towards capital investment. The overall impact of cost savings and cost shifts will not
be well understood until performance data can be obtained and analyzed. However, one of the objectives of the
Wildfire Plan is to reduce the number of equipment failures and tree-related outages and by doing so, avoid
emergency response.
21 It is noteworthy,that while capital plan elements are projected to decline significantly after the Wildfire Plan
10-year program, the majority of operating expense items are on-going and are generally related to risk-based
vegetation management.
Andrews, Di 27
Avista Corporation

I to the Enhanced Risk-Based Vegetation Management Program. Although Avista has had a
2 robust vegetation management program in place for many years, the existing program consists
3 of routine maintenance cycle-trimming and risk-tree inspection and mitigation. In the past,
4 these were focused on approximately 1,500 miles (20% of the system) annually. In 2020, this
5 existing program was separated into two programs based on the new Wildfire Resiliency Plan:
6 1) Routine Maintenance and 2) Risk-Tree Identification and Mitigation ("Risk-Tree").29 Each
7 of these programs have different scopes and budgets in order to continue our routine cycle
8 trimming and to give additional focus to "risk-trees"under the Wildfire Plan.
9 The Risk-Tree program has enhanced the existing tree trimming program with
10 additional measures - 100% risk-tree identification on an annual basis versus a five-year
11 cycle, as well as transmission LiDAR and distribution satellite data collection in order to
12 identify risk-trees and existing or potential vegetation issues. Although the Ten-Year Wildfire
13 Plan includes expected annual wildfire expense amounts, the Wildfire Expense Balancing
14 Account provides the added protection (for customers and Avista) that allows the Company to
15 defer any balances above or below the established baseline (including any off-setting direct
16 O&M savings that may occur).30 As noted in Illustration No. 2, Operating expense levels
17 appear to have peaked in 2024 and then are expected to gradually decline as subsequent year
18 inspections reveal fewer risk/hazard trees, based on known expenses today. As expenses do
19 decline, the Wildfire Expense Balancing Account will reflect any differences up or down
20 from that included in the wildfire expense baseline.
29 Routine electric distribution and transmission maintenance is budgeted annually at approximately$8.9 million
system. This routine expense is separately tracked and accounted for from all Wildfire-related expenses. Any
deferral of wildfire expense is tracked incrementally to the Wildfire Expense Balancing Account baseline and
will also ensure it is incremental to the routine maintenance expense included in base rates.
'Although the Company is unaware of direct O&M savings at this time,through the operation of the balancing
account, O&M costs will be tracked net of cost savings, thereby effectively capturing over time embedded cost
savings.
Andrews, Di 28
Avista Corporation

I Q. What amount of deferred expense has the Company included for
2 incremental Wildfire expenses in this case, and how does the Company propose to
3 recover these deferred balances?
4 A. The amount of deferred expenses per the Wildfire Expense Balancing Account
5 through September 30, 2024, is $6.5 million.31 Therefore, beyond the annual O&M Wildfire
6 Expense included in this case, as discussed by Ms. Schultz, the Company is also seeking to
7 amortize the existing net deferred balance of $6.5 million over a two-year period, or
8 approximately $3.23 million annually over the Two-Year Rate Plan.
9 Q. What capital additions has the Company pro formed into this general rate
10 case?
11 A. As discussed by Mr. Malensky, and shown in Illustration No. 2 above, the
12 Company has pro formed in Avista's Two-Year Rate Plan (and reflected in the Company's
13 electric Pro Forma Study RY1 and RY2 results), Wildfire Plan capital additions for the period
14 July 1, 2024, through August 31, 2027. These Wildfire capital additions reflect system
15 (WA/ID) transfers-to-plant amounts of $40.8 million (July 2024 — August 2025), $51.5
16 million in RY1 (September 2025 —August 2026) and $60.25 million in RY2 (September 2026
17 —August 2027).
18 Specifically, Wildfire Plan capital costs included in the Company's case, reflect
19 capital additions, together with associated A/D, ADFIT, and depreciation expense, and are
20 included in Pro Forma Capital Additions Adjustments (3.08) and (3.09) in RY1, and
21 Adjustments (26.01) and (26.02) in RY2, sponsored by Ms. Benjamin. The overall increase
22 in Idaho electric rate base (net of A/D and ADFIT) as a result of these additions, reflects an
"Additional Wildfire Expense Balancing Account deferrals(up or down),beyond that recorded and included in
this proceeding as of September 30,2024,will be included in future proceedings.
Andrews, Di 29
Avista Corporation

I increase of$19.4 million in RY1 and $17.0 million for RY2, or $36.4 million over the Two-
2 Year Rate Plan.
3 Q. What is the total overall incremental electric revenue requirement
4 included in the Two-Year Rate Plan with regards to the Company's Wildfire Plan?
5 A. Reflecting each of these pro formed wildfire costs: O&M expense, deferred
6 wildfire expense amortization, and pro formed return of and on capital investment - results in
7 an overall increase to the Idaho electric revenue requirement included in this case (above
8 existing authorized levels), totaling approximately $6.7 million in RY1 and $2.1 million in
9 RY2. This incremental amount above existing authorized levels is shown in Table No. 3:
10 Table No. 3—Total Incremental Wildfire Costs—Idaho Share Revenue Requirement
11 Total Incremental Wildfire Costs
Idaho Share -Revenue Requirement(OOOs)
12 Rate Year 1 Rate Year 2
13 O&M Wildfire Expense' $ 1,072 $ -
Wildfire Deferral Amortization $ 3,242 $ -
14 Pro Fonna Wildfire Capital Additions $ 2,350 $ 2,086
Total Incremental ID Wildfire Costs -
15 Revenue Requirement $ 6,664 $ 2,086
16 1 Wildfire expense included annually over the Two-Year Rate Plan is $5.74 million.
The annual expense included above is the incremental revenue requirement above
existing base rates,or approximately$1.1 million above current authorized levels.
17
2Includes return on net rate base,depreciation expense,net of taxes and taxbenefit
18 of interest.
19 Approval of these proposed incremental costs is an important element of the Company's
20 Wildfire program and helps support the level of wildfire mitigation efforts proposed in the
21 Company's Wildfire Plan.
22 Q. Does the Company have a wildfire balancing account in other
23 jurisdictions?
Andrews, Di 30
Avista Corporation

I A. Yes, the Company has a similar mechanism, as that approved in Idaho, in the
2 State of Washington. It was approved in December 2020 in Dockets UE-200900 et. al., and
3 was recently reapproved, with interest accruing, in December 2024 in Dockets UE-240006 et.
4 al.
5 Q. Beyond a change in the Wildfire Expense Baseline, is the Company
6 proposing any other changes to the recovery of wildfire expenses?
7 A. Yes, it is. First, currently the deferred Wildfire Expense Balancing Account
8 balance, and the current four (4) year amortization of the prior deferred balance has no
9 carrying charge. In this case, the Company proposes, that given the large deferral balances it
10 has been experiencing over the last few years, and the higher carrying costs experienced by
11 the Company to cover all its operating costs, as well as the delayed recovery of wildfire costs,
12 the Commission approve a carrying charge, effective September 1, 2025, on any existing
13 deferred Wildfire balance and any new deferred balances going forward, at the Company's
14 rate of return (ROR), and the Company's actual cost of debt, updated semi-annually (January
15 1 and July 1), while these balances are being amortized.
16 Second, as discussed by Mr. Miller, in order to ensure more timely rate recovery and
17 that customers experience rate adjustments, either up or down, closer to when the Company
18 incurs costs, the Company is proposing the Wildfire Expense Balancing Account be recovered
19 through an annual rate adjustment similar to the PCA (Schedule 66). Mr. Miller proposes to
20 establish tariff Schedule 87 that would be filed at the same time, and with the same effective
21 date, as the already established cadence of annual electric rate adjustments that go into effect
22 on October 1 annually. The first filings of this new rate schedule would be in the summer of
23 2026 with new rates in effect on October 1, 2026. The balance to be recovered would be
Andrews, Di 31
Avista Corporation

I based on incremental deferred balances from the October 202432 through May 2026 and a
2 forecast of expenses (if available) from June 2026 through September 2026.
3 B. Insurance Expense Balancing Account
4 Q. Please explain what was approved with regards to the Insurance Expense
5 Balancing Account in the Company's prior general rate case.
6 A. In the Company's prior general rate case, Case No. AVU-E-23-01, Order
7 35909, the Commission approved a two-way Insurance Expense Balancing Account that
8 would track the significant increase and variability in insurance expenses. The authorized
9 "base" level approved over the Company's Two-Year Rate Plan, effective September 1, 2023,
10 was $4,009,000 for electric and $714,000 for natural gas.
11 Avista is to record any deferral balances (expense levels higher or lower than the
12 general rate case established base) into a balancing account recorded as a separate regulatory
13 asset in FERC Account 182.3 (Other Regulatory Assets), and credit FERC Account 407.4
14 (Regulatory Credit). Interest would not accrue on the balance as it is being deferred. The
15 balance in the deferral over time is to be included for review and recovery in future general
16 rate cases.
17 Q. Is the Company recommending a change in the Insurance Expense
18 Balancing Account baseline in this general rate case?
19 A. Yes, it is. Insurance expenses used in the prior baselines were expected levels
20 based on that expected over the period 2023 - 2024. As explained below, annual Insurance
21 expense is expected to increase significantly to $32.4 million, beginning in RY1, on a system
22 basis.
"Deferred wildfire expense balances included for recovery in this case reflect balances through September 30,
2024.
Andrews, Di 32
Avista Corporation

I Q. What pro forma insurance expense has the Company pro formed into this
2 case for use as a "base" over the Two-Year Rate Plan?
3 A. As discussed above, the Company has included incremental expected
4 insurance expense in electric and natural gas Pro Forma Insurance Expense Adjustments
5 (3.06) for RY1, related to general liability, D&O liability, property and other (Cyber, Colstrip
6 and Worker's Comp) insurance. The effect of the electric and natural gas insurance
7 adjustments (PF 3.06) increases insurance expense by approximately $4.07 million for electric
8 and $282,000 for natural gas, above test period levels. This results in pro formed electric and
9 natural gas insurance expense levels, and Insurance Expense Balancing Account baselines, of
10 approximately $9,556,000 and $1,100,000, respectively. These amounts included in the
11 Company's case, will be adjusted once final invoices are received in March 2025. As
12 discussed below, the majority of the actual increases in insurance year over year in recent
13 years, is related to wildfire insurance premiums increasing between 2020 and 2024, all of
14 which is allocated to electric service (Idaho and Washington).
15 Q. Please explain how insurance expense on a system basis has changed over
16 time, from insurance expense levels in past years, versus actual test period levels and
17 that expected over the Two-Year Rate Plan.
18 A. For the Two-Year Rate Plan, the Company has included the substantial
19 incremental increase above the 12ME June 30, 2024, test period level of insurance expense
20 ($21.4 million system), to the level of insurance expense the Company expects beginning
21 September 1, 2025 ($32.4 million system). By way of comparison, the amount of insurance
22 included in current rates is approximately $16.6 million system. Table No. 4 provides the
23 year-over-year increase from calendar 2020 levels, included in authorized rates as approved in
Andrews, Di 33
Avista Corporation

I Case No. AVU-E-23-01 (12ME 08.31.2024 levels), as of the 12ME June 30, 2024 test period
2 levels, calendar 2024 levels, and expected amounts beginning September 1, 2025 (RY1)
3 utilized over the Two-Year Rate Plan. The proposed Insurance Expense Balancing Account,
4 therefore, would reflect any changes up or down from RY1 (baseline) approved levels.
5 Table No. 4 —Insurance Expense 12/2020 through RY1
6 Insurance Expense (000s)
PF RY1
7 Expected
Total 2020 Authorized Test Period Total 2024 Prorated
8 Levels Level Level Levels Levels
9 12.31.2020 08.31.2024 06.30.2024 12.31.2024 09.01.20251
System Expense $ 6,744 $ 16,586 $ 21,355 $ 26,876 $ 32,360
10 Growth in Expense 28.8% 25.9% 20.4%
Percent Increase in Insurance 2024 versus 2020 298.5%
11 Percent Increase in Insurance 2024 versus Authorized 62.0%
Percent Increase in Insurance RY1(09.2025)Expected versus Authorized 1 95.1%
12 1 Prorated RYl(09.2025)expected insurance expense levels included above,reflect insurance expense amounts updated as of January
14,2025.Any differences fromRYI levels expected and Idaho's share versus that included in this case will be updsated during the
13 process of this case.
14 As can be seen in Table No. 4 above, actual insurance expense increased 28.8%
15 between insurance levels at 12ME June 30, 2024 test period versus that currently authorized
16 (08.31.2024 levels), or an incremental 62% for calendar 2024 versus current authorized, with
17 additional increases expected of approximately 20.4%, as of September 1, 2025 (RY1). It is
18 noteworthy, as also shown in Table No. 4 above, that total insurance expense has increase
19 298.5%between 2020 and 2024.
20 Furthermore, 09.2025 (RY1) invoice levels (majority of 2025 invoiced for
21 prepayment as of December 2024), reflect an increase above current authorized levels of
Andrews, Di 34
Avista Corporation

I over$15.8 million (system), or an approximate increase of 95.1%.33
2 Q. Does this explain why the Company is proposing the Commission allow an
3 update to the Insurance Expense Balancing Account baseline at this time?
4 A. Yes, it does. It is evident from the unprecedented increases the Company has
5 seen in recent years (221% in general liability alone from 2020 to mid-2023), that these
6 increases are undoubtedly "extraordinary" and volatile compared to past years, are financially
7 harmful to the Company if not properly recovered in each rate period and are beyond the
8 Company's control. This is especially true with regards to wildfire insurance premiums,
9 notwithstanding our best efforts under the Wildfire Plan, as explained below.
10 Of even greater significance, is that the general liability actual premiums for the 2025
11 year, were calculated to be approximately $24.6 million. This represents an increase of over
12 68.5% above 12ME 6/30/2024 test year actuals, and a 779% increase over liability premiums
13 paid in 2020. Significant upward premium volatility for general liability is expected to persist
14 into the future as a major utility mutual insurance company has significantly reduced the
15 availability of wildfire insurance limits forcing utility companies to obtain more of its wildfire
16 and general liability insurance from the London and Bermuda insurance markets. Those
17 markets have significantly increased their premiums in the last several years in order to obtain
18 what they feel is an adequate rate for the growing wildfire risk in the U.S. The magnitude of
19 the general liability premium increases is also reflected when comparing the increases to those
20 experienced in the other lines of insurance. For the period 2020 — 2026, the combination of
13 New invoicing was received in December 2024 for the Company's general and property insurance premiums
for the period December 2024 through December 2025, after completion of the Company's final revenue
requirement in this case. These balances are reflected in Table No. 4 above. Additional invoices for D&O
insurance premiums will be received in March 2025. The Company will update the estimated amounts included
in its revenue requirement, for RY1 beginning September 1, 2025, as soon as the final actual invoices are
available.
Andrews, Di 35
Avista Corporation

I property, D&O, and other lines of insurance are expected to experience an increase of
2 approximately $2.6 million for the group as a whole. For the same time period, general
3 liability premiums by themselves will have increased approximately $23.4 million.34
4 Q. If this Commission were to simply approve the level of insurance expense
5 as requested based on the updated RYl levels shown in Table No. 4 above, would that
6 make the need for an Insurance Expense Balancing Account unnecessary?
7 A. No, it would not. If this Commission approved the proposed RY1 level of
8 insurance expense included by the Company, that might ensure the Company may recover its
9 insurance expenses in RY1, as expected today; if however, the recent levels have taught the
10 Company anything, it is that future levels of insurance are unpredictable. The amounts
11 included for the Two-Year Rate Plan are based on informed judgement of the Company
12 today. However, an Insurance Expense Balancing Account is absolutely necessary to protect
13 the Company from future losses over the Two-Year Rate Plan and beyond, similar to what it
14 experienced in 2022 (prior to the Insurance Expense Balancing Account), as insurance
15 premiums continue to increase as is expected based on current discussions with insurance
16 providers. Furthermore, an Insurance Expense Balancing Account also protect customers,
17 especially during a multi-year rate plan, if insurance premiums were ever to begin to decline
18 back to levels seen in past years, or even any reduction at all over current or future levels
19 approved by the Commission.
20 Q. Does the Company have an insurance balancing account in other
21 jurisdictions?
22 A. Yes, the Company has a similar mechanism, as that approved in Idaho, in the
sa Property and General liability premiums were updated for 2024 based on invoices and quotes received after
the Company's revenue requirements for this case were calculated.
Andrews, Di 36
Avista Corporation

I State of Washington. It was approved in December 2022 in Dockets UE-220053 et. al., and
2 was recently reapproved, with interest accruing, in December 2024 in Dockets UE-240006 et.
3 al.
4 Q. Please summarize what generally causes variability in insurance expense
5 year over year.
6 A. Insurance premiums by line of coverage vary from year to year, with some
7 rising in a particular year, while others may fall in the same year. Premium changes are
8 affected by losses incurred by Avista, losses that occur in both the domestic and international
9 marketplace, and changes in risk exposure across industries and Avista itself Premiums, even
10 during less tumultuous market periods, will tend to rise and fall from year to year as insurance
11 companies make rate adjustments. At times, significant loss events happen in the marketplace
12 or at Avista, that can significantly amplify these variations in premium changes from year to
13 year. It is often difficult to forecast premium changes going forward, as the occurrence of
14 significant unanticipated losses across the marketplace or by Avista can dramatically impact
15 future premiums. The significant increases in premium increases in General Liability,
16 Property, and Other Insurance from 2020 forward, are due in whole, or in part, to loss activity
17 in the marketplace, reduced capacity in the marketplace for wildfire insurance, Avista's
18 claims, and changes in risk exposure.
19 Q. Please provide the overall variability in the major lines of insurance
20 expenses experienced by Avista over time.
21 A. Detail for each line of insurance is provided in Confidential Exhibit No. 5,
22 Schedule 1C, pages 1 — 7, for the period 2009 through 2024 (actual), as well as confidential
23 2025 and 2026 values. Additional details, by line of insurance, are also available within my
Andrews, Di 37
Avista Corporation

I confidential insurance expense related workpapers.
2 Q. Please discuss the variability in general liability premiums and the cause
3 of increased insurance expense experienced by Avista in the last few years.
4 A. As shown in Chart No. 1 below, general liability premiums (that would address
5 wildfire premiums) for Avista began to increase sharply beginning in 2020. (See also
6 Confidential Exhibit No. 5, Schedule 1C,page 2, for 2025 and 2026 confidential data.)
7 Chart No. 1 —General Liability Insurance Premiums (2009—2024)
8
9 General Liability Premiums (2009-2024)
$25,000,000
10
$20,000,000
11 E $15,000,000
12 v $10,000,000
a
13 $5,000,000 -
$0 -
0) O .--1 tV t» It In ID n W 01 O r-I tV t»
14 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
N N N N N N N N N N N N N N N N
15
16 Premium increases have been largely related to wildfire exposure in the industry at
17 large, and especially in the West. Up until the Labor Day fires that occurred in the Pacific
18 Northwest in the fall of 2020, the insurance market's focus on wildfire exposure was largely
19 on California and some of the other southwestern States due to extreme drought conditions.
20 The occurrence of the 2020 Labor Day fires, in combination with severe to exceptional
21 drought in our region, resulted in insurance companies classifying many utilities as high risk
22 from a wildfire standpoint. This change in exposure translated to insurance companies
23 requesting significant increases in premiums or withdrawing from offering coverage for
Andrews, Di 38
Avista Corporation

I wildfire altogether. These conditions were the primary drivers in liability premiums during the
2 2020-2023 period.
3 The significant increases in liability insurance that occurred in 2024 and 2025 has its
4 roots in large utility involved wildfires that occurred near Boulder, Colorado (December
5 2021) and Lahaina, Hawaii (August 2023).35 One of the significant industry impacts that
6 these two fires had was that it led to one of the two primary utility insurance mutual insurers,
7 Energy Insurance Mutual (EIM), to reduce the amount of wildfire insurance it made available
8 to its members. Prior to 2021, EIM offered $100 million in wildfire insurance to its members.
9 Beginning in 2021, because EIM could not obtain reinsurance for wildfire in seven western
10 states, it reduced wildfire coverage for many of its members in these states by $25 million, to
11 $75 million. Following the Boulder and Lahaina fires, EIM announced in December of 2023,
12 that beginning with 2024 renewals, all members outside of western states would have wildfire
13 coverage reduced from $100 million to $50 million, and those in most western states would
14 have coverage reduced from $100 million to $25 million (no coverage is available in
15 California). The coverage that used to be provided by EIM now has to be replaced with much
16 more expensive coverage from London and Bermuda markets.
17 Avista's general liability premiums increased 101% in 2021 primarily due to insurance
18 companies considering Avista as a heightened wildfire risk following the 2020 Labor Day
19 fires and an expectation that some of the fires will result in future claims. Premiums
20 continued to increase at the December 31, 2021 (for 2022) renewal. For 2022 alone, general
21 liability premiums increased 49% above 2021 levels. General liability premium increases
" Of course, the fires in Los Angeles County, which are still occurring as of the writing of this testimony, will
no doubt have further impact on the insurance markets going forward, further emphasizing the need for this
important regulatory treatment.
Andrews, Di 39
Avista Corporation

I temporarily leveled off for 2023, rising only 6.5%. However, the Maui fire which occurred in
2 August of 2023 triggered EIM's action to further reduce coverage as well as being a catalyst
3 for the London and Bermuda markets to significantly increase their premiums. Actual
4 premiums for 2024 coverage increased $11.4 million (131%). Premiums will remain highly
5 volatile into the future and are not expected to trend downward going forward. Additional
6 yearly increases are expected for 2025 and 2026 respectively as wildfire risk continues to
7 dominate the landscape not only in the western U.S, but across many states across the
8 country.
9 The projected increases assume only this one driver of increases will take place. Any
10 additional industry-related wildfires or wildfire losses incurred by Avista itself, will certainly
11 change insurer premium needs in this area, and will significantly impact premiums above and
12 beyond those forecasts. Therefore, the level of general liability premium increases built into
13 the Company's case over the Two-Year Rate Plan for insurance expense, should be
14 considered conservative in all respects.
15 Q. Is it possible the recent Los Angeles County wildfires may have an
16 impact on the premiums paid by Avista going forward?
17 A. Yes. It is possible that going forward, the California fires may have an adverse
18 impact on the liability premiums paid by Avista. Avista's reinsurance premiums will be
19 negotiated again in June 2025, and the outcome likely will have a major impact on the
20 direction of the liability market going forward. This could happen as a result of several
21 potential outcomes from the fires such as insurers leaving the marketplace, insurers remaining
22 but charging more premium, or premiums increasing due to reinsurers raising premiums.
23 Additional insurers could pull out of the marketplace, not only in California, but in other
Andrews, Di 40
Avista Corporation

I western states such as Washington. Insurers could decide they are unable to continue to
2 obtain enough premiums for the risk, given the magnitude of potential fire damages, reducing
3 the overall capacity available in the marketplace, driving up premiums by the remaining
4 insurers.
5 Secondly, insurers may decide to remain, but may decide they need to charge more
6 premium for existing risks, as the California fires may reflect that they've previously
7 underestimated the amount of damage that can result from a fire in areas both inside, and
8 outside of California, that they insure. This could also be coupled with a decision to reduce
9 the limits they offer, thus putting additional pressure on insureds to find enough capacity to
10 fully insure their liability programs.
11 Finally, premiums that insurers charge are heavily influenced by reinsurers, or those
12 insurance companies that insure insurance companies for their losses. If reinsurers determine
13 they need more premium either through direct losses that they took, or due to the perceived
14 increase in risk as exemplified by the California fires, they will charge insurance companies
15 more to insure their losses. This premium will be passed on by insurance companies to their
16 insured's seeking coverage.
17 Q. What is Avista doing to control insurance costs related to wildfire
18 insurance?
19 A. Over the course of the last several years, the availability of insurers willing to
20 provide wildfire insurance has significantly declined. The limited capacity of wildfire
21 coverage has resulted in not only a significant increase in premiums, but a reduction in the
22 effectiveness of such tools as increasing retention levels (i.e. the "deductible"). In the past,
23 the premium reduction using these strategies would have warranted assuming an increase in
Andrews, Di 41
Avista Corporation

I exposure for ratepayers, however, in this tight market, the payback for accepting increased
2 risk does not merit the small return in premium reduction. In addition, as climate change
3 continues to raise the probability of wildfire ignition despite the best efforts of operationalized
4 Wildfire Plans, the likelihood of incurring increased losses under the expanded retentions
5 increases.
6 At this point in time, there is limited capacity in the liability market, especially for
7 wildfire coverage. We also do not have multiple insurance companies to consider for most
8 layers of our liability program. In fact, we struggle to find enough insurance companies to fill
9 out each layer. Some insurance companies have moved to inflated, opportunistic pricing at
10 the very top of programs as they know many utilities do not have choices of insurance
11 companies to fill out their programs.
12 Beginning two years ago, we began making bi-annual trips to Bermuda to meet in
13 person with insurance underwriters to provide details on our wildfire mitigation program and
14 differentiate ourselves from other utilities that may not have as mature of a wildfire program
15 as Avista. Our most recent visit was in October of 2024. At the subsequent insurance
16 renewal in December of 2024, we realized a year over year savings of approximately 16% in
17 the Bermuda layer, which translated to a saving of approximately $1.7 million compared to
18 December 2023 renewal.
19 Q. Turning now to property insurance premiums, please discuss the
20 variability and the cause of in increased insurance expense experienced by Avista.
21 A. As shown in Chart No. 2, property insurance premiums have steeply increased
22 since 2018, due to industry losses resulting from hurricanes Harvey, Irma, and Maria in 2017.
23 (See also Confidential Exhibit No. 5, Schedule 1C, page 3, for 2025 and 2026 confidential
Andrews, Di 42
Avista Corporation

1 data.)
2 Chart No. 2 —Property Insurance Premiums (2009 —2024)
3 Property Premiums (2009-2024)
4 $4,000,000
$3,500,000
5
$3,000,000
6 $2,500,000
E
7 •2 $2,000,000
v
o $1,500,000
8 $1,000,000
9 $500,000
$0
1 0 O1 O N M a V1 lO 00 Q1 O .. N M v
N N N N N
O O O O O O O O O O O O O O O O
N N N N N N N N N N N N N N N N
11
12 Any projections are contingent on the industry remaining free of any large
13 catastrophic events such hurricanes and for Avista's program itself to remain loss free.36
14 Q. What is Avista doing to control insurance costs related to property
15 insurance?
16 A. Annually, Avista reviews several components of the property program in order
17 to achieve the most cost-efficient program that still delivers the necessary insurance
18 protections for Avista and our customers. Components such as policy limits, retention limits,
19 program structure, and potential replacement of incumbent insurers are considered.
20 Additional capacity existing in the property market at the December 1, 2024 renewal
21 period resulted in insurers being more willing to negotiate premium rates. Confidential
36 Property premiums were updated for 2024, 2025, and 2026 following receipts of invoices for 2024 received
after revenue requirements for this case were calculated. Fortunately,based on the revisions,estimated property
for each of these years are expected to be approximately $200,000 less than those originally forecasted when
deriving revenue requirements for this case.
Andrews, Di 43
Avista Corporation

I Exhibit No. 5, Schedule 1C, page 7, Property Savings, reflects a savings of approximately
2 $240,00 that was achieved through our ability to negotiate down premium rates and shift
3 some of the domestic portion of our property program to our lower cost London markets.
4 Q. Please now summarize the remaining insurance premiums, for D&O and
5 other insurance, for worker's comp, cyber and Colstrip, and their impact on Avista.
6 A. Chart Nos. 3 and 4 below, provides charts of"D&O" insurance premiums, and
7 "Other" insurance premiums (reflecting worker's comp, cyber and Colstrip).
8 Chart No. 3 —D&O Insurance Premiums (2009 —2024)
9 D & O Premiums (2009-2024)
10 $1,800,000
$1,600,000
1 1 $1,400,000
$1,200,000 �f
12 E $1,000,000
13 CD $800,000
a $600,000
14 $400,000
$200,000
15 $0
C, o ti ti 3 a h o
cPotiotiotiotiotiotiotiotiotiotiotiotiotioti �
16 ti ti ti ti ti ti ti ti ti ti ti ti ti ti tioti�
ti
17
18 As shown in Chart No. 3, D&O premiums have followed a somewhat cyclical pattern
19 since 2009. Premiums have been rising since 2019 due to an increase in the number and size
20 of claims, primarily related to securities claims associated with merger and acquisition
21 activity across numerous industries. Industry losses are beginning to moderate, which should
22 translate to a slower rate of rate increases, and even in a slight decrease, in the near term. The
23 2023 premium increase was approximately 1% over 2022. Premium increases for the periods
Andrews, Di 44
Avista Corporation

1 2024 through 2026 are expected to be approximately flat to slightly lower in 2026 (-1%).
2 Chart No. 4—Other Insurance Premiums (2009—2024)
3
Other (WC, Cyber, Colstrip) Premiums (2009-2024)
4
$3,000,000
5 $2,500,000
6 $2,000,000
E
•2 $1,500,000
7 a,
a $1,000,000
g $500,000
9 $0 Cn O ti N M Ln %D N 00 M O rl N M N
O r4 �4 -4 rl rl r1 ri rl N N N N 0)
O O O O O O O O O O O O O O O
N N N N N N N N N N N N N N N V
10 N
O
N
11
12 For "Other" insurance (Workers' Comp, Cyber, Colstrip), as shown in Chart No. 4,
13 this category has continually increased since 2009 — and markedly so since 2018. Part of the
14 increase was fueled by the addition of the cyber insurance coverage in October of 2013.
15 Going forward, Cyber insurance will be the biggest driver of volatility of this category of
16 spend. Avista's Cyber premium increased 64% with the 2021 renewal, and an additional
17 increase of approximately 42% with the 2022 renewal. These increases were driven by the
18 dramatic increase in "ransomware" events across numerous industries during the last couple
19 of years. However, the magnitude of premium increases have dropped off significantly as of
20 late. The premium increase at the October 17, 2023 renewal was only up 3% over the
21 October 17, 2022 renewal and was flat at the October 17, 2024 renewal. Cyber premiums are
22 expected to be flat for the near-term renewal in 2025 and 2026 as long as there are no large
23 industry losses or losses incurred by Avista. (See also Confidential Exhibit No. 5, Schedule
Andrews, Di 45
Avista Corporation

I 1C, pages 4 and 5). In the short term, Other Expenses are expected to decrease approximately
2 25% in 2026 as Avista discontinues its participation in the Colstrip ownership group as of
3 12/31/25 and no longer has to contribute towards property insurance premiums managed by
4 the plant operator, Talen.
5 Q. Beyond a change in the Insurance Expense Baseline, is the Company
6 proposing any other changes to the recovery of insurance expenses?
7 A. Yes, it is. First, currently the deferred Insurance Expense Balancing Account
8 balance has no carrying charge. In this case, the Company proposes, that given the large
9 deferral balances it has been experiencing over the last few years, and the higher carrying
10 costs experienced by the Company to cover all its operating costs, as well as the delayed
11 recovery of insurance costs, the Commission approve a carrying charge, effective September
12 1, 2025, on any existing deferred insurance balance and any new deferred balances going
13 forward, at the Company's rate of return (ROR), and the Company's actual cost of debt,
14 updated semi-annually(January 1 and July 1), while these balances are being amortized.
15 Second, as discussed by Mr. Miller, in order to ensure more timely rate recovery and
16 that customers experience rate adjustments, both up or down, closer to when the Company
17 incurs costs, the Company is proposing the electric and natural gas Insurance Expense
18 Balancing Accounts be recovered through an annual rate adjustment similar to the PCA
19 (Schedule 66) and PGA (Schedule 1501155). Mr. Miller proposes to establish Insurance tariff
20 Schedules 67 (electric) and 167 (natural gas) that would be filed at the same time, and with
21 the same effective date, as the already established cadence of annual electric and natural gas
22 rate adjustments that go into effect on October 1 for electric and November 1 for natural gas
23 annually. The first filings of these new rate schedules would be in the summer of 2026 with
Andrews, Di 46
Avista Corporation

I new rates in effect on October 1, 2026 for electric and November 1, 2026 for natural gas. The
2 balances to be recovered would be based on incremental deferred balances from the October
3 202437 through May 2026 and a forecast of expenses (if available) from June 2026 through
4 September 2026 (electric) and October 2026 (natural gas).
5 Q. Does that conclude your pre-filed direct testimony?
6 A. Yes, it does.
37 Deferred electric and natural gas insurance expense balances included for recovery in this case reflect balances
through September 30,2024.
Andrews, Di 47
Avista Corporation

DAVID J. MEYER
VICE PRESIDENT AND CHIEF COUNSEL FOR
REGULATORY & GOVERNMENTAL AFFAIRS
AVISTA CORPORATION
P.O. BOX 3727
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99220-3727
TELEPHONE: [phone]
[e-mail]
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF THE APPLICATION ) CASE NO. AVU-E-25-01
OF AVISTA CORPORATION FOR THE ) CASE NO. AVU-G-25-01
AUTHORITY TO INCREASE ITS RATES )
AND CHARGES FOR ELECTRIC AND ) EXHIBIT NO. 5
NATURAL GAS SERVICE TO ELECTRIC )
AND NATURAL GAS CUSTOMERS IN THE ) ELIZABETH M M..
ANDREWS
STATE OF IDAHO )
FOR AVISTA CORPORATION
(ELECTRIC AND NATURAL GAS)

CONFIDENTIAL subject to Attorney's Certificate of Confidentiality
Entire Document is CONFIDENTIAL
Charts and Detail by line of insurance for the actual period 2009
through 2024, and estimated 2025 through 2026
Pages 1 through 7
Exhibit No.5
Case Nos.AVU-E-25-01/AVU-G-25-01
E.Andrews,Avista
Schedule 1(R), Page 1 of 1