20250903Staff Comments.pdf

RECEIVED
September 03, 2025
ADAM TRIPLETT IDAHO PUBLIC
DEPUTY ATTORNEY GENERAL UTILITIES COMMISSION
IDAHO PUBLIC UTILITIES COMMISSION
PO BOX 83720
BOISE, IDAHO 83720-0074
[phone]
IDAHO BAR NO. 10221
Street Address for Express Mail:
11331 W CHINDEN BLVD, BLDG 8, SUITE 201-A
BOISE, ID 83714
Attorney for the Commission Staff
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA )
CORPORATION'S APPLICATION FOR AN ) CASE NOS. AVU-E-25-06
ORDER AUTHORIZING ACCOUNTING AND ) AVU-G-25-04
RATEMAKING TREATMENT OF COSTS )
ASSOCIATED WITH INVESTMENT IN AN ) COMMENTS OF THE
ENTERPRISE RESOURCE PLATFORM ) COMMISSION STAFF
COMMISSION STAFF ("STAFF") OF the Idaho Public Utilities Commission
("Commission"), by and through its attorney of record, Adam Triplett, Deputy Attorney General,
submits the following comments.
BACKGROUND
On July 1, 2025, Avista Corporation ("Company") applied for an order authorizing
proposed accounting and ratemaking treatment related to Avista's investment in an Enterprise
Resource Platform("ERP").
The Company represents that many of its computer software systems, which were
installed in 2012, have exceeded their expected useful life.
The Company represents that after considering the costs and benefits of replacing these
separate systems individually it has decided to implement an ERP.
STAFF COMMENTS 1 SEPTEMBER 3, 2025

The Company represents that the ERP will centralize key business functions—like
finance, HR, supply chain, and customer service—into a single system.
The Company represents that this consolidation of function allows for real-time data and
insights, increased efficiency, better decision-making, and improved coordination.
The Company included an ERP Business Case report with the Application that describes
key features of the proposed ERP and contains an initial cost-benefit analysis of replacing the
Company's existing systems individual or with the proposed ERP.
The Company represents that the transition to an ERP will occur in phases over the next
few years, concluding in 2028.
The Company requests authorization to defer or capitalize certain investments, expenses,
and costs associated with the transition to an ERP as described in the Application and the
adoption of a 15-year depreciable life for the ERP.
The Company requests that the Commission issue a final order approving the Application
by October 1, 2025, so that it can finalize vendor agreements and begin transitioning to the ERP.
STAFF ANALYSIS
Staff reviewed the Company's Application and Attachments, responses to Production
Requests, and relevant past Commission Orders.
ERP Investment
The Company has a number of enterprise resource assets at or near the end of the useful
life.1 Three options were evaluated by the Company to continue necessary operations through
Enterprise Resource Software: "Large Scale Application Rationalization" (ERP), "Small Scale
Application Rationalization", and"Maintain, Sustain, Evolve".2 The Company contracted with
two vendors to perform a cost-benefit analysis of each option. The first vendor:
• Provided a software and process evaluation;
• Built a transformative technology roadmap; and
• Evaluated both ERP and non-ERP options and provided a 5-year total cost of
ownership ("TCO") estimation for each option.
1 Application Attachment A,p.5.
2 Application Attachment A,p.29-32.
STAFF COMMENTS 2 SEPTEMBER 3, 2025

The second vendor provided:
• Requirements for a Request for Proposal ("RFP") package to select an ERP,
Customer Information System, and a Work and Asset Management System; and
• TCO analysis for and ERP system.
The Company received two bids from companies for the ERP RFP.3 Each vendor met
92% of the requirements detailed in the RFP.4 Both vendors concluded with an AACE class 4
estimate (+/- 50% margin of error)that an ERP system would be least cost over a 5-year period,
estimating the 5-Year TCO to be $51M less and $79M less compared to deciding to move
forward with a non-ERP option.5
The Company outlined the benefits of choosing to implement an ERP system as opposed
to using the current "best-of-breed" approach with enterprise software. An ERP system is a
consolidated system which performs many core business functions, "best-of-breed" approach
uses many disparate systems performing different functions on separate software systems.6 The
interconnection of an ERP system allows for improved: strategic and operation efficiency,
customer experience, employee and organizational development, infrastructure and agility,
business process, integration, technological advancement, and data management.?
The Company plans to move forward with the lowest cost cloud-based ERP system.
Staff agrees with this approach, as evidence provided by the Company suggests that the ERP
system is the least cost option and provides the Company and its customers with many benefits
that are not currently available with the current"best-of-breed" approach for enterprise system
applications. Many of the core business functions will be performed using the ERP system;
however, existing applications the Company deems are still necessary after implementation of
the ERP will continue to be used.$ The Company is not requesting prudence and recovery of the
costs associated with the ERP system and requests this be addressed in a future rate proceeding.
Staff agrees a prudence determination of actual costs associated with the ERP investment be
3 Application Attachment A,p.23 Footnote 17.
4 Application Attachment A,p.6.
5 Application Attachment A,p.26 Table 6.
6 Application Attachment A,p.11 Figure 4,p.13 Figure 5.
7 Application Attachment A,p.15 Table 1.
8 Application Attachment A,p.34 Table 7.
STAFF COMMENTS 3 SEPTEMBER 3, 2025

reserved for a future rate case to evaluate if the totality of the project was conducted in a manner
which was least cost, least risk.
Accounting Treatment of Requests Related to ERP Investment
Deferral of Undepreciated Enterprise Software Retired as a Result of ERP
The Company requests authorization to defer into a regulatory asset the undepreciated
enterprise assets being retired as a result of implementing the ERP. Amortization of the asset
will begin as soon as the asset is retired and recorded as a regulatory asset. The Company states
they must retire an asset when it is likely the asset will be abandoned, following Generally
Accepted Accounted Principles established in Accounting Standards Codification ("ASC") 980-
360-35-1.9 Staff agrees the assets referenced will likely be abandoned when the Company
reaches a formal agreement with an ERP vendor, likely to occur in late 2025. To avoid a write-
off of the assets, the Company needs to be granted an accounting order authorizing a regulatory
asset which will allow for recovery of the assets. The balance of the existing assets as of
December 31, 2024 is $144 million ($41 million allocated to Idaho) and is expected to be $28
million($8M allocated to Idaho) on December 31, 2027.10 Since the Company is abandoning
the assets to pursue other assets which evidence shows will result in savings and benefits for the
Company and its customers, Staff agrees that the Company should be granted a regulatory asset
allowing for recovery. Staff agrees with the Company's proposal to amortize the regulatory
asset immediately upon recording the asset, matching the amortization recovery with the current
depreciation expense already included in rates. Staff recommends that analysis of the balance
and amortization period of the regulatory asset be reevaluated in a future rate proceeding and be
modified if necessary.
Deferral of Capital Expenditures for Enterprise Assets to be Retired
The Company requests authorization of future capital expenditures to existing enterprise
assets to be retired as a result of the ERP be deferred as a regulatory asset with a carrying charge
equal to the approved rate of return ("ROR"). The Company will retire the assets when they are
9 Application Attachment B,p.1.
to Response to Production Request No.2.
STAFF COMMENTS 4 SEPTEMBER 3, 2025

likely to be abandoned, likely to occur in late 2025. The projected implementation date of the
ERP is 2028. Due to the timing of the ERP implementation, the Company will incur incremental
capital expenditures to maintain the current system, even though it will be retired. Allowing for
a regulatory asset of the expenditures allows the Company potential recovery of the assets
without taking a write-off. Staff agrees the Company should be authorized to defer the
undepreciated capital expenditures related to maintaining the current system as a regulatory
asset. Depreciation should begin immediately on the incremental capital, and when the existing
assets are retired, the amortization of the regulatory asset should begin on the date the assets are
retired. Since the Company is abandoning the asset to pursue a least cost option, Staff agrees
that it is appropriate for the Company to record a carrying charge equal to the authorized ROR.
Depreciable Life of the ERP
The Company requests authorization of a 15-year depreciable life for the ERP. The
Company states the ERP system is similar to larger software systems the Company owns, which
currently is depreciated over a 15-year useful life. While Staff agrees that the software being
implemented is similar to the Company's existing larger software, Staff believes it is more
appropriate to amortize the asset over the contract term. ASC 350-40-35-13 states:
"Implementation costs capitalized in accordance with the Implementation Costs of
a Hosting Arrangement That Is a Service Contract Subsections of this Subtopic
shall be amortized over the term of the associated hosting arrangement...on a
straight-line basis unless another systematic and rational basis is more
representative of the pattern in which the entity expects to benefit from access to
the hosted software.""
The hosting arrangement defines the length of time the software agreement will be valid.
Staff contends the contract term agreed upon in the hosting agreement is a more proper
amortization period. As the software contract is renewed, the Company should be allowed to
capitalize the contract term payments over the term of the contract. Furthermore, in Order No.
34707 in Case No. IPC-E-20-11, the Commission ordered Idaho Power to amortize similar
software over the length of the contract term. If the contract term is undefined, Staff agrees that
11 httns://ase.fasb.orW350/40/showallinonepaa
STAFF COMMENTS 5 SEPTEMBER 3, 2025

a 15-year depreciable life is appropriate given the similarities to Company-owned software
currently being amortized over a 15-year period.
Deferral of Depreciation and Other Project Costs Related to the ERP
The Company requests authorization of deferral of depreciation expense and other project
related costs related to the ERP with the amortization of the regulatory asset to begin
immediately after the first transfer to plant-in-service with a carrying charge equal to the
authorized ROR. Staff disagrees with allowing for deferral of depreciation expense. Staff
believes the ERP is not fundamentally different than typical capital additions. Depreciation
expense on capital additions is not deferred, instead the Company is allowed recovery of
depreciation expense when the asset is in service and a rate proceeding deems the costs of the
project prudent and allowed into rates.
Furthermore, by nature of the timing of the ratemaking process, the Company will be
recovering depreciation expense for projects which no longer have a useful life until a future rate
proceeding. The Company should not be allowed to recover depreciation expenses for projects
which are fully depreciated and also be allowed to defer depreciation expenses on projects placed
into service before a rate proceeding. Staff recommends that depreciation expense deferral be
denied and therefore recommends that a carrying charge related to depreciation expense be
denied. Staff characterizes other project-related expenses as operating expenditures necessary
for the ERP project, such as pre-project planning, training and current state process
improvement. Staff recommends other project-related expenses be part of the overall ERP
project and placed into service when the ERP is placed into service. While Staff supports the
deferral of the project-related expenses, Staff recommends a carrying charge be denied.
Deferral and Capitalization of ERP Expenses in the Cloud as Regulatory Assets
The Company requests authorization of deferral and capitalization of ERP expenses in
the cloud as a regulatory asset with a carrying charge at the authorized ROR. The cloud-based
system operates similarly to a physical server but is intangible in nature due to servers being
remote, instead of physically accessible by the Company. Historically, costs of cloud-based
computing arrangements have generally been accounted for as operating expenses, which differs
from traditional on-premise hardware and software purchases that can be capitalized and earn a
rate of return. The different treatments can create an incentive for a company to invest in a
STAFF COMMENTS 6 SEPTEMBER 3, 2025

traditional on-premise computing solution, even if it is inferior to a cloud-based computing
system. On November 16, 2016, the National Association of Regulatory Utility Commissioners
("NARUC") adopted a resolution encouraging state utility commissions to consider improving
the regulatory treatment of cloud computing arrangements.12 The resolution encouraged
allowing utilities to capitalize and receive a rate of return on cloud-based software. Additionally,
in Case No. IPC-E-20-11, the Commission approved Idaho Power Company's Application to
approve the deferral of certain non-capitalized costs associated with cloud computing
arrangements as a regulatory asset. Staff agrees the Company should be allowed to capitalize a
cloud-based server as a regulatory asset since it operates similarly to a physical server. Due to
the intangible nature of the ERP, Staff agrees with authorization of a deferral as a regulatory
asset. Staff recommends that the regulatory asset be amortized over the approved life of the
asset beginning immediately after the project is placed in service. Staff recommends the
Company should be denied a carrying charge until the Company's next general rate case, at
which time the asset can be included in rate base, similar to a typical capital investment.
STAFF RECOMMENDATION
Staff recommends the Commission:
I. Authorize deferral treatment for the existing undepreciated enterprise software being
retired as a result of implementing the ERP system;
2. Authorize amortization of the existing software recorded as a regulatory asset
beginning immediately upon retirement matching the current depreciation schedule,
and making the balance and amortization schedule subject for review and potential
modifications in a future rate proceeding;
3. Authorize deferral treatment for the undepreciated balance of additional capital
expenditures necessary to continue operations of existing enterprise systems to be
retired with a carrying charge equal to the authorized ROR;
12 https://pubs.naruc.oriz/pub/2E54C6FF-FEE9-5368-21AB-638CO0554476
STAFF COMMENTS 7 SEPTEMBER 3, 2025

4. Authorize a depreciable life of the ERP system to be equal to the contract term and if
a contract term is not defined, allow for the Company to depreciate over a 15-year
useful life;
5. Deny deferral of depreciation expense associated with the ERP, but allow project
related operating expenses on the ERP system to be deferred when the project is
placed into service without a carrying charge; and
6. Authorize deferral of the ERP costs in the cloud as a regulatory asset with
amortization to begin immediately, and without a carrying charge until the
Company's next general rate case.
Respectfully submitted this 3rd day of September 2025.
U
Adam Triplett
Deputy Attorney General
Technical Staff: James Chandler
Michael Ott
1:\Utility\UMISC\COMMENTS\AVU-E-25-06 and AVU-G-25-04 Comments.docx
STAFF COMMENTS 8 SEPTEMBER 3, 2025

CERTIFICATE OF SERVICE
I HEREBY CERTIFY THAT I HAVE THIS DAY OF SEPTEMBER 2025,
SERVED THE FOREGOING COMMENTS OF THE COMMISSION STAFF, IN CASE
NO. AVU-E-25-06/AVU-G-25-04, BY E-MAILING A COPY THEREOF TO THE
FOLLOWING:
PATRICK EHRBAR DAVID J MEYER
DIR OF REGULATORY AFFAIRS VP & CHIEF COUNSEL
AVISTA CORPORATION AVISTA CORPORATION
PO BOX 3727 PO BOX 3727
SPOKANE WA 99220-3727 SPOKANE WA 99220-3727
E-mail: patrick.ehrbargavistacorp.com E-mail: david.mgyergavistacorp.com
avistadockets(kavistacorp.com
PATRICIA JORDA , SECRETARY
CERTIFICATE OF SERVICE