20251001Final_Order_No_36782.pdf

Office of the Secretary
Service Date
October 1,2025
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION
IN THE MATTER OF AVISTA ) CASE NOS. AVU-E-25-06
CORPORATION'S APPLICATION FOR AN ) AVU-G-25-04
ORDER AUTHORIZING ACCOUNTING )
AND RATEMAKING TREATMENT OF )
COSTS ASSOCIATED WITH INVESTMENT ) ORDER NO. 36782
IN AN ENTERPRISE RESOURCE )
PLATFORM )
On July 1, 2025, Avista Corporation ("Company") applied for an order authorizing
proposed accounting and ratemaking treatment related to the Company's investment in an
Enterprise Resource Platform("ERP").
On August 11, 2025, the Idaho Public Utilities Commission ("Commission") issued a
Notice of Application and Notice of Modified Procedure, setting public comment and Company
reply deadlines. Order No. 36713. Staff filed comments to which the Company replied.
Having reviewed the record, the Commission issues this Order approving the Company's
Application as follows.
BACKGROUND
According to the Company, many of its software systems have outlived their expected
useful life since their installation in 2012. After weighing the costs and benefits of replacing these
systems individually, the Company has decided to implement an ERP system. The ERP will
combine key functions, like finance, HR, supply chain, and customer service, into one centralized
system. This integration will provide real-time data and insights, improve efficiency, and support
better decision-making by enhancing coordination across the Company.
The Company included an ERP Business Case report with its Application. The report
outlines the ERP's key features and provides an initial cost-benefit analysis comparing the
replacement of individual systems to adopting the ERP.
THE APPLICATION
The Company states that the ERP transition will take place in phases over the next few
years, anticipating completion by 2028. Accordingly, the Company requests approval to defer or
capitalize certain investments, expenses, and costs related to the ERP transition and to use a 15-
year depreciation period for the ERP. The Company asks that the Commission issue a final order
ORDER NO. 36782 1

approving the Application by October 1, 2025, so it can finalize vendor contracts and begin the
ERP transition.
STAFF COMMENTS
After reviewing the Company's Application, supporting attachments, responses to
production requests, and relevant Commission orders, Staff recommended that the Commission
authorize deferral and amortization of the undepreciated costs of retired enterprise software under
the current depreciation schedule, subject to future review. Staff also supported deferring
additional capital costs necessary to keep existing systems running until retirement,with a carrying
charge at the authorized rate of return. Staff believed that the ERP should be depreciated over its
contract term or,if none is specified,over 15 years.Although Staff recommended against deferring
ERP depreciation expenses, it supports deferring related operating and cloud costs as regulatory
assets, with amortization starting immediately and no carrying charge until the next rate case.
Staffs analysis supporting these recommendations is described below.
I. ERP Investment
As stated, the Company disclosed that many of its enterprise software systems are at or
near the end of their useful life. To address this, the Company considered three options: (1) a
Large-Scale Application Rationalization(i.e.,purchasing and implementing an ERP); (2) a Small-
Scale Application Rationalization (i.e., consolidation of a portion of technology applications
within new or existing systems); and (3) Maintain, Sustain, and Evolve (i.e., little or no changes
to current technology).
The Company used two vendors to analyze costs and benefits of these three options. The
first vendor assessed software and processes,developed a technology roadmap,and compared ERP
and non-ERP options with a five-year total cost of ownership ("TCO") estimate. The second
vendor prepared requirements for a Request for Proposal ("RFP") to select an ERP, Customer
Information System, and Work and Asset Management System. This second vendor also provided
its own TCO analysis for the ERP.
The Company received two ERP bids. Both satisfied 92%of the RFP requirements. Using
an Association for the Advancement of Cost Engineering ("AACE") Class 4 estimate (f50%
margin of error), both vendors concluded that an ERP would be the lowest-cost option over five
years. Projections indicated this would save between $51 million and $79 million compared to
non-ERP solutions.
ORDER NO. 36782 2

The Company plans to adopt the lowest-cost cloud-based ERP system. Staff supported this
decision,noting that the ERP is the least-cost option and offers significant benefits over the current
"best-of-breed" approach.' While most core functions will move to the ERP, some existing
applications deemed necessary will remain in use.
Staff noted that the Company is not yet seeking recovery of ERP costs and asks that
prudence and cost recovery be determined in a future rate case. Staff agreed that this evaluation
should occur later to ensure the project proves least-cost and least-risk overall.
II. Accounting Treatment of ERP Investment
A. Deferral of Undepreciated Enterprise Software Retired for ERP Transition
The Company requested approval to defer as a regulatory asset the undepreciated value of
enterprise software retired for the ERP transition, with amortization beginning upon retirement of
each. Accounting Standards Codification ("ASC") 980-360-35-1 requires retirement of assets
likely to be abandoned. Staff agreed this will occur once the ERP vendor agreement is finalized,
which is expected to occur in late 2025. To avoid a write-off, the Company seeks an accounting
order to enable recovery. The assets to be retired are valued at$144 million($41 million for Idaho)
as of December 31, 2024, declining to $28 million ($8 million for Idaho) by December 31, 2027.
Because the ERP is expected to deliver savings and benefits for the Company and its customers,
Staff supported creating the regulatory asset,starting amortization immediately in line with current
depreciation expense included in rates, and reviewing the balance and amortization period in a
future rate case.
B. Deferring Capital Costs for Retired Enterprise Assets
The Company also seeks to defer as a regulatory asset future capital expenditures for
enterprise assets that will be retired due to the ERP transition, with a carrying charge equal to the
authorized rate of return. The assets are expected to begin being retired in late 2025,while the ERP
implementation is projected for 2028. Because of this timing, the Company will incur additional
capital costs to maintain the current system until its retirement. Recording these expenditures as a
regulatory asset allows potential recovery without a write-off. Staff agreed the Company should
be authorized to defer these undepreciated capital costs, with depreciation beginning immediately
on the incremental capital, and amortization of the regulatory asset starting when the assets are
' According to the Company, "Best-of-Breed" technology refers to proprietary and industry leading applications,
systems or software in a specific niche or category.
ORDER NO. 36782 3

retired. Since the assets are being abandoned in favor of a least-cost option, Staff supports applying
a carrying charge equal to the authorized rate of return.
C. ERP Depreciable Life
The Company requests a 15-year depreciable life for the ERP,noting its similarity to other
large Company-owned software systems, which are currently depreciated over 15 years. Despite
agreeing that the software is comparable, Staff recommend amortizing the ERP over the term of
its hosting contract instead.According to ASC 350-40-35-13, capitalized implementation costs for
hosted software should be amortized over the contract term, unless another method better reflects
how the Company benefits from the software.
For the Company's ERP, the hosting agreement defines the contract length. Staff believed
this is the proper amortization period. As contracts are renewed, payments should be capitalized
over the new term. In Case No. IPC-E-20-11, the Commission required Idaho Power to amortize
similar software over the contract term. See Order No. 34707. If the contract term for the
Company's ERP is undefined, Staff agreed that a 15-year depreciable life is appropriate,consistent
with other Company-owned software.
D. Deferral of ERP-Related Costs and Depreciation
The Company requests authorization to defer ERP-related depreciation and project costs,
with amortization beginning after the first transfer to plant-in-service and a carrying charge at the
authorized rate of return. Staff opposed deferring depreciation, noting that the ERP is like typical
capital additions. Depreciation on capital assets is normally recovered when the asset is placed in
service and deemed prudent in a future rate proceeding. Allowing deferral would let the Company
recover depreciation for projects that are either already fully depreciated or not yet included in
rates, which Staff believed was inappropriate.
Staff considered other ERP project costs (e.g., pre-project planning, training, and process
improvements)to be operating expenses. Staff asserted that these should be recorded as part of the
overall ERP project and placed into service when the ERP is operational. Accordingly, Staff
supported deferral of these project-related expenses without a carrying charge.
E. Deferring and Capitalizing ERP Cloud Computing Costs as Regulatory Assets
The Company seeks to defer and capitalize cloud-based ERP expenses as a regulatory
asset, with a carrying charge at the authorized rate of return. Historically, cloud computing costs
have been treated as operating expenses, unlike on-premise hardware and software, which can be
ORDER NO. 36782 4

capitalized and earn a return. This discourages companies from using cloud solutions, even if they
are superior. In 2016,NARUC encouraged commissions to allow capitalization and a rate of return
on cloud-based software. Similarly, in Case No. IPC-E-20-11, the Commission approved deferral
of certain cloud computing costs as a regulatory asset.
Staff agreed the Company should capitalize cloud-based ERP costs as a regulatory asset as
the cloud functions like a physical server. Amortization should begin immediately after the project
is placed in service, over the approved life of the asset. However, Staff recommended application
of no carrying until the Company's next general rate case when the asset can be included in rate
base like a typical capital investment.
COMPANY REPLY COMMENTS
The Company largely supported Staff s recommendations, objecting to only two. First,the
Company objected to setting the ERP's depreciable life according to the length of the hosting
agreement. To support its objection, the Company asserted that it will incur both implementation
costs and ongoing hosting fees as part of the ERP project. Hosting fees have a defined benefit
period equal to the contract term, but implementation costs typically provide benefits over at least
15 years. Implementation costs include design, configuration, software interfaces, coding,
hardware installation, and testing will be used across initial and future hosting contracts—not just
the first five years. Because it expects to renew hosting arrangements throughout the proposed 15-
year period,the Company contended that this timeframe better reflects the expected benefits of the
implementation costs, consistent with ASC 350-40-35-13. The Company therefore proposes a 15-
year useful life for these costs. Using a 15-year period also benefits customers by spreading the
investment over a longer time, reducing the immediate impact on rates.
Second, the Company disagreed with Staff s recommendation to deny deferral of
depreciation expense for the ERP while allowing deferral of project-related operating expenses
without a carrying charge once the ERP is in service. Although the Company believed its original
request was appropriate, it considered securing the depreciable life described above to be more
important. Therefore, as part of the regulatory compromise and to reach a resolution acceptable to
the Commission, the Company accepted Staffs position on deferring depreciation expense after
project completion.
ORDER NO. 36782 5

DISCUSSION AND FINDINGS
The Commission has jurisdiction over the Company's Petition and the issues in this case
under Title 61 of the Idaho Code including, Idaho Code §§ 61-501, 502, and -503. Based on our
review of the record,we find it reasonable to grant the Company's Application as set forth below.
Many of the Company's current enterprise software systems are reaching or have exceeded the
end of their useful life. To address this, the Company plans to transition to a cost-efficient cloud-
based ERP system. This cost-efficient choice benefits both the Company and its customers more
than the current best-of-breed system, making the decision to adopt an ERP system reasonable.
Transitioning to an ERP system is not,however,cost free. Implementing an ERP will result
in the retirement of existing software,valued at$144M($41 M for Idaho) in 2024, falling to $28M
($8M for Idaho) by 2027. Because the ERP system will benefit both the Company and its
customers, we find it reasonable to allow the Company to establish a regulatory asset to avoid
writing off the retired software. Specifically, we find it reasonable to allow the Company to defer
the undepreciated value of enterprise software retired for the ERP transition as a regulatory asset,
with amortization starting when each asset is retired.
The timing of the retirement of existing enterprise assets and the implementation of the
ERP creates another financial accounting issue we must address. The Company anticipates retiring
assets in late 2025, but the ERP implementation will be completed in 2028. The Company will
continue incurring capital costs to maintain the current system until its retirement. To enable the
potential recovery of such capital expenditures, we find it reasonable to authorize the Company to
defer these undepreciated capital costs as a regulatory asset. Depreciation of the incremental
capital will begin immediately, with amortization of the regulatory asset starting when the assets
are retired. Because the assets are being abandoned in favor of a least-cost option, the Company
may apply a carrying charge to the regulatory asset equal to the authorized rate of return.
The only significant point of disagreement between the parties is the ERP's depreciable
life. We find it reasonable to allow a 15-year depreciable life for the ERP system. The
implementation costs of an ERP system are consistent with other Company-owned software,which
have 15-year depreciable lives. A 15-year depreciable life for the hosting fees of the ERP is also
reasonable because the Company expects to renew hosting contracts to provide continuous benefits
over at least 15 years. Accordingly, we find it reasonable to allow a consistent depreciable life for
both hosting fees and implementation costs in this case.
ORDER NO. 36782 6

We do not, however, find deferral of ERP-related depreciation costs to be reasonable. The
ERP is like other typical capital additions. Accordingly, depreciation on the ERP should be
recovered when the asset enters service and is approved as prudent in a future rate case. Because
allowing deferral now would let the Company recover depreciation for projects that are either fully
depreciated or not yet accounted for in rates, we decline to authorize such deferral.
We find other ERP project costs, like pre-project planning, training, and process
improvements, to be operating expenses. These should be recorded as part of the overall ERP
project and placed into service when the ERP is operational. Accordingly,we find it reasonable to
allow deferral of these project-related expenses without a carrying charge.
Finally,we must address the expenses the Company will incur for the cloud-based elements
of the ERP. Even though cloud-based computing functions like a physical server, cloud computing
costs have historically been treated as operating expenses. This discourages the adoption of cloud-
based solutions, even when they are better. To avoid this disincentive, we have approved deferral
of certain cloud-computing costs as a regulatory asset in at least one prior case. See Case No. IPC-
E-20-11. We find it reasonable to do so again here. Consequently, the Company is authorized to
capitalize cloud-based ERP costs as a regulatory asset. Amortization of the asset should begin
immediately after the project is placed in service, over the approved life of the asset without a
carrying charge.
ORDER
IT IS HEREBY ORDERED that the Company's request to defer as a regulatory asset the
undepreciated value of enterprise software retired for the ERP transition as a regulatory asset,with
amortization starting when each asset is retired is granted.
IT IS FURTHER ORDERED that the Company's request to defer the undepreciated
balance of capital expenditures necessary to continue operations of existing enterprise systems to
be retired is granted. Depreciation of the incremental capital will begin immediately, with
amortization of the regulatory asset starting when the assets are retired and a carrying charge equal
to the Company's authorized rate of return.
IT IS FURTHER ORDERED that the Company's request for a 15-year depreciable life for
the ERP system, including both implementation cost and hosting fees, is granted.
IT IS FURTHER ORDERED that the Company's request to defer depreciation expense for
the ERP is denied.
ORDER NO. 36782 7

IT IS FURTHER ORDERED that the Company may defer ERP operating expenses when
the project is placed into service without a carrying charge.
IT IS FURTHER ORDERED that the Company may defer cloud-based ERP costs as a
regulatory asset. Amortization of the asset should begin immediately after the project is placed in
service, over the approved life of the asset without a carrying charge.
THIS IS A FINAL ORDER. Any person interested in this Order may petition for
reconsideration within twenty-one (21) days of the service date of this Order about any matter
decided in this Order. Within seven (7) days after any person has petitioned for reconsideration,
any other person may cross-petition for reconsideration. See Idaho Code § 61-626.
DONE by Order of the Idaho Public Utilities Commission at Boise, Idaho this 1st day
of October 2025.
C
D RD LODGE, RE NT
,4HN,R. HAMMOND JR., COMMISSIONER
DAYN HARDIE, COMMISSIONER
ATTEST:
9Ud-PA_ -
ura Calderon Robles
Interim Commission Secretary
I:\Lega1\ELECTRIC\AV U-E-25-06_02504_ERP\ORDERS\final_at.docx
ORDER NO. 36782 8