20150910AVU to Staff 134.doc

AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 09/08/2015
CASE NO.: AVU-E-15-05/AVU-G-15-01 WITNESS: Jim Kensok
REQUESTER: IPUC RESPONDER: David Plut
TYPE: Production Request DEPARTMENT: IS/IT
REQUEST NO.: Staff - 134 TELEPHONE: [phone]

REQUEST:

The Company’s response to Production Request No. 87 included the following statement: “One of the ways we seek to deliver value to our customers is through the prudent deployment of technology.” Please describe how the Company defines and measures whether the deployment of technology is prudent. Please provide supporting analysis.

RESPONSE:

Avista’s response to Staff_PR_087 focused on highlighting Avista’s efforts to more effectively and efficiently manage its IS/IT technology.

In determining which projects overall are prudent to complete on an annual basis, senior management establishes the capital budget for each year in its five-year planning cycle.  It is the responsibility of the Capital Planning Group (CPG) to allocate the approved funding to individual capital requests.  Project/program sponsors, including ISIT project or program sponsors, develop and submit new and updated Business Cases to support the need for capital spending.  These Business Cases are reviewed, challenged and then included on the preliminary list of valid requests to be considered for funding by the CPG.  The CPG meets to review the submitted Business Cases, prioritize funding to meet the Capital Budget targets set by senior management, and govern all approved capital Business Cases. It is the responsibility of the CPG to approve capital projects that best support the objectives and strategic goals of Avista’s utility operations. This process, therefore, defines and measures the appropriate business cases to fund annually. (The Capital Budget Process is described in more detail in response to Staff_PR_150.)

Company Business Cases are ranked based on an overall “Assessment Score” with the following four criteria: 1) Financial Assessment – Customer IRR (Customer Internal Rate of Return), 2) Strategic Assessment – alignment to the strategic objectives of the organization, 3) Business Risk Assessment – reduction in business risk, and 4) Project/Program Risk Assessment – level of certainty around resources, cost and schedule (high, medium, or low). Business Case rankings are one data point considered but other considerations are used to prioritize capital requests. These considerations include but are not limited to mandatory compliance requirements, safety and reliability beyond what is included in the assessment score as well as other qualitative factors.

The financial assessment represents the customer, rather than shareholder, internal rate of return. Greater benefits to customers, which may take the form of reductions in costs or reductions in the growth of costs, result in a higher score.
The strategic assessment represents the Company strategy to which the project or program aligns.
The business risk assessment refers to reductions in risk exposure, such as legal or environmental risk, as a result of the capital project.
The project or program risk assessment reflects the level of certainty of cost, schedule, and resource estimates, where high certainty is preferable.

A project that is mandatory as a result of state administrative requirement (IDAPA, WAC, etc) or Federal Energy Regulatory Commission (FERC) guidelines, for example, will have a higher score as compared to a non-mandatory project. The “Assessment Score” is then used for the funding prioritization discussion, along with considerations of availability/utilization of crews, compliance requirements, work efficiency, safety, and partially funding programs versus an “all or nothing” approach.

Business Cases for each project included in the Company’s request in this case, including ISIT projects, were included as Schuh Exhibit No. 11, Schedule 3. These Business Case summary documents provide support and analysis for the capital project or program. They are created at the beginning or planning phase of the project, and are a summary of the projects for project review and approval.

As a part of the CPG oversight, the CPG meets monthly to review actual results compared to budget and expected spend for the year. The CPG reviews the status of projects when the project owners submit funding changes (requests for additional funds or release of funds) based on the timing of equipment, permits, available crews, priorities of projects, etc. Business Case owners submit requests for additional funds that are needed based on changing needs and priorities. These requests for additional funds are reviewed and approved or remain pending depending on the priority level and the amount of capital funding that is available. Business case owners are also expected to release funds that will not be spent during the year so that pending requests may be funded. The CPG approves or declines the requests based on managing a total budget amount. Therefore, as timing, project priorities and other changes discussed above occur throughout the project, project funding may change, or one project may be funded while another is removed or delayed to allow higher priority projects to be funded, while remaining within the total approved capital budget amount.

In addition to the CPG process and oversight, the IS/IT department uses the Clarity Project Portfolio Management (PPM) system for the high level management of IS/IT projects. Project plans, approvals, cost plans/forecasting, labor resources, status reports, risk registers, change requests, etc. are all managed within this system. (See Avista’s response to Staff_PR_090 for more information and examples of PMO process documentation, templates and diagrams.)

Page 2 of 2

Page 1 of 2