20230518AVU to Staff 1 Attachment A.pdf

Staff_PR_001 Attachment A Page 1 of 3
AVISTA CORPORATION RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION: IDAHO DATE PREPARED: 05/11/2023 CASE NO: AVU-E-23-01 / AVU-G-23-01 WITNESS: Scott Kinney REQUESTER: IPUC RESPONDER: Ian McLelland TYPE: Production Request DEPARTMENT: Accounting
REQUEST NO.: Staff-169 TELEPHONE: [phone]
REQUEST:
How does the Company plan to track the actual expenses of CCA allowances for Idaho in the
Power Cost Adjustment ("PCA"). Please address each of the following considerations in your explanation:
a. The CCA allowances can be obtained from different sources with different prices, such asauctions, bilateral, electronic exchange trading, and reserve accounts;
b.The CCA only requires a minimum of 30% of allowances to be retired in the year that
emissions occur with any balance due at the end of 2023-2026 Compliance Period;
c.According to Revised Code of Washington ("RCW") 70A.65.120(3), "During the firstcompliance period, allowances allocated at no cost to consumer-owned andinvestor-owned electric utilities may be consigned to auction for the benefit of ratepayers,
deposited for compliance, or a combination of both"; and
d.Avista can bank allowances for future uses.
RESPONSE:
a.For all off-system surplus electric sales that occur at the Mid-Columbia (Mid-C) trading hub,these sales are allocated between Washington and Idaho electric operations based on the approvedproduction/transmission ratio (P/T Ratio). The current ratio in authorized power supply costs thatis used to split the surplus sales and related system costs is approximately 65% Washington and
35% Idaho. For each sale that occurs at the Mid-C and is served by an emitting resource, Avista
incurs a carbon emission obligation, of which approximately 35% is allocated to Idaho along withthe revenue from the sale. In addition to the carbon obligation for off-system surplus sales, Avistaalso incurs a carbon emission obligation for Washington-sited generation that is used to serveretail load (Boulder Park). The carbon emission obligation for Boulder Park is allocated between
Washington and Idaho using the P/T Ratio.
At the time an off-system sale occurs at the Mid-C or Avista generates from Boulder Park to serve retail load, a carbon emission obligation has been incurred and expense must be recognized, regardless if Avista has purchased a carbon allowance at that time or not. At the time of the
off-system sale or generation, Avista will recognize carbon emission expense based on the number
of emission allowances it must purchase to satisfy 100% of its Idaho emission obligation (see below for discussion around price changes and no cost allowances). If Avista has already purchased sufficient emission allowances, the weighted average price of allowances purchased will be the unit price used to calculate emission expense. If Avista does not have sufficient
allowances, any additional allowances that must be purchased above what it currently holds will be priced at the then current market price of emission allowances at the end of the month as the unit
Staff_PR_001 Attachment A
price. Avista is proposing to include the monthly emission expense that is calculated using the above formulas in its monthly PCA calculation.

To satisfy the emission obligation that is incurred and calculated on a monthly basis, Avista must acquire carbon emission allowances, generally from the quarterly Washington State Department of Ecology (Ecology) auctions, but they may also be acquired bilaterally from third parties or through electronic exchange trading. Avista will strive to acquire the allowances at the best
possible price from these sources and all allowances acquired will be held in an inventory account at their weighted average cost. At the end of each month, the life-to-date emission expense and emission obligation will be a combination of actual carbon allowances purchased and an accrual for the carbon allowances that must be purchased in the future to satisfy the remainder of the obligation.
Avista is also pursuing additional methods to reduce costs for Idaho customers. Avista and other regional market participants are actively engaged in conversations with Ecology to obtain clarification on two key approaches potentially providing a pathway to significantly reduce CCA
compliance costs for surplus sales. These methods center around: (1) wheel through transactions
that don’t result in energy delivery in the State of Washington, and (2) a resource netting calculation based on a common practice to offset purchases and sales made at the Mid-C. The results of these efforts, if successful, may substantially reduce the carbon obligation allocated to Idaho customers.

b. Avista will not relieve the emission obligation until it has retired the carbon allowances in the Washington Compliance Instrument Tracking System Services registry, even if it has already purchased the necessary carbon allowances. Compliance periods are 4-year periods and each November 1st companies must retire at least 30% of their prior year emission requirements and at
the end of the 4-year compliance period, the remaining emission allowances must be retired. For example, in the first compliance period (2023-2026) the compliance schedule looks like this: Nov. 1, 2024: 30% of 2023 emissions
Nov. 1, 2025: 30% of 2024 emissions
Nov. 1, 2026: 30% of 2025 emissions Nov. 1, 2027: 30% of 2026 emissions, plus the remaining 70% of all 2023-2026 emissions Companies can choose to retire more than 30% of their obligation each year; however, 30% is the
minimum. Even though all the allowances may not be retired in a given year, 100% of the anticipated expense will be recognized annually such that revenues and costs are recognized in the same period. In the event the actual cost of carbon allowances differs from the amount of emission expense recognized to-date, a true-up will be recorded in the period the actual amount is known. This true-up could be an increase or decrease to emission expense depending on the cost of carbon
allowances and the amount originally estimated. Any true-up to expense will be included in the PCA. c. Avista does not receive any no cost allowances related to its Idaho electric operations. The only allowances that Avista receives at no cost for electric operations are related to its Washington
operations and that is because Washington electric emissions are governed by the Clean Energy Transformation Act rather than the CCA. The no cost allowances that are provided for Washington electric operations are only meant to satisfy the Washington portion of the emission obligation and Avista does not expect to receive no cost allowances above its Washington emission obligation. As
such, it does not expect to sell the no cost allowances in Ecology auctions, and it will not have any no cost allowances that may be sold for the benefit of Idaho customers.

As it relates to Idaho electric operations, since Avista must purchase allowances to meet its entire Idaho emission obligation, if Avista determines that it has excess carbon allowances that are not necessary for CCA compliance, it can sell these allowances via the Ecology auctions, bilaterally or through an exchange. In the event Avista does sell excess allowances that it has previously
purchased, the net difference between the original cost and sales price from these sales will be included in the PCA. d. Banking allowances will only occur between the period the allowances are acquired and the period they are retired for compliance. They will be held in inventory during this period and be
used to calculate the weighted average cost of allowances which is the basis for the unit price of the monthly emission expense.