20040324Response of Avista to Staff Part XV.pdf

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AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:Idaho DATE PREPARED:3/22/2004
CASE NO:A VU-O4-01/ A VU-O4-WITNESS:Scott Morris/
Malyn Malquist
REQUESTER:IPUC RESPONDER:Don Falkner
TYPE:Data Request DEPARTMENT:Rates
REQUEST NO.102 TELEPHONE:[phone]
REQUEST:
The May 10, 2001 minutes for the annual meeting of shareholders states, "the Company was
refocusing its strategies in order to ensure its financial well being." Is there a formal document,
or study, assessment, etc. that spells. out the strategies? An example might be a mission
statement with business unit goals and objectives. If there is such a document, is it only at the
A vista Corp. level? Does A vista Utilities have such a document? Please provide documentation
of any such strategies to the IPUC Audit Staff. (Formerly Audit Request No. 96, dated on-site
September 11, 2003).
RESPONSE:
Please see the attached presentation materials that accompanied Mr. Ely s presentation at the
2001 Shareholders Meeting. Also attached is a Transcript from the First Quarter, 2001 Investor
Conference Call on April 24, 2001 in which there are a few references to strategies.
2001 ANNUAL MEETING
WELCOME SHAREHOLDERS
Gary G. Ely
President and Chief
Executive. Officer
JiI'STA.
I am amazed....at what we ve been through...and at what
ve accomplished.
Never experienced such volatile energy markets.
ve responded quickly...and weathered the storm.
Avista Utilities -- regaining its financial strength.
A strategy is in place to position the company going
forward.
Our employees, with their innovation, creativity and
dedication have always pulled us through difficult times.
;:.
Regulatory Approvals
;:. New Generation
;:.
Avista Energy
PROGRESS REPORT
;:.
Customer Relationships
;:.
Technology Milestones
;:. Dedicated Employees
Here s a progress report -- we ve made headway on several
fronts.
Re2ulatorv approvals from utility commissioners
- Adding new 2eneration
A vista Ener2V continues to thrive
Customer service strengthens relationships in our
communities
Technolo2V businesses meet critical milestones
Dedicated employees make it all possible
I'm pleased with where we are today as a company.
Yet, we have a lot more to accomplish.
OUR COMMITMENT
;:. Simplify
;:. Focus
;:. Execute
Our messages have been consistent.
- We will simplify our business.
- We will focus on what we do best.
- And we will execute on our promises.
These are messages we ve brought to our employees,
institutional investors in New York, investment bankers,
community leaders, and you, our shareholders.
It's being well-received.
Avista is strengthening relationships with its state
regulators and redirecting its focus on the core
utility business, while continuing to pursue a more
conservative approach with respect to
unregulated businesses.
;:. Debt analyst
WHAT WALL STREET IS SAYING
Avista is working to contain risk and restore its
bottom line.
;:. Equity analyst
The message is coming through loud and clear on Wall
Street.
Here is what two analysts are saying about Avista.
Debt analyst -- an important audience for us as we manage
our cash and liquidity issues.
Equity analyst -- representing the thoughts and
impressions of those who follow our stock.
Both quotes reflect Wall Street's belief that Avista is a
company headed in the right direction.
AVISTA CORPORATE OVERVIEW
Many of you are familiar with our long and proud utility
history.
Let me walk through a quick overview of the rest of the
company.
Our lines of business are broken into regulated and
un - regula ted b usin esses.
Regulated AVISTA UTILITIES
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Re2ulated Business:
Avista Utilities - More than 310,000 electric and 280,000
natural gas customers in the Pacific Northwest.
The utility is separated from the unregulated capital
companIes.
Regulated AVISTA UTILITIES
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AVISTA ENERGY AVISTA POWER
Unregulated AVISTA LABS AVISTA ADVANTAGE
AVISTA COMM.
These are our unregulated businesses.
Unre2ulated Ener2Y Businesses:
Avista Energy - markets energy in the West
A vista Power- power plant developer
Information and Technol02Y Businesses:
Avista Labs - fuel cells, fuel reformers, components
A vista Advantage- Internet-enabled facilities
management
Avista Communications - integrated communications
solutions
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AVISTA 'UTILITIES.
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Avista Utilities has taken front and center stage.
We expect clean , inexpensive, reliable electric power.
But Western power markets have changed.
High-priced wholesale power is now a reality.
Yet A vista is still one of the lowest-cost generators of
electricity in the nation.
Picture of our Cabinet Gorge dam.
Recent upgrades = extra 18 megawatts.
AVISTA I UTILITIES
WHOLESALE ELECTRIC PRICES
(IN CENTS PER KILOWATT)27.00tp
28\t
1996
11.78\t
1.48\t 19\t 63\t
1997 1998 1999 2000 2001
(Projected)
Wholesale electric prices:
Previous market prices: 2 to 3 cents per kilowatt.
Last summer: more than $1.00 per kilowatt.
Now: still above 20 cents per kilowatt.
Currently charge customers about 5 cents per kilowatt.
In Washington state the difference is being set aside in a
deferral account.
Requested the WUTC to extend deferral mechanism.
Reached settlement agreement with a number of parties.
I'll explain in more detail later.
AVISTA I UTILITIES
2001 HYDRO GENERATION
(JAN. APRIL) COMPARED TO 10 YEAR AVERAGE
464 MW
250 MW
1991 - 2000
AVERAGE
2001
54% of 1991-2000 Average
To compound the situation...it's one of the driest years on
record.
Past decade: A vista generated average of 464 megawatts on
our own system.
This year: about half of our traditional output.
Without hydro generation, must go to open market at very
high prices, adding to the deferral balances.
re asking our customers to conserve energy.
Watch some TV spots we re running to raise awareness
among our customers and encourage them to conserve.
(Run TV ads: Bob Bietz, Chris McCabe, buy-back spots)
These TV ads feature A vista employees.
Everyone of us can make a difference.
You d&.. have the power to conserve.
Stop by the Avista Utilities booth outside the auditorium
before you leave.
Pick up an energy conservation tip sheet
...
compact fluorescent light bulbs too.
AVISTA I UTILITIES
Add generation to
meet customer needs
Coyote Springs 2
;:. 280 MW near Boardman, Oregon
;:. Groundbreaking in January 2001
~ Start-up expected June 2002
Despite complex issues.. .here s what we re doing.
Corporate strategy: own or contract sufficient generation
to meet our retail loads and provide adequate reserves.
Reduce / eliminate exposure to volatile energy markets.
Coyote Springs 2 - proof we re adding generation
Avista Utilities project -
- located on the site of an existing gas turbine project
- expected to go online by mid-2002.
One step closer to our goal of being "long power.
AVISTA I UTILITIES
COST OF GAS PURCHASED
FOR WASHINGTON AND IDAHO
(IN CENTS PER THERM)
59.89!
37.09!
17 .59!17.09!
20.99!
15.09!
1996 1997 1998 1999 2000 2001
Wholesale natural 2as : supply and demand forces. Natural
gas demand has grown faster than production.
Unlikely prices will return to previous 15 cents per therm
Some costs have been passed through to customers.
- Still deferring and may need to ask to recover these in the
next few months.
To help customers in need: Significant contribution to
energy assistance programs such as Project Share.
Important to understand: Avista does NOT profit from
these 2as rate increases.Simply a "pass-through" cost for
the price we re paying for gas to meet-customer needs.
Avista Power plays an important role in our strategy.
Focus: develop and own generation projects like this
facility under construction near Rathdrum, Idaho.
Joint venture: Avista Power and Cogentrix Inc. of North
Carolina
Originally scheduled to go on line in Q4... but could begin
operation as early as this July.
Avista Energy has exclusive rights to continue marketing
the entire power output
- an example of coordination and collaboration among two
key unregulated Avista businesses.
A vista Energy - unregulated energy marketing business.
Knowledge power:
Our biggest asset is experienced people.
- More than 20 years of experience
- They grew up in the utility business
Focus on what we know best -- the West.
Having great success.
In 2000, A vista Energy = $3.51 EPS.
- better-than-anticipated earnings in Ql of this year.
bunts" and "singles " -- a conservative approach to
managing risk and capitalizing on volatile western energy
markets.
ve made a lot of progress.
In 2001, we re adding as much as 335 MW between our
regulated and unregulated businesses.
The following year, we ll add another 504 MW.. .again split
between regulated and unregulated businesses.
By July 2002, a total of 840 MW additional generation to
A vista s portfolio.
Result: In surplus power position and minimize our
exposure to expensive energy costs on the open market.
AVISTA I UTILITIES
;:..
Power-cost deferral agreement
Extend Washington deferrals through February 2003
UTING OUR STRATEGY
;:..
All customer electric buy-back program
Approved in Washington and Idaho
;:..
Irrigation electric buy-back program
Approved in Washington and Idaho
re already executing our strategy:
- Deferral agreement: staff of the Washington Commission
and all other parties agreed to extend power-cost deferral
mechanism through February 2003.
- Plan allows us to mitigate deferral costs.
- Requested settlement decision on or before May 25.
All-customer buy-back programs: The more electricity our
customers conserve, the more credit they earn.
- Among first to introduce program
- Example of innovation
- Implemented similar buy-back program for irrigators
Energy side of our business has been busy.
ve also been moving ahead with our information and
technology businesses...
Advantage is a prime example of our innovative spirit.
- Grew out of our utility roots...and our ability to manage
energy costs and better serve customer needs.
Now, the nation s leading provider of Internet-based
facility management and information services.
Helps customers with multiple sites proactively manage
and reduce their facility-related costs.
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AVISTA ADVANTAGE CUSTOMER GROWTH
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This is just a sample of some of Avista Advantage
customers.
You ll recognize most of the names.
During the past year, Avista Advantage added several
high-profile customers...including Target, Office Depot,
Federal Express, Circle K and Supercuts.
Also recently added a company with close ties to the
hospitality industry
- providing A vista Advantage access to hotels like Marriott,
Hyatt and other hospitality businesses.
A vista Labs continues to gain national and even global
attention.
During the presidential campaign, Vice President Dick
Cheney met with Mike Davis and Kim Zentz to learn about
Avista Labs and unique, modular approach to fuel cells.
A vista Labs developed from the expertise of our traditional
utility knowledge.
Despite decision to withdraw a proposed public offering of
Labs, business continues to grow. Milestones on track.
Avista Labs is recognized as a "true leader" in this
emerging technology.
AVISTA I LABS
MARKET APPROACH
Weare pursuing parallel paths to the marketplace -
components, fuel cell systems, and integrated systems.
Each path has related market segments:
distributed generation market, the premium power market
(need for uninterruptible and very high quality
power).. .and the residential small commercial market.
H2fuel, LLC: focused on the development and
commercialization of hydrogen fuel processor technology.
Avista Labs - a strategic extension of Avista s generation
platform as we move toward supplying an increasingly
demanding economy which runs on digital quality power.
Avista Communications: integrated communications
provider (ICP).
- Integrated packages for business customers.
- Serves ten markets in the West.
Photo: Avista Communications ' network surveillance
center to monitor entire network from central location.
ve built a strong business with a solid infrastructure
and a growing customer base.
Scale and scope are extremely important in this business. A
business partner will allow A vista Communications to
reach the required level.
ve hired an investment banking firm to assist in the
process, which could take 18 to 24 months.
OUR COMMITMENT
;:. Simplify
;:. Focus
;:.
Execute
Simplify. Focus. Execute. Our commitment to employees,
customers, and to you our investors.
Proud of what we ve accomplished - and energized by what
lies ahead.
I believe we re on track and headed in the right direction.
Yes, there will be challenges. But we have full confidence in
the women and men of A vista. Their innovative spirit has
always prevailed.
I'd like to thank our employees, past and present. They are
what make this company great.
Oliver Wendell Holmes: What lies behind us and what lies
before us are tiny matters compared to what lies within
us. "
Thank you.
FOCUSED ENERGY
Gary G. Ely
President and Chief
Executive Officer
\\JiI'STA.
Any questions, I'd be pleased to take them at this time.
Please use the microphones that are set up around the
auditorium and wait to be recognized.
Before asking your question, please state your full name.
For audience members in Cafe - write out your questions
and hand them to an Avista staff member who will deliver
them to the auditorium to be addressed.
\'iI'
AVISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 1
A vista Corp. Ql Investor Conference Call
April 24, 2001
Transcript
FINAL
D. Brukardt Good morning and welcome to Avista s first quarter 2001 earnings
conference call. Avista s earnings were released pre-market this
mornIng.
With me here today in our offices in Spokane are A vista Corp.
President and Chief Executive Officer Gary Ely, Jon Eliassen, our
senior vice president and chief financial officer, and Scott Morris
president of A vista Utilities.
As we move into this morning s conference call, you should be
cautioned that during today s conversation we will be making
forward-looking statements that involve risks and uncertainties
which are subject to change.
I would direct you to Avista s latest Form lO-K filed with the SEC
for reference to the assumptions on which these statements are
based, as well as the various factors which could cause actual
results to differ materially from those contemplated to the extent
these assumptions and factors are not discussed on this call.
A VISTA CORPORATION
Moderator: Dave Brukardt
April 24, 200119:30 a.m. CDT
Page 2
Avista filed its Form lO-K for the year 2000 in March and it is
available on our Website or in hard copy by calling Karen
Eastwood in our Investor and Corporate Relations department at
509-495-2753.
Thank you for joining us today. At this time I will turn our
conference call over to Avista President and CEO Gary Ely for his
opening remarks.
Gary Ely Thank you, Dave. When we spoke with you during our last
conference call, I shared with you my initial thoughts and outlined
my commitments to you as president and CEO of A vista Corp. I
told you that our overall objectives are to simplify our business;
focus on the things we do best; and execute on our stated
strategies. I am pleased to be able to report progress to you on all
three fronts.
First in our utility business: As you have heard and read
unprecedented wholesale power prices continue to dominate
western markets. But A vista Utilities continues to execute its
strategy to manage regional power supply issues.
Within the past few weeks, we filed a request with the Washington
Utilities and Transportation Commission to implement an all-
customer electric energy buy-back program. If approved, from
May 15th to October Ith, we would credit eligible customers five
cents per kilowatt-hour for reducing their electric use by more than
five percent.
AVISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 3
This innovative approach to energy conservation gives our
customers an incentive to help keep our purchased-power costs
down.
On March 22, A vista Utilities filed a request to extend our excess
purchased-power cost deferrals through December 31,2002. This
request includes a plan to address deferral account balances and a
demonstration of prudency regarding those costs. A vista has
requested a response by July 1 from the W -U- T -C on extending the
deferral. The current deferral mechanism expires at the end of
June.
A vista is expected to be in a surplus power position by July of
2002, and the sale of this surplus power is expected to result in
increased revenues to offset deferred power costs. Our expectation
is that this would enable A vista to minimize the risk of increasing
retail rates to its customers.
To help bring our utility into a "long power" position, construction
is underway on our 280 MW Coyote Springs 2 project near
Boardman, Oregon. This project is located on the site of an
existing gas turbine project that is operated by Portland General
Electric. We project our plant will go online in Oregon by mid-
2002.
A vista Utilities has also successfully petitioned for expanded
operating time for one of its existing gas turbine plants in Spokane.
AVISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 4
In exchange for an environmental off-set project, the state of
Washington has approved expanded use of a 60 MW gas turbine
peaking plant that can power thirty thousand homes.
Environmental enhancements scheduled for installation this
summer will help ensure the long-term availability of this plant.
Weare also working with regulators in Idaho to find ways to
permanently extend operation of another gas turbine near
Rathdrum, Idaho, northeast of Spokane.
Our overall corporate strategy is to own or contract for sufficient
generation to meet our retail loads and provide adequate reserves.
By July of 2002, A vista Utilities could add approximately 370
megawatts of generation, expanding the regulated utility business
energy availability by more than 20 percent. At the same time, our
unregulated Avista Power could add another 470 megawatts of
generation to Avista s portfolio. Between our regulated Avista
Utilities and our unregulated A vista Power business, this could
provide a combined 840 megawatts of additional generation
expanding our corporate energy availability by nearly 50 percent.
Additionally, regulators have approved 29-percent purchased gas
cost adjustments in Washington, Idaho and Oregon. And regulators
in California approved a 61-precent rate increase for our 18-
thousand customers in South Lake Tahoe. These are "pass
through" rate increases and have no impact on earnings. An
electric irrigation buy-back program has also been approved in
AVISTA CORPORATION
Moderator: Dave Brukardt
April 24, 200119:30 a.m. CDT
Page 5
Washington and Idaho, providing additional incentives to reduce
power usage.
(Pause)
Avista s energy marketing business, Avista Energy continues to do
well, earning high returns while maintaining strict counter-party
credit requirements. A vista Energy continues to conduct trades in
California, but only with credit-worthy parties who meet its
counter-party credit requirements.
To help ensure that an appropriate balance between risk and
opportunity is maintained, the board of A vista Energy has
appointed Dennis Vermillion as president and chief operating
officer. Dennis has been with A vista Energy from the birth of the
company in 1997 and his knowledge of western markets is
extensive. We are very pleased to have him in this key leadership
position.
(Pause)
Avista Power, our independent power production company is also
moving ahead aggressively to capture opportunities in today
dynamic power markets.
Construction continues on the Lancaster project near Rathdrum
Idaho. This 270 MW combined-cycle, gas turbine project was
originally scheduled to go on line in the fourth quarter of 2001. But
A VISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 6
because of current market conditions, work on the project has been
accelerated and the plant could begin operations as early as July.
A vista Energy has exclusive rights to continue to market the entire
power output from this project.
At this time, A vista Power is also continuing to develop sites for
additional peaking plants and could have another project on-line in
early 2002.
(Pause)
Progress also continues in our information and technology
subsidiaries.
Despite our decision earlier this year to withdraw a proposed
public offering of A vista Labs, that business continues to grow and
thrive... and is on track to meet or exceed this year s milestones.
A vista Labs is now the majority owner of H2fuel, LLC. This
business is focused on the development and commercialization of
hydrogen fuel processor technology.
The team assembled to form this enterprise represents a substantial
track record in fuel processing technology and in the construction
of pilot plants for the production of pure hydrogen from
hydrocarbon base fuels such as natural gas and propane.
A VISTA CORPORATION
Moderator: Dave Brukardt
April 24, 200119:30 a.m. CDT
Page 7
H2fuel has exceeded all of its technical performance and schedule
expectations for the quarter. We believe this highly focused
enterprise will provide hydrogen solutions to a broad marketplace
in need of hydrogen production solutions.
A vista Labs has also appointed two new board members - Tucker
Adams and Bob Goff - who bring substantial technical and
business expertise to the table. Tucker Adams brings global
economics perspective, while Bob Goff builds on his more than 30
years of technology management experience with 3M. Both
Tucker and Bob have joined the A vista Labs board at an important
time in the evolution of the company and we look forward to their
contributions to this enterprise.
A vista Labs continues to execute its strategy of focus, controlled
growth and component production via out-sourced manufacturing.
Excellent results from field trials have led the company to offer
hydrogen fueled systems aimed at back-up and premium power
applications, in addition to offering its hydrogen sensor for sale
this year.
Intellectual property development and protection continue to be
strengths for A vista Labs. With three patents covering 264 claims
already under its belt, Avista Labs has 19 additional applications in
various stages of the patent process.
A vista Labs continues to show that it has the focus, discipline and
team in place to successfully move to market.
A VISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 8
(Pause)
In the evolution of our telecom business, we announced that we
have hired an investment banking firm to help us find additional
partners for our voice, high-speed broadband data transport and
Internet company, A vista Communications.
ve built a strong business and additional partners will allow
A vista Communications to reach the next level. This process is
expected to be complete within 18 to 24 months.
This direction is based on Avista Corp.'s need to focus on what we
do best... and on what we believe is best for this state-of-the-art
telecommunications company.
While we are evaluating options for this business, it remains a vital
and growing concern. With more than 250 miles of fiber-optic
infrastructure - one of the largest in this region - A vista
Communications has recently launched integrated high-speed
telecommunications solutions for its customers in Spokane.
(Pause)
A vista Advantage, a leading provider of facility management and
information services for businesses with multiple operational sites,
continues to make progress. A vista Advantage provided its billing
and information services for $625 million of customer bills in the
A VISTA CORPORATION
Moderator: Dave Brukardt
April 24, 200119:30 a.m. CDT
Page 9
first-quarter 2001 compared to $178 million in the same quarter
last year.
Just last week, we announced that A vista Advantage has added
A vendra to its long list of clients. A vendra is an independent
company launched by a group of hotels including Marriott
International and Hyatt Hotels.
With its proven relationships in the hospitality industry, Avendra
opens the door for A vista Advantage to extend its products and
services to a wide range of hotels and other hospitality businesses
to help them better manage energy usage and budgets in the
current energy crunch.
Avista Advantage announced 17 new customers in the first quarter.
Among them are well-known companies like Federal Express,
Office Depot, Target Corporation and ANC Rental , which includes
Alamo and National Car Rental.
Facility managers have come to realize they can only manage what
they can measure. By giving clients new and different ways to
analyze their energy costs, A vista Advantage continues to be the
partner of choice for companies seeking to better manage energy
and facility-related costs.
(Pause)
A VISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 10
Simplify. Focus. Execute. These three concepts remain the
touch-stones of my commitment to our employees, our customers
and to you.
I am pleased with the progress we ve made over the course of the
first quarter, and am excited by possibilities the future holds for
A vista Corp. and our affiliate businesses.
I'd like to now turn the conference call over to our chief financial
officer and senior vice president, Jon Eliassen. Jon?
Jon Eliassen Thanks Gary. As we announced on March 29 , we have been
successful in issuing $400 million in senior notes. This money will
be used to repay short-term debt, fund capital expenditures
including interim funding for Coyote Springs 2 - and other costs
incurred by the company. The issuance of these notes gives us a
strong foundation for financing the company through this year and
well into 2002.
The same strategies that allowed A vista Energy to be successful
during 2000 have continued to provide additional income and
positive cash flow during the first quarter of this year.
A vista Energy is primarily responsible for the better-than-
anticipated first-quarter 2001 results. These results are, in part
possible because of the continued vigilance A vista Energy has
maintained with regard to counter-party credit requirements. And
AVISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 11
as Gary mentioned earlier, we also remain focused on balancing
risk with the capital required to operate this business.
We have also filed our plan for recovery of our deferred purchased
power costs. As of March 31 , $56 million of purchased power
costs have been deferred in Washington. In Idaho, A vista Utilities
deferred $11 million and has implemented a 4.8 percent rate
increase to recover previous deferrals.
While our strategy has been to minimize price increases to our
customers, we may need to file for an electric price increase if
hydro conditions worsen, if there is a prolonged outage at a
thermal plant, or if there is a delay in the installation of additional
generation this summer.
In the California markets, A vista Energy has not been trading with
either the Cal ISO or Cal PX for several months. A vista Energy
exposure in California - net of reserves - is approximately $24
million, down from approximately $40 million, net of reserves, at
the end of Q4 2000.
The targeted range for Avista Corp s consolidated earnings for the
full year 2001 falls between $0.85 to $1.10 per diluted share. This
outlook reflects a contribution of between $.90 and $1.00 from
A vista Energy. We are also projecting a contribution of between
90 and $1.00 from Avista Utilities. This is, of course, based on
current stream flow and weather projections , anticipated
purchased-power prices, and continued ability to defer excess
A VISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 12
purchased-power costs. Earnings from A vista Utilities and A vista
Energy are partially offset by the company s continued support of
the corporation s information and technology businesses.
(Pause)
To meet the demand of the current market place, A vista Corp. is
moving ahead quickly with its key strategic objectives. We are
well on our way to erasing the gap in our power generation
portfolio, which will provide the opportunity for us to shrink and
eventually eliminate our deferred account balances - without the
expectation of rate increases to customers.
We continue to work closely with our regulators, who understand
current markets and appear supportive of our strategic goals.
Washington Governor Locke and Idaho Governor Kempthorne
also remain key players in this region on power issues and both
have maintained a sharp focus on power supply issues.
At A vista Corp., we are well positioned to meet the challenges of
the current market place, and capture new opportunities in the
future.
With that, I'll turn things back over to Gary.
Gary Ely Thanks Jon. I am pleased to share our first quarter results with
you. While some companies have been paralyzed by the
challenges in today s energy markets, the employees of Avista
A VISTA CORPORATION
Moderator: Dave Brukardt
April 24, 2001/9:30 a.m. CDT
Page 13
have attacked these challenges head on and have made good
progress this quarter. That is not to minimize the challenges ahead.
But I believe we are on track and headed in the right direction.
These are times that demand an innovative spirit. I am pleased that
spirit lives, and thrives at Avista Corp. and within its businesses.
I'd now like to turn the conference call back over to Dave
Brukardt. Dave?
Dave Brukardt Thanks Gary.
Ladies and Gentlemen, thank you for joining us today. On the
subject of earnings guidance, going forward, we will continue to
provide high-level earnings guidance and outlook in our quarterly
new releases. If any interim guidance becomes necessary, it will
also come via news releases.
We will now open this call up to your questions. I would also like
to remind any members of the media who are listening and have
questions to contact our Investor and Corporate Relations
Department at [phone].
Operator, we are ready for our first call.
(Questions and Answers)
A VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
Idaho
A VU-O4-01/ A VU-O4-
IPUC
Data Request
103
DATE PREPARED:
WITNES S
RESPONDER:
DEPARTMENT:
TELEPHONE:
3/22/2004
Malyn Malquist
Don Falkner
Rates
[phone]
REQUEST:
The May 11 2001 and August 9 and 10, 2001 Board of Directors' meeting minutes reference an
evaluation of various A vista business units, with advisory services being provided by Goldman
Sachs. The August minutes mention a presentation by personnel of Goldman, Sachs & Co., an
assessment of strategic alternatives and overviews of the various business units. Please provide
Staff with a copy of the assessment of strategic alternatives as it relates to A vista Corp. or A vista
Utilities. (Formerly Audit Request No. 97, dated on-site September 11, 2003).
RESPONSE:
Please see the following documents which are attached to Avista s response 103(C), and contain
TRADE SECRET or CONFIDENTIAL information and are exempt from public view and are
separately filed under IDAPA 31.01.01 , Rule 067, and Section 9-340D, Idaho Code.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:Idaho DATE PREPARED:3/2312004
CASE NO:A VU-O4-01/ A VU-O4-WITNES S:Scott Morris/
Malyn Malquist
REQUESTER:IPUC RESPONDER:Don Falkner
TYPE:Data Request DEPARTMENT:Rates
REQUEST NO.104 TELEPHONE:[phone]
REQUEST:
At the September 18, 2001 Board of Directors ' meeting, the Directors were given "written
updates on regulatory activity, Avista Energy, cost-savings initiatives and the VP Finance
search." What were the cost-savings initiatives? Which on~s were implemented? Are any that
were implemented still in place? (Formerly Audit Request No. 99, dated on-site September 11
2003).
RESPONSE:
The following programs were initiated in 2001. The are noted below as either deferred
temporary or permanent. Deferrals related to the timing of capital expenditures. Permanent
initiatives were intended to have ongoing benefits. Benefits associated with the initiatives, either
permanent or those carried over into 2002 would have been captured in the Company s revenue
requirement as filed in the above referenced dockets.
12 Computer & Telecommunications HW & SW Purchase terminations
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
Idaho
A VU-O4-01 A VU-O4-
IPUC
Data Request
114
DATE PREPARED:
WITNES S
RESPONDER:
DEPARTMENT:
TELEPHONE:
3/22/2004
Don Falkner
Kathy Mitchell
Rates
[phone]
REQUEST:
Please calculate and provide average base salary for all A vista Utilities employees. The
calculation is as follows: Total Base Salaries for 2003 for all A vista Utilities employees divided
by total employees. No benefits, taxes or incentive pay should be included in this calculation.
(Formerly Audit Request No. 117, dated February 10 2004).
RESPONSE:
Using the data from Avista s Payroll system, average Salary and Wage number is $58,358 for
2003 for the utility. This is a simple average of all employees at all levels for Avista Utilities.
Base salary is only one component of Avista s total compensation package that is offered to
attract and retain qualified employees, both craft and non-craft employees.
AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
Idaho
A VU-O4-01 A VU-O4-
IPUC
Data Request
117
DATE PREPARED:
WITNESS:
RESPONDER:
DEP ARTMENT:
TELEPHONE:
3/22/2004
Don Falkner
Don Falkner
Rates
[phone]
REQUEST:
Based upon previous Company responses, it is Staffs understanding that Avista does not have
any desk procedures, accounting and cost allocation manuals to train new or existing employees
in their duties and inform them of Company policies and procedures. Staff has an eleven-page
document (attached are hand-numbered pages 6-10 and 26-31) some of which is dated June 1996
describing utility codes, 1996 overhead percentages and 1997 budget overhead percentages.
Please verify that information previously provided is still current and also provide materials
describing the following:a. The process by which salary and benefits are recorded and allocated including the basis
of those allocations such as timecards or other allocation documents. Please include within this
response the original account numbers that are charged and the journal entries splitting those
charges to individual capital and expense accounts.b. The process by which capital charges are recorded. Please include within this response
the method by which construction projects are billed and ultimately recorded as plant in service.c. The current dollar threshold for expensing items. Staff currently has materials that
indicate items costing less than $500 are expensed.d. The process by which revenues are billed. Please include within this response how
changes in rates are implemented.
(Formerly Audit Request No. 121 , dated February 10 2004).
RESPONSE:
Some additional information regarding accounting procedures has been attached. The majority
of the 1996 information is still current. Overhead rates have been updated through the
Company s responses to previous data requests in this proceeding.a) Salaries are recorded to individual accounts through utilization of an online Timekeeping
Reporting System. In that system all labor is assigned to individual account numbers, either
expense, capital or a combination. Various combinations of Utility Codes and/or Location
Codes produce automatic allocations to operating system (electric, gas or non-utility) and state
jurisdictions. Those allocations happen in the General Ledger system and the Company
Results of Operations Model. Benefit loadings are automatically added to labor charges and
those loadings follow the labor charges accounting and allocations.b) Please see the attached information regarding the capitalization process. Capital projects
are assigned unique account information and amounts charged to those accounts are accumulated
and summarized under FERC account 107. At the completion of individual capital projects, the
Company s Utility Accounting Section produce a Work Order Transfer journal that transfers the
accumulated balances to the appropriate FERC Plant account. The journals are produced
monthly and are part of the Company s monthly financial closing process.c) The general threshold for capitalization is currently $1 000.
Response to Staff Request No. 117
Page 2
d) Revenues are billed automatically through the Company s Customer Service System
(CSS) through utilization of a combination of human and electronic meter readings that are done
upon a 21-day meter reading cycle. Actual usage from the meter reading data is applied against
the appropriate Rate Table within CSS. Rate changes are implemented through manual updating
of the Rate Tables within CSS as approved by our various regulatory commissions.
v...
CAPITAL VERSUS EXPENSE DETERMINATION
Page: 80-
April 4, 1988
, POLICY
All plant related activities will be identified as either capital or expense before the
expenditures are approved. Additions to or replacements of plant assets are capitaljzedaccording to the' following tests. Any expenditure relating to constructing, acquiring,
operating, or maintaining utility plant meeting at least one of the following tests is
considered to be a capital expenditure.
Additions of retirement units which did not previously, exist.
Substantial additions of minor items which did not previously exist.
Replacements of existing retirement units.
A portion of the _Replacement of minor items which substantially better therelated retirement unit.
, ,
Any expenditure which does not meet one of the above tests is considered expense.
The Plant Accounting Section of the Finance Department is responsible for establishing
and maintaining the Retirement Unit Catalogs and providing interpretations when
questions arise.
DISCUSSION
All activities related to plant consist of either construction,' removal, salvage
operations, maintenance or combinations 'thereof. The determination or whether an
expenditure is capital or expense is governed by the follo",,7ing underlYing concepts:
The reg~latory area: deriving benefit from the expenditure shouid bear the cost (ramaking philosophy).
Costs which provide benefits for more than one year shouldb e capitalized and
matched with the revenues generated by the expenditure through depreciation amortization (as authorized by Generally Accepted Accounting Principles).
The FERC Uniform System or Accounts pr~scribes the use of spe~ific accounts
for normal utility acti~ities and is followed where applicable. Some
flexibility in capital-vs-expense determinations is allowed so as to not
unduly refine the accounting.
jj:."
Activities that are classified as construction, removal, or salvage are identified the Retirement Units Catalog.
General Ledger & '\\' ark Order Svstem Training
CAPITAL-VS-EXPENSE DETERMINATION
1. Accounting Definition (Regulated)
a. CaDital ~ An expenditure is considered to be capital when it meets the following
tests:
- The work is for installing or replacing a defined "Retirement Unit . (If an item
is listed on a Property Removal Notice (PRN), it is a Retirement Unit.)
- Generally if the work is for installing new facilities, it is capital.
b. ExDense - An expenditure is considered to be expense when it meets one of the
following:
- The cost provides benefit to only one year.
,. The cost does not meet any of the capitalization criteria (i., does not involve
the addition or replacement of a retirement unit or is not installing new
facilities) .
2. Nature of Work Tests
a. The nature of the work performed is an aid in determining whether a cost is
capital or expense.
The following list contains "general rules of thumb" and examples:
- Moving existing materials or equipment is considered to be expense in most
cases: Examples: (1) straightening a pole, (2) trenching a pole over to a new
location, (3) moving a cross a...rrn down the pole because the top is split
(4) swinging a service to new meter location.
- Installing new materials or equipment is considered to be capital in most cases:
Examples: (1) putting in a new service, (2) installing a pole stub, (3) building a
new feeder.
- Replacing existing materials or equipment is considered to be capital in most
cases: Examples: (1) replacing a cross arm or pole, (2) replacing a complete
electric or gas serVice, (3) replacing an insulator, (4) replacing more than two
spans of conductor.
(NOTE: A general rule of thumb for replacements is: if the piece of equipment
appears on a PRN, then it is charged to capital.)
08/23/95 12:35
Ge:ner~l Ledger & Work Order System Training
b. As with all guidelines, there are exceptions. The following is a list of examples of
exceptions to the above guidelines:
- Installing transformers is always charged to operating expense (0583.10 for
overhead and 0584.10 for underground). This is because they are capitalized
when purchased and not when installed. Plant Accounting records a capitalized
installation cost on the first installation based on information supplied on the
First Installation" card completed by Operations.
- Replacing less than 2 spans of conductor is considered to be expense.' The
reason is that 2 spans of conductor is defined as a "Retirement Unit
- Relocating a pole or line is capital if a new one is installed and the old one is
removed. However, the cost of swinging the conductor to the new poles is
considered to be maintenance expense because the existing plant is just being
moved, nothing new was installed.
- Replacing less than a complete gas service is considered to be maintenance
expense.
08/23/95 12:35 PM
.General Led2'er & Work Order Svstem Trainin2'
CAPITAL VS MAINTENANCE
The terms "Capital" and "Maintenance" have specific meanings for the utility industry
accounting. The terms may have different meanings given to the terms by operations
purposes. Accountants and financial people view the spending of dollars in terms of how
, they are used to determine profit.
The utility accounting definitions can be summarized as follows:
Capital spending is for adding new facilities which did not previously exist or
replacing existing capitalized equipment. Replacements can be the same capability,
of lower capability, or improved capability and still be capitaL The driving force for
the account definition is two-fold: fJISt, is the expenditure going to provide benefits
to more than one year, and second, is the equipment being replaced derIDed as aRetirement Unit
Maintenance spending is for repairing equipment or replacing materials not defined as
Retirement Units
Examples:
Some view replacing a broken crossarm as not improving the line, it is justmaintaining it; therefore, it is a maintenance item and is charged to expense. The
focus is on the line as a whole. However, a crossarm benefits future years and is
defined as a retirement unit so for accounting purposes it is capital.
In the gas part of our business over the last several years we replace a lot of risers.
Risers do benefit more than one year but they are not defined as a retirement unit sothey are expensed.
08/23/95 12:35 PM
General Led er & Work Order Svst~m TraininO'
...
recover over muitiple years 1 year
CAPITAL EXP ENSE
- build something new
- replace old equipment
with new
wpc/173
08/23/95 12:35
vs.
V5.vs.
- fix existing plant
-4-
- operate plant
- turn valves
- flip s'Nitch
- etc.
ACCOUNT DISTRIBUTION DECISION-TREE
EIGHT- STEP-TEST"
YES
CArlI AL
REPLACING- YES ~R YES EXPENSE
YES CAPIT AL
EXPENSE
(RELOC AT ING YES
,,?
Mov lNG, YES
EX 1ST ING;---EXPENSE
CAPIT AL
EXPENSE
NO4PAIRING~YES
....
EXPENSE