20060510AVU responses.pdf

Avista Corp.
1411 East Mission PO Box 3727
Spokane, Washington 99220-3727
Telephone [phone]
Toll Free BOO- 727-9170
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Corp.
May 9, 2006
Cecelia A. Gassner
Deputy Attorney General
Idaho Public Utilities Commission
472 W. Washington
Boise, Idaho 83702-5983
RE:Case No. A VU-06-1 / A VU-06-
A vista Corporation hereby submits an original and 2 copies of its responses to Staff Data Request
numbers 2 , and 18.
Questions regarding this response should be directed to Liz Andrews at [phone].
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Mike Fink
State & Federal Regulation
A vista Utilities
Enclosures
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AVISTACORPORATION
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RESPONSE TO REQUEST FOR INFORMA TION"
JURISDICTION: Idaho
CASE NO: A VU-06-1/A VU-06-
REQUESTER: IPUCTYPE: Data Request
REQUEST NO.: 2
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DATE PREPARED: 05/04106
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WITNESS: . i ' u
RESPONDER: Diane Thoren/Liz Andrews
DEPARTMENT: Finance/State & Federal Reg.
TELEPHONE: [phone]
REQUEST:
Please provide specific ring fencing procedures used by both A vista Utilities and A V A
Formation which outline any and all segregation protocols; including those for Cash
Management activities, Financing, Cost Allocation and Prudent Business Practices.
RESPONSE:
Please also see Avista s response to Staff Data Request No.
Cash Management Procedures
Avista s current cash management guidelines, which have been filed with FERC pursuant to
Docket No. RM02-14 and are attached to this response, are designed to maintain separation of
cash flows of A vista Utilities and each subsidiary. Each company maintains separate bank
accounts and our cash management guidelines are designed to prevent the commingling of funds.
It is our intent to maintain such separation upon the Reorganization.
Financings
Avista Utilities currently issues, and will continue to issue upon completion of the
Reorganization, its own debt and preferred stock, and would maintain its own credit facility for
short-term funding needs. To issue such securities, A vista Utilities will continue to file for
authorization from the commission for such issuances. A vista Utilities common stock will be
solely owned by AVA. When AVA issues stock or debt securities, it would use the proceeds to
fund, as necessary, the common equity requirements of all of its subsidiaries, including A vista
Utilities. The other funding requirements of the non-regulated subsidiaries would be provided
by their own cash flows or separate financing raised at the subsidiary level. A vista Utilities does
not intend to guarantee any debt obligations of A V A or any of the other affiliates or subsidiaries.
Cost Allocation
Avista s current cost allocation procedures between its regulated and non-regulated businesses
would not change after the Reorganization. All transactions or costs for services between the
utility and its subsidiaries are accounted for appropriately under applicable statutes and rules
established by each Commission. Charges that relate to corporate services (i.e. salaries for
corporate support such as tax, accounting, etc.; graphic services; travel; etc.) provided to
subsidiaries are directly billed to subsidiaries at cost. Additional charges associated with labor
Response to IPUC Staff Data Request No.Page 2 of2
related charges to subsidiaries include payroll loadings and overheads as appropriate and are
consistently applied to all Avista Corp. payroll charges. The Company s payroll loadings and
overhead billing rates are reviewed monthly and adjusted as necessary, to reflect changes in cost
and usage. No additional margin or profit is included and no costs or assets are allocated. The
revenues and expenses associated with these types of transactions are reviewed by Commission
staff and other interested parties during rate cases and through existing Commission reporting
requirements.
Prudent Business Practices
AVA and A vista Utilities would continue to operate in such a way as to protect utility customers
from the risks associated with A V A's other subsidiaries or affiliates. There are no parental
guarantees of any debt obligations from the utility to any of its other affiliates or subsidiaries.
And importantly, A vista has separate, very disciplined, risk management programs in place at
both A vista Utilities and A vista Energy.
July 1, 2003
Avista COrp.
Cash Management Guidelines and Procedures
In order to efficiently manage cash at the corporate and subsidiary levels, minimize borrowing costs and
maximize investment returns, the following procedures should be followed regarding cash management
activity between Avista Corp, Avista Capital and Avista Capital Subsidiaries (excluding Avista Energy- see
note A):
Investment/Borrowing Policies
All excess subsidiary company cash will be managed at the A vista Corp. level. Cash will be
transferred to the subsidiaries through A vista Capital to cover payables according to the guidelines set
below. (Note - A Master Promissory Note in effect for any Subsidiary will supercede these
guidelines.
1. Avista Capital may maintain a money market account with a maximum balance of $1 000,000. This
account may be used to fund subsidiary payables. Avista Capital cash balances over $1 000,000 and
up to the outstanding loan balance will be transferred to Avista Corp as a payment against the
outstanding borrowings on the loan between Avista Corp and Avista Capital.
2. A vista Capital may borrow from A vista Corp. to cover subsidiary company cash needs in accordance
with board-approved limits. Avista Capital may loan excess funds to Avista Corp upon receipt of
appropriate approvals.
3. Unless specifically stated in a master promissory note, all loans between companies are unsecured.
4. Subsidiaries with cash deficits may borrow from Avista Capital. Borrowings will be in accordance
with each company s board-approved limits. Subsidiaries will repay or loan excess funds to A vista
Capital.
5. InvestmentIBorrowing Rates Between Avista Corp. and Avista Capital:
a) Upon receiving appropriate approvals, excess Avista Capital cash may be invested with (loaned
to) Avista Corp. at a rate equal to Avista Corp.'s avoided short-term borrowing cost currently
estimated at the one-month LffiOR plus 175 basis points. The rate will be reset monthly with the
LIBOR rate in effect on the second business day of each month, as reported in the money rate
section of the Wall Street Journal.b) Avista Capital may borrow from Avista Corp., subject to board-approved limits, at a rate equal to
the Prime rate plus 150 basis points. This rate will be reset at such time as the Prime rate is
changed by the Agent bank on the A vista Corp. Revolving Credit Agreement.
6. InvestmentIBorrowing Rates Between Avista Capital and Subsidiary Companies:
Subsidiaries of Avista Capital which are wholly-owned and are not expected to seek outside investors
within the next two years will not be charged interest on borrowings or receive interest on invested
funds with Avista Capital. The following interest rate guidelines apply to all other subsidiaries:a) Subsidiary companies will borrow from A vista Capital at a rate equal to the prime rate plus 150
basis points. This rate will be reset at such time as the Prime rate is changed by the Agent bank
on the Avista Corp. Revolving Credit Agreementb) Subsidiary company cash invested with (loaned to) Avista Capital will be at a rate equal to the
one-month LffiOR plus 175 basis points. The rate will be reset monthly with the LffiOR rate in
effect on the second business day of each month, as reported in the money rate section of the Wall
Street Journal.
7. The Avista Corp. cash manager (the "administrator ) will distribute monthly updates to management
which include maximum borrowing limits for each subsidiary, outstanding borrowings and
investments between subsidiaries and Avista Corp., and interest rates in effect.
8. The Avista Corp. subsidiary accountant will maintain daily interest schedules of all borrowings and
repayments between all subsidiary companies. Documentation will include the date and amount of the
borrowing or repayment. the maturity date, if any, the applicable interest rate, and daily balances of all
outstanding loans.
Note A) Avista Energy cash is currently collateral for a credit agreement and is invested in accordance with
the agreement Avista Energy, or other companies which may, in the future, have similar agreements will
manage their cash separately. To the extent cash may be invested outside of such agreements, these
procedures will apply.
II.Subsidiary Cash Management Guidelines
1. Cash Balances
All Subsidiary companies will keep a maximum of $50,000 cash balance per book in their checking
accounts at any time. Accurate up-to-date "checkbook" balances must be maintained and deposit
information should be updated when funds are received. This information is available via Wells Fargo
Commercial Electronic Office reports or through the Cash Manager for A vista Corp. Excess balances
resulting from large deposits should be transferred to A vista Capital for investment or to pay down
loan balances. Transfers of excess cash to A vista Capital may be incorporated in the weekly funding
request for payables. Please contact the Avista Corp. Subsidiary Accountant for details.
2. Accounts Payable Check Runs
Subsidiaries should normally plan to do one check run per week. Manual checks outside of the check
run are discouraged except in emergency situations. To receive maximum float on our funds, checks
should be mailed on Friday. If funding from Avista Capital is required, it will be deposited to the
subsidiary account the following Monday.
3. Funding Requests from Avista Capital
Estimated funding requests must be submitted by email to the Subsidiary Accountant by 3:00 pm
Friday for funding the following Monday. (please cc: to the Avista Corp. Cash Manager) The funding
request should indicate what expenses are included in the request for funding.
Actual funding requests (based on that estimate) for check runs must be received by 9:00 am on
Monday for checks mailed on the prior working day. Funding requests should be submitted by fax to
the Subsidiary Accountant at Avista Corp. Voucher must be signed by an authorized subsidiary
representative. Funds will not be transferred without proper signatures.
Please note: For funding requests over $2 million, please notify the A vista Corp. cash manager of the
due date as far in advance as possible.
4. Emergency Checks Due Before Next Check Run
Checks written outside of the normal check run should be funded one business day after they are
mailed, or the same day as written if hand delivered. If funding for these checks is required from
Avista Capital, the request for funds must be made by telephone to the Subsidiary Accountant,
followed by a fax request received by 3:00 p.rn. the day before the funds transfer. Funding requests
must be signed by an authorized subsidiary representative. Same day transfer of funds over $50,000
may be accommodated but cannot be guaranteed. Please contact Subsidiary Accountant or Cash
Manager for availability of same day funds.
5. Wire Transfers
Amounts payable over $500,000 should be paid by electronic transfer on the due date. The Voucher
request for wire payment and funding request (if needed) should be received by the Subsidiary
Accountant by 3:00 p.rn. on the day prior to the due date. These wire transfer amounts should be
included in the weekly advance estimates due at 3:00 on Friday. (See item 3 above.) Voucher requests
for wire transfers must be accompanied by an approved cash approval request.
All funding requests for subsidiaries whose accounting function is not done at the corporate offices must be
approved by a check signer for the subsidiary.
6. Intercompany payments
Intercompany payments between Avista Corp, Avista Capital and all Subsidiaries should be made
electronically. This includes payments for work orders, payroll and taxes.
These cash management guidelines and procedures will be reviewed at least annually, and at the time
A vista Corp. bank credit agreements are renewed.
Approved:
By:lJfl1A~ 4.
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Treasurer - A vista Corp.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
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JURISDICTION: Idaho
CASE NO: A VU-06-1/A VU-06-
REQUESTER: IPUCTYPE: Data Request
REQUEST NO.: 9
DATE PREPARED: 05/04/06-
WITNESS:
RESPONDER:
DEPARTMENT:
TELEPHONE:
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Diane Thoren
Finance
[phone]
REQUEST:
Provide the organizations policy and procedures addressing the segregation of assets and how
assets will not be commingled.
RESPONSE:
Please also see Avista s Response to Staff Data Request No.'s 1 & 2. Avista s current cash
management guidelines are designed to maintain separation of cash flows of A vista Utilities and
each subsidiary. Each company maintains separate bank accounts and our cash management
guidelines are designed to prevent the commingling of funds. It is our intent to maintain such
separation upon the Reorganization.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION , 7
JURISDICTION: Idaho
CASE NO: A VU-06-1/A VU-06-
REQUESTER: IPUCTYPE: Data Request
REQUEST NO.
DATE PREPARED: 05/04/06WITNESS:
RESPONDER: Diane Thoren
DEPARTMENT: Finance
TELEPHONE: [phone]
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REQUEST:
Describe how liabilities will be paid from separate corporate funds.
RESPONSE:
Please see Avista s response to Staff Data Request No.'s 1 & 2. Avista s current cash
management guidelines are designed to maintain separation of cash flows of A vista Utilities and
each subsidiary. Each company is responsible to pay for its liabilities from its own bank
account. As required by generally accepted accounting principles, liabilities of each company
are, and will continue to be upon the completion of the reorganization, recorded on the books and
records of such individual company.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION: Idaho
CASE NO: A VU-06-lIA VU-06-
REQUESTER: IPUCTYPE: Data Request
REQUEST NO.
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DATE PREPARED: 05/0512006
WITNESS:
RESPONDER:
DEP ARTMENT:
TELEPHONE:
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Liz Andrews
State and Federal Regulation
[phone]
REQUEST:
Provide details, including written restrictions, on how an "arms length" relationship will be
managed between affiliates.
RESPONSE:
Please see Avista s response to Staff Data Request No.s 1 , 2, 9, 10, 12, 13 & 17. Avista, as
A vista Utilities, would continue to be a separate legal entity and would be managed as such
separate and distinct from A V A and other AVA subsidiaries. The A vista Utilities board of
directors would continue to be an active board that will act in good faith with the care and loyalty
expected of a board. Even though the members of the A vista Utilities board of directors may
also be members of AVA's board, the two boards will exercise separate and independent
functions and duties.
A vista has separate, very disciplined, risk management programs in place at both A vista Utilities
and Avista Energy.
In addition to applicable statutes and rules on affiliated issues established by each State
Commission, Avista s Code of Conduct and Standards of Conduct filed with FERC, govern the
relationship between affiliates.
A vista provides on an annual basis Commission Affiliated Interest or Subsidiary Transaction
reports detailing transactions between the Utility and its affiliates, a copy of which is provided to
the IPUC annually.
Furthermore, A V A would be a "holding company" under the Public Utility Holding Company
Act of 2005 ("PUHCA 2005"). As a result, A V A and all of its subsidiaries (whether or not
engaged in any energy-related business) would be required to maintain books, accounts and other
records in accordance with the FERC regulations.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
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JURISDICTION: Idaho
CASE NO: A VU-06-lIA VU-06-
REQUESTER: IPUCTYPE: Data Request
REQUEST NO.
DATE PREPARED: 05/04/06
WITNESS:
RESPONDER:
DEPARTMENT:
TELEPHONE:
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Diane Thoren
Finance
[phone]
REQUEST:
Provide a description of how salaries will be paid from separate corporate funds.
RESPONSE:
Each subsidiary currently, and upon completion of the reorganization, will fund its payroll
obligation from its own bank accounts.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
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JURISDICTION: Idaho
CASE NO: A VU-06-lIA VU-06-
REQUESTER: IPUCTYPE: Data Request
REQUEST NO.
DATE PREPARED: 05/04/06,
WITNESS:
RESPONDER:
DEP ARTMENT:
TELEPHONE:
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Diane Thoren
Finance
[phone]
REQUEST:
Please describe how the credit of one entity will not be used to satisfy the obligations of the
other.
RESPONSE:
Please see Avista s response to Staff Data Request No.1. Avista Utilities does not intend to
guarantee any debt obligations of AVA or any of the other affiliates or subsidiaries. Each
company will be responsible for funding its own obligations, either through the issuance of debt
, as appropriate, funding from the holding company. Avista Utilities and A V A will each
maintain separate credit ratings, as appropriate. (See Avista s response to Staff Data Request No.
15.) Moreover, AVA will have the ability to issue stock or debt securities, the proceeds of which
would be used to fund, as necessary, the common equity requirements of all of its subsidiaries
including A vista Utilities.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
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JURISDICTION: Idaho
CASE NO: A VU-06-l/A VU-06-
REQUESTER: IPUCTYPE: Data Request
REQUEST NO.
DATE PREPARED: 05/04/06
WITNESS:
RESPONDER:
DEPARTMENT:
TELEPHONE:
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Diane Thoren
Finance
[phone]
REQUEST:
Describe how separate credit ratings will be maintained.
RESPONSE:
The rating agencies assign a separate credit rating to each issuance of debt and preferred stock by
an individual company. The agencies also assign a "Corporate" or "Issuer" rating to the overall
entity. Based on the practice that the rating agencies have followed for other utility holding
companies, it is anticipated that both Avista Utilities and A V A Formation Corp will be assigned
a separate Corporate/Issuer Rating. Avista Utilities ' currently outstanding debt and preferred
stock will have their own separate ratings.
AVISTA CORP.
RESPONSE TO REQUEST FOR INFORMATION
JURISDICTION:
CASE NO:
REQUESTER:
TYPE:
REQUEST NO.
IDAHO
A VU-06-1/A VU-06-
IPUC Staff
Data Request
DATE PREPARED: 05/0812006
WITNESS:
RESPONDER:
DEPT:
TELEPHONE:
" i
Diane Thoren
Finance "
[phone]
REQUEST:
Completely describe the Equity Interest relationship between entities, how they are segregated
and describe how limitations will be set on Distributions and Capital Structure.
RESPONSE:
Please see the illustration on page 3 of Avista s response to Staff Data Request No., which
shows Avista s current capitalization as it is expected to be allocated under the Holding
Company structure. In the future under the Holding Company structure, A V A will have the
ability to issue stock or debt securities, the proceeds of which would be used to fund, as
necessary, the common equity requirements of all of its subsidiaries, including A vista Utilities.
Currently, and in the future under the Holding Company structure, for distributions and capital
structure, the Board of Directors will consider the level of dividends on A vista Utility s common
stock on a regular basis, taking into account numerous factors including, without limitation
A vista Utility s results of operations, cash flows and financial condition, as well as the success of
Avista Utility s strategies and general economic and competitive conditions.
VISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION
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JURISDICTION: Idaho
CASE NO: A VU-06-1/A VU-06-
REQUESTER: IPUCTYPE: Data Request
REQUEST NO.
DATE PREPARED: 05/0512006
WITNESS:
RESPONDER:
DEPARTMENT:
TELEPHONE:
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Liz Andrews
State and Federal Regulation
[phone]
REQUEST:
Please provide all documents, including any applicable contracts, establishing the procedures
described in the above responses. If contracts are not signed, please provide the draft contracts
and indicate the expected execution date.
RESPONSE:
Please see Avista s response to Staff Data Request No.'s I-Supplemental, 2, and 19.