20150904AVU to Staff 150.doc

AVISTA CORPORATION
RESPONSE TO REQUEST FOR INFORMATION

JURISDICTION: IDAHO DATE PREPARED: 09/02/2015
CASE NO.: AVU-E-15-05/AVU-G-15-01 WITNESS: Mark Thies
REQUESTER: IPUC RESPONDER: Margie Stevens
TYPE: Production Request DEPARTMENT: Finance
REQUEST NO.: Staff - 150 TELEPHONE: [phone]

REQUEST:

Please provide the following policies regarding capital budget and capital accounting procedures:
Capital Budget Process
2014 and 2015 Budget Manual
Fixed Asset Process – Internal Control
Capitalization Policy

RESPONSE:

Senior management establishes the capital budget for each year in the 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 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 and prioritize funding to meet the Capital Budget targets set by senior management.  The Business Cases are ranked based on an overall assessment score with the following four criteria: 1) Financial Assessment – Customer IRR, 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 and compliance requirements, safety and reliability beyond what is included in the assessment score as well as other qualitative factors.  A recommended/approved five-year plan is reviewed with the Officers.  If any adjustments are needed to the Capital Plan based on officer feedback, those adjustments are made and the final Capital Plan is then communicated to Business Case and budget sponsors.  The Capital Budget for the following year is subsequently presented to the Finance Committee of the Board of Directors for approval.

The Capital Planning Group (CPG) meets monthly to review actual results compared to budget and expected spend for the year.  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.  Adjustments to the funding level for each business case are tracked on a spreadsheet.  The CPG is responsible for ensuring that the capital expenditures do not exceed the total capital budget target for the year.  It is also the responsibility of the CPG to approve capital projects that best support the objectives and strategic goals of Avista’s utility operations.

Please see Staff_PR_150 Attachments A and B for the budget manuals for the years 2014 & 2015.

All project related activities are identified as either capital or expense before expenditures are approved. Project expenditures relating to construction or acquisition of utility property are considered capital if they meet one of the following criteria:

Items costing more than $1,000 per item and having a useful life greater than one year, or defined in the Retirement Unit Catalog and meeting one of the following tests:
Addition of retirement units as identified in the Retirement Unit Catalog that did not previously exist
Replacement of existing retirement units
A portion of the replacement of minor items that substantially betters the related retirement unit by increasing the units capacity or significantly extending the unit’s useful life

- OR -

Physical additions of a minor item resulting from regulatory action, improved system reliability, or increased security and/or sustainability of utility assets when the total project cost is $250,000 or greater. An analysis supporting the aforementioned criteria must be included with the project request submitted to Project & Fixed Asset Accounting.

Project & Fixed Asset Accounting is responsible for establishing and maintaining the Retirement Unit Catalog and providing interpretation when questions arise.

Please see Staff_PR_150 Attachment C for the capitalization policy.

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