20180711Avista to Clearwater Paper 4.pdf

AVISTA CORPORATION
RESPONSE TO REQUEST F'OR INFORMATION
JURISDICTION: IDAHO
CASE NO: AVU-E-18-03/AVU-G-18-02
REQUESTER: Clearwater PaperTYPE: Production Request
REQUESTNO.: Clearwater-04
n[C[:lVI:D
DATE PREPARED: 07 /ll/2018WITNESS: N/A l0lil _!UL I I pi4 3:35RESPONDER: Karen Schuh
DEPARTMENT: Resulatorv Affairs, , .. i,. 'iCTELEPHoNE: (sig) +gs-z2g\ i:'" ':; "
1.'ils5'C"
c)
REQUEST:
The Settlement Agreement in the Avista/Hydro One merger docket (AVU-E-I7-09) provides,
beginning atParagraph 69 that the depreciation useful life of Colstrip Units 3 and 4, subject to
Commission approval, will terminate on December 31,2027.
A.) Does the accelerated depreciation of Colstrip also increase Avista's share of the Asset
Retirement Obligations (ARO)? Please explain.
B)Does the accelerated depreciation of Colstrip also accelerate Avista's share of the ARO?
Please explain.
Please describe the impact of your responses above on the estimate of Idaho's annual
allocated portion of ARO?
D)What will be ldaho's annual share of accelerated depreciation for Colstrip Units 3 and 4
assuming a useful life through December 2027?
RESPONSE:
A.) No. Avista's share of Colstrip Units 3 and 4 assets, depreciation and the associated ARO is
l5%. This share will not change with the acceleration of the depreciation life of Colstrip.
B.)The acceleration of the depreciation life of Colstrip will increase the amount recovered in
each year, because it is over a shorter depreciation period (2027) than the expected useful
life of 2034 and2036.It should be recognized that the ARO is not presently included retail
rates. If the ARO were to be recovered over the existing depreciable life (203412036) that
annual amount is $1.26 million. However, using a depreciable life of 2027 results in an
annual ARO depreciation of $2.52 million. (See Table No. 1.)
C.) The Company has estimated Idaho's allocated portion of the ARO associated with the
Colstrip assets to be $22,661,100. With a depreciation life of December 31,2027,
assuming recovery over 9 years, this would result in an annual depreciation associated with
ARO of approximately 52.52 million starting January 1,2019.
D.) Below is summary Table No. I showing ldaho's undepreciated Colstrip Unit 3 and 4
balance, including the current estimate of ARO (Idaho's share), as of December 31,2077
of $60.58 million. The current depreciation expense level included in retail rates is $2.48
million. Assuming the IPUC approves a2027 depreciable life, the new annual depreciation
amount to recover the undepreciated balance of $60.58 million in retail rates over the
remaining 9 years (effective January 1,2079 to December 31, 2027) would be $6.46
million annually, an annual incremental increase of $3.98 million.
Table No. I
Summary of Colstrip Costs (lD Share)
lncremental
Current Annual Accelerated
Depreciation Depreciation Annual
AmountTotal Amount 1203412036t.
Net Book Value of Colstrip Units 3 & 4, including
transmission assets, at December 3,,,2OL7
Estimated Asset Retirement Obligations (ARO)
Undepreciated Ba la nce
5 g7,gl4,s4l
s 22,66L,1,00
s 2,47s,227 5 1,462,47s
S S 2,s17,soo
5 3,937,702
5 2,s17,900
5 60,s7s,647 5 6,4s5,602
5 2,47s,227Current depreciation expense included in rates
Annual lncremental Accelerated Depreciation effective January t, 2079 S 3,980,375
The "Net Book Value" and "Undepreciated Balance" values will vary slightly from that shown
above once updated to reflect changes through December 31,2018, prior to depreciation rate
changes effective January 7,2079.
As shown in Table No. 1 above, the incremental increase in depreciation rates to reflect a 2021
depreciation life results in $3.98 million annually if depreciated over the remaining 9 years. If this
Commission were to approve a different amortization period. this annual amount would vary.
For example, in the Company's Washington jurisdiction, the parties to the Hydro One/Avista
Merger proceeding, Docket U-110970, have agreed to amortize the undepreciated balance of
Colstrip Units 3 and 4, after taking into effect existing annual depreciation expense levels and a
one-time offset related to amounts deferred associated with the Tax Cuts and Jobs Act (TCJA),
over a 36 vear period. As shown in Table No. 2 below, a similar approach if approved in Idaho,
would result in an incremental annual amortization of approximately $662.000 over 36 years.
Summary of Colstrip Costs (lD Share)
Net Book Va lue of Colstrip Units 3 & 4, i ncl uding transmission
assets, at December 37,2017
Estimated asset reti rement obligations
Undepreciated Balance
Futurecurrent depreciation expense recovered January 1,2018 -
December 37,2027
Tempora ry TCJA Ta x Credits (a va i I a bl e per Ca s e GNR-U-18-01)
lncremental Net Colstrip Unrecovered Balance 365 23,823,37 7 S oot,zoo
Amortization
Total Amount Period (Years) Annual Amount
5 3l,gu,sqt
22,667,r00
60,575,641
.24,752,270l.
(12,000,000)