Notice of Application.pdf

Office of the Secretary
Service Date
February 1, 2001
BEFORE THE IDAHO PUBLIC UTILITIES COMMISSION

IN THE MATTER OF THE PETITION OF
AVISTA CORPORATION DBA AVISTA
UTILITIES—WASHINGTON WATER POWER
DIVISION (IDAHO) FOR PROPOSED
MODIFICATIONS TO THE POWER COST
ADJUSTMENTS (PCA) METHODOLOGY.
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CASE NO. AVU-E-01-1

NOTICE OF APPLICATION

NOTICE OF INTERVENTION
DEADLINE

YOU ARE HEREBY NOTIFIED that on January 16, 2001, Avista Corporation dba
Avista Utilities—Washington Water Power Division—Idaho (Avista; Company) filed an
Application with the Idaho Public Utilities Commission (Commission) seeking approval of
proposed modifications to its existing Power Cost Adjustment (PCA) mechanism. As
justification for its proposed changes, the Company states that the cost of short-term power
purchases has risen to unprecedented levels. The rising short-term market price for electric
energy, the Company states, has resulted in a situation where Avista is forced to purchase power
at prices that are higher than the price received when the power is sold to meet increased retail
and wholesale system load requirements being experienced by the Company. The power supply
expenses associated with meeting increased system load requirements, the Company notes, are
not included in the PCA mechanism. The Company proposes to correct this omission.
Short-term market prices, the Company states, have also created a situation where a
forced outage at either the Colstrip or the Kettle Falls generating plant would result in extremely
high replacement costs. Power supply expenses associated with thermal plant forced outages,
the Company notes, are not included in the current PCA mechanism. The Company proposes to
correct this omission.
The Company is proposing that the PCA mechanism be amended effective
January 1, 2001. The first deferral would occur in February 2001 for actual power costs incurred
during the month of January 2001. The Company requests that the Commission rule on its
request on or before February 28, 2001.
The amendments to the PCA deferral mechanism requested by the Company in
greater detail are as follows:

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NOTICE OF INTERVENTION DEADLINE 1
• Changes in system load requirements
The cost of power to serve changes in system load requirements is not included as
part of the PCA mechanism. The Company contends that this cost is substantial and needs to be
reflected in the PCA mechanism.
System load requirements, the Company states, have been impacted by increases in
both retail and wholesale loads. Retail loads have increased due to load growth and colder than
normal weather. Changes in wholesale loads have also impacted the amount of power that needs
to be purchased. Wholesale loads are impacted by the expiration of both purchase and sale
contracts and by increased takes under contracts because of the high short-term market prices.
Holding system load requirements to levels from the last general rate case in the
existing PCA mechanism, the Company states, must be changed.
• Actual thermal generation.
The current PCA mechanism models the amount of Colstrip and Kettle Falls thermal
generation based on the short-term market price of power for the month and the incremental
operating cost of the unit. Power supply expenses associated with thermal plant forced outages,
the Company states, are not included in the current PCA mechanism because the mechanism is
based on modeled rather than actual generation.
• Calculation of costs for deferral.
The power costs for deferral purposes under the existing PCA mechanism are limited
to the effect of short-term market prices on short-term transactions, Rathdrum turbine generation
and fuel cost, hydro electric generation, the modeled impact of thermal generation and PURPA
contracts. The Company is proposing to amend the PCA mechanism to include the impact of
changes in retail and wholesale system load requirements and changes in actual thermal
generation. Specific power supply accounts included for deferral purposes under the amended
PCA mechanism would include Account 447—Sales for Resale, Account 501—Fuel (thermal),
Account 547—Fuel (combustion turbine), and Account 555—Purchased Power. Deferred costs
would be based on the difference between the actual revenues and expenses recorded in these
accounts, and the normalized level for these accounts approved by the Commission in the last
general rate case.

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NOTICE OF INTERVENTION DEADLINE 2
• Centralia
The Centralia steam generating plant is included in the PCA based on fixed levels of
“authorized” generation and “authorized” fuel costs. In May 2000 Centralia was sold. The
Company is proposing to modify the PCA to reflect the elimination of Centralia generation and
fuel costs as a result of the sale. The Company proposes to reflect a credit for Centralia
operation and maintenance expense, depreciation, taxes and return on investment as these costs
no longer exist as a result of the sale. Replacement power costs would be captured in the
difference between actual and authorized levels of costs in Account 555—Purchased Power. • Coyote Springs 2
The Coyote Springs 2 project is a combined-cycle natural gas-fired combustion
turbine with generation output of approximately 280 MW. The project is fully licensed.
Construction of this plant began in January 2001. Completion of the project is expected in the
summer of 2002. Under the modified PCA mechanism proposed, the increase in fuel costs
associated with the plant as well as the impact on sales for resale and purchased power will be
reflected in the calculation of PCA deferral. In addition, the Company proposes to reflect a
charge in the PCA mechanism for operating and maintenance expense, depreciation, taxes and
return on investment associated with the Coyote Springs 2 project until such time as these costs
are reflected in general rates. • Portland General Electric (PGE) capacity sale
The PGE capacity contract revenues reflected in Account 447—Sales for Resale, the
Company states, will be increased to include additional amortization for ratemaking purposes so
that the total PGE contract revenue is equivalent to the revenue that would have occurred absent
the monetization of the contract. Stated differently, the monthly PCA deferrals will not be
impacted by the PGE contract monetization, because revenues will be adjusted to the level under
the old contract and that same level of revenue is reflected in the authorized amounts from the
last general rate case.
• Retail Load Revenue Adjustment
Since actual system load requirements will determine the actual power supply
revenues and expenses under the Company’s proposed changes to the PCA, the Company states,
that it is appropriate to include a revenue adjustment for the difference between actual and
authorized revenue in the amended PCA mechanism. Changes in wholesale sales contracts will

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be picked up in the calculation of the difference between actual and authorized revenues in
Account 447. A retail revenue adjustment would be included to reflect the difference between
actual and authorized retail revenue, adjusted for distribution costs to serve load growth.
Because the Company incurs incremental delivery cost to serve new load, the
Company states it would not be appropriate to reflect the entire amount of difference between
actual and authorized retail revenue in the deferral mechanism, as a portion of increased retail
revenue is offset by increased costs to serve new load. The Company is proposing a distribution
cost adjustment to retail revenue based on increases in customers by rate schedule. The
difference between actual customers and authorized customers would be multiplied by
distribution costs per customer from the Company’s last cost-of-service study to arrive at the
distribution cost adjustment.
• Risk Sharing
The Company is proposing to defer 90% of the differences described above under the
amended PCA deferral mechanism. The remaining 10% of the differences would not be deferred
and would impact earnings in the month they were incurred. The 90%/10% sharing would not
be applied to the Centralia and Coyote Springs 2 adjustments for operation and maintenance
expense, depreciation, taxes and return on investment. The 90%/10% sharing mechanism is
being proposed as an incentive for the Company to keep power supply costs as low as possible
and to reflect a sharing between customers and shareholders. The Company points out that it
does not have any influence on the short-term market price of power.
• Balancing Account Trigger
The current trigger for implementing a PCA rebate or surcharge is $3 million or about
2.5% of base revenues. Only two surcharges or rebates can be in place at one time. Two
surcharges or rebates amount to $6 million or about 5% of base revenues. The Company is
proposing to raise the limit on surcharges or rebates to $12 million or about 10% of base
revenues. The Company suggests, however, that this limit be a guideline rather than a hard and
fast rule. If circumstances arise that justify either a different trigger or limit amount, the
Company proposes that it have the flexibility to structure its request to meet the circumstances.
• Interest on Balancing Account

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NOTICE OF INTERVENTION DEADLINE 4
The Company proposes that the amended PCA mechanism include a calculation of
interest using the same methodology approved for calculating interest on deferred natural gas
cost balances (i.e., the customer deposit rate—reference O.N. 28624, Case No. AVU-G-00-4). • Periodic Reporting
The Company notes that it currently provides reports to the Commission on a
monthly basis related to the deferrals and will continue to do so under the amended PCA
mechanism. The reports would include all calculations and accounting entries.
Avista requests that the Commission adopt the procedures described in Rules 201-
210—Modified Procedure contending that a public hearing may not be necessary.
COMMISSION FINDINGS
Avista in its filing requests that its Application be processed under Modified
Procedure, i.e., by written submission rather than by hearing. Reference Commission Rules of
Procedure, IDAPA 31.01.01.201-204. The Company also asks that any approved change in
procedure be effective January 01, 2001. The Commission Staff advises us that it has
outstanding production requests to the Company and has not completed its analysis. Staff asks
that the Commission defer any decision regarding Modified Procedure until it and future parties
are able to assess the reasonableness of such a request. The Commission finds the Staff request
to be reasonable. However, we will not countenance unnecessary delay. When Staff completes
its analysis, it should bring this matter back to us to establish further procedure. Regarding the
Application and the Company’s requested relief, we note that no change in PCA methodology
can be made without a Commission Order authorizing it. Therefore, unless and until further
order is issued approving modifications, the PCA shall operate as it has been approved to do in
the past.
YOU ARE FURTHER NOTIFIED that persons desiring to intervene in Case
No. AVU-E-01-01 for the purpose of becoming a party, i.e., to present evidence, to acquire
rights of cross-examination, to participate in settlement or negotiation conferences, and to make
and argue motions must file a Petition to Intervene with the Commission pursuant to Rules of
Procedure 72 and 73 of the Commission’s Rules of Procedure, IDAPA 31.01.01.072 and -.073.
Persons intending to participate in this case as a formal party must file a Petition to Intervene on
or before Friday, February 16, 2001.

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NOTICE OF INTERVENTION DEADLINE 5
YOU ARE FURTHER NOTIFIED that persons desiring to present their views
without parties’ rights of participation and cross-examination are not required to intervene and
may present their comments without prior notification to the Commission or to other parties.
YOU ARE FURTHER NOTIFIED that discovery is available in Case
no. AVU-E-01-01 pursuant to the Commission’s Rules of Procedure, IDAPA 31.01.01.221-234.
YOU ARE FURTHER NOTIFIED that the Company’s Application together with the
filings of record can be viewed at the Commission’s office in Boise, Idaho and at the Company’s
Idaho offices during regular business hours.
YOU ARE FURTHER NOTIFIED that all proceedings in this case will be held
pursuant to the Commission’s jurisdiction under Title 61 of the Idaho Code and the Commission
will enter any final Order consistent with its authority under Title 61.
YOU ARE FURTHER NOTIFIED that all proceedings in this matter will be
conducted pursuant to the Commission’s Rules of Procedure, IDAPA 31.01.01.000 et seq.
DATED at Boise, Idaho this day of January 2001.

Commission Secretary

DENNIS S. HANSEN, PRESIDENT

MARSHA H. SMITH, COMMISSIONER

PAUL KJELLANDER, COMMISSIONER

ATTEST:

Jean D. Jewell

Vld/N:AVU-E-01-01_sw

NOTICE OF APPLICATION
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